The Weekly Wrap: U.S. June CPI, Celsius files for Chapter 11, NFT momentum
Jul 15, 2022
- The annual CPI of June ran hot to 9.1%, 0.3% higher than the Dow Jones estimate of 8.8%, as costs surged for gasoline, groceries, rent, and dental care.
- Core CPI, excluding food and energy, rose 5.9% in June, another 0.2% higher than the 5.7% Dow Jones estimate yet peaked at 6.5% in March and has since been crawling down.
- The inflation-adjusted hourly wages fell 1%, down 3.6% YoY.
- Being affected by the current macro, the euro hit parity with the U.S. dollar for the first time in 20 years on Tuesday this week while the yen hit a 24-year low against it.
Why it’s important:
- With the June CPI, the inflation rises to its highest annual rate since 1981, rendering measures taken by the FED so far ineffective.
- The new inflation high and an aggressive 100 bps rate hike by the Bank of Canada drives speculation about a swifter tightening of the FED (FOMC end of July) as a 75-100 bps rate hike is expected.
- Meanwhile, the increasing interest rates in the U.S. attract further dollar asset investments and reinforced the strength of the dollar.
- The U.S. dollar hitting euro parity and the new yen lows indicate that both currencies keep devaluing against the dollar, which is fueled by the tightening monetary policy of the FED.
- In addition to the U.S. dollar getting more attractive in the current conditions, the euro zone’s energy supply crisis and the anemic economy continue to depress the euro, leaving the ECB in a dire position.
- Moreover, the euro weakness reinforces inflationary problems as a significant share of imported goods is denominated in U.S. dollars; on the other hand, a weak euro might trigger demand due to the potential upside and might benefit exports.
- On Wednesday, CeFi platform Celsius filed for Chapter 11 bankruptcy protection.
- Celsius recently made headlines after freezing withdrawals for their client accounts, blaming “extreme market conditions” as seen with other crypto-related CeFi bankruptcies.
- Shortly after their filing, Celsius revealed a whopping $1.2B hole in its balance sheet.
- The document also reveals that Celsius owes users $4.7b according to their filing.
Why it’s important:
- As more information pops up and positions unwind, stakeholders and clients get a clearer picture of the damage caused by the deleveraging and liquidation cascades of the weeks prior.
- As Celsius files for Chapter 11, customers’ deposits might very likely, if at all, be paid back last.
- Seems like by filing, Celsius chose to protect stakeholders and themselves first as they could have filed as a Commodity Broker aiming to compensate customers instead.
- Importantly, this represents a scenario, that a DeFi-only setup is currently seeking to make impossible, as smart contracts execute liquidations on overcollateralized positions.
- Regarding their DeFi positions, Celsius paid off $223m to Maker, $235m to Aave, and $258m to Compound, freeing up their collateral of almost $1.4 billion in tokens primarily held in wBTC and stETH.
- Their stETH assets from Aave were transferred to another wallet that might require liquidation in the bankruptcy process and could threaten the stETH-ETH peg.
Current production cost of bitcoin as a result of more efficient mining, down from $24,000 in the beginning of June.
What that means? - While an increase in profitability might lead to less sell pressure, a lower production cost can also yield negative effects since it might act as “the lower bound of the bitcoin’s price range in a bear market”.
3. Blue chip NFT collections gain momentum amidst heavy market conditions
- NFTs rebounded in June and July despite a downturn in the larger crypto markets.
- Especially art and PFP blue chip collections such as CryptoPunks, Doodles, or Art Blocks led the trend reversal, with generative art NFTs denominated in ETH demonstrating the biggest spike.
- For instance, CryptoPunk 4464 has sold for 2,500 ETH ($2.62m), the fifth largest sale in the collection’s history, while Punk 4156 currently has a resting bid of 2,690 ETH (~$3.2m), indicating strong interest for rare pieces out of the collection.
- The collection’s floor price is now up to 77.95 ETH ($95.45k), a 62.43% increase in the last 30 days.
- Nansen’s Q2 report underpins the strength by lining out that their blue chip index performed best (YTD +23.6%) and in June only, their Art-20 index had the most substantial rebound (+33.1%) regarding ETH denominated prices.
- Moreover, NFTs saw an adoption boost as a UK court approved NFTs for legal documents according to a notice from U.K. law firm Giambrone & Partners published Tuesday.
- Furthermore, the industry sees even more tailwind as Shanghai aims to cultivate a $52b metaverse ecosystem by 2025.
Why it’s important:
- As NFTs rebound, data on first-time buyers and returning buyers shows continued growth while volume and transaction count remained comparatively low in June.
- The spiked interest in long-form generative art pieces and early PFP collections with historic relevance is a development that might be worth watching and highlights the maturing of NFTs as an investment sector.
- As we saw a significant increase in ETH-denominated floor prices across blue chip collections such as Art Blocks or CryptoPunks, NFTs could serve as a hedge with downside protection within bearish market conditions.
- Moreover, some of these collections also managed to outperform ETH in uptrends, which yielded more upside in bull but less downside in bear markets.
- Meanwhile, GameStop launched its NFT marketplace in beta and moved +3,000 ETH within 48 hours, surpassing the previous Coinbase NFT’s all-time volume of 1,719 ETH.
Europe decided to outsource its energy policy to a Scandinavian high school student, and in the process became hooked on cheap Russian gas.
Arthur Hayes, co-founder of Bitmex, on energy policy in his recent blog article: A Samurai, a Knight, and a Yankee.
In other news
- Ethereum’s 9th shadow fork deployed successfully (via CoinDesk)
- Swiss bank PostFinance to offer clients direct access to crypto by 2024 (via SWI)
- Polygon to participate in Disney's accelerator program (via Disney)
- Twitter sues Musk after terminated Twitter deal (via CNBC)
- StarkWare publishes decentralization proposal and announces StarkNet token (via StarkWare)