Should You Buy Ethereum Soon?

Should You Buy Ethereum Soon?

Bloomberg

(Bloomberg) – U.S. consumer prices are headed higher -– at least according to the people who set them.Corporate leaders are increasingly confident that they can charge more for their products without losing business. On recent earnings calls, plenty of executives said they boosted prices in response to the higher costs they’re having to pay. And many expect further increases, with economic growth speeding up and commodity prices showing no sign of coming off the boil.“There is a cost headwind and we continue thus far to be able to experience pretty positive ability to price,” said Melinda Whittington, chief financial officer of La-Z-Boy Inc., on the company’s Feb. 17 earnings call. “There’s no doubt at some point that might that have some impact on end consumer demand. We certainly have not seen that thus far.”The price hikes discussed on multiple earnings calls feed into the great debate about whether U.S. inflation is poised to take off once the pandemic ends.They also add to upside risks for the Federal Reserve, which expects any post-pandemic jump in prices to be temporary and doesn’t plan to tighten monetary policy anytime soon. It could take three years before inflation rises to meet the 2% target over a sustained period, Fed Chair Jerome Powell told Congress yesterday.‘Increases Are Coming’In industries ranging from equipment manufacturing and construction to furniture-making, more corporate leaders are pointing to sharp rises in the cost of materials and transportation, after the pandemic upended supply chains.The same forces are pushing small-business owners to raise prices too.“All of our distributors have indicated that price increases are coming,” said Don Katzenberger, chief executive officer at S&K Roofing, Siding and Windows. He said the Eldersburg, Maryland company raised prices from 5% to 10% across the board in response, and still expects sales to continue growing in 2021.Strong demand has already made it tough for firms to meet orders, after they drew down inventories early in the pandemic. And production in some industries has been held back by labor force disruptions.The Fed’s view is that the long-term forces keeping inflation low for the past decade and more are still at work, while the economy still has a way to go before completing its pandemic recovery.“It’s just going to be hard for businesses to believe that you’re going to have the market power to increase prices,” Richmond Fed President Thomas Barkin said on Monday.Yet firms surveyed by the Philadelphia Fed this month said they expect a 3% increase in the price of their goods and services over the next four quarters, up from 2% in November.The Dallas Fed’s latest manufacturing survey on Monday showed almost 80% of factory respondents said supply chain disruptions have led to higher input costs, while 47% said they’re raising selling prices as a result.The Kansas City Fed on Thursday said its measure of prices received by the region’s manufacturers rose to the highest level since August 2018, while an index of costs paid advanced to an almost 10-year high.Owens Corning, which makes building materials, raised prices in January and has announced it will do so again in April.The firm is “starting to see some inflationary headwinds” in the cost of transportation, materials and energy, Chief Executive Officer Brian Chambers said on a Feb. 17 earnings call. “We wanted to make sure we were staying in front of that.”Even some service providers think they might have more pricing power later this year and into 2022. When asked about large-events planning during Hilton Worldwide Holdings’s Feb. 17 earnings call, Chief Financial Officer Kevin Jacobs said he’s told his team to “not give away space in 2022 too cheap.”“I think there’s going to be gargantuan demand,” he said. “And, as a result, more pricing power than people think.”What They Said: Some Earnings-Call Views on Pricing“On the industrial side, our teams are trying to stay ahead of that and doing a lot of things to make sure those that can – when they do get the pricing, they can pass them along.” – Carol Yancey, CFO at Genuine Parts Co. (auto parts)“It’s very likely that the strength of demand is going to outpace supply for some period of time. So I think we will be chasing demand, at least with the balance of this, of this year.” – Prashanth Mahendra-Rajah, CFO at Analog Devices Inc. (electronics)“We are also seeing greater inflationary pressures in many product categories and we are increasing prices to recover.” – Jeff Lorberbaum, CEO at Mohawk Industries Inc. (flooring)“We expect that inflation pressure based on what we’re seeing today to be almost 200 basis point headwind for the company for next year, which is a significant ramp up from prior years.” The company is “going to take selected pricing.” – Christopher Peterson, CFO at Newell Brands Inc. (household & office products)(Updates with Kansas City Fed price data in 14th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

Ethereum Is a Better Long Run Bet Than Bitcoin, Researchers Say

In an article featuring recent science research into the cryptocurrency market, Ross Pomeroy offers some researchers’ perspective on why Ethereum tends to be more stable than Bitcoin:

Ethereum might be a better long-term investment than Bitcoin. The cryptocurrency Ethereum ranks second to Bitcoin in terms of popularity, yet two studies have shown that tends to be more stable and a better “safe-haven” investment during difficult economic times. As a team of researchers from Singapore wrote in the journal PLoS ONE, “Although both Bitcoin and Ethereum are digital tokens that serve as decentralised currency based on blockchain technology, there are crucial differences between them. While Bitcoin has positioned itself as an alternative monetary system in the financial market, Ethereum has mostly focused on monetising smart contracts. Also, being the first cryptocurrency, Bitcoin has been widely used for speculative purposes. These traits are reflected in the user composition… where the behavior of Ethereum users is observed to be more stable as these users are more optimistic of the market. In contrast, the behavior of the Bitcoin users tend to fluctuate according to the trend of the market, with a loss of optimism when the market goes down.” Ross Pomeroy, “Five Things Science Has Told Us About Cryptocurrency” at RealClearScience (February 22, 2021) The paper is open access.

