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The Wolf Den #541 - The Ghost Of Inflation

July 14 · Issue #541 · View online
The Wolf Den Crypto Newsletter
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In This Issue:
  1. The Ghost Of Inflation
  2. ETH Whales Accumulate While Price Continues to Decrease - IntoTheBlock
  3. Legacy Markets
  4. What Category Was Hit The Hardest?
  5. Voyager Token Skyrockets
  6. Celsius Files Chapter 11 Bankruptcy
  7. Rich Rosenblum On What Really Stops Your Grandma From Entering DeFi
  8. My Recommended Platforms And Tools
The Ghost Of Inflation
The entire world is talking about inflation. It’s both a decisive and divisive word, used by politicians, central bankers, disgruntled newsletter authors, and frustrated consumers.
In basic economics, the term is defined as, “a general increase in prices and fall in the purchasing value of money.” And each country calculates its own figures based on its own methodologies.
People often ask me great questions about inflation, so I decided to share a few of them. Hopefully, this guide demystifies inflation, because it’s a lot like a terrifying ghost from a movie - everyone sees it differently and we all hate it.
Plus, trying to kill it is damn near impossible.
How Does The Core Rate Differ From The Headline Rate?
For June 2022, the headline rate was 9.1% and the core rate was 5.9%. These are both YOY figures. The difference is that the core rate excludes prices set by the government and the volatile prices of food and energy, commonly affected by seasonality and global affairs. Central bankers use the core rate for determining monetary policy. But for the average consumer, the 5.9% number is wildly misleading. We need a number that accurately represents the prices we pay, which is why the headline rate occupies the headlines - it’s more inclusive and reflective of our reality. But is 9.1% even accurate?
Is There Only One Way To Measure Inflation?
Measuring inflation is extremely challenging. Policymakers won’t explicitly admit this, but historians have disagreed over the real values since the concept existed. I joke about this constantly.
The Wolf Of All Streets
Two of the most popular alternative measures of inflation can be found at “Shadow Government Stats” HERE and “Fred’s Flexible Price Consumer Price Index” HERE.
Let’s assess how the IMF measures inflation. It starts with the a consumer’s cost of living. To measure this “cost,” government agencies conduct household surveys, measuring a basket of the most commonly purchased items. Next, this cost at any given time is compared to the previous year or base year which is the consumer price index (CPI). What we see in the headlines is the YOY change from our current month to the previous year’s same month. For example, if the base year CPI is 100 and the current CPI is 109.1, inflation is measured at 9.1%.
What Consumers Are Measured?
If you look at the U.S. Bureau Of Labor Statistics CPI report, on the bottom you will see that CPI reflects the spending patterns of two population groups: urban consumers and urban wage owners (being one group) and clerical workers. Excluded from the measure are, “rural nonmetropolitan areas, farming families, people in the Armed Forces, and those in institutions.” The two groups measured make up roughly 93% of the population.
Why is 2% The Target Inflation?
It has long been the goal to maintain inflation at 2%. Conventional reasoning will typically say something along the lines of, “this is a margin of error for deflation” and “optimal for maximum employment and price stability.” The Fed made this their target in 1996, and other nations have followed suit, including the Bank of Canada, Japan, Sweden, and the European Central Bank. Basically, the thought process is this:
High inflation = higher interest rates = let’s bring dollar strength up
Low inflation = lower interest rates = let’s bring dollar strength down.
It’s a balancing act and 2% is viewed as the middle ground. Too far in either direction leads to an out-of-control spiral.
Those are some of the basics. I will inevitably share more of your questions in the future, but this should at least help put inflation into context.
Now go enjoy that $10 milk and $8 gas (in Europe).
ETH Whales Accumulate While Price Continues to Decrease - IntoTheBlock
In this report, we bring to you the latest in on-chain cryptocurrency analysis. We look at the blockchain directly and analyze balances, transactions, and the overall activity of market participants. This gives us a unique insight into the future of the market.
This section is written in conjunction with IntoTheBlock (ITB).  ITB is an intelligence company that leverages machine learning and advanced statistics to extract intelligent signals tailored to crypto-assets. IntoTheBlock tackles one of the hardest problems in crypto: to provide investors with a view of a crypto asset that goes beyond price and volume data. 
The Wolf Den research team uses IntoTheBlock to dig deeper and get the most important insights about the crypto market.
ETH Whales Accumulate While Price Continues to Decrease
Traditional and Crypto markets are experiencing pressure from the current economic situation. The Nasdaq 100 recorded the worst first half in history. In addition, July’s CPI results came in higher than expected at 9.1%. This brought uncertainty to the market, as the FED could weigh a historic 100 basis point hike for the upcoming July meeting.
With rising inflation, the Nasdaq 100 and ETH retraced significantly during Q2 2022.
  • ETH currently sits around $1040, which represents a 66% decrease in the last 3 months.
  • The Nasdaq 100 index has also retraced significantly to the $11,700 level marking a 17% decrease during this period.
  • Correlation between the two has increased in the last month from 0.2 to 0.7, this is due to the recent retrace in ETH price.
Notably, during this recent retrace in price, “Whale” holdings have increased to a yearly high. IntoTheBlock classifies any address holding over 1% of the total supply as a Whale.
  • The Whale category is made up of 7 addresses, which together hold 22% of the ETH supply.
  • Out of the 7 addresses: 3 belong to centralized exchanges, 2 are personal accounts, 1 is the ETH2 Deposit Contract and the last one belongs to the “Wrapped Ether” contract.
