The Breakdown - 46M Americans Now Own Bitcoin as Inflation Rises to Highest Level in 13 Years

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io and BitStamp and produced and distributed by CoinDes. What's going on, guys? It is Wednesday, May 12th, and today we are talking about inflation rising to its highest level in 13 years, while 46 million Americans own business. Bitcoin. First up, however, let's do the brief. First on the brief today, a little cold water on a Bitcoin ETF this year. The SEC's Division of Investment Management put out a staff statement on Thursday that warned investors in mutual funds that trade Bitcoin futures that they may be taking on more risk than they realize. Now, there are two ways to look at this. The first is that funds

Starting point is 00:00:58 like Morgan and Stanley and BlackRock are now active Bitcoin market participants. The SEC views its mandate as making sure that investors know exactly what they're getting into. They want investors in firms like those to understand the risks of Bitcoin. In other words, they're just doing their job and it doesn't mean they have it out for BTC or have changed their opinion somehow. The other view, however, does throw some cold water on the optimism for a Bitcoin ETF approval this year. Here's what the note said on that front. The staff, among other things, expect to consider whether, in light of the experience of mutual funds investing in the Bitcoin Futures Market, the Bitcoin Futures market could accommodate ETFs, which, unlike mutual funds, cannot prevent additional investor

Starting point is 00:01:38 assets from coming into the ETF if the ETF becomes too large, or dominant in the market, or if the liquidity in the market starts to wane. So what does it mean? Well, here's how Bloomberg's ETF guy Eric Balcuna summed it up. The prospect of a Bitcoin ETF this year, quote, isn't dead yet, but it just took a nasty blow to the head. Next up on the brief today, MoneyGram International has announced that it will let customers buy and sell Bitcoin for cash at 12,000 U.S. retail locations. This is being powered through a partnership with CoinMe, and over the next quarter, the plan is to expand that to 20,000 stores in 32 states. Like everything, however, that you do with these sort of lenders for poor people, the fees are exorbitant. They will take 4% of each transaction,

Starting point is 00:02:22 plus 275 in fees, plus another $2 in fees in Walmart locations. So on the one hand, yeah, I'm excited about making access easier for those who deal primarily with cash. On the other hand, having that set of folks who often don't have the tools to engage with other parts of the market have to pay that sort of fees, I don't really love it. Finally on the brief today, one quick one from the latest in Bitcoin Treasuries. Palantir, which is a Teal Empire software company that offers analytics to governments, the defense industry, and to large corporations, is considering adding Bitcoin to their balance sheet. On their earnings call, they were asked, could you ever see Palantir having Bitcoin or any other type of cryptocurrency on your balance sheet,

Starting point is 00:03:01 and the CEO answered, the short answer is yes, we're thinking about it and we've even discussed internally. Take a look at our balance sheet, 2.3 billion in cash at quarter end, including 151 million in adjusted free cash flow in Q1. So it's definitely on the table from a treasury perspective, as well as other investments as we look across our business and beyond. They also noted that Palantir already accepts Bitcoin from clients.

Starting point is 00:03:24 But with that, let's shift to our main discussion. You may have noticed that there are two stories in the name of this show. Part of that is that there are two different things I want to make sure we touch on. The other part of that is that these two seemingly unconnected stories may in fact have something to do with one another. But I'm going to let you guys be the judge of that. Either way, let's talk about inflation first. Earlier this week, I did a show all about the places we're seeing inflation appear. Specifically, we've been seeing some crazy dislocations in commodities like copper and especially lumber,

Starting point is 00:03:55 which is up 4x from normal. We also discussed labor shortages and rising wages. Many companies have reported having a hard time finding qualified employees and have had to significantly increase wages to get them. The biggest trucking group in North America said that it had to increase newly certified driver wages by as much as 40%. Finally, we discussed stories of companies that were starting to pass on increased costs to consumers such as Kimberly Clark.

Starting point is 00:04:19 The question, of course, though, was how much of this is anecdotal versus truly a larger trend. Well, today we got the official inflation numbers and TLDR, they exceeded expectations. Headline inflation rose 4.16% year over year, according to the Bureau of Labor Statistics. It also rose 0.77% month over month, which is the largest sequential increase since 2009. The overall rate is the highest since September 2008. Core CPI is up 0.83% month over month, which is the fastest sequential growth in that number since 1982. It's up 2.96% year over year, which is the biggest change since 1996. This was, as I mentioned, over expectations. Bloomberg wrote, the gain in the overall CPI was twice as much as the highest projection in a Bloomberg survey of

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Starting point is 00:05:57 Whether you are investing on our desktop platform and mobile app or trading on our speedy APIs, BitStamp gives you all the tools you need to reach your crypto goals. Visit bitstamp.net to learn more. BitStamp for all the ways we crypto. What categories are up? Well, everything, but certainly there is clear focus on areas that were hit the hardest by the pandemic. Motor vehicles, transportation services, and hotels all had big changes. Cars in particular were huge. There was a 10% price surge and used cars, which accounted for more than one-third in the increase of the overall CPI. Prices on hotels and airfare increased by the most on record. 10.2% for airfare, 8.8% for hotels and motels.

