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Jack Dorsey Is Right About Inflation – Partly

Twitter and Square CEO Jack Dorsey caused a stir among mainstream economic and political commentators when he tweeted last week about a threat to society from hyperinflation.

MSNBC’s Chris Hayes called it an “incredibly revealing tweet,” later suggesting it was self-servingly motivated by Dorsey being “heavily into crypto.” Calling the United States’ current bout of rising prices “hyperinflation,” Hayes said, is akin to promoting the antiparasitic drug Ivermectin as a cure for COVID-19. Wired columnist Virginia Hefferman called Dorsey’s tweet “insanely reckless,” suggesting that someone with his reach can deliver a self-serving prophecy.

Many in the Bitcoin community, on the other hand, applauded the Twitter CEO. Alex Gladstein, chief strategy officer of the Human Rights Foundation argued that Hayes’ perspective was too narrow and that Dorsey was referring to people’s experience with inflation around the globe.

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For the record, I tend to agree with the more measured view of another Bitcoiner, Cathie Wood, who disputed that there is any sign of hyperinflation in the data. The term is typically reserved for cases where inflation of more than 50% per month, which when compounded results in an almost 13,000% annualized increase. (The latest U.S. consumer price index readout was up 5.4% from a year ago – the highest rate in 30 years, but nothing like Weimar Germany or Zimbabwe in the 2000s.)

But what I really want to focus on is how this episode reveals two different world views of inflation’s origins and, by extension, on how to keep it under control. I also argue that the Bitcoiner perspective offers a valuable framework for understanding the biggest risk factor in all this: a decline in public trust in policymakers. This loss of trust challenges the incumbent financial system and is a key reason why bitcoin, which stands as a hedge against that system’s outright failure, hit new all-time highs last week and is now up 20x since March 2020.

Balancing act

To break down how traditional central bankers’ see inflation risks, it’s useful to dissect Wired columnist Hefferman’s assertion that “the word @jack tweeted should not be uttered unless you’re trying to bring it into being.” As Castle Island Ventures partner Nic Carter pointed out, Hefferman was expressing Federal Reserve dogma: that inflation is derived from “expectations.”

The idea is that if people expect inflation, they will preemptively protect their purchasing power by asking for higher prices, or wages, for their goods or services, which reinforces other people’s inflationary expectations and prompts them to do the same, creating an upward spiral.

As Carter notes, this makes central bankers obsessed with their own messaging.

We’ve seen this concern with messaging take on special significance over the past decade, although throughout that time the Federal Reserve’s concerns were not with the psychology of inflation but with the opposite: a deflationary spiral, where expectations of falling prices lead people to postpone spending, which lowers demand for goods and services, which in turn pushes prices lower. To manage that, the Fed’s 12 voting members had to try to manipulate the thinking of the bond market.

With interest rates at virtually zero for over a decade, the Fed and other central banks instead tried to charge up a still-sluggish global economy via “quantitative easing,” printing money to purchase trillions of dollars in bonds and other assets to drive down market interest rates and keep credit flowing. That led to an increasingly complex psychological relationship between the Fed and the market.

On the one hand, the Fed worried that bond traders were overly worried that it was getting overly worried about inflation. If traders thought the central bank was going to prematurely stop bond purchases to let market rates rise to slow growth and curtail inflation, then there was a risk those traders would prematurely sell bonds, which would have the unwelcome self-fulfilling effect of driving up rates before a sustained recovery could take root.

On the other hand, the Fed also worried that if it was too overt in telling the market not to worry, it could drive asset prices too high, fostering a dangerous bubble.

As it performed this delicate balancing act, Fed policy became more about what was said – that it would tolerate above-target inflation for an indeterminate period in the future, for example – than about what was actually done.

Think about it: A group of just 12 people, with discretionary power to set the monetary policy for the world’s reserve currency, try to guess and manage the fears and hopes of billions of people worldwide, and then implement that policy via a meta-level mind game with Wall Street’s notoriously egotistical trading community. It seems kinda nuts.

