Plus, Why the Supply Chain Crisis Will Last Into 2023
Welcome to your Sunday digest…my weekly breakdown of the things we’re thinking about and talking about in the Global Intelligence world.
This edition of the digest comes to you from Las Vegas, where I’m speaking at International Living’s Retire Overseas Bootcamp.
The three-day event wraps up today, and I have to say it’s been immensely enjoyable thus far.
After these years of COVID-imposed travel restrictions, it has been wonderful to get back to the States and meet face-to-face with my readers and colleagues.
During the event, I’ve been sharing my experiences and insights about the benefits and financial practicalities of living overseas. I’m also planning to speak today on the crypto revolution now unfolding. And it’s on this topic that we begin this week’s digest.
On Feb. 1, NFL legend Tom Brady confirmed that he was retiring from professional football. This announcement understandably made headlines around the world, but less well publicized was what the seven-time Super Bowl winner plans to do next.
This may come as a surprise to some, but Brady is planning to dedicate a substantial portion of his time to crypto.
In April last year, the quarterback, who has previously stated that he owns crypto in his personal portfolio, unveiled a new crypto business called Autograph. The company plans to help athletes and other celebrities develop and promote their own non-fungible tokens, or NFTs—the one-off, one-of-a-kind cryptocurrencies that represent ownership of everything from digital collectibles to a stake in a crypto project.
Brady’s business may be new, but it has some serious backing.
Autograph has recently raised $170 million from venture capital firm Andreessen Horowitz, Katie Haun and Kleiner Perkins. And the company is partnering with DraftKings and Lionsgate to market NFTs based on pro athletes and movie stars.
Time will tell whether this is a winning play for Brady. I’ll certainly be watching to see how these NFTs are received in the wider crypto community.
But given Brady’s star power, and the level of backing behind his new company, it won’t be a surprise if this ends up being another big victory for him.
***
Sticking with crypto and NFTs for a moment…
Right now, Ethereum is being burned, or destroyed, in huge quantities. According to Nansen Analytics, a blockchain data firm, around $1.1 billion worth of Ethereum was burned over the past month alone.
Here’s what’s going on…
Last August, a significant change was made to the Ethereum blockchain as part of the Ethereum 2.0 upgrades. This change means that a portion of Ethereum is now burned, or destroyed, for every transaction that occurs, say for instance when a trader sends some Ethereum from one wallet to another, or swaps one kind of Ethereum-based token for another.
Usually, the amount burned is very small. However, certain higher-level tasks, like creating NFTs, come with higher transaction fees, which mean they results in a larger amount of Ethereum being burned.
And given that NFTs are soaring in popularity, the amount of Ethereum being destroyed has risen.
In January alone, the total volume of NFT transactions on OpenSea, one of the leading Ethereum-based NFT marketplaces, reached a record high of $3.5 billion. As a result, the total amount of Ethereum burned due to transactions on OpenSea alone hit roughly $180 million over a 30-day period.
Now, I want to stress that none of this is a cause for concern. Quite the opposite in fact…
Even with the higher burn rates, more Ethereum is currently being created than destroyed, so the total number of Ethereum tokens is still growing.
However, that’s set to change once the Ethereum 2.0 upgrades are fully rolled out, which is scheduled for the middle of this year.
When Ethereum 2.0 is finalized, the tables will turn and the amount of Ethereum being destroyed will exceed the amount being created…meaning the total amount of Ethereum will begin to decline.
At the same time, I expect demand for NFTs on the Ethereum network to continue to grow, meaning the rate of decline could be significant.
This will lead to a dynamic of falling supply and rising demand for Ethereum…which should see the price of ETH push significantly higher from here.
This is one of the reasons why I remain bullish on Ethereum.
***
Finally, this week…we return to our old friend, inflation.
The mainstream media consistently blames the current high inflation rate on the supply chain crisis.
Essentially the narrative promoted by mainstream media goes like this: COVID messed up global supply chains…leading to shortages of goods. But once the supply chains get detangled, everything will go back to normal and inflation will just fade away.
This narrative seems plausible…but it also happens to be completely wrong.
The COVID pandemic didn’t simply cause a supply chain crisis…it exposed a crisis bubbling under the surface for years.
One of the key factors at play in all of this is ecommerce.
It used to be that companies could simply set up stores and wait for their customers to come to them. Now, with the ecommerce model, customers expect everything from groceries to mattresses to be delivered direct to their door. This requires much more complex shipping solutions.
It means companies need more drivers to deliver these goods. Plus, they need more centralized warehouses…and generally these warehouses need to be located in densely populated urban areas, where land prices are expensive. As ecommerce grows in popularity, the demand for drivers and warehouses will continue to rise.
The structural issues are just as bad at America’s ports.
Even before the pandemic, ports were struggling to keep up with demand due to outdated technology ill-fit for dealing with the demands of this new economy.
Ultimately, we need to redesign our supply chains for the ecommerce age. And this will require more ships, new warehouses in new locations, new technology, and a huge number of new recruits in the trucking and logistics industries.
None of these things can be achieved quickly, easily, or cheaply.
So, the supply chain crisis will likely persist until at least 2023, which means that inflation will persist, too.
That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website.
Enjoy the rest of your Sunday.
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