Bitcoin Falls on Inflation Fears but Continues Trip Above $17K
Good morning. Here’s what happens:
Prices: Bitcoin and other crypto prices are falling along with other riskier assets on concerns that the US economy is not slowing down enough.
Insight: Is Taiwanese tech maker HTC betting too much on the success of Metaverse? The company is reportedly looking to take its virtual headset device public in the US
Prices
CoinDesk Market Index (CMI)
867.00
-10.4 ▼ 1.2%
Bitcoin (BTC)
$17,026
−188.9 ▼ 1.1%
Ethereum (ETH)
$1265
-28.1 ▼ 2.2%
S&P 500 daily close
3,998.84
-72.9 ▼ 1.8%
Gold
$1787
+19.2 ▲ 1.1%
Treasury Yield 10 years
3.6%
▲ 0.1
BTC/ETH prices per CoinDesk indices; gold is the COMEX spot price. Prices from approximately 4:00 PM ET
Bitcoin has a sinking feeling
By James Rubin
Crypto markets didn’t like the sound of good economic news, sending prices down on Monday.
Bitcoin has recently traded down 1.1% over the past 24 hours, although it remained above the $17,000 support over the past six days. The largest cryptocurrency by market capitalization has seemingly recovered from a swoon in mid-November following the implosion of crypto exchange FTX, although it remains subject to minor headwinds that have caused it to fall and rise in small increments on larger macroeconomic events.
On Monday, the Institute of Supply Management’s unexpectedly strong services index for November rekindled fears that the U.S. economy would require the U.S. Federal Reserve to administer a longer-term dose of hard rate hikes than had been hoped for in mid-November when the consumer price index fell. The ISM services report came just three days after a hot jobs report raised concerns that the economy was not contracting enough and that inflation would remain problematic. In recent months, inflation concerns have often dictated the performance of asset markets.
“Bitcoin’s earlier gains disappeared after a tepid ISM services report led to bets that the Fed could tighten much more than markets are currently pricing in,” wrote Edward Moya, senior market analyst at forex market maker Oanda.
Ether recently changed hands above $1,260, down more than 2% from Sunday at the same time. Other major cryptos spent much of the day in the red with CRO, the symbol of the Crypto.com exchange, down more than 4% and DOT, the cryptocurrency of blockchain interoperability protocol Polkadot, which sank more than 3%. AXS, the ticker symbol of gaming platform Axie Infinity, rose nearly 20% to trade at more than $8.40.
Crypto prices largely followed stock markets, which fell on interest rate concerns fueled by the ISM report. The technology-heavy Nasdaq and the S&P 500, which has a strong technology component, fell 1.9% and 1.8% respectively. The Wall Street Journal reported that food and beverage giant PepsiCo would lay off hundreds of workers in North America amid company concerns about shrinking volumes.
Meanwhile, the recent drop in U.S. consumer savings rates to their second-lowest level in 60 years suggests crypto markets are likely to remain calm at least for the near term, CoinDesk analyst Glenn Williams wrote Monday. “As retail investors make up a significant portion of crypto investors, the continued erosion of purchasing power is likely to weigh on bitcoin and ether prices,” Williams wrote. “We face a cocktail of higher interest rates, reduced purchasing power and increased debt levels.”
And Katie Talati, head of research at crypto investment firm Arca, noted with cautious optimism on CoinDesk TV’s First Mover program that crypto prices have likely bottomed out. “I don’t make price predictions, but I think we’ve probably seen the bottom in terms of market prices and sentiment in recent weeks,” Talati said.
Biggest winners
Biggest losers
Insight
By Sam Reynolds
Taipei-based tech maker HTC is reportedly looking to take its virtual headset business public in the US, Taiwanese media reports, as part of a larger quest to play a pioneering role in the metaverse.
But in going public with its VR business, the company may make a mistake it made years ago with its electric scooter arm called Gogoro. There are many parallels between the two: What started as a niche product suddenly became more mainstream – and the market did not appreciate this. Fundamental questions have also emerged about the future of the metaverse.
VR, a bright spot from HTC
Virtual reality has been a bright spot for HTC, a company that has otherwise seen its balance sheet effectively dissolve over the past decade. At the start of the Obama administration, HTC was a mobile phone giant, helping to pioneer the Android ecosystem, peaking with a 10% market share in 2011 and passing Nokia in market value, which at the time enjoyed financial backing and a partnership with Microsoft .
But it’s been in freefall since, reaching 2% of the smartphone market share in 2015, and now it’s too small to have its shipments tracked by research houses like IDC and Statcounter.
To turn the company around, HTC launched the Vive VR headset in 2016 to mixed reviews. It was still an evolving medium, with hardware and software technology lagging behind consumer expectations.
Facebook, which acquired Vive rival Oculus in 2014 for $2 billion, was in a similar conundrum. CNBC said in 2017 that the bet on VR was one of “Zuckerberg’s rare mistakes.” This went nowhere because “nobody wants to be social in VR” and there wasn’t a compelling game for it.
Meanwhile, HTC’s balance sheet was still a sinking ship, and in 2017 Google came to the rescue with a $1.1 billion investment in HTC’s mobile phone manufacturing division so that Google would have a manufacturing partner for its Pixel phones.
