  What you need to know today in crypto and beyond May 24, 2021 Sponsored By:  Welcome to The Node. This week is Consensus, CoinDesk's biggest event of the year, featuring panels, workshops, keynote speakers, fireside chats, networking and more, all exploring the evolution of digital finance and blockchain technology. The Node will bring the best of Consensus to your inbox in special morning and evening editions from May 24-27. You can register for Consensus here.
What happened at Consensus today The Roundup 5 Big Takeaways From Day 1 at Consensus The first day at Consensus 2021 was packed with news and insight, from Ray Dalio speaking freely on the coming debt crisis to a Federal Reserve chair indicating that the central bank "wants a seat at the table" in the development of cross-border solutions. Here are the five need-to-know takeaways from Monday's events.
1. Competition is driving CBDC research Federal Reserve Governor Lael Brainard didn't exactly give a forward projection for the agency's policy this morning, but she did say the Fed is more interested in central bank digital currencies (CBDCs) than previously known. Brainard said it's important to follow the rise of private money and CBDC pilots in antagonistic nations like China closely. "The issuance of a CBDC in one jurisdiction … does potentially have significant effects across the globe," she said. To that end, the Boston Federal Reserve and MIT Digital Currency Initiative plan to publish a U.S. digital dollar white paper this summer.
2. Inflation will wane over time: Federal Reserve Asked about inflation, Brainard cited April's Consumer Price Index (CPI) report, showing a 4.2% increase in prices year-over-year. This is a worrying figure in-and-out of the cryptocurrency industry because it shows a real impact on everyday shoppers. Brainard poured cool water on the heated talking point when saying a rise in inflation was to be expected as the U.S. economy continues to reopen. This is a continuation of what Fed Chair Jerome Powell has been saying for months, including that the central bank will let the economy run hot. Brainard added these inflationary forces will "subside over time." Ray Dalio, the founder of the world's largest hedge fund, predicts that the U.S. dollar is on the verge of devaluation and could lose its position as the global reserve currency. Fearing rising inflation and the preponderance of debt in the economy, Dalio expects the Federal Reserve to resort to the new usual: more money printing to pay down debts. Under this inflationary scenario, the Bridgewater founder said he'd "rather have bitcoin than a bond," if looking for an attractive hedge. What's more, Dalio admitted for the first time he's already a holder. In a bit of a Catch-22, Dalio also said "bitcoin's greatest risk is its success." Though it may be bitcoin's time to shine (over gold) during a coming inflation rout, if it cuts into the government's ability to raise funds through bonds, a swift ban might be expected.
Wyoming Governor Mark Gordon revealed he owns cryptocurrencies while discussing the early successes of his state's efforts to attract cryptocurrency companies and projects. "People often look to New York or Miami or Delaware before they look at Wyoming. But a lot of the pioneering work has been done here," Gordon said. Indeed, Wyoming has set out some of the nation's most favorable crypto laws, most recently a bill that would recognize decentralized autonomous organizations (DAOs, or, bits of code) as legal entities. Does it pay to be early? Gordon listed off some of the big names that opened branches in the Cowboy State: Kraken, Ripple Labs and IOHK, the company behind Cardano. A $60 billion broadband expansion program also didn't hurt in attracting these digital natives. |
Inflation was one of the common themes throughout the day's panels. Nowhere was that more on display than during a roundtable featuring MicroStrategy CFO Phong Le, whose company has become synonymous with the buy and hold mentality. Since August, MicroStrategy has purchased $2.3 billion worth of BTC, in an attempt to get cash – a depreciating asset – off its balance sheets. Today, Le gave a little more insight. "I'm not saying you should put all of your corporate treasury in bitcoin," he said. "But if you're not putting any of it into bitcoin, I don't think you're doing your fiduciary responsibility, which is maximizing shareholder value."
–Daniel Kuhn
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First COVID-19. Then GameStop. Then Coinbase. The events of the last year have destined bitcoin to play an integral role in our world.
Next week at Consensus by CoinDesk, our virtual big-tent conference, we explore the place of bitcoin as an asset, as a worldview and as a response to the extraordinary policies coming out of our financial, technological and societal institutions.
Join our Explorations track "Bitcoin as a Worldview" with Cynthia Lummis, Lyn Alden, Dan Held, Meltem Demirors and more at Consensus by CoinDesk, May 24-27. Register today.
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Today's must reads
Top Shelf
GOOD ADVICE? One River Digital Asset Management has filed with the SEC for a "carbon neutral" bitcoin ETF. The firm would buy carbon credits to offset any of the emissions associated with the bitcoin in the fund, which would trade on the New York Stock Exchange. The SEC has yet to approve any BTC ETF, green or not, though former agency chair Jay Clayton is One River's adviser.