Starting point is 00:06:40 The chief U.S. economist for Barclays said, Transitory pandemic influences clearly contributed to the surprise, but there's residual firmness and core inflation that's hard to ignore. That suggests risks around inflation in the near term are still skewed to the upside. This response gets at two key questions. The first is how much are base effects distorting these numbers? And the second is how transitory is the real inflation, whatever it actually is. Base effects refer to the idea that when you're measuring year over year, the fact that last year at this time we were in the middle of a crash is going to make these numbers seem exaggerated for the next few months. Someone on the team at Tradingview tweeted,

Starting point is 00:07:16 quote, imagine freaking out about year-over-year growth and inflation, when this time last year we were going through the most abrupt economic slowdown ever recorded. The other notion, this idea that this is all transitory as demand rockets back, has been the key argument of the Fed. Fed Vice Chairman Richard Clarita said in response to the report, quote, I was surprised. We have pent up demand in the economy. It may take some time for supply to rise up to demand. What about the Bitcoiner response? Nick Carter first reminded us of his tweet from last week where he said, first they said we wouldn't get inflation. Then they claimed it would be transitory.

Starting point is 00:07:51 Then they'll say a moderate level is necessary to solve inequality. But they will never ever admit that they're not in control. Then about today's numbers, he remarked, even with all the cautioning and the caveats and the transitory jargon, inflation is still running hotter than the Fiat Priests projected. Still a surprise to the upside. However, if you think this solves anything in the debate, just look at Joe Wisenthal's response to Nick's tweet.

Starting point is 00:08:14 Quote, employment running better than expected. Fiat priests vindicated. Ah, but inflation is only half our story. And remember, you guys get to decide if these two stories are connected or not. Here's the headline on that second story, and I'll quote a tweet from Dan Held. 46 million Americans own Bitcoin.

Starting point is 00:08:31 22% of all adults. It's happening. Those are some numbers, right? Far higher than the 5% to 10% estimates that you've seen thrown around over the last few years. So what's the source? It's a March survey from Nidig, who's obviously a Bitcoin institutional giant. Now, I want to believe these numbers. I want to believe the hype. I love the idea that around a fifth of American adults have bought Bitcoin. But let's check

Starting point is 00:08:58 the methodology. The survey included a national sample of a little over 1,000 U.S. consumers, each of whom had an annual income of at least 50,000. Data was weighted for age, race, sex, education and geographic location using the Census Bureau's American Community Survey to model the demographic composition of the U.S. The survey had a margin of error plus or minus 3.1 percentage points, and the survey was conducted by SurveyMonkey on March 22nd. So whether the methodology is solid enough for you, it was solid enough for Newsweek to run a piece about it. The title? 46 million Americans now own Bitcoin as crypto goes mainstream. The Newsweek piece also noted that while 53% said they didn't own digital assets, of those 55% said they would consider adding them

Starting point is 00:09:45 to their portfolio. Now, Newsweek does wonder if this is a sign of a market top. I'm thinking about exploring these aggressive calls of top signals everywhere that you're seeing later in the week, but in the meantime, I'll just point to this countertweet from Ryan Selkis. Quote, it's not a super cycle. There's just 10x the users, 10x the infrastructure, 10x the assets, and 10x the market cap. But now, let's get back to this question. Are these two stories connected? The inflation story and the Bitcoin story. There are many Bitcoin critics if you go hop on Twitter today pointing out that Bitcoin is down slightly and in turn saying see, see, it has nothing to do with inflation. I will only point to Loomdarts tweet from this

Starting point is 00:10:25 morning, which more or less perfectly sums up my thoughts on this. Quote, Bitcoin went from 10K to 55K. That's the inflation hedge. No one sees inflation numbers and then immediately thinks, okay, this is it. This is what I needed to do to invest in Bitcoin. In other words, while numbers can come together to create narratives, it is narratives, not numbers, at least not individual numbers, that shape markets most of the time. Anyways, guys, I hope you're having a great week. I appreciate you listening, as always. Until tomorrow, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in modern history. Join thousands of newsmakers and influencers talking the future of money at Consensus by CoinDesk, a live virtual

Starting point is 00:11:09 experience of leaders, change makers, virtual reality meetups, keynotes from Ray Dalio, Gary Vaynerchuk, and much more. Get an up-close look at the boom in crypto, the surge in institutional investment in Bitcoin, the NFT mania, the breakneck innovation and decentralized finance, and the coming disruption from central bank digital currencies. The breakdown listeners can visit events.coindex.com and use the promo code breakdown to save $25 today. Join us May 24th through May 27 for Consensus by CoinDesk and register today at events.coindex.com. Thanks for listening and we'll see you there.

The Breakdown - 46M Americans Now Own Bitcoin as Inflation Rises to Highest Level in 13 Years

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