Another week of volatility in crypto markets, as surging U.S. consumer price index data spur demand for bitcoin to act as an inflation hedge but also fuel worries that the Federal Reserve may have to constrain the gravy train of money printing that has bolstered all financial assets, including cryptocurrencies.

This week’s column keys off those price movements to address the inevitable critique heard from bitcoin naysayers at such times: that its price is too volatile for it to be a medium of exchange for payments or a store of value hedge against inflation risks. I suggest this critique is founded on a deep-seated, flawed idea of what money, or at least of what it can be in a decentralized, digital era.

After you read the newsletter, have a listen to this week’s “Money Reimagined” podcast episode, which delves into the hows and whys behind the Philippines’ surprising role as a hub driving “play to earn” business models, a phenomenon exemplified by the NFT game Axie Infinity. Sheila Warren and I talk to Maria Antonia Arroyo, a serial entrepreneur, impact investor, educator, and biologist, and Leah Callon-Butler, a director at consulting firm Emfarsis and a regulator CoinDesk contributor. Both are based in the Philippines, and both offer eye-opening insights into the unique circumstances that drive this particular breed of innovation in that country.

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By soaring 4.4% to new record highs Wednesday after the release of a report that showed U.S. inflation hit its highest level in 31 years and then losing all of that in the day, bitcoin played straight into the hands of mainstream economists who pooh-pooh its potential as a currency.

Such volatile moves, they will argue, make it impossible for cryptocurrencies to serve what traditional economics describes as the three functions of money: i) a medium of exchange, ii) a store of value, and iii) a unit of account. A currency cannot play those roles, the argument goes, if its value is moving around so much without any predictability.

That sounds almost irrefutable, right? But what if the three functions framework is based on a flawed, or overly narrow definition of money?

In “Money: The Unauthorized Biography,” Felix Martin argues that through history people have tended to wrongly think about money as a “thing” (such as a banknote or a chunk of a precious metal such as gold) and not for it what it is: a socially invented governance system for tracking transfers of property and clearing debt in a commonly trusted manner. By viewing money as something to be owned and accumulated, we’ve fetishized currencies rather than treating them as a means to an end.

In Martin’s construction, a country’s or an economy’s universally accepted currency is the thing. It is not the money. The currency is merely a tool that makes it easier to carry out the extremely difficult task of recording, counting and valuing transactions across a community of otherwise untrusting strangers.

In this way, cash can be viewed as a decentralized, peer-to-peer record-keeping device – as if by me giving you $10, my anonymous account in the dollar economy is debited by that amount and yours is credited. If you deposit those funds into a bank, you move the account into a different accounting system, but it’s ultimately serving the same function.

Over the centuries, this national currency-based money model became dominant, as sovereign states shaped it into a system of social organization and control. Whether it was fiat currency or gold-backed currency, the state set the rules and provided the foundation of trust – with varying degrees of success – by which people would use these record-keeping devices. But this is not the only way to think of how money could be organized.

Continue reading this column here.

–Michael J. Casey

This week, the U.S. consumer price index for October showed a 6.2% increase from a year ago, the highest inflation rate since 1990, news that directly contributed to bitcoin’s mid-week surge to new all-time highs.

What’s causing that inflation? Well, Bitcoin advocates and gold bugs argue that it’s all about the debasement of fiat currencies through massive printing. That perspective sees it as a self-perpetuating monetary phenomenon that will be very difficult for central banks to stop.

Most mainstream economists attribute it almost entirely to the disruptions caused by supply chain breakdown in the wake of the pandemic. They say inflation is transitory, a temporary problem that will be resolved once shipping networks return to normal.

The chart above doesn’t answer who is correct. But it does put some illustration onto the supply chain problem. This is the deep sea freight cost component within the Bureau of Labor Statistics’ producer price index for the past two years, drawn from the Federal Reserve Bank of St. Louis’s FRED database.

The freight price index is up 20% from a year ago. Those rising prices will themselves feed into U.S. consumer prices downstream. More importantly, it’s a direct manifestation of the shipping logjam that is associated with and contributing to supply chain interruptions. It’s worth watching for signs that the supply chain problem is either worsening or correcting itself.

BlockBank has officially launched its all-in-one AI-powered super application, combining the best of DeFi and CeFi to streamline users’ access to fiat and crypto financial services.

Key functionalities of the V2 application include:

Cutting-edge AI technology
Debit cards
Custodial and non-custodial wallets
In-app swaps (using Uniswap and Pancakeswap)
Tiered staking program (earn up to 20% APY!)

Download the application on Google Play or the Apple App Store and visit https://blockbank.ai/ for more information.

It’s not from a confused outsider looking in. Maria Paula Fernandez, an Argentina transplant to Berlin, has been working in the Ethereum and NFT sector for many years and is listed as a co-founder of the JPG protocol, whose website says it “brings together curators, collectors and creators through a registry-based protocol focused on NFT curation.”

So her cynical take on the current bout of hype and greed in an industry that early believers hoped could liberate artists and break down digital media power structures resonated. Here’s one example from someone who is also clearly steeped in the sector, with a Twitter handle that plays on the Web 3 idea with which NFTs are associated.

DeFi Pulse’s head of marketing chimed in to offer a mix of concern and optimism, suggesting these early adopters will evolve into more reasonable believers in what NFTs have to offer.

And someone with the Twitter handle @vicariousdarius made the comparison to the internet’s early phases of development to argue that this is a teething problem for the NFT industry.

First Miami, now New York. Suddenly, the U.S. has not just one, but two crypto cities, both making a very prominent play on the technology, as news this week demonstrated.

Miami Mayor Francis Suarez, fresh off a landslide re-election, announced on CoinDesk TV’s “First Mover” that the city will pay residents a dividend out of the staking yield it earns from miamicoin, which was launched by CityCoins in June. As Helene Braun reports, Miami has already earned $21 million from the program, which Suarez said would represent a fifth of the city’s $400 million tax revenue on an annualized basis.
Meanwhile, CityCoins tweeted it will set up shop in New York and launch NYCcoin. In response, as Tanzeel Akhtar reports, New York City Mayor-elect Eric Adams, who has already said he’ll accept paychecks in bitcoin, quickly responded by welcoming the initiative.
Notably, this New York-Florida race straddles the political divide. Suarez is a registered Republican (though the Miami mayoral position is a nonpartisan role) and Adams is a Democrat. It’s one example of the rainbow-like nature of crypto politics generally, whose breadth was comprehensively covered by David Z. Morris in this write-up.