INCUMBENTS GROW: Galaxy Digital has bought Vision Hill Group, an asset manager and data shop, for an undisclosed sum. Coinbase has poached 15-year Goldman Sachs veteran Faryar Shirzad to act as chief policy officer. CoinShares' Q1 earnings quadrupled to $45.4 million, up from $10.5 million the year before.
BOOK MAKING: Decentralized prediction market Augur is moving into sports betting with Augur Turbo, built on the low-fee Ethereum layer 2 Polygon. At launch, the platform will use Chainlink to source betting information from the National BasketBall Association, Major League Baseball, Mixed Martial Arts and the Olympics, with more integrations to come.
–D.K.
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What others are writing...
Off-Chain Signals
- WSJ covers Uniswap
- Bitcoin's growing energy problem: 'It's a dirty currency' (Financial Times)
- Chinese bitcoin miners brace for impact amid regulatory uncertainty (The Block)
–D.K.
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Putting the news in perspective
The Takeaway
Often called the "Ethereum oracle," DARMA Capital's Andrew Keys sat down with CoinDesk during Consensus for a brief interview covering his prediction rate for this year so far, and what's next for ETH and DeFi now that everything seems to have hit its stride.
What do you make of the second all-virtual Consensus? Is this a format you would hope to see continue even as the world returns to normal? Any thoughts on the metaverse replacing real life?
Call me old-fashioned, but I miss the human connection and look forward to attending in person next year. That said, it's great that people have the ability to access the subject-matter expertise that comes to Consensus, from anywhere in the world.
There's a lot of talk about ETH being "ultra-sound money." Is this an idea you buy into – or is it just wishful thinking?
I absolutely agree with this concept. Ether is an asset unlike the world has ever seen. It has three core properties that make it valuable as:
- A capital asset – Owners of ETH own a piece of fees of world's global settlement layer
- A consumable asset – ETH is a fuel, a digital commodity. For every computational step in Ethereum, a certain amount of ETH is "burnt"
- A storage of value asset – ETH can be freely traded or used as collateral to borrow against in digital economy
Two imminent catalysts to increasing the value of Ethereum include EIP 1559, wherein ether is burnt for every computational and storage transaction; and Transition to PoS, which reduces "sell pressure" associated with proof-of-work mining costs like electricity, hardware and real estate. Most miners have to sell 75% of what they mine to pay these monthly expenses.
There's a growing narrative that traditional finance folks understand Ethereum more than Bitcoin. Is this a replay of the "blockchain, not bitcoin" debates of the past?
Bitcoin addresses one simple use case. It's digital gold with a total addressable market (TAM) of $10 trillion. With bitcoin, Alice can send Bob value peer-to-peer and it's provably scarce. This is a non-trivial use case, and Bitcoin has been the patriarch of blockchain, but there's much more we can do with next-generation blockchain databases.
Ethereum is the substrate to the digital economy. Its TAM is $270 trillion, for its total economy. Ethereum can digitize all assets (commodities, fiat, stocks, derivatives, insurance policies and prescriptions) as well as financial instruments (loans, derivatives and exchanges) and legal agreements (employment, syndication, purchase orders and investments).
What's your investment thesis?
We're witnessing the birth of the digital economy. Ethereum is the only blockchain on earth capable of being the substrate of the digital economy. Ether is an asset unlike any asset we've ever seen before. We invest in ether and the picks and shovels around Ethereum (like layer 2 scaling solutions) to help increase adoption.
You called Coinbase the AOL of Web 3.0. What's next?
Ethereum will exceed Bitcoin's market capitalization in 2022.
Decentralized exchanges are growing rapidly, but there's a genuine concern that they're little more than ways to financialize token products. When will DEXes be able to support actual capital deployment and influence things in the physical world?
DeFi has over $100 billion in TVL with Ethereum settling $1.5 trillion of transactions in Q1 '21... actual capital deployment is happening right now. Last month, [European Investment Bank], [Goldman Sachs], and [Société Générale] had to spend ether in order to issue a bond. Those entities needed ether for operating expenses. It's happening right now.
You're known for your yearly Ethereum predictions. Have any been proven true so far?
I'll defer to the fact-checkers, but in my view all of them have come true to some extent. One that I'm particularly proud of is 2021 being a breakthrough year for layer 2 solutions. What we're seeing across the layer 2 landscape right now — particularly advancements in finality and security — makes me more confident than ever in the commercial viability of blockchain-based applications.
Any predictions for when ETH 2.0 will go live?
By Jan. 31, 2022.
–D.K.
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