Yet, in some respects this is the unavoidable outcome of a fiat monetary system created after the collapse of the gold-pegged, hard-money system in which monetary policymakers had no such discretion.

The bitcoin standard

With bitcoin there is, in theory, no capacity for this kind of mind game to arise. There is no uncertainty. Whether or not consumers, producers or bond market vigilantes like it, new bitcoins are created at a predictable rate that no one can alter, with total supply destined to top out at 21 million by the year 2140.

In a predictable system like this, the theory goes, no harm can come from what people say, whether it’s Dorsey spouting off or a central banker uttering the wrong choice of words, because the defining factor behind inflation – money supply – is predictable.

This perspective is framed by the famous maxim from monetarist economist Milton Friedman that “inflation is always and everywhere a monetary phenomenon.”

Note: Friedman did not mean that, absent a change in monetary conditions, prices won’t change. Prices will always be impacted by demand and supply conditions. But without monetary distortions, one-off price changes provide a mechanism for attaining stability because demand and supply for the good or service in question will adjust accordingly until market equilibrium is reached.

What Friedman was referring to was not these one-off price increases but inflation, which he defined as a “steady and sustained rise” in the economy’s general price level. This, he argued, can occur only with monetary expansion, which, all things being equal, leads to a cycle of higher prices from a larger supply of money in circulation.

Trust

Few central bankers would dispute that monetary conditions contribute significantly to inflation. But because they’re not naturally inclined to find blame for inflationary pressures in their policies, they tend not to focus on their own role in creating those conditions and instead try to correct the behavior of everyone else: the consumers, producers and investors whose decisions dictate demand, supply and pricing expectations.

Central bankers are right to point to frequent examples where suboptimal market behavior, especially irrational herd-like behavior, leads to financial crises. This includes the practice of hoarding hard money such as gold – or potentially bitcoin – which exacerbates the currency’s scarcity, reduces transactions and fosters deflation.

But the bigger risk, one that they fail too frequently to recognize, is that these policymakers can lose the public’s trust. This is especially a concern when inflation starts to appear in fiat-based economies. Without people’s trust, all that carefully calibrated signaling and messaging is meaningless.

Monetary systems tend to act like a pendulum. They swing between rigid, hard-money conditions to offset the loss of trust in discretionary policymaking and then break free of those rigidities to give a monetary boost to growth.

Right now, after a decade of uneven growth where sharp asset inflation has coexisted with stagnant median incomes for the general public, we may be entering the former phase. There is a greater risk than perhaps at any time since the 1970s that trust in government leadership of the economy will drop to untenable levels.

That’s why even this modest pickup in inflation has people legitimately worried that it could grow into something bigger. It’s why it should be okay to mention the “H word” – if only to put it on the table, as a risk to consider.

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Author: Michael J. Casey

MicroStrategy CEO Michael Saylor’s 17,732 BTC Holdings Now Worth $1.1B

MicroStrategy CEO Michael Saylor has personally done very well by his longtime support for bitcoin, with his own holdings of the crypto now worth more than $1 billion.

  • On Thursday, Saylor retweeted a tweet of his from a year earlier in which he disclosed that he personally held 17,732 BTC that he purchased for an average price of just under $10,000 (at the time, those holdings would have been worth $235 million). In his retweet, he added the comment that “you do not sell your #bitcoin,” implying that he still owned all those coins.
  • At current prices, Saylor’s holdings would be worth about $1.1 billion, reflecting an unrealized gain of more than 500%.
  • MicroStrategy did not immediately respond to a request for comment on whether Saylor had sold any of his holdings from a year ago nor whether he had bought any additional bitcoin since then.
  • On Thursday, the company disclosed that it had added almost 9,000 BTC to its balance sheet in the third quarter, bringing its total owned to 114,042 BTC. At current prices, that bitcoin is worth about $7 billion, while MicroStrategy’s entire market capitalization is roughly $7.4 billion.

