$75B Wedded to Chainlink

The biggest crypto news and ideas of the day

Nov. 4, 2021

If you were forwarded this newsletter and would like to receive it, sign up here.

Sponsored by

Welcome to The Node.

Questions? Feedback? We'd love to hear from you! Simply reply to this email.

–Daniel Kuhn

Today's must-reads

Top Shelf

VC-VERSE: Justin Sun's Tron Foundation has joined with APENFT, a non-fungible token (NFT) marketplace, to launch a $100 million fund to support NFT projects and digital artists on the Tron blockchain. Separately, blockchain firm Enjin has formed the $100 million Efinity Metaverse Fund to support projects building on Efinity – a blockchain developed by Enjin with Polkadot. And finally, A16z led a $150 million round for NFT game platform Mythical Games at a $1.25 billion valuation.

RUGS & PHISHES: Binance is investigating the SQUID token crash and considers it a scam, a company spokesperson confirmed to CoinDesk. The crypto exchange is exploring options to help those harmed, including "blacklisting addresses affiliated with the developers and deploying blockchain analytics to identify the bad actors," the spokesperson said. Separately, users of crypto wallets MetaMask and Phantom, as well as the crypto swap platform PancakeSwap, have been targeted in a crypto phishing scam involving at least half a million dollars being stolen, according to a Check Point Research (CPR) report.

GROWING BUSINESS: Chainlink, the biggest provider of data to smart contracts, said the value of smart contracts dependent on its feeds has climbed to $75 billion. The total value secured (TVS) has soared from $7 billion at the end of last year. Chainlink's oracles feed data such as weather and sports results from external sources to blockchains such as Ethereum, Binance Smart Chain and Avalanche. Separately, Galaxy Digital's assets under management (AUM) grew to over $3.1 billion in October from $2.2 billion in September, with its ether-focused exchange-traded fund (ETF) cited as one of the main driving forces.

NEW HIRES: Digital bank Revolut hinted it is building a crypto exchange in a job posting for a new tech lead. And bitcoin mining company Bitfury has hired former Binance.US chief Brian Brooks as its new CEO.

"They missed an opportunity to call for more competition in payments … but that might just be a tactical move."

–Former CFTC Chairman Timothy Massad, discussing the Biden administration's stablecoin report, on CoinDesk TV's "First Mover."

A message from Nexo

When it comes to buying, borrowing or earning on your crypto, you won't find an easier, safer way to do it than Nexo.

And right now, with its Referral Program you can earn $10 worth of bitcoin for each friend you refer. And the best part – your referral gets $10 in BTC, too.

You can invite up to 100 friends – so you can get as much as $1,000 in bitcoin by copy-pasting a few links. And you can further bump that amount by earning up to 8% interest p.a. on your bitcoin, paid out daily.

Now is the time to unlock the full power of your crypto.

Join Nexo and start earning free BTC with your friends.

What others are writing...

Off-Chain Signals

Elon Musk Is Building a Sci-Fi World, and the Rest of Us Are Trapped in It (NYTimes)
Coinbase Confirms It's Launching a Subscription Service With Zero Fees (Decrypt)
Acting US comptroller says both OCC crypto review and interagency 'crypto sprint' have concluded (The Block)
NFT-backed Lending Market Surges with $1M-Plus Loans and 20% Interest Rates (The Defiant)
Jury disagrees with SEC, says crypto is not a security (no, not XRP) (Protos)

Send me what you're reading at daniel@coindesk.com. Especially looking for smart blogs and smaller publications.

A message from .ART

Give crypto a creative touch!

Couple your .ART domain name with a crypto wallet identifier:

Receive multiple cryptocurrencies and NFTs
Own .ART names that resolve in all web browsers and send & receive email without plug-ins or extensions
Be certain that your valuable blockchain assets are industry compliant and 100% secure
Use just one .ART domain as a concise website, wallet and email address.

Join the fastest growing web address for creatives!

Explore now.

Crypto is on the rise. Crypto knowledge, however, is stuck on the runway: It turns out that 96% of U.S. adults can't pass a test on crypto basics. Throughout November, Crypto Literacy Month aims to change that. Brush up on your crypto knowledge!

Putting the news in perspective

The Takeaway

Will Bitcoin Win When the Fed Stops Buying Bonds?

Daniel Kuhn here. There are things out of the U.S. Federal Reserve's control. The central bank has a dual congressional mandate to maintain the U.S. dollar's long-term value and achieve maximum employment, but it's dealing with a mix of uncertainties as it pursues those goals.

Yesterday, Federal Reserve Chair Jerome Powell announced the monetary body will begin scaling back its historic asset purchasing program, one of the key levers it pulled to support and stimulate the economy during the worst of the coronavirus pandemic.

Beginning in November, the Fed will purchase $10 billion fewer Treasury bonds and $5 billion fewer mortgage-backed securities (MBS) each month until the $120 billion program is depleted sometime in mid-2022.

The Fed left itself some wiggle room to pause or accelerate this "taper" depending on extenuating circumstances. It also won't consider raising interest rates while still buying bonds – more flexibility.