  • The Whale category has increased its holdings by 17% in the last 30 days.
Legacy Markets
Scorching US CPI Sows Caution for Asia Stock Open: Markets Wrap - Bloomberg
What to watch this week:
  • Earnings due from JPMorgan, Morgan Stanley, Citigroup, Wells Fargo
  • US PPI, jobless claims, Thursday
  • China GDP, Friday
  • US business inventories, industrial production, University of Michigan consumer sentiment, Empire manufacturing, retail sales, Friday
  • G-20 finance ministers, central bankers meet in Bali, from Friday
  • Atlanta Fed President Raphael Bostic speaks, Friday
Will the eurozone avoid a recession or a debt crisis? How will the euro and stocks perform in the next six months? Share your views and participate in the latest MLIV Pulse survey. It only takes a minute, so please click here anonymously.
Some of the main moves in markets:
  • Futures on the S&P 500 fell 1.3% as of 7:07 a.m. New York time
  • Futures on the Nasdaq 100 fell 0.9%
  • Futures on the Dow Jones Industrial Average fell 1.4%
  • The Stoxx Europe 600 fell 1%
  • The MSCI World index fell 0.5%
  • The Bloomberg Dollar Spot Index rose 0.8%
  • The euro fell 0.5% to $1.0012
  • The British pound fell 0.5% to $1.1824
  • The Japanese yen fell 1.3% to 139.13 per dollar
  • The yield on 10-year Treasuries advanced three basis points to 2.96%
  • Germany’s 10-year yield advanced eight basis points to 1.23%
  • Britain’s 10-year yield advanced five basis points to 2.11%
  • West Texas Intermediate crude fell 2.7% to $93.68 a barrel
  • Gold futures fell 1.5% to $1,710.10 an ounce
What Category Was Hit The Hardest?
Inflation hits another 40-year high. What does that mean for shoppers and the next Fed rate hike?
The CPI figure for June was 9.1%, higher than the expected 8.8% Dow Jones estimate. For the official report, you can click HERE. It shows how each category is affected. I’ll share the worst below.
Remember, these are YOY changes, looking at June of this year vs. June of last year.
Energy - 41.6%
Energy Commodities - 60.6%
Gasoline - 59.9%
Fuel oil - 98.5%
Utility (piped) gas service - 38.4%
Food - 10.4%
Food at home - 12.2%
Food away from home - 7.7%
The only thing that went our way was, “meats, poultry, fish, and eggs which fell 0.4% over the month as the indexes for beef and pork declined.” But, “butter and margarine increased 26.3%.
This sucks, and there is more bad news. When you adjust for inflation, “workers’ hourly wages fell 1% during the month and are down 3.6% from a year ago.
The possibility of a 100bp July hike is very real. Swap markets are all over the place on their predictions. Just yesterday, the possibility jumped from a 33% chance to a 75% chance.
Voyager Token Skyrockets
Voyager Token (VGX) Skyrockets 586% After Court Orders Seizure of Three Arrows Capital Assets - The Daily Hodl
The Voyager token has pulled off an impressive rally over the past couple of days. It is hard to attribute this to any particular event, so I will not speculate as to why this happened.
As for what is happening with Chapter 11, this is Voyager’s official restructuring plan. Remember, this is the “worst case scenario.”
Under Voyager’s proposed reorganization plan that was presented on Friday, which is subject to change and requires Court approval, customers will receive a combination of the following, with the ability to select the proportion of crypto and common equity they receive, subject to certain maximum thresholds:
  1. Pro-rata share of crypto;
  2. Pro-rata share of proceeds from the 3AC recovery;
  3. Pro-rata share of common shares in the newly reorganized Company; and
  4. Pro-rata share of existing Voyager tokens.
Celsius Files Chapter 11 Bankruptcy
Celsius Network Initiates Financial Restructuring to Stabilize Business and Maximize Value for All Stakeholders | Business Wire
According to the official report, “Celsius has filed with the Court a series of customary motions to allow the Company to continue to operate in the normal course. These “first-day” motions include requests to pay employees and continue their benefits without disruption, for which the Company expects to receive Court approval.” At this time, there is no official request from Celsius to authorize the initiation of withdrawals. From here on out, all customer claims will become a part of the Chapter 11 bankruptcy proceedings.
Rich Rosenblum On What Really Stops Your Grandma From Entering DeFi
Podcast - The Wolf of All Streets
What’s stopping DeFi from mass adoption? A major UX/UI problem. Rich Rosenblum, co-founder, and President of GSR joins us today to talk about that friction and how we’ll overcome it. We cover inflation and its relationship with risk assets, whether or not NFTs will make a comeback and the path forward through this bear market.
In this episode with Rich, we discussed:
  • Inflation and risk assets
  • Oil: the final straw?
  • Russia’s ruble
  • Trading down
  • Managing risk in the tech landscape
  • Operating 24/7 365
  • Endless hacks and exploits: are we shooting ourselves in the foot?
  • GSR’s current focus
  • Will NFTs make a comeback?
  • Addressing client concerns
  • GSR’s clients
  • Why Crypto?
  • The infrastructure we’re still lacking
  • The UX/UI problem
  • The importance of regulators in making crypto accessible to everyone
  • CFTC vs SEC
  • The path forward through this bear market
  • Pumping markets and printing more money
  • Exciting projects in the space
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to “Buy,” “Sell,” or “Hold” an investment.
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