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Coin vs Fiat

By Marius-Cristian Frunza
Weekly Briefs

Coinbase, the leading Bitcoin exchange platform went public on NASDAQ, thereby marking a key milestone in the short history of cryptocurrencies. Investors received the listing with enthusiasm and Coinbase’s valuation spiked above 120 billion US dollars. At a first glance, crypto-maniacs landed a major victory in the neverending brawl with traditional finance.  But, in the long-term, the Coinbase IPO could be the beginning of a series of events that would make dwindle cryptocurrencies’ credibility as an alternative to the traditional monetary system.

Currently, Coinbase is surpassing Goldman Sachs, the world’s most prominent investment bank in terms of market valuation. Moreover, the San Francisco-based exchange opted for direct listing avoiding the traditional avenues of an IPO which would have landed a significant chunk of monies in the deep pockets of Wall Street tycoons. Seemingly, the crypto-universe despite being a nascent market is already competing with the more established players of the financial industry. Needless to say that despite the red flags and numerous flags issued by regulators, the adoption of cryptocurrencies as an alternative asset is accelerating at a ramping pace.

Nevertheless, most crypto-believers are forgetting a fundamental aspect of Satoshi Nakamoto’s vision. The destiny of Bitcoin and other altcoins is to offer a viable alternative to the current dwindling monetary and banking system and to free the economy from the greedy eyes and unfair hands of governments. Bitcoin succeeded to become a highly praised speculative investment but is far from reaching its initial goal.

Coinbase’s IPO underlines this failure, the leading cryptocurrencies exchanges opting for an IPO attracting fiat currency and targeting a valuation in the old economic paradigm. The story would have been massively different if Coinbase was opting for tokenization of its assets and a listing through dedicated blockchain technology.  

The underlying risk in Coinbase’s endeavour is the foreseeable cannibalisation of the crypot-universe by the traditional financial institutions. Bitcoin could become another asset class, while blockchain a glorified alternative to the swift payment system. Thus, the entire project about the democratization of financial services would die in its embryonic stage. Cryptocurrencies are not just a speculation in terms of their dollar value, but a faith, a religion aiming to elevate and free the individual from the perpetual submission to the ill-governed dysfunctional traditional economic system.  We often hear that money doesn’t buy happiness, and in this case, fiat money is for sure not buying it.

Bitcoin will be over $1 million in 5 years but I still prefer gold and silver. Robert Kiyosaki, American investor

Market overview

VIX, the leading volatility index plunged significantly since early April reaching its lowest level since the pandemic outbreak in March 2020. While the stock market is climbing to new highs, the implied probability of a foreseeable market contraction is relatively low. Low volatility means also that the market is waiting for new signs, and especially the speed of recovery amid the reopening of the US economy. Quantitative easing is behind and the only trigger that could unravel the foundation of the money pumping machine is a slower than expected return to a new kind of normality.

Except for Gold that experienced a small progression, all other markets remained above the support levels from the last week.

Focus:

Moderna

There is a latent unleashed growth potential for the Massachusetts based biotech startup. The globalized and fragmented market of COVID vaccines offers many opportunities but will select only the viable solution. One year after the pandemic outbreak a dozen vaccines are coexisting with different levels of success. While vaccines produced by AstraZeneca and Johnson & Johnson are facing undesirable side effects, the Chinese vaccine produced no protection. Pfizer’s supply chain is under tension as it cannot fill all the required demand. Pfizer became the golden source in terms of vaccine, thereby leaving an unfilled gap in the market supply. If Moderna can scale up its operations, its share price could rapidly grow before the end of the summer.

Commodities:

Wheat

The unprecedented increase in money supply started already to have repercussions on the price of soft commodities paid by the end consumer. Wheat prices showed resilience over the past month, but the new US sanction imposed on Russia, the world’s leading wheat producer could be a game-changer. If the Russian Federation curtails its exports of wheat and the summer harvest is below the expectation, the price of wheat could climb to unforeseen levels.

Cryptocurrencies:

Ethereum

Bitcoin climbed this week above 64,000 amid Coinbase IPO but retreated towards the end of the week. Ethereum reaching 2,500 has its way paved with diamonds and gains traction not only with respect to the leading fiat currencies but also to Bitcoin.

The competitions between the leading cryptocurrencies started and Ethereum has all the chances to reach new highs and to constitute a serious pretender for the leading position in the crypto-universe. Ethereum is poorly marketed and attracts only a small fraction of investors, despite its unlimited and forward-looking technological capacities.

Market outlook

The Dow Jones ended the week above 34,000,  showing a robust 400 points growth compared to last week. While the central scenario in the short term is a rally fueled by optimism from a global economic recovery, technical sales could push the equity market into negative territory. This scenario is even more probable amid signs the market is overbought.

As expected Bitcoin climbed above 63,000 USD and the recent market optimism could bring support above 60,000.  Brent Crude remained in the same tunnel around 64 USD, and the likelihood of a further price progression faded away despite a foreseeable accelerated economic recovery.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

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