FIVE MINUTE FINANCE: : WHY ETH COSTS MORE THAN GOLD, FTX REBOOT, CPI, MUSK AS X-MAN

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CPI: Sharpest Monthly Inflation Drop in Nearly 2 Years
Shanghai: Why 1 ETH Costs More than 1oz of Gold
How an FTX Reboot Has Become a Serious Discussion
Musk Brings Stock and Crypto Trading to Twitter: X-Man
New York Times Latest Attack on Bitcoin Mining

US Annual Inflation Drops to 5% in March: CPI Print (link)

Another inflation battlefield report dropped on Wednesday. The bad news is that prices still keep rising, at an annual rate of 5% since March 2022.

The good news is that annual inflation growth is on the decline when compared to recent months. At 5%, the Consumer Price Index (CPI) for March is now at the lowest level since May 2021.

Moreover, the monthly drop from February’s 6% to 5% is the steepest single-month drop in this inflationary cycle.

Even better, March’s 5% CPI rate beat the expected 5.2% forecast for the month. Why does that matter? Well, when expectations are beat, the Federal Reserve gets some leeway to ease up on rate hikes.

With that said, core CPI (minus volatile food and energy) at 5.6% is still above the federal funds rate of 5%.

Core CPI excludes more volatile inflation index components, such as food and energy prices, creating a clearer macro picture. Image credit: Ycharts

In the early 1980s, when inflation was out of control, Fed Chair Volcker had to keep the interest rate above core CPI to truly tame it. However, that may not be necessary this time around, as previous hikes may have already created recessionary momentum.

After all, if a recession is to materialize based on previous hikes, getting inflation down to the Fed’s 2% target is in the cards without further hikes. At least, that’s what BlackRock’s Chief Investment Officer of Global Fixed Income said on Monday.

Accordingly, the Fed may ease up monetary policy sooner than later. For May and June, further 25 bps (0.25%) hikes are in the cards. But after that, the market expects either zero hikes or going into pivot mode, with rate cuts:

Image courtesy of CME’s FedWatch Tool.

Then, we are back to square one, but with significant debt and budget deficits. Almost like a circle.

Needless to say, an economy is not healthy when investors hope for weak economic data, just so that the Fed doesn’t go full “higher for longer”.

And even if the Fed pivot materializes, one should expect extra market volatility as investing and trading strategies are readjusted.

Selling Pressure After Shanghai Upgrade Likely to Not Impact ETH’s Price: Report (link)

On Thursday, one ETH became more valuable than one ounce of gold. This brought Ethereum to levels it hadn’t seen since Terra(LUNA) tumbled in May 2022.

Year-to-date performance of gold vs. Ethereum (ETH). Image credit: Trading View

What brought this sudden valuation spike of Ethereum?

A successful clean up. Quick explainer:

In December 2020, Ethereum began its long transition from proof-of-work to proof-of-stake, wherein miners’ computing power was getting replaced with validators’ staked capital — to approve network transactions.

While Bitcoin miners get rewarded in BTC by validating transactions with their power-intensive rigs, Ethereum’s validators receive rewards in ETH based on the size of their staked funds.

Ethereum’s monetization has been highly successful. The new Ethereum 2.0, dubbed Beacon Chain, has attracted over 18 million staked ETH, now worth around $38 billion.

Ethereum’s staking since the launch of Beacon Chain, its PoS version into which old proof-of-work Ethereum docked. Image credit: beaconcha.in

The problem was, even after Ethereum transitioned into PoS last September, those staked funds were still locked. The Ethereum Foundation decided on this move to encourage validators’ long-term commitment and stability. Predictably, this led to much derision from the Bitcoin maximalist camp.

After all, it could be said that the Ethereum network imposed certain capital controls. Although networks like Lido Finance or Rocket Pool have unlocked that liquidity via liquid staking, doubts were still lingering over what would happen when the transition was complete, and all that ETH was unlocked (meaning, owners could withdraw and sell it).

But no longer. On Wednesday, the last major phase of Ethereum’s proof-of-stake transition was finalized. People’s ETH stakes, plus their accumulated yields within the annual 4% — 6% range, became withdrawable with the successful implementation of the Shapella upgrade.

Given that Shapella upgrade unlocked 15% of ETH’s total circulating supply, the noticeable uptick in ETH unstaking is minor. Image credit: beaconcha.in

Days into the upgrade, investors were worried if it would cause a flood of withdrawals. And in turn, if this would trigger a death spiral of ETH selloffs. On Tuesday, Glassnode projected a 170,000 ($321 million) selloff.