Other science findings were that cryptocurrency consumes a great deal of energy and that its traders are more erratic than traditional investors. But nonetheless cryptos are part of a balanced portfolio and crypto investors display herd behavior.

Now, the “herd behavior” part does not seem like a very big surprise or new idea in the market. But it is interesting that the cryptos are coming to be seen as part of a balanced portfolio. The paper cited is here: “ This study investigates the impact of diversification with the addition of five cryptocurrencies from November 2015 to November 2019 on four traditional asset portfolios. The results show that the diversification increased the returns in most of the cases, and reduced the portfolio volatility in all portfolios, and also provided higher returns as compared to the traditional portfolios for the same level of risk.” (Technol Forecast Soc Change, December 2020, open access).

Some analysts are less enthusiastic. Economics prof Gary Smith wrote here at Mind Matters News, “Investors who buy bonds get paid interest. Investors who buy stocks get paid dividends. Investors who buy apartment buildings get paid rent. People who buy cryptocurrencies get nothing more than the hope that they can sell their cryptocurrency to a Greater Fool for a higher price than they foolishly paid.” (December 16, 2019)

Is crypto really just a flash in the pan? It’s been on a wild ride recently.

February 16, 2021: Bitcoin Price 2021: 8 Big Companies Boosting BTC to $50K

February 23, 2021: Ethereum (ETH/USD) Crushed as Cryptocurrency Market is Overrun by Sellers

Maybe not a bubble. But truly ready for prime time?

You may also wish to read:

How Bitcoin works: The social value of trust It is very interesting to study a technology that doesn’t rely on trust. However, in the end, the most interesting thing it tells us is not how we should build a network but rather the social value of trust in society. (Jonathan Bartlett)

and

Bitcoin is a classic bubble investment. In large data sets, correlations are easy to find. Useful relationships are more elusive. (Gary Smith)

The ‘Unique Opportunity’ to Upgrade Ethereum’s Virtual Stack

With Eth 2.0’s first hard fork spec mapped out, attention has turned to the planned merge of Eth 1.x and Ethereum 2.0.

And, not wanting to lose momentum around the merge, Vitalik Buterin has proposed making some additional changes to the network, given most people don’t see Ethereum changing much afterward (minus some cleanup, more shards and, of course, our new favorite Ethereum word, rollups).

In two blog posts and on Friday’s All Core Developers call, Buterin made the case for stripping less useful – or maybe even harmful – functions in Ethereum’s codebank sometime before or during the merge. Buterin mainly focused on opcodes used in Ethereum’s Virtual Machine (EVM).

Related: Planning to Short Bitcoin? Better Check China’s ‘Tether Premium’ First

“We have a unique opportunity to make some backwards-incompatible changes to the EVM that could be valuable for Ethereum in the long term,” Buterin said on GitHub Feb. 18. “The portion of applications that would need to be rewritten as a result of these changes is quite small, but it is nevertheless nonzero.”

Making changes to the EVM

Chief on that list is the SELFDESTRUCT function which rewards anyone who destroys a contract sitting idly on the Ethereum state. The intended purpose of the opcode was to incentivize Ethereum developers to practice “good hygiene” and destroy contracts when they weren’t necessary anymore. That would help reduce Ethereum’s long-term state size.

However, it hasn’t really panned out like that. Right now the function stands in the way of scaling Ethereum by making it “difficult to move to a different state storage format in the future,” among other reasons, Buterin said.

In fact, many people use the function as a discount of sorts in case Ethereum’s fees rise. Called gas tokens, these tokens can be bought when gas is cheap and spent later when gas is expensive to help lower the cost of a transaction. Ethereum developers have considered removing the opcode from the EVM a few times, most recently in September.

Story continues

Related: Craig Wright Demands Bitcoin Developers Give Him Access to Stolen Mt. Gox Coins

Making changes to the EVM or any other technical descriptions in the Ethereum Yellow Paper has not made everyone happy. Some decentralized application (dapp) creators expressed frustration that functions their projects rely on may be removed, such as the gas that enables dapps to check in on how much gwei is left in a contract execution.

It’s unclear how much support the EVM cleanup pitch will receive. Moreover, any changes to the EVM will come with ample warnings beforehand, Buterin said.

