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In This Issue:
Venmo Is Winning
Bitcoin Thoughts And Analysis
Legacy Markets
Understanding CPI: The Cost of Living Thermometer
Is Cathie Wood Dumping COIN?
Inflation Continues To Fall… Off A Cliff
Brazil’s Controversial CBDC Project
Bitcoin Volatility To Increase | CPI Data | Joshua Frank & Chris Inks
Venmo Is Winning
How do you feel about the following statements?
It’s embarrassing that even my crypto friends use Venmo, not crypto to split a dinner and we have to change that this cycle.
We can’t guilt people into it, we have to make crypto wallets so useful they’re irresistible.
When I came across tweets that said both statements, I was initially going to continue scrolling, but Venmo got stuck in my mind. There's a lot to consider in this message, and since we're all familiar with Venmo, it makes for an excellent discussion topic. Just yesterday, I sent a payment via Venmo because of its convenience. And as I'm writing this newsletter, Venmo, sitting at the top of my email inbox promoting crypto.
Venmo is in the lead.
Whether we approve or not, Venmo appears to be America's top choice for quick and effortless peer-to-peer transactions. Is it embarrassing that crypto enthusiasts prefer Venmo for their dinner payments? Possibly, but it's practical given that crypto is not quite there yet.
Imagine being at dinner with crypto friends, needing to split a bill. Crypto wouldn't be a simple choice. First, we have to settle on a specific cryptocurrency. If I have USDC and my friends use USDT, we hit a speed bump or possibly a deadlock. If we manage to agree on a currency, I'd have to acquire their wallet address, probably via a QR code scan. If my wallet falls short of the required crypto and gas amount, the transaction is not possible.
Moreover, I'm not a fan of spending my crypto assets other than stablecoins because I believe their value will rise. Many of us are on the same page.
To add to that, paying in crypto could add a taxable sale of your coins to the mix. Fun.
At this point, if we were using Venmo, we would have already completed the transaction. All I would need is a phone number if we aren't already connected on the app. The money can be sent with a descriptive note, ideal for reference. If my Venmo wallet is short of funds, Venmo can pull from my linked bank account and settle the transaction instantly. In the unlikely event of a mistake, I can even reach out to Venmo for assistance.
But isn't Venmo centralized, public, and thus bad?
Let's take a breather here.
I'm aware that crypto aims to replace the current, imperfect systems, but it won't triumph until it significantly outperforms them.
And what if I'm told about an ostensibly superior crypto wallet?
Does every diner at the table want to download a new wallet because it's "handy?" If everyone already has Venmo, everyone will continue using Venmo.
And what if Venmo only offers BTC, ETH, LTC, and BCH?
While the variety could be improved, crypto enthusiasts continue using Venmo and similar apps for money transfers due to their convenience. Venmo is currently ahead.
For crypto to take over peer-to-peer payments, we need a solution so superior to existing options that it becomes an absolute necessity. This doesn't exist yet. Crypto wallets can be cumbersome, options may be limited, functionality might be weak, and reliability is uncertain. I have no doubt that crypto developers can produce a sensible solution, whether it's a brand-new app or an upgrade to an existing one, but that solution is not available yet.
I'm not embarrassed by the current state of affairs but instead am eager to witness substantial improvements soon. The answer isn't for us to download an app that demands complex procedures just because it's crypto-native, or to settle for second-best options. The solution lies in developing the right crypto product that outshines the competition to the extent that Venmo becomes the less convenient option.
While Venmo's reign is temporary, it will continue to be used globally until crypto usurps its position. That's just how things work. Crypto has to be indisputably superior.
Bitcoin Thoughts And Analysis
Bitcoin is correlated… to nothing. If you’re upset that BTC didn’t move yesterday on the good inflation news, don’t be. It’s a good thing that it is traveling it’s own path and not just another Wall Street plaything.
Legacy Markets
Global markets are experiencing a risk-on sentiment as stocks rise and the US dollar drops to a 15-month low. European shares continued their upward streak with the Stoxx 600 Index rising by 1.5%. Swatch Group AG and Watches of Switzerland Group Plc experienced significant growth due to China's reopening. Meanwhile, US equities also showed promise with investors returning to the market as fears over interest rate hikes and recession fade.
Reports indicate a decrease in the US inflation rate and a potential decline in US producer prices, fueling market optimism. However, the sustainability of this positive trend depends on the continuing ease of inflation.
Asian markets also saw growth, particularly in Hong Kong, supported by signals that the Chinese government is easing its crackdown on the technology industry.
The US dollar faces more losses due to waning US exceptionalism and the Federal Reserve's capped terminal policy rate. The British pound is rallying, maintaining a level above $1.30, bolstered by the UK economy's stronger than expected performance.
Bond yields dropped as the likelihood of further interest rate increases by the Fed seems to be diminishing, despite an expected hike this month. This week will also be marked by the launch of the second-quarter earnings season, with US banks' reports kicking off the proceedings. Despite steady crude oil prices and rising iron ore prices, analysts caution that a high performance bar is set for the rally to continue.
Key events this week:
US initial jobless claims, PPI, Thursday
US University of Michigan consumer sentiment, Friday
US banks kick off earnings, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.3% as of 6:13 a.m. New York time
Nasdaq 100 futures rose 0.6%
Futures on the Dow Jones Industrial Average rose 0.1%
The Stoxx Europe 600 rose 0.5%
The MSCI World index rose 0.4%
Currencies
The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.3% to $1.1161
The British pound rose 0.5% to $1.3056
The Japanese yen was little changed at 138.61 per dollar
Cryptocurrencies
Bitcoin rose 0.7% to $30,558.88
Ether rose 0.5% to $1,881.8
Bonds
The yield on 10-year Treasuries declined four basis points to 3.82%
Germany’s 10-year yield declined eight basis points to 2.49%
Britain’s 10-year yield declined six basis points to 4.45%
Commodities
West Texas Intermediate crude was little changed
Gold futures rose 0.2% to $1,964.70 an ounce
In the words of the Wu Tang Clan…
C.R.E.A.M.
