On Tuesday, the BLS reported that the Consumer Price Index (CPI) increased 0.6 percent in March on a seasonally adjusted basis after rising 0.4 percent in February. The month-over-month increase was the largest since a 0.6 percent increase in August 2012.
Not seasonally-adjusted, the tally over the past 12 months was 2.6 percent, the highest in 2 1/2 years.
Contributing to the gains were gasoline prices, which were up 22.5% over the past year. Fuel oil and natural gas were respectively 20.2% and 9.8% higher over the same period. Food gained 3.5% and used vehicles gained 9.4%.
Both the Federal Reserve and the White House characterized the increases as temporary, which is what they said last month when the year-over-year number was 1.7%, and the month before that. The problem with "temporary" inflation is that it often becomes permanent. Prices, once they rise, seldom come back down significantly. When they do, the adjustment is either sudden, as in market crashes, or very gradually, as consumers adjust, seek alternatives, or hold back on purchases.
Inflation has been a hot topic since the Fed increased M1 money supply from $4 trillion to $18 trillion in 2020. It is still rising, though at a slower rate, in 2021. Many scholars of economics consider the government numbers to be flawed, as the measure of CPI has changed dramatically over the past 30 years. Hedonic adjustments and the overall makeup of the "basket of goods" the government employs contribute to lowering the CPI, which is used to calculate cost of living adjustments (COLAs) for government pensions and social security benefits. Private and public opinions on CPI range from mildly skeptical to calling it outright fabrication.
The other, still developing, story is that of the Coinbase IPO. The largest cryptocurrency exchange in the United States will begin trading Wednesday on the NASDAQ under the ticker symbol COIN. Coinbase boasts 56 million users and the company became profitable in 2020, with growth accelerating in the first quarter of 2021. The exchange handles billions of dollars worth of transactions daily in Bitcoin, Etherium, Litecoin and other cryptos.
Late Tuesday, the company set a reference price to open at $250 per share in a direct listing, valuing it near $65 billion, well below estimates of $100 cited by some analysts and insiders. The company has foregone the traditional IPO route, instead opting for a direct listing, or DPO (Direct Public Offering), which makes shares available to the general public instead of engaging with a bank and underwriters. This option avoids the usual roadshow and fees while freeing up insider shares with no lockup period. Coinbase is not looking to raise additional capital, but rather to see what the public is willing to pay in a more democratic process. Recent direct listings were undertaken by Spotify and Slack.
Reaction to Coinbase listing as a publicly-traded company has been extremely positive, especially for prices of various cryptocurrencies. Over the past week, Bitcoin, the world leader by market capitalization ($1.2 trillion), has gained 11 percent over the past week, topping out at $64,899.00 Wednesday morning. Being listed on the NASDAQ gives Coinbase and the entire crypto universe credibility as a bona fide asset class.
How the Coinbase listing and the CPI release become interwoven is a matter of imagination and math. The CPI, as a measure of inflation, is based on fiat money in circulation. Since the national debt (actually money owed though bond issuance by the federal government) is a reflection of excessive spending, the more than $28 trillion in debt on the books acts as a drag on the natural economy, measured in fiat, which can be issued without limit. That causes inflation, which is why there is a CPI in the first place.
Most cryptocurrencies, Bitcoin in particular, have a set limit on the amount of issuance. In Bitcoin's case, that number is 21 million. There will never be more than that amount in existence, which adds to its appeal both as currency and as an investible asset. To put the CPI, national debt, and the Coinbase listing in perspective, at Bitcoin's current price and market cap ($1.2 trillion), it would only pay off 4.29% of the national debt.
Another way to look at it would be to figure how much Bitcoin would have to be worth to entirely extinguish the national debt. If all the Bitcoin to be mined (21 million) were mined today, the price of one Bitcoin would have to be $1,333,333.33 in order to pay off what the government owes. This is something the naysayers and no-coiners should bear in mind when dismissing crypto and Bitcoin. Cryptos are better money than what's currently used by the Fed (Federal Reserve Notes, or FRNs, US$) because it cannot be debased, as is happening now and has been happening since the Federal Reserve began issuing its debt notes in 1914.
The idea that some people would prefer a currency that isn't issued by a central bank, has a purchasing power that doesn't depreciate over time, and thus can act as a store of value (wealth) is not new. It's just been out of vogue for the past 100 years or so. Coinbase's public listing and the advance of cryptocurrencies are signals that the time for change is upon us.
AT THE CLOSE, TUESDAY, APRIL 13, 2021:
Dow: 33,677.27, -68.13 (-0.20%)
NASDAQ: 13,996.10, +146.10 (+1.05%)
S&P 500: 4,141.59, +13.60 (+0.33%)
NYSE: 15,962.34, -15.16 (-0.09%)
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