“The overwhelming majority of applications are not dependent on anything that is expected to break here,” Buterin said. “It’s a very small percentage.”

Pulse check: The CoinDesk legend of Zelda begins

The CoinDesk Ethereum 2.0 validator, officially dubbed “Zelda” by Director of Engineering Spencer Beggs, was activated on Feb. 17. Over the past six days or so, Zelda has earned 0.04 ETH, which is worth roughly $61.80 at time of writing. At this rate, the annual percentage return (APR) of our validator operations is expected to be around 7%.

If you’re new to Valid Points and the topic of Ethereum 2.0 in general, be sure to check out our 101 explainer on Eth 2.0 metrics to get up to speed about jargon and terminology used throughout this newsletter.

In the first couple of hours after Zelda was activated on Ethereum 2.0, our validator operations lost roughly $3.45 worth of ether. This was due to a file permissions issue that prevented Zelda from signing off on attestations, which is the most common responsibility required of an Eth 2.0 validator node. (The other less-common responsibility is proposing blocks.)

Updating file permissions and rebooting Zelda was a simple fix that got our validator operations back in the green within 24 hours.

Setting up a validator? Keep these points in mind

The first lesson learned from this minor mishap was this: Remember to stay awake for the activation of your validator node to ensure all operations are running smoothly from the get-go.

Most validators after they have deposited their 32 ETH to the Eth 2.0 deposit contract will be put in a pending queue before they’re activated on the network and able to earn rewards. The amount of time needed for validators to wait in the queue before activation can range from a few days to a couple weeks.

Rough estimates of the exact day and time a validator will exit the queue, based on how many other validators are also waiting in the line for activation, can be found on block explorers BeaconScan and Beaconcha.in.

Unfortunately, Zelda’s activation took place at roughly 4:00 (ET) in the morning, which is why most of the CoinDesk staff, including myself, were asleep. Had any one of us been awake for the activation of the node, any irregularities in our operations could have been noticed in advance and resolved more quickly.

Another important thing to remember is to keep validator operations as simple as possible. About 132 validators have been slashed since the network launched on Dec. 1, 2020. Being slashed on Eth 2.0 carries more consequences than missing out on a few attestations. Slashing occurs when there’s evidence of malicious behavior by a validator. The network can correctly or mistakenly view the actions of a validator as a potential attack or attempt to rewrite blockchain history and data. This results in the validator being forced to exit the network, meaning it is no longer eligible to earn rewards on Eth 2.0.

Slashing happens commonly when Eth 2.0 validator operators are trying to maximize rewards by setting up two computers to run one validator. When one of the computers goes offline, the other automatically boots up and takes over validator operations. While this sounds like a perfect idea to maximize APR by having your validator running virtually without any downtime, it can lead to mistakes where both computers are running the same validator at the same time.

As soon as the network detects instances where a single validator is proposing different blocks or signing off on attestations more than once, operations could get slashed.

“The risk is not worth it,” said the co-lead developer of Prysmatic Labs, Raul Jordan, in an interview with CoinDesk.

While it might be tempting to try and maximize rewards by complicating the node setup so that there is never any downtime, it might come at the expense of losing the ability to earn any rewards on your staked ETH.

For more information about slashing events on Eth 2.0 and more comments by Jordan, be sure to tune in tomorrow to our weekly podcast series “Mapping Out Eth 2.0.”

Validated takes

DeFi lending platforms liquidate record $115 million in loans as ETH price drops (Article, CoinDesk)

Ethereum trading bot strategy extracted $107 million in 30 days, research suggests (Article, CoinDesk)

Kraken CEO says ether flash crash was due to trading, not system glitch (Article, CoinDesk)

Nyan cat NFT sells for 300 ETH, opening the door to the ‘meme economy’ (Article, CoinDesk)

The business of art and how NFTs will change it, with Nanne Dekking (Podcast, CoinDesk)

Top auction house Christie’s to accept ether cryptocurrency for digital art sale (Article, CoinDesk)

Why Ethereum miners will accept EIP 1559 (Blog post, Deribit Insights)

Nvidia releases a new Ethereum ASIC mining chip (Blog post, Nvidia)

A list of EVM features potentially worth removing (HackMD post, Vitalik Buterin)

Factoid of the week

Open comms

Feel free to reply any time and email research@coindesk.com with your thoughts, comments or queries about today’s newsletter. Between reads, chat with us on Twitter.

Valid Points incorporates information and data directly from CoinDesk’s own Eth 2.0 validator node in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is:

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb.

Search for it on any Eth 2.0 block explorer site!

Finally, Will Foxley and I will be continuing the conversation on Ethereum 2.0 in a CoinDesk podcast series called “Mapping Out Eth 2.0.” New episodes air every Thursday. Listen and subscribe through the CoinDesk podcast feed on Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica, IHeartRadio or RSS.

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