Market Commentary
Market Commentary: Inflation, User Growth, and Key Drivers of the Recent Move
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August 12, 2021

Inflation, User Growth, and Key Drivers of the Recent Move

Bitcoin gained 6.3% in the week ending August 8th, 2021, which marks the third straight week of positive performance in the digital asset space. As of Sunday, bitcoin gained 6.3% for the month of August and 51.3% year-to-date. Bitcoin has recently traded around the 200d moving average (~$45,000 per Bloomberg), which remains the attention of both traders and investors for near-term direction. The asset closed at $46,346 on Wednesday.

This week, we discuss July Consumer Price Index, Coinbase user growth, and comments from SEC Chair Gary Gensler.

July’s Consumer Price Index

For the month of July, the US Headline CPI rose 5.4% y/y, the third straight month of 5% or more consumer price inflation. On a core basis, CPI increased 4.3% y/y and 0.5% m/m. Areas of stress continue to be within food, energy, and shelter, however the labor department noted that a smaller gain in the cost of used cars and trucks was a “major factor” in the moderation of core CPI. Even so, the cost of living continues to rise, as we illustrate through the indexed chart (rather than y/y) of the Consumer Price Index to show where we are relative to history (a new high):

While the transitory camp jumped on the decrease in month-over-month rate of change, we’re seeing that inflation outlooks have actually risen from recent lows. Using the 5 year, 5 year forward inflation swap rate as a proxy, we see that Bitcoin has risen in tandem with the resurgence in inflation expectations:

Coinbase Illustrates Greater Than Expected Crypto Adoption

In its first quarterly report since going public, Coinbase highlighted 68 million verified users as well as 8.8 million monthly transacting users at the end of Q2 2021. This beat estimates for 63.1 and 6.7 million respectively. Given its size, Coinbase is a strong proxy for the overall growth of crypto and bitcoin adoption. Coinbase verified users have grown 83.7% year-over-year, bringing the crypto community one step closer to 1 billion users (which we expect by 2030, at the latest).

SEC Chair Gary Gensler Comments on Bitcoin and Regulation

SEC Chair Gary Gensler reiterated his positive stance on bitcoin and digital assets in his Remarks Before the Aspen Security Forum, saying “Nakamoto’s innovation is real. Further, it has been and could continue to be a catalyst for change in the fields of finance and money.” A proponent of digital assets leading the SEC is a reassurance to many investors. Gensler plans to improve investor protection as well as a crackdown on ICOs and classifications of securities, both of which the digital asset industry supports.

EIP-1559 Implemented

Ethereum upgrade EIP-1559 was implemented last week, improving the way “gas” fees are charged with a fixed transaction fee based on network congestion. EIP-1559 also removes a portion of the ether fee from circulation, creating a deflationary offset against Ethereum’s increasing supply. As of Sunday August 8, ether has gained 66.7% from the closing price on July 20 of $1795 to Sunday's close of $2,991. Ether closed Wednesday at $3,236, up 337.9% YTD.

Stay tuned,

Joseph Orsini, CFA
Director of Research

About Eaglebrook Advisors
Eaglebrook is a tech-driven investment manager specializing in bitcoin and digital assets. The firm offers various Bitcoin and Digital Asset SMAs serving financial advisors, registered investment advisors (RIAs), family offices, and institutions. Eaglebrook is backed by wealth management executives and institutions.
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