It cannot be overstated how experimental this monetary outlay is, especially as it begins to wind down. Known as "quantitative easing," or QE, the bond buying program has more than doubled the Fed's balance sheet (now valued above $8.6 trillion). It has had broad effects on the labor market, asset prices and the dollars in your pocket.

Inflation is running hotter than at any point over the past 30 years, and consumer prices have climbed 4.4% in aggregate, double the 2% target the Fed has long targeted. Conflicting signals point to both a super-tight and super-loose labor market simultaneously. The quits rate, number of job openings, and salary and benefits paddings are all atypically high (pointing to a tight labor market). Yet, there are 5 million fewer people working than in February 2020.

"We have high inflation and we have to balance that with what's going on in the employment market," Powell said. "It's a complicated situation."

Considering the extent to which market watchers hang onto Fed-speak, Powell deserves credit for his consistent messaging. His magic voice is essentially the one thing completely under his control. Although the taper signals an end to easy money, markets weren't spooked yesterday: the S&P 500, Dow Jones Industrial Average, Nasdaq 100 and Russell 2000 all closed trading at all-time highs.

Powell has been consistent on letting the economy "run hot," and has made good on giving markets advance warning of policy changes. His colleagues at the Fed were unanimous in parking the benchmark interest rate between zero to 0.25% (though that, too, is subject to change, "depending"). Where Powell has changed perspective is only in a matter of degree – instead of saying elevated inflation is "transitory," or a matter of specific coronavirus-related bottlenecks, he said mitigating factors were – shipping constraints aren't forever.

Indeed, supply-chain logjams, superconductor shortages and strong buying demand from American consumers are all things Powell watches without having much say in the matter. Same with COVID-19 caseloads, lockdowns and market psychology.

So when it comes to tapering, or when or by how much to lift interest rates, it's important to remember we're watching a human being. You can disagree with his policies – and, boy, many do – but that's an issue whenever we invest any one person with such authority.

Two sides of the coin

Bitcoin, as an alternative monetary base layer, stands apart from this human drama. A grand experiment born from the 2008 recession that was supercharged by the pandemic, most policy decisions for Bitcoin have already been made and hardcoded. It is hard where the dollar is soft. Subject to reason, where the dollar is man.

But it's also fully integrated into the global economy and the bitcoin currency's price is also subject to Fed decisions. Bitcoin has benefited over the past several months of QE from the belief that it is an inflation hedge. Smart money – the Ray Dalios of the world – bought into it and profited.

However, it's unclear how the Fed will manage inflation going forward. For now, Powell has signaled that he's choosing full employment over risks of elevated prices.

"We don't think it is a good time to raise interest rates because we want to see the labor market heal further," Powell said. "The level of inflation we have right now is not at all consistent with price stability."

When the Fed starts to raise interest rates to cool the economy it could have a negative impact on bitcoin's price. "To the extent BTC is a hedge like gold, I think it could suffer," the economist Claudia Sahm told me in a private message.

Then again, there's also a belief that the Fed has already let inflation run too far and has limited means to cap it. In the short term, if Powell is to remain true to his word and finish buying bonds before raising rates, the agency doesn't have a tool to pull in inflation until at least Q2 2022. A hyperinflationary environment, or even just fears of that happening, could drive money into bitcoin.

"On the other hand, the effects of the largest QE in history may lead to the largest inflation in history, regardless of the Fed attempting to scale back. If this happens, we expect demand, and prices, for bitcoin to rise to new all-time highs," Joe DiPasquale, CEO of the cryptocurrency hedge fund BitBull Capital, told CoinDesk yesterday.

It remains to be seen how transitory inflation is and will be.

Transitory
It's worth noting as well that Powell's term as Fed chairman is ending in February 2022 (though his term as a Fed governor ends in 2028), and the Biden administration hasn't given a clear signal as to whether he'll stay on at the job. While Fed officials were in lock-step to begin phasing out asset purchases, many have contradictory views about how to manage (and even measure) inflation.

So will Powell's mandate continue? Will bitcoin succeed in a world where the U.S. isn't buying bonds? It's just another human uncertainty.

–Daniel Kuhn

Sponsored Content

Qilin: Building an Altcoin Future With Permissionless Perpetuals

Stablecoins have a hegemonic hold over the crypto derivatives space. Most of the perpetual contracts across the CEX.IO cryptocurrency exchange are priced in stablecoins, and all contracts on the FTX exchange are USD margined. Likewise, all perpetuals on decentralized finance (DeFi) derivative protocols like Perpetual Protocol and DYDX are USD linear contracts. This is the stablecoin standard in the derivatives market.

But a new protocol from Qilin allows altcoins to be used in crypto derivative deals, which will rapidly expand the utility of altcoins. We believe that just as fiat money supply exploded once we came off the gold standard, so altcoin demand will explode as the crypto markets move off the stablecoin standard. And a key driver for this move will be the development of derivative markets priced and traded in altcoins.