Coinbase is Lagging Bitcoin
Also Bitcoin is a Poor Inflation Hedge and Soon a Dovish Fed
Welcome to the Friday edition of the Ecoinometrics newsletter.
Every week we bring you the three most important charts on the topics of macroeconomics, Bitcoin and digital assets.
Today we'll cover:
Coinbase is lagging Bitcoin.
Bitcoin is a poor inflation hedge.
Soon a dovish Fed.
Each topic comes with a small explanation and one big chart. So let’s dive in.
In case you missed it, here are the other topics we covered this week:
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Coinbase is Lagging Bitcoin
Coinbase’s journey as a public company a rollercoaster ride. For the most part they have been unlucky with their timing.
I mean it depends how you look at it. For those who cashed out at the IPO (direct listing actually but you know what I mean) the timing was actually great. For the rest, well, let's just say that Coinbase is still down like 50% since the IPO.
The problem is that they went public right at the top of the Bitcoin bull market. Like literally on the same day Bitcoin’s price peaked in the first wave.
Since then the price trajectory of COIN has followed BitCOIN pretty closely... just at a slower pace. So while Bitcoin has completely recovered from the bear market COIN hasn't.
It is basically the mirror image of Microstrategy which is also following the same price trajectory as Bitcoin except that it grows faster.
So Microstrategy is probably still a better bet than Coinbase if you are looking for that kind of indirect exposure to Bitcoin.
Bitcoin is a Poor Inflation Hedge
Bitcoin's role as a hedge has been widely debated. But it's crucial to understand what exactly it's hedging against.
Bitcoin isn't primarily an inflation hedge. Instead it is proving to be a formidable defence against currency debasement.
If you look at the period from 2020 to 2024 there is no clear correlation between rising inflation rates and Bitcoin’s price movements. You might find that a bit counterintuitive at first. But actually it makes perfect sense when you think about Bitcoin’s nature as a financial asset.
The truth is that Bitcoin responded preemptively to the massive monetary expansion that was the response to COVID but also a main force driving the inflation wave down the road.
As a financial asset it is natural that Bitcoin reacts more to changes in the monetary conditions than to consumer price inflation. But when you look at the numbers it is clear that Bitcoin does more than just keeping up with the debasement of the US dollar.
After adjusting for the debasement of the US dollar since 2020, Bitcoin is still up by more than 400%. This performance far outpaces merely keeping up with debasement. Even at the lowest point of the bear market, Bitcoin was beating the debasement rate by 40%.
You can see that on the chart below.
And as it turns out this characteristic of Bitcoin is still relevant today. It might be more relevant than ever actually. You just have to look at the trajectory of the US debt to get convinced that there is no way the debasement rate of the US$ slows down from here.
You have to hedge against that.
The Federal Reserve's Pivot: From Hawkish to Dovish
The Fed Communication Index (FCI) is a quantitative measure of the hawkishness or dovishness in the FOMC minutes. We get it from running a quantitative text analysis of what comes out of the Federal Reserve.
As the Federal Reserve started to raise interest rates in 2022 the rhetoric of the FOMC minutes became really hawkish, really fast.
At the height of the rate hike cycle the FOMC minutes were the most hawkish they had been in the past 20 years. But now they are heading in the complete opposite direction. The past few meetings have gotten less and less hawkish.
And now they are the least hawkish they have been since the start of the rate hike cycle.
It is pretty clear the Federal Reserve is preparing the market for rate cuts, for real this time.
That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.
Cheers,
Nick
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Great post. Really cool chart on Bitcoin appreciation vs Dollar debasement too. Awesome to see even at the lows of the Bitcoin pullback it still outperformed Dollar debasement by 40%.
I like Coinbase on a transactional basis, but what is the value preposition beyond that? It is great to buy and sell crypto, but not to store crypto holdings as they are not insured by anyone (FDIC, etc.). Maybe tax reporting? But I wouldn’t hold my crypto there, or any exchange.