Blog
NFT-ETH forward parity
08/01/2021
After a bit of thinking I’ve realized that there’s actually a decent chance that during this next cryptocurrency wave NFT’s might not lose parity, or at the least won’t lose as much value in ETH as it did last time we saw it happen. With the uptick in Cryptopunk sales the past few days the demand for them has increased, subsequently pushing their value up higher. With that move, Gary Vee's $3mil+ purchase may inevitably end up being the catalyst that helps the NFT market keep its parity with the forward rise in ETH in prices. Obviously this wont be a perfect 1/1 correlation but more so the NFT market and the ETH market in waves that overlap one another but nevertheless on average the 1-1 parity should stay consistent, and at best the NFT market could rise up in value quicker. Ever since the Cryptopunks sales have been booming the profits have already started trickling down to other projects like apes, this trickle down effect will keep happening as the profits from the apes will flow into other projects like cool cats, GCG, craniums, and bulls etc.
If it works out the way I’m seeing it then theres also a decent chance that NFTs rise up in value by higher percent than the overall ETH market. The volumes of NFT sales are miniscule to the overall ETH market obv. In this sense NFTs are more like a sector, while the ETH market would be more akin to the S&P. As the news spreads that the cryptopunks sales have been going crazy and that Gary Vee bought one for $3mil this will create more fomo for not only the pool of ETH holders/traders but also the market outside of crypto which we are seeing with celebrities like Mike Tyson, Ashton Kutcher, Floyd Mayweather, Jay Z and even companies like Coca Cola, and Marvel which are all bringing in their own followers into the NFT sphere. Small market being flooded by even 1% of ETH holders/traders would raise the value of the overall NFT market cap by a significant amount, around 4.7x. If we multiply the price of ETH by 4.7x the price of 1 ETH would be $12,220. I’ve said multiple times that I think ETHs price has a good chance of reaching 10k by the end of this which would be less than $12.2k obvious leading NFTs to rise up by a higher percentage.
Last piece of evidence is inflation itself. The head of the Federal Reserve J. Powell came a few days ago on Thursday and explained that what he meant by transitory is not that prices will go up and come back down but instead that prices will go up, inflation will go up but then eventually plateau and hold steady at the new price level of goods. This is very much the complete opposite idea of what everyone and the markets have had in mind the past couple of months when thinking about prices being transitory. During periods of abnormal inflation investors tend to store their risks in more concrete investments like gold and art. Well the crypto market is way more dynamic from when I first came into it, and now with new products like NFTs being developed on the blockchain I think the same inflation transfer of risk will apply where at first a small percentage of crypto investors will store theirs in NFTs rather than ETH since its more concrete and less liquid thus having an easier time retaining its average value over time. I can keep going on and on but I’ll just end it here.
Global Inflation Outlook
04/05/2021
With the Evergreen ship, the Ever Given, having been successfully refloated from being stuck in the Suez Canal for the past week, the effects from having held up around $10Bn worth of goods are now being discussed about. Naturally, with the talks surrounding how has this event led to an increase in prices across the supply chain (oil prices being a top concern), the conversation around inflation is starting to pick up and be taken more serious. In recent weeks the talks around inflation has been downplayed by a noticeable amount of people, which they argue that the past decade of low inflation, due to the slow recovery from the 2007-2009 Great Recession, and the lack of wage growth has many wondering whether inflation is even still the threat it once was not too long ago in the 1970’s. Whether it is still a huge threat or not it is in our best interests to keep track of inflation and the factors that may have an impact on them. For instance, the U.S. has been focusing their efforts on keeping interest rates low to help facilitate monetary easing. Recently Jeremy Powell, head of the Federal reserve, has come out right and stated that they will not worry about inflation concerns for now, but that instead their focus is making it easier for the economy to pick back up which requires keeping interest rates near the zero bound.
The U.S. federal reserve, as recently as August 2020, has set up an average inflation targeting system. The average inflation target differs from the traditional inflation targeting monetary policy that the Federal Reserve has been conducting in recent years by focusing on reaching 2% average inflation in the long run. What this means is that since inflation has been below 2% on average for the past decade, the Federal Reserve will focus on pushing inflation to above 2% so that the long-run inflation rate averages out to around 2%. The Bank of Japan (BOJ) on the other hand set up QQE (qualitative and quantitative monetary easing) with yield curve control. Their focus is on overshooting inflation to above 2% and keeping interest rates low to facilitate this inflation-boosting economic environment. Since 2000 Japan has dealt with deflation with their bond rates at -0.1% and their interest rates at the near zero bound.
Over at the Bank of England (BOE), they have projected that inflation is expected to rise to 2% spring 2021 and stay there until Q4 2021. With their focus on inflation targeting, their aim to reach 2% inflation does not involve any overshooting, unlike Japan and the U.S., so if all else stays the same it would seem like inflation in the UK may only steadily rise instead of drastically increasing, or at least any attempts to rise inflation will be somewhat modest. The European Central Bank (ECB) also has 2% inflation projected for 2021, but more so near Q4. Going into 2022 they do expect inflation to drop down towards 1% before rising to around 1.4% in 2023. Just like the BOE, the ECB monetary policy is more so focused on increasing inflation in a modest manner.
The Reserve Bank of Australia is focusing on keeping their “cash” rate low until they can get their inflation rate within the 2-3% range. Due to spare capacity and a higher-than-average unemployment rate, wages are expected to remain low for some years to come. Just like the Bank of England and the European Central Bank, the Reserve Bank of Australia is also focused on an inflation targeting approach but with 2-3% being their primary focus rather than just 2%. This would give them more room to overshoot inflation if necessary, which is similar to the Federal Reserve’s average inflation targeting.
With the Central Banks keeping their focus on keeping interest rates low for monetary easing, this will inevitably lead to higher inflation rates, which seems to be the global consensus on where Central Banks should focus their efforts going forward for the next few years. As of right now the Federal Reserve has set up an outline to not raise interest rates until 2024, but if inflation becomes to unstable and rises above expectations prior to 2024 this could result in the Fed raising interest rates before they have set out to. Investors on the other hand have been weary of the Fed’s decision to keep interest rates low until then, which has been seen in the bond yields rising as bond investors sell off more of their holdings. This could become an issue as the U.S. Treasury is still focused on borrowing from investors to fund their plans to combat the covid pandemic and possibly to help fund their infrastructure development plans. In short, the rise of inflation seems like it here to stay for the next couple of years.
References:
https://www.rba.gov.au/education/resources/in-a-nutshell/monetary-policy-in-australia.html
https://www.bankofengland.co.uk/monetary-policy-report/2021/february-2021