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Author: Nelson Wang

NYDIG Purchases UK Payments Startup Bottlepay for $300M in Stock

NYDIG is purchasing British payments startup Bottlepay for between $280 million and $300 million in stock.

  • The bitcoin investment firm closed the deal earlier this week. The Block first reported the news.
  • U.K.-based Bottlepay is a global payments firm powered by the Lightning Network. Users can make micropayments of “as little as a penny” and send funds via messages on Twitter, Reddit Discord.
  • The company completed an 11 million euro ($15.4 million) funding round in February from investors, including Alan Howard, a British billionaire hedge fund manager, who is also the company’s largest shareholder.
  • The round also included “present and former” Goldman Sachs partners and digital assets firm NYDIG.

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Author: Michael Bellusci

Bitcoin Holds Support Above $60K, Pushes Back Toward All-Time High

Bitcoin (BTC) is breaking above a short-term downtrend, which could support further upside toward the $65,000 resistance level. The all-time high around $66,900 is also within reach, although buyers struggled to sustain that level last week.

BTC has whipsawed over the past few days, which created choppy trading conditions. This is typical during a consolidation phase, especially after a near-50% price rally over the past month.

As of press time the largest cryptocurrency was changing hands around $62,500, up 2.4% over the past 24 hours.

The relative strength index (RSI) on the daily chart is rising from neutral levels, which means the pullback in BTC’s price is starting to stabilize. However, the weekly RSI is approaching overbought levels, which typically precedes a pullback in price.

Overall, upside momentum is improving with seasonal strength in the fourth quarter. A confirmed breakout (two consecutive daily closes) above the all-time high, would yield a measured move projection toward $86,000. On the other hand, an immediate price pullback could be limited around the $53,000 support level.

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Author: Damanick Dantes

Facebook Steals Another Crypto Idea for Its Nonsensical Rebrand

There is so much, too much, to be said about Facebook’s announcement yesterday that it is changing its corporate name to “Meta” as part of a refocus on what is, essentially, online virtual reality. Most of what is to be said is really not good for Facebook. This is a desperation move made in the face of a PR nightmare that has a slim chance of panning out as a market proposition, and basically zero chance of reversing the company’s declining political and market fortunes in the U.S. and Europe.

So, given the target-rich environment, let’s start close to home: “Metaverse” is the second buzzy concept that Facebook has misappropriated from the blockchain industry. It is likely to be just as poorly executed as Zuck’s first craven magpie act, the would-be stablecoin Libra, now known as Novi (Facebook screwed up that launch so badly it had to rename the product: Sensing a theme?). Libra or Novi or whatever was an attempt to steal some vague crypto halo while actually creating a powerful stream of new data for Facebook, in direct contravention of the principles behind the entire model being appropriated.

Similarly, the true “metaverse” is a blockchain concept, but you can already tell Facebook’s metaverse will be as big a perversion of it as Libra was of Bitcoin. The core idea of the blockchain metaverse is wide interoperability of virtual assets stored on a neutral and verifiable ledger. The same blockchain tech that makes NFT tokens usable across, say, virtual galleries and (soon) Twitter would be used to create tokens that represent virtual reality assets usable across a variety of immersive experiences, from Decentraland to (let’s say, in theory) Second Life to Minecraft.

Though Facebook’s online VR will have some form of NFT integration, the broader vision is not what Zuck is rolling out. Much of yesterday’s announcement presentation was focused on his frustration with Apple’s App Store and Facebook’s plan to build a competitive, parallel walled garden focused on online VR experiences (I’m not going to call it “the metaverse,” because see above). They’ll be collecting fees on creators who, say, design a virtual sweater. Zuck yesterday even warned that fees on the platform would be high for a while (which, come on Facebook comms team, we know you’re sleepwalking through a state of moral paralysis, but at least pretend a little harder).