In the unstaking aftermath on Friday, it is now clear that those fears were unfounded. Many investors decided to re-stake their ETH, while withdrawals gradually tapered off.

From Wednesday to Friday, the total staked ETH decreased by only -0.7%, or 135,694 ETH. Image credit: Nansen

Despite the very successful Shanghai upgrade — which is positive not just for Ethereum but all of crypto — BTC maxis remain unimpressed:

Image courtesy of Twitter.

FTT Up 70% as FTX Mulls a Potential Reopening (link)

Last week, the newly-launched Open Exchange (OPNX) had a horrific start. Founded by shady figures Zhu Su and Kyle Davies, of the bankrupt 3AC fame, the exchange recorded a trading volume of under $12 its first day live.

Shortly after, OPNX’s official Twitter account was suspended following mass complaints from other Twitter accounts. You see, OPNX isn’t just another crypto exchange. It rides on the promise of trading bankruptcy claims, involving FTX/Celsius/3AC/Voyager Digital, etc. — as in potentially unregistered securities to which it has questionable, if any, legal rights to trade with.

It appears that traders have little appetite for such shenanigans, but not all is lost. At least when it comes to the biggest bankruptcy of them all — FTX exchange. Riddled with fraud and a ‘dumpster fire’ of horrible accounting practices, the exchange may be heading for a relaunch.

Yes, you read that right…

Back in January, the FTX bankruptcy team accounted for $5 billion in FTX assets. This week, FTX bankruptcy attorney Andy Dietderich said that “the situation has stabilized, and the dumpster fire is out.”

The recoverable figure has now climbed to $7.3 billion on Wednesday, according to statements from Sullivan & Cromwell at the United States Bankruptcy Court for the District of Delaware. The legal team is hinting at a reboot of FTX crypto exchange operations — with a decision to come as early as Q2 2023.

Their raw timeline of reopening FTX looks like this.

Image credit: @molly0xFFF

Of course, the rise in the value of assets comes from Bitcoin’s rally amid the US banking crisis, now bolstered by diminished ETH concerns.

In a self-feeding loop, even FTX (FTT) token rode the news:

FTX Token (FTT) is still -97.7% down from its all-time-high of $85 in September 2021. Image credit: Trading View

Reminder, among many alleged misdeeds for which he is awaiting trial, Sam Bankman-Fried printed FTT tokens to prop up the exchange’s (false) $10 billion valuation. This was eventually called out by Binance CEO CZ, kicking off the downfall of FTX.

The FTX bankruptcy team’s latest report has no shortage of failures to list: abysmal recordkeeping, no asset segregation, misuse of corporate and customer funds, no cybersecurity, and “no effective oversight or controls to act as checks on how they exercised those powers.”

If a reopening eventually takes place, it will be interesting to see if FTX has any reputation left.

‘FinTwit’ is Here: Twitter’s 350M+ Users Can Now Trade Stocks and Crypto (link)

True to his word, Elon Musk is going ahead with his plan to create “the everything app”.

According to CNBC’s exclusive report, Twitter users should gain access to stock and crypto trading via eToro.

This was in the works for quite some time.

On April 4th, it was revealed that even “Twitter” as such ceased to exist.

While the app itself is still running, Twitter, Inc. has been merged into privately held shell firm X Corp. It appears Musk has a fascination with Marvel lore.

In the fictional universe, the X-Corporation (X-Corp) protects the rights of super-mutants, the X-Men.

Not only does Musk run SpaceX, but he began his entrepreneurial journey from X.com in 1999, which became PayPal a year later.

With Twitter getting absorbed into X-Corp, it’s poised to become the financial center of the Musk universe. Last month at the Morgan Stanley conference, Musk made it clear that he envisions Twitter’s future as “the biggest financial institution in the world.”

Partnering with eToro is the most recent step in that direction. This Israel-based firm already established itself as a user-friendly platform for trading stocks, forex, crypto and commodities. Most notably, eToro pushed its novel “copy trading” model, in which users can automatically replicate the trades of other individuals on the platform, in real time.

eToro’s nearly 30 million userbase is now poised to tap into Twitter’s 350 million user pool. But the implications go beyond that. If Musk becomes serious about pursuing an “everything app”, we could see an invasion into a number of competitive arenas, including his former PayPal.