VR continued to disappear over the next few years. Reviewers still saw it as a niche product, with obvious enterprise and commercial applications, but no “killer app” for gamers and retail users that would make a headset a must-have.
“The VR revolution is alive and well, it’s just not ready for you,” wrote Gizmodo’s Sam Rutherford in 2019. “It’s [going] it takes a little longer to become mainstream than people first thought. Be patient, your VR dreams are still alive and well.”
Mobile headsets and metaverse
VR got its first boost in consumer interest with the release of the standalone Oculus Quest headset in 2019, when analysts pointed to its lower price point and its untethered nature piqued consumer interest.
As standalone devices powered by the same chips that went into smartphones, they couldn’t push out realistic graphics like PC-connected headsets, but they were cheap and fun with games that finally arrived, which consumers wanted.
In mid-2021, there was a mini-boom in standalone headsets like the Oculus Quest 2 and Vive Focus. HTC was still a money-losing entity, but the balance sheet improved.
And then came Facebook’s first dive into the metaverse and VR.
Quality concerns about Facebook’s VR and metaverse platforms aside, at first investors were intrigued.
In Taiwan, HTC’s stock became a proxy for the metaverse, gaining nearly 130% during the last quarter of 2021. VR headset shipments grew at a rate not seen since 2016, but HTC faced a competitive market from its rivals.
Although the metaverse bubble popped, and Meta’s stock, along with the metaverse major tokens, began its year-long plunge, HTC hasn’t performed too badly.
While HTC (2498) has underperformed Taiwan’s TAIEX index so far this year, losing 28.6% to 19%, it has outperformed the Meta, which is down 63% and the Sandbox, which is down 53%.
There is still plenty of value for the company, the market has decided, despite the wheels coming off of all things metaverse.
Parallels to Gogoro
Scooters dominate the roads in Taipei, and many belch out the exhaust from their two-stroke engines.
In 2015, two former HTC executives launched a solution: Gogoro. While electric scooters are not a new technology, a network of battery exchange stations is. The company raised a $150 million round led by HTC founder Cher Wang, and incubated some of its early technology in its facilities. But it passed on the opportunity to make it a full subsidiary.
While Gogoro had its initial skeptics, in the years since it has managed to take a 9% market share. In April 2022, the company went public on NASDAQ via a SPAC, but investors were not too impressed.
So far this year, the company has posted a 62% loss, compared to HTC’s 30%. Although Gogoro has solid cash flow and licensing agreements for its battery swapping technology, it is not profitable, only net income in the last quarter due to a favorable fee on warrants on the books.
Certainly, if the Vive were to be spun off for an IPO, there would be similar results. We don’t know how much Vive accounts for sales at HTC, as it is bundled together with smartphones and other electronic equipment. But it is probably not profitable.
Gogoro was pushed into an IPO early on because its backers, like HTC’s Cher Wang, needed a quick buck (HTC is a money-losing entity, after all). Wang probably regrets not taking a more significant stake in Gogoro as an investor and bringing it closer to the HTC fold, as that would undoubtedly have been a success story for the company – and a more proven product than VR.
Despite progress over the past four years, VR still needs more time to incubate. Vive’s performance in the stock market will be predictable, likely only tracking the ups and downs of the Meta. But HTC needs the cash infusion, and there is no obvious private buyer available.
The company hopes the metaverse finds a solid footing.
Important events.
11:30 HKT/SGT (3:30 UTC) Reserve Bank of Australia interest rate decision
21:30 HKT/SGT (13:30 UTC) US trade balance for goods and services (Oct)
23:00 HKT/SGT (15:00 UTC) Canada’s Ivey Purchasing Managers Index (Nov.)
CoinDesk TV
In case you missed it, here’s the latest episode of “First Mover” on CoinDesk TV:
Most Influential 2022; Genesis Creditor Groups’ Loan Amount at $1.8B and Counting: Sources
$1.8 billion and possibly more. That’s how much CoinDesk sources say Genesis owes in loans to customers with funds locked up on the crypto trading and lending platform. Nikhilesh They had the latest involving Genesis, which, like CoinDesk, is owned by Digital Currency Group (DCG). Additionally, Katie Talati, Head of Research at Arca, joined “First Mover” to discuss her outlook for the crypto markets. And it’s time to reveal CoinDesk’s Most Influential 2022, the definitive list of the biggest changemakers in crypto, blockchain and the Web3.
Headings
Introducing Consensus Magazine, putting Web3 into perspective: Magazines are powerful when they create dialogue about what is happening now and may happen in the future. There’s consensus across the board, so we’re renaming Layer 2 after CoinDesk’s annual event.
Presenting CoinDesk’s Most Influential 2022: Fifty stories about the people who defined the year in crypto
Aaves Social Media Protocol Lens Acquires NFT Mobile Game Sonar: With the acquisition, Lens Protocol will be integrated into a gaming app that claims to have 20,000 monthly active users.
The Contagion Fever Breaks, NFTs Dominate Art Basel: The price of ether has dropped nearly 65% since last year’s Miami Art Week. But this year’s art fair saw an increase in events, attendees and conversations around Web3 technologies and their roadmap to mass adoption.
Nexo leaves the US after regulatory discussions hit a “dead end”: Nexo will immediately stop offering its Earn product in several US states.