Zuck justified those high fees by explaining that Facebook (no, I’m not going to call it “Meta” either, because see above) will be building up its online VR business at a loss for a while, including by subsidizing devices. This speaks to one of the other huge warning signs for Facebook’s pivot. It’s already pretty clear very few people actually want to use VR, especially in the kind of persistent way that would make it a good walled-garden content store business. The Oculus VR devices at the center of Facebook’s plans have been pretty good technology for at least three or four years now, but sales have been unimpressive. Other VR and AR companies, such as the infamous Magic Leap, have burned money without finding product-market fit. Spending boatloads of cash to drive adoption is the only hope Facebook seems to have of making mass-market VR work.

That spending, too, shows just what a desperate move this is. It’s not that this wasn’t clearly a long-term plan – it may even have been in the cards with the purchase of Oculus way back in 2014. That absolutely did not pan out on its own terms, as Zuck is admitting when he says “we expect to invest many billions of dollars for years to come before the metaverse reaches scale.” Compare that timeline to the much faster payoff for Instagram after Facebook bought it in 2012.

(We may also see yet again how little Facebook means anything it says about user privacy. Oculus was developed and founded by Palmer Luckey, an ideological authoritarian who went on to found a military contractor, Anduril, that sells spy hardware like camera drones and recon towers, no doubt influenced by his engineering work on Oculus. Make of this what you will.)

A normal company, one not facing withering scrutiny for its abuse of its own users and the law, would probably not rename itself after a business that had already failed. And spending money to acquire customers is the behavior of a risk-taking startup using private VC money to increase its chance of capturing a novel business opportunity, like Uber using subsidies to win rideshare. It’s not obvious that the tactic makes any sense at all for a big public company trying to give life to a business that seems to have little traction of its own.

It also doesn’t make sense because the price of hardware like a VR headset isn’t actually the limiting factor in adoption Zuck would like you to think it is. In technology, there’s this thing called an “adoption curve” where early tech enthusiasts spend a lot of money on weird things, then more people buy them as they get cheaper. The first part of that adoption curve still hasn’t really happened for VR, even during a pandemic when everyone was trapped at home. Making the headsets cheaper can’t solve for this clear lack of interest among the very hyper-engaged audience that’s not supposed to care about price.

But the monopolistic outspend-the-competition approach comes from the playbook of another one of Zuck’s favorite people, the neoreactionary authoritarian Peter Thiel (sensing a theme here?). It probably gives Zuck some comfort to go back to a familiar playbook. And there are probably still enough credulous, bootlicking Web 2.0 investors out there that Zuck will be able to stave off total collapse just by saying ala “you gotta spend money to make money, fam” on investor calls for the next ten years as Facebook’s new VR unit, and then the entire company’s balance sheet, bleeds to death.

Because that’s the even bigger picture here. Leaving aside regulatory and legal concerns, Facebook as a company has probably already seen its best days. User numbers in the United States are declining, particularly for young people, across both Facebook itself and, crucially, Instagram, which had extended the company’s relevance a few extra years. Thefacebooks’s future, unfortunately, probably lies in second- and third-tier economies with even weaker governments and poorer citizens.

That will leave Facebook freer to follow its worst impulses. On the Metaverse front, ironically, it may mean it winds up with something closer to the deepest origins of the term in Neal Stephenson’s Snow Crash, a masterwork of dystopian cyberpunk science fiction from the 1980s. Stephenson’s Metaverse is a corporatized ghetto where the global poor play out a digital semblance of lives they can’t afford, while back in reality their emaciated bodies wither in cramped apartments.

The Metaverse Facebook is building, in short, is a digital version of Hell. Hard to think of a more appropriate Charon to take us there than Mark Zuckerberg, who has already unleashed so many demons on the waking world.

