ABI Research: for visionaries

Inflation Numbers Support Bitcoin Recovery

The Information | June 10, 2021, 6 p.m.

Crypto bears may want to go back into hibernation. Today’s inflation news, showing consumer prices rose 5% when compared to 2020, should reinforce the bull case for bitcoin, as a hedge against inflation. The new numbers follow data out of China indicating that the producer price index, a global barometer of inflation, increased 9% in May, the largest year-over-year gain since September 2008. Little surprise that bitcoin prices inched up today, continuing a recovery from the selloff earlier this week.For me, these developments further cement bitcoin’s place as a store of value, rather than a free-flowing payment method. Even though companies like Square, PayPal and Overstock are already accepting bitcoin payments or making moves toward doing so, they’re still outmatched by the cult of “hodl.” This crypto slang term, born out of a typo for “hold,” has become a war chant for those who are convinced that bitcoin’s price will soar to $500,000. There are other signs that crypto is being eyed more as an investment than as a form of payment. ForUsAll Inc., a 401(k) provider, teamed up with Coinbase to allow workers covered under its plans to invest up to 5% of their contributions in bitcoin, ether, litecoin and other digital currencies. Depending on how many people take advantage of the 401(k) crypto opportunity, that could broaden holdings of crypto among ordinary people meaningfully over time.WINNING IN CRYPTOCrypto trading platform Coinseed shut down after battling a fraud lawsuit from New York Attorney General Letitia James, but not before offering this NSFW token. Downfalls like this haven’t dampened venture capital’s appetite for blockchain and crypto startups though, as our scoop about BlockFi’s fundraising this week showed. VCs are more focused on the potential for Coinbase-like home runs than the potential for losers. Already this year, crypto companies have raised over $4 billion in the U.S., almost exceeding the $4.3 billion seen over the entirety of 2018, which was the previous record, according to PitchBook.But a lot of crypto companies seem to offer the same thing, peddling custody services, exchanges and protocols with the same jargon-laden promises. So how do you spot the actual winners? And what can a rising company do to stand out and stay alive?Matt Walsh, a general partner at Castle Island Ventures, which focuses on early-stage blockchain companies, said his team tends to steer clear of areas with “high regulatory ambiguity” like public token sales. They also zero in on company leadership. “You're only going to be successful if you can attract other talented people to your tribe--these things don't work if it's just three people with an idea that they can't execute, can’t hire talent for,” he said.  Blake Commagere, co-founder and COO of Vault12 said part of what drew early investors to the digital asset management company was the track record of its leadership. Both Commagere and his co-founder had successfully built and sold companies in the past. Vault12, which was founded in 2014, has been able to stick around in part because it didn’t try to launch a crypto moonshot, according to Commagere. “We started with a fundamental problem, you know, key management. We didn't try to replace the New York Stock Exchange,” he said. REDEFINING DECENTRALIZATIONLeemon Baird. Photo by Hedera HashgraphHedera HashgraphBased in: Richardson, TexasInvestors: Blockchange, Blockwall, CMCC, DHVC, Digital Currency Group, Eterna Capital, Fenbushi Digital, Mind Fund, Multicoin Capital and Struck Capital Funds Raised: $140 millionWhat Sets It Apart: Hedera Hashgraph, a public distributed ledger founded in 2018, is looking to put a new twist on a hot topic in crypto: decentralization.Unlike the Bitcoin blockchain, where miners vote on upgrades and have a number of votes proportional to their mining power, Hedera has a governing council that decides on software changes and manages nodes, which are the computers that make up a blockchain network. The council is made up of companies and organizations based around the world in various industries. Some current members include Boeing, Google, IBM, Tata Communications, Standard Bank Group and University College London. Each member owns a share of the company that they give up at the end of their term, which can extend up to three years. They can also serve up to two consecutive terms. Management from well-established organizations with reputations to protect is preferable to how other blockchains are governed, according to Dr. Leemon Baird, co-founder and chief scientist of Hedera.“I wouldn't say that having your mining pools all run by a dozen guys in China is entirely what you would want for decentralization,” he said. Hedera plans to eventually move to a permissionless model where anyone can run a node. Its network can currently process 10,000 transactions a second and has completed 1.3 billion transactions to date, which is a faster rate and higher count than measures for Ethereum, according to Baird. It also has an HBAR cryptocurrency and a token service that can be used to mint NFTs.FINGERS POINT AT COINBASEWe finally know how much money meat processor JBS paid out after its ransomware attack: $11 million in bitcoin. JBS fared worse than Colonial Pipeline, which paid $4.4 million in bitcoin and later saw more than half of it recovered by the FBI. The ransom retrieval has sparked some drama though as theories circulated online that Coinbase assisted authorities. Coinbase CSO Philip Martin denied that this was the case on Twitter. He said the exchange did not receive any of the ransom and that there is no evidence that the payment went through a Coinbase wallet. This finger-pointing shows just how much these cyber attacks have shaken the crypto community. In addition to strengthening bitcoin’s association with ransomware, they’ve brought up questions of just how secure wallets and exchanges are.  DEALSDigital asset management company Ledger completed a $380 million Series C funding round led by 10T Holdings. The company, which counts a crypto hardware offering among its offerings, is now valued at more than $1.5 billion.NFT startup Mythical Games raised $75 million in Series B funding from a group of investors led by WestCap.Luxor, a bitcoin mining software company, raised $5 million in a Series A funding round led by NYDIG.WHAT WE’RE READING“Crypto Finally Has a Reason to Exist” (Bloomberg)“For Everyday Transactions, the Future of Money is Stablecoins” (BI)“Pipeline Investigation Upends Idea That Bitcoin Is Untraceable” (NYT)

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