And just as Jack Dorsey pushes for Bitcoin’s Lightning Network, we could see the same happening with Twitter. In fact, as FedNow is getting rolled out soon, the Bitcoin equivalent in the form of LN would be a no-brainer.

That is, if Musk resolves Bitcoin’s perceived baggage of not being sufficiently green.

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The Real-World Costs of the Digital Race for Bitcoin (link)

Bitcoin mining continues to ruffle establishment feathers. It has become all too common to view Bitcoin’s output of ‘sound money’ as something that is reckless and wasteful in the energy and carbon footprint arena.

The BTC maxis out there would say that without having a CEO or other counterparty risk, this appears to be the only remaining attack vector on Bitcoin. And given Bitcoin’s market cap dominance, it translates to a risk for the crypto market.

Case in point, the NYT’s latest piece targeted the publicly traded Riot Platforms (RIOT) mining group in Rockdale, Texas. Last year, Riot mined 5,554 BTC, generating $259.2 million in revenue.

The New York Times piece likened Riot as “the most power-intensive Bitcoin mining operation in America.” The reporters concluded that, based on Riot’s use of electricity, consumption levels are equivalent to the nearest 300,000 homes.

Typical Bitcoin mining outdoor setup. Image credit: @BitcoinMagazine

The implication is that Bitcoin’s energy usage could have been spent more productively. But does it make sense to view the Bitcoin network in those terms?

First of all, any discussion of Bitcoin mining has to be placed into some kind of context. If we’re discussing energy consumption used in Bitcoin mining, then… energy consumption is that context.

So how does it stack up against other industries and activities?

Not shown are much larger circles, tourism (4500) and fashion (2106) in TWh per year. Image credit: Cambridge Centre for Alternative Finance

From this, it naturally follows that arguments around Bitcoin’s energy footprint are always relative.

Who is to determine if one activity is superior to another?

The conversation quickly turns into a discussion fixed on the origin of moral authority.

Then, there’s the sustainability angle within the context of the electricity consumed. This relates to the level of produced carbon (CO2) emissions.

According to the World Economic Forum (WEF), one should account for greenhouse gas (GHG) emissions under three categories:

Scope 1: Direct emissions: driving, manufacturing, heating, and powering electronics.
Scope 2: Indirect emissions as the created demand to buy energy, like building and mandating EVs.
Scope 3: Also indirect emissions, but produced by customers using companies’ products.

Image credit: World Resources Institute

What if the majority of Bitcoin mining is fueled by renewable energy sources?

According to the Bitcoin mining council, that’s already the case. Their research suggests 59.5% of Bitcoin mining stems from renewables.

Their data is based on a survey of over 50% of Bitcoin’s network. So, the 59.5% figure is ultimately an estimate.

Yet, what’s clear is that renewable energy is becoming increasingly used to power the Bitcoin network. If the trend continues, the result seems inevitable:

Bitcoin mining rigs themselves do not produce any problematic carbon emissions, despite the energy doing so, depending on the energy source of course.

A Riot engineer pointed this out on Twitter, in a troll response to the NYT.

In all fairness, of course the process of mining Bitcoin produces carbon emissions. So do you and I — and our TVs, air conditioners, and clothes dryers. Again, any argument for or against something based on environmental impact ultimately hinges on moral authority.

One final notion to point out — it could be that this vector of attack is coming from a linguistic blunder. Would these narratives ever take root if Bitcoin mining was called what it really is — Bitcoin issuance?

In coal or gold mining, there is intense work involved, resulting in pollutants, land stripping, and massive fossil fuel use.

Linguistically conjoining the two distinct arenas was an unforced error. In turn, this allows an underhanded conflation of categories to attack Bitcoin’s intended core purpose, not its energy footprint.

A Fed pivot might slow the outgoing liquidity tide, which is exacerbated by shrinking bank deposits. Fewer deposits could mean less lending and a credit crunch, which would be a fitting catalyst for turning the most inverted yield curve in four decades into a recession.

@TimmerFidelity

Another material downside surprise to the PPI as we expected.

On usual correlations, the current PPI suggests that headline inflation prints BELOW 3% already in May

Inflation is soon gone as a theme (temporarily)

@AndreasSteno

The 2023 deficit is EXPLODING!

For the first 3 months of 2023, the deficit was a whopping $679 Billion!

An increase of 134% over Q1 2022 which was $291 Billion

Receipts: $1,023 B vs $1,070 B (-4.4%)

Outlays: $1,702 B vs $1,361 B (+25.1%)

Lower revenue and higher spending!

@ThHappyHawaiian