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Author: David Z. Morris

Three Arrows Capital Backs $10M Raise for DeFi on Cardano

Cardano’s decentralized finance (DeFi) ecosystem may be showing glimmers of primordial life following the close of a $10 million raise for Ardana, a new protocol that aims to provide stablecoin minting and exchange services.

The round was led by Three Arrows Capital and Ascensive Assets, with participation from Morningstar Ventures and Mechanism Capital.

Ardana co-founder Ryan Matovu told CoinDesk in an interview that in many cases this will be the first Cardano-native project many of the participants have invested in – perhaps a sign that institutional investors are beginning to believe in the chain as the next emergent DeFi hub.

“Cardano is going to follow the path we’ve seen from chains other than Ethereum,” said Matovu. “Step by step other alternative chains pop up, and what we’ve seen is that a few teams build key protocols and then the ecosystem pops up around them.”

Building blocks

According to Matovu, Ardana is targeting a number of verticals that are popular on other chains.

“The simple comparison is that we’re building the MakerDAO and the Curve Finance of Cardano with foreign exchange on top,” he said.

Users will be able to deposit collateral to mint an asset-based stablecoin, dUSD, and the project will also be home to an automated market maker (AMM) for swapping between various stablecoins will low slippage.

Matovu noted that staked ADA to be an accepted form of collateral, which is currently a massive pool of unused liquidity – 52.2% of Cardano’s circulating supply is currently staked.

Foreign exchange is also on the roadmap, as the vaults will be able to mint more than just a US Dollar stablecoin “in the near future,” and the exchange will offer swaps between the various currencies.

Per Matovu, the protocol is “90% of the way through development,” and targets a late-Q4 release for the stablecoin vaults and exchange.

The ARDANA token has already held a public sale, and will be going live on centralized and decentralized exchanges “sometime in November,” Matovu added.

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Author: Andrew Thurman

Cardano-based DeFi protocol Ardana raises $10 million from Three Arrows Capital and others

Ardana, a decentralized finance (DeFi) protocol built on the Cardano blockchain, has raised $10 million in strategic funding.

Three Arrows Capital and Ascensive Assets co-led the round, with cFund, Morningstar Ventures, Mechanism Capital, Kronos Research, FMFW, MGNR, Selini Capital, Skynet Trading, and Portico Ventures also participating.

The funding was secured via a Simple Agreement for Future Tokens (SAFT) sale, Ardana co-founder and CEO Ryan Matovu told The Block. The fresh capital will help build and expand the protocol, said Matovu.

Ardana is building two key products: a stablecoin called dUSD and a decentralized exchange (DEX) called Danaswap. The stablecoin will enable users to take loans against Cardano ecosystem tokens such as ADA. The DEX, on the other hand, will let users trade tokens, earn interest from dUSD deposits, and earn rewards in Ardana’s native DANA token for providing liquidity.

Matovu said the protocol has been under development since January and will launch in the fourth quarter of this year. There are currently 25 people working for Ardana, and Matovu is looking to hire some developers, he said.

Cardano-based projects have begun raising fundings recently as the blockchain launched smart contracts capabilities last month. Some of these projects include ADALend, Spores and deFIRE.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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Author: Yogita Khatri

XRP Gets Wrapped by Tokensoft for Ethereum DeFi Debut

Is the XRP Army ready to storm Ethereum?

Announced Friday, Wrapped XRP (wXRP), a digital asset backed 1:1 by XRP, will make the cross-chain jump into Ethereum-based decentralized finance (DeFi) starting in December, courtesy of Wrapped and Hong Kong-based crypto custodian Hex Trust.

The new connectivity for XRP holders will allow access to various DeFi applications, whether that’s lending and borrowing, or for use in automated market makers (AMMs), said Mason Borda, CEO of Tokensoft, the driving force behind Wrapped.

Making XRP DeFi-compatible in the form of wXRP is a first, said Borda; Wrapped has previously wrapped a range of tokens including bitcoin, zcash, filecoin and more.