Cash Rules Everything Around Me.
Almost all assets move based on the DXY. The dollar is finally breaking down from a complex head and shoulders (two right shoulders) and threatening to break 100. Risk assets look poised to go absolutely bananas. Target is around 89 or 90 if the break down is confirmed.
Understanding CPI: The Cost of Living Thermometer
CPI, or Consumer Price Index, is a term that gets thrown around a lot in economic discussions. But what does it really mean? Let's break it down.
Think of CPI as a thermometer for the cost of living. It measures how the price of a 'basket' of goods and services that typical households purchase changes over time. The basket can include a range of items, from food and clothing to housing costs, and even services like haircuts or dental care.
When the CPI goes up, that means prices, on average, have increased, and we refer to this as inflation. Conversely, if the CPI goes down, prices on average have decreased, which is called deflation.
Here's a simple example: if the CPI is 1.5% for a given year, this means that the cost of the 'basket' of goods and services has increased by 1.5% compared to the previous year. So, if you spent $100 on these goods and services last year, this year, you'd need to spend $101.50 to buy the same items.
Why is CPI important? It's used in many ways, like adjusting social security benefits and pensions to ensure they keep pace with inflation. It also helps policymakers and central banks make decisions about interest rates and economic policy. In business, it can guide decisions about salary increases or price adjustments.
Understanding the CPI is vital because it affects almost everyone, directly or indirectly. By monitoring CPI, we can get a sense of whether our incomes are keeping up with the cost of living and gain insight into the health of our economy.
However, remember that CPI is a general measure. It doesn't account for personal spending habits or the price changes of specific items. It's a broad picture of average price changes in the economy.
So, the next time you come across the term CPI in the news, you can understand that it's not just an abstract economic concept. It's a real-world measure that impacts your daily life, from your grocery bills to your savings.
Is Cathie Wood Dumping COIN?
Speculation is rife that Cathie Wood and Brian Armstrong may have inside knowledge about Coinbase, given they are reportedly "dumping COIN." However, this narrative is unfounded. It's important to clarify that neither party is "dumping COIN." The associated article indicates that Cathie Wood sold 135,152 Coinbase shares on Tuesday (which is accurate) for approximately $12 million. Yet, after this sale, ARK Invest retains a substantial $711 million in COIN stock. This action simply signifies ARK's decision to capitalize on a profitable position.
You might remember ARK performing a similar operation back in March, selling shares when the stock surged to the mid $80s, and then resuming purchases during the dip. It's highly unlikely that Cathie Wood intends to distance herself from Coinbase, given her consistent bullish forecasts and the fund's substantial investment. ARK’s average cost for COIN ranges between $239.60 and $254.65, so it's not surprising that the fund is seizing the opportunity to profit from its trades - an entirely normal and anticipated strategy. As for Brian Armstrong, it's commonplace for executives to schedule and execute incremental sales of their stock over time.
Forbes reports that Brian Armstrong owns 19% of Coinbase’s shares, which is sufficient information to gauge where Armstrong's loyalty lies. Armstrong has been divesting insubstantial fractions of his holdings to "fund other startups" - a move we should endorse. While investing in Coinbase stock carries certain risks, there is much to gain if an ETF is approved. Investors are cognizant of this potential, explaining the substantial surge in stock price preceding any official news release (if it occurs). When encountering fear, uncertainty, and doubt (FUD) regarding an investor offloading shares, always delve deeper to discern what proportion of their total holdings is being sold - that is the crucial factor.
Inflation Continues To Fall… Off A Cliff
From June of last year to the present, the US Consumer Price Index (CPI) has decreased to 3% from 9.1%, suggesting that the Federal Reserve's tightening measures have been effective, perhaps even overly so. The Fed aims to achieve a 2% target, but there is an increasing likelihood that they may have overcorrected with their tightening approach, potentially leading to deflation.
Regarding the core index, it rose 4.8% compared to the previous year, a decline from 5.3% in the year leading up to May. Economists were predicting a 5% increase, so not only did core inflation drop, but it also surpassed expectations. This marks the slowest pace for core inflation since August 2021.
The data is encouraging, and the stock market responded favorably. However, the question that arises is what happens if prices continue their current trajectory in the opposite direction? Cathie Wood is a leading voice expressing concern about imminent deflation in the coming months. Only time will reveal the outcome.
Brazil’s Controversial CBDC Project
In a surprising development, a blockchain developer has found that Brazil's pilot Central Bank Digital Currency (CBDC) allows the central issuing authority to freeze and decrease balances. It's crucial to understand that the CBDC's code is still in its trial stage, and Brazil has explicitly stated that the final product "may be subject to additional changes."
Bitcoin enthusiasts used this revelation as a chance to criticize Ethereum, a perspective with which I disagree. It's not justifiable to fault an open-source technology for a government's decision to exercise potentially authoritarian control. While I concur that it would be detrimental for Brazil to launch a CBDC with such features, laying the blame on Ethereum is not logical.
Bitcoin Volatility To Increase | CPI Data | Joshua Frank & Chris Inks
In this episode, I am joined by Joshua Frank and Chris Inks.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.