Dispatch #107: QE Is Back on the Menu

Sep 30, 2022•4 min read

In this patch of your weekly Dispatch:

  • The Bank of England intervenes to stabilize markets
  • Signs of life with NFTs
  • ETH as “ultra sound money”

The Big Idea

Bank of England Starts Buying Bonds Again

Throughout this monetary tightening cycle, global central banks have made it clear that they would raise interest rates and reduce balance sheets until something broke. Now, the specific thing they wanted to see break was inflation. But there was always a chance it would be the financial plumbing that broke first.

This week, that seemed to happen. Following the new Truss government’s budget announcement on Friday, the British pound had a disastrous day and weekend trading, cratering to its lowest value relative to the dollar in history. The bond market was also in turmoil. The result for cryptocurrencies? Bitcoin-sterling volumes spiked to record highs.

(currency-data: btc button: Buy)

Reports suggest that on Wednesday morning several pension funds were on the verge of collapse due to margin calls in an illiquid environment. With such a systemic risk lurking, the Bank of England stepped in to purchase as many long-dated 30-year government bonds as it took to stabilize the system.

Much of Crypto Twitter responded with dusted-off “money printer go brrrr” memes as a major bank was forced to inject liquidity despite double-digit inflation. More thoughtful observers, however, recognize just how difficult the BoE’s position is. They can’t let markets fail, but the tools they have to stop that could make inflation worse.

Unfortunately, it’s very unlikely that the BoE is the last central bank that has to deal a similar scenario.

The Latest In…

Nexo’s US Bank Acquisition

It was hard to keep this one a secret from you guys. You probably heard it in the news, but we acquired a stake in a US federally chartered bank Summit National Bank and we’re now the bank’s preferred digital asset partner! Our partnership coincides with an ambitious overhaul plan, where the US bank is reinventing itself as a modern digital FinTech to attune to the needs of the 21st-century client, aka the degen (JK). But what does it mean, in addition to bolstering our US presence? Well, it allows us to offer bank accounts and cards directly to our clients, utilizing the new bank's owners' decades-long financial experience. We’re very excited!

The Latest In…

Crypto Startup Fundraisers

One of the big differences between the 2022 and 2018-2019 bear market is that there are still a huge number of active venture capitalists and funds (like ours!) investing in the next big thing in crypto. Some examples of that this week include:

  • Jack Maller’s Bitcoin-focused Strike raised an $80M Series B round that notably included Washington University and the University of Wyoming as investors.
  • Coral raised $20M to build a web3 version of the app store using xNFTs or “executable NFTs.”
  • A web3 platform for gamers AQUA also announced a $10M investment led by a firm backed by hedge fund billionaire Steve Cohen.

Small stories individually, but together they show that capital is still flowing to the entrepreneurs building the products that could bring us into a new bull run.

The Latest In…

NFTs

Signs of life in the NFT market? Much has been made of the fact that NFT trading volume is down 97% from its peak. And yes, we’ll agree that’s a pretty severe drop. But what hasn’t dropped nearly as much is the community's enthusiasm for their favorite projects and artists. One of those favorites is Fidenza creator Tyler Hobbs. This week, his new QQL generative, collaborative art project raised almost $17M in a mid-week mint. From where we sit, the fact that artists exploring NFTs can still generate that type of excitement says good things about the future potential of the space.

Nexo had no shortage of NFT news either – read about the latest Mutant Ape-backed loan we facilitated in Decrypt and check out the recap of our NFT-themed AMA session for some .jpeg alpha.

The Week’s Most Interesting Data Story

Ultra Sound Money?

With the Bank of England forced into money printing mode again, and many in markets wondering if and when the Federal Reserve will have to do the same in the US, there has been an uptick in discussion around the sound money principles of Bitcoin. However, following the merge, by at least one metric, ETH has BTC beat. Bitcoin’s net new supply issuance this year will be around 1.72%. PoW ETH would have inflated by twice as much, with a 3.78% increase in issuance. And Proof of Stake ETH? It is tracking for just a 0.19% increase in supply. So what do you think – does ETH have a leg to stand on in the store of value wars?

Hot Topics

What the Community Is Discussing

And just like that, a new narrative presents itself.

Can you name the 32?

Proof of Steak

What to Watch for Next Week:

  • Will another central bank need to step in to stabilize markets?
  • Will we see any more progress on key US regulation?
  • Can the small rally in NFT blue chips continue?