Will Inflation Deflate Cryptos?

Cryptocurrencies continued to slide after a small uptick post the U.S. Congressional Hearing on Wednesday. Aggregate market capitalization is at $2.28 trillion versus $2.34 trillion a day ago, dropping around 2.5 percent. Only around a tenth of the top 100 cryptocurrencies are positive on an overnight basis.

Caution ahead of the release of the inflation numbers from the U.S. for the month of November appeared to have dragged the cryptocurrencies to negative territory. Annual Inflation is forecast rising to 6.8 percent from 6.2 percent in October, the highest since November 1990. A stickier inflation and a faster progression to interest rate hiking cycles could portend a stormy tryst for the digital assets with a tight monetary policy regime.

Bitcoin is trading at $49,134.60 down 0.34 percent on an overnight basis and 14 percent on a weekly basis. At current levels, the lead coin has dropped almost 29 percent from the all-time high of $68,789.63 touched in mid-November, immediately after the release of the U.S. inflation numbers for the month of October.

Ethereum is now trading at $4,189.67, 2.30 percent below the levels a day ago. The lead alternative coin has shed 9 percent on a weekly basis. ETH has dropped almost 14 percent from the all-time high of $4,859.50 touched on 10, November.

As of this writing, Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), Solana (SOL), Cardano (ADA), XRP (XRP), Polkadot (DOT), Terra (LUNA), Dogecoin (DOGE), Avalanche (AVAX), Polygon (MATIC), Litecoin (LTC), Algorand (ALGO), TRON (TRX) and Bitcoin Cash (BCH) are the 15 top ranking coins in terms of market capitalization.

TRON (TRX) gained 0.71 percent overnight while all others have declined. XRP (XRP) has declined 6 percent.

In the tokens category, Tether (USDT), USD Coin (USDC), SHIBA INU (SHIB), Crypto.com coin (CRO), Binance USD (BUSD), Wrapped Bitcoin (WBTC), Uniswap (UNI), Chainlink (LINK), Dai (DAI), Axie Infinity (AXS), Decentraland (MANA), FTX Token (FTT), Bitcoin BEP2 (BTCB), The SandBox (SAND), and UNUS SED LEO (LEO) rank in the order of market capitalization.

UNUS SED LEO (LEO) has gained around 0.7 percent. Decentraland (MANA) has lost more than 9 percent.

The top-5 stablecoins ranked according to market capitalization are Tether (USDT), USD Coin (USDC), Binance USD (BUSD), TerraUSD (UST) and Dai (DAI). Aggregate stablecoins market capitalization is at $154 billion.

Open interest or the total number of contracts in Chicago Mercantile Exchange’s Bitcoin Futures increased to 13444 contracts on Thursday, from 13022, a day ago. Open interest in Ethereum Futures too increased to 4788 on Thursday versus 4667 a day ago.

ProShares Bitcoin Strategy ETF (BITO) closed Thursday’s trading at $30.21, down $2.04 or 6.33 percent from previous close. It is currently trading in pre-market at a 3.11 percent gain.

Valkyrie Bitcoin Strategy ETF (BTF) closed Thursday’s trading at $18.63, down $1.27 or 6.39 percent from previous close. The ETF is currently trading more than 3.33 percent higher in pre-market.

Grayscale Bitcoin Trust (GBTC) closed Thursday’s trade with an 8 percent cut.

The VanEck ETF Trust VanEck Bitcoin (XBTF) closed Thursday’s trading at $47.24, down $3.23 or 6.41 percent over previous close.

The Global X Blockchain & Bitcoin Strategy ETF (BITS) closed Thursday’s trading at $21.64, down $1.60 or 6.90 percent.

Tech giant Meta Platforms’ cryptocurrency wallet, Novi, would soon enable sending and receiving money through the popular messaging app WhatsApp. A pilot program has now been opened for a limited number of users in the U.S. The wallet is designed for transferring money instantly and with no fees, with payment made through USDP-a stablecoin issued by blockchain trust company Paxos, which is pegged to the US dollar. Pax Dollar (USDP) is ranked 93rd among all cryptocurrencies and 7th among all stablecoins. USDP currently has a market capitalization of $947 million.

The hyper-inflation narrative is gaining ground like never before. Whether the inflationary price spiral that economies face, post the massive pandemic era stimulus, is a threat or an opportunity for the cryptocurrency industry would depend on how the digital assets respond to the measures adopted to rein in the overheating of the economy.

Will cryptos capitulate to the pressure of the inflation anchoring moment or emerge as a viable alternative by spurring innovations in technology and in the digital marketplace? Easy liquidity and the skyrocketing valuations have drawn many an investor to the nascent asset class. The stakes are definitely high this time around.

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