What happens when the Maestro loses his ability to move markets to a tune?
Well, we are seeing it play out today. Years ago, pundits worshipped Fed Chairs like Alan Greenspan, labeling them Maestros or Wizards, thinking they could do no wrong when managing the money supply.
Now, the picture looks different. The Fed's interest rate baton no longer guides price-level trends in today's debt-soaked economy. Though today's CPI print showed only modest growth, the U.S. government has spent $6.7 trillion over the last 12 months, while tax revenues have decreased.
Eventually, there will no longer be enough liquidity to sustain the debt, forcing the Fed (and other central banks) to turn the money printers on overdrive.
Raising interest rates might even generate more inflation as federal interest expenses spiral up. It’s like "trying to put out a kitchen grease fire with water," as described by Lyn Alden.
When debt gets insanely high, interest rates aren’t very good at managing the economy, and the Fed loses control – a concept called fiscal dominance. The question is no longer when, but how you should prepare for what's to come.
With that, let's dive into the news.
PayPal launches stablecoin
In collaboration with Paxos Trust Co., PayPal launched its U.S. dollar-pegged stablecoin, PayPal USD (PYUSD), built on Ethereum.
This move by the payment processor, with over 350 million active users, underscores PayPal's ambitions to capitalize on what it likely perceives as an opening for nonbank firms to enter the stablecoin market.
What does the future hold for stablecoins?
Legacy fintech will likely continue introducing stablecoins over the next 5 to 10 years, bridging the gap between cryptocurrency infrastructure, until central banks introduce central bank digital currencies (CBDCs). Once CBDCs are established, stablecoins will likely become obsolete as central banks cease issuing the assets that back them.
Fed launches new crypto supervision program
The Federal Reserve has introduced the "Novel Activities Supervision Program" to expand its oversight on banks' crypto activities. The program mandates that all banks under the Fed's supervision, including smaller entities, must obtain approval for certain crypto activities, including the issuing of stablecoins.
What does this mean for banks?
The program institutionalizes the previously informal pressures felt by banks working with cryptocurrency – what some call "Operation Choke Point 2.0."
The Fed's process for banks seeking to use stablecoins imposes identity verification requirements that are impossible for banks to comply with, ensuring they won't be issuing stablecoins anytime soon, and nonbanks (like PayPal) will continue to do so.
WeWork portends commercial real estate disarray
After raising concerns about its solvency, WeWork's bonds dropped to distressed prices, with its 7.875% notes due in 2025 plummeting around 85% since Tuesday. Amid rapid client membership cancellations and a dwindling cash reserve, the once $47 billion-valued company now has a market value under $500 million. The firm also appointed corporate bankruptcy experts to its board.
Trouble on the horizon for commercial real estate?
"WeWork bonds yield almost 90%. When they mature in 2025, WeWork will have to borrow again... at 90% — or, sell its assets to make ends meet. Does that sound like a 'soft landing' for U.S. office space?"
And there's likely more where that came from. The CRE crisis is just getting started.
Coinbase transaction volume down 70%
Coinbase reported a 12.5% year-on-year decline in quarterly revenue to $707.9 million, marking its sixth straight quarterly loss with a net loss of $97 million, up from $79 million in Q1.
Though the loss beat estimates, the overall decline stems from shrinking transaction volumes, with overall trading volume decreasing significantly, and subscriptions and services overtaking commissions as the primary revenue source. Troubles surrounding Coinbase’s stablecoin partnership with USDC after the collapse of Silicon Valley Bank is further contributing to their woes.
Alt-coin casinos: So last year?
Most predicted that less liquidity splashing around the system would impact alt-coin trading, and now, the numbers have arrived to prove out this theory. Whether Coinbase can pivot away from its "alt-coin casino" business model remains to be seen.
BITCOIN ADOPTION CONTINUES
HOW BITCOIN WORKS
Learn one key idea about bitcoin each week. This week:
Bitcoin is clarity
The news cycle, money supply, and financial system are so manipulated and distorted that making sense of it all is nigh impossible.
An economy flashing recession signs, credit card debt at all-time highs, and a government intent on spending unprecedented amounts of money it doesn't have all portend dark times ahead. Yet, government and media outlets (but we repeat ourselves) helpfully inform us that the economy is excellent.
Some outlets even have the gall to claim the economy is "surging."
The Groucho Marx joke, "Who ya gonna believe, me or your own eyes?" rings true. Americans believe their own eyes rather than what the regime tells them.
Beyond our own experience, another system allows people to see through the distortions with clarity: bitcoin.
Bitcoin is free from the manipulations inherent in the fiat system. Its monetary policy (credibly fixed supply) makes it the least uncertain monetary system ever created.
When individuals and institutions own bitcoin, they transact on their terms instead of relying on institutions others can exploit.
Unlike fiat, no one can lie about the bitcoin economy – it is all verifiable and auditable.
And as the fiat system flails, the government gaslighting will increase. However, the propaganda will fall on increasingly deaf ears as bitcoiners proliferate, benefitting from the clarity that only an honest money system offers.
That’s all for this week, folks! When you signed up for this newsletter, we promised to act as your personal guide and help you understand what’s happening in the world of bitcoin. What did you think of today’s newsletter? Reply to this email and let us know what you’d like to see more of.