“We do a lot of these wrapped tokens, but we just think this wrapped XRP asset is going to be huge,” Borda said in an interview. “It’s a top ten digital asset and has one of the biggest communities in crypto.”

XRP on DeFi

The XRP Ledger, for its part, has been talking about adding DeFi capabilities to its blockchain via federated sidechains, so the anticipation for greater XRP functionality is already lit among the payment token’s sprawling army of supporters.

Read more: Privacy Coin Zcash Makes Its Ethereum ‘Wrapped’ Debut With Tokensoft and Anchorage

Wrapped started out as a collaboration between San Francisco-based Tokensoft and Anchorage, the U.S. regulated crypto custodian, and the two firms have created wrapped versions of nine digital tokens.

Now, Wrapped now appears to be spreading its wings and taking a multi-custodian approach to provide interoperability bridging to a wider array of digital assets and tokens.

“Not all custodians support all assets,” Borda said. “So working with multiple custodians opens up the door to a greater selection for users of wrapped assets and just building a more vibrant ecosystem.”

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Author: Ian Allison

Justin Sun withdraws billions of dollars worth of crypto from Aave’s lending pools

Tron founder Justin Sun has withdrawn billions of dollars worth of crypto from DeFi lending platform Aave’s lending pools, according to blockchain data.

As a result, this has removed a significant amount of liquidity from the platform, triggering much higher interest rates.

The withdrawals may be a result of concerns over recent tweets between members of the Yearn community and those in the Aave camp. During a Twitter standoff, members of the Yearn community implied that Aave was vulnerable to a potential exploit.

Yearn founder Andre Cronje tweeted earlier Friday that “Aave is vulnerable to the same exploit” as the one that impacted Cream Finance on Wednesday, which resulted in the theft of $130 million worth of tokens.

“Maybe don’t bad mouth other projects while sitting on an 11 figure vulnerability,” tweeted Yearn core developer banteg. Banteg later specified that he believed the exploit has very specific liquidity requirements and was possible for 160 days in the past but is not currently viable.

Following the disclosures and the resulting fallout, Aave founder Stani Kulechov tweeted that the crypto community should stick together. “Lets work together, support each other and most importantly win together,” he wrote.

Aave considers a precautionary measure

Following the Twitter spat, Aave acknowledged that there have been concerns over a possible exploit for when xSUSHI is used as collateral in the Aave protocol. It is unclear if this is the same vulnerability to which the Yearn developers alluded.

Aave claims that it ran simulations that showed any attackers trying this exploit approach would end up losing money. Despite this, Aave has highlighted a proposal that has been made to disable functions related to xSUSHI as a precuationary measure.

Aave token holders are currently able to vote on the proposal through its governance platform.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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Author: Tim Copeland

The Scoop Mining Report with Wolfie Zhao: The end of China’s bitcoin mining powerhouse

The latest data from Cambridge Centre for Alternative Finance shows that the U.S. has taken over China as the country with the biggest share of Bitcoin’s hash rate.

The backdrop of this data shift: the near-complete exodus of bitcoin miners from China, once the undisputed powerhouse for this particular sector of the crypto economy.

This historic reversal took place over the course of mere months after China ordered its initial crackdown on the crypto mining space in May. China’s government escalated the crackdown even further last month, and major companies like Bitmain have been forced to react. 

With the effects of China’s mining crackdown still lingering, this special episode of The Scoop — the Mining Report — features The Block editor Wolfie Zhao and host Frank Chaparro as they discuss the state of mining on an international level as well as the current state of affairs in China today.

Some of the topics covered include:

  1. What China’s “banned” in 2013, 2017, and 2021 and why this time was different.
  2. The different situation in China for Ethereum miners who rely on GPUs.
  3. Why Chinese miners who owned mining equipment had options in the wake of the crackdown but those invested in mining firms faced tough choices.
  4. Why a comeback in China is unlikely — and why the U.S. hashrate share is set to keep growing. 

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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Author: Wolfie Zhao


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