Five Minute Finance
13 min readJan 13, 2023

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The 5-minute newsletter on the important stuff in finance — explaining what’s going on, and why.

Let’s see what’s going on this week:

  • CPI Report Renews Hopes of Fed Pivot
  • Crypto Lender Nexo Raided
  • The Latest on Gemini-Genesis: SEC Joins In
  • El Salvador Approves Bitcoin Volcano Bonds
  • What’s Behind Ethereum’s Price Rally?

Latest CPI Print Continues Disinflation Trend

  • Bitcoin and Ether See Gains Before First CPI Print in 2023 (link)
  • Inflation Rate Slowed Down to 6.5% in December: What Can We Expect from the Fed? (link)

Inflation Going Down, but What about the Dreaded Fed Hikes?

Last week, we noted that 2023 will be the year of disinflation.

The latest Consumer Price Index report for December moved in that direction. Right to the decimal point, the 6.5% CPI matched the estimate precisely, marking a -0.1% inflation rate decline from November.

This is the 6th consecutive month inflation decreased after having peaked at 9.1% last June. Likewise, core CPI (without volatile food and energy) moved down to 5.7%, the lowest since January 2022.

On a monthly basis from November, the driving components for this steady decline are the prices for:

  • Gasoline (-9.4%)
  • New vehicles (-0.1%)
  • Used cars and trucks (-2.5%)
  • Fuel oil (-16.6%)

Food items increased by +0.5% from November, up by +10.4% annually. All items without food and energy rose by +0.3%, which also matched the consensus estimate.

Nonetheless, the disinflation trend is definitely there, as core inflation (the primary inflation metric used by the Federal Reserve for monetary policy) has been the lowest in 15 months, at an annualized +3.14% from October to December.

Source: U.S. Bureau of Labor Statistics

Immediately after the CPI report, the probability for the next Fed interest rate hike at 25 bps (0.25%) jumped to 92.2%, which is slated to happen on February 1st for the 8th time. This would bring the Fed funds rate to 4.75%.

Beyond that timeline, it is unclear if the Fed will continue to deflate assets with more hikes.

Raphael Bostic, the President of the Atlanta Federal Reserve, seems to think that enough has already been done:

“I am not a pivot guy. I think we should pause and hold there, and let the policy work,”

Last week, the President of the San Francisco Fed, Mary Daly, said that she is open to a 0.25% increase, dependent on incoming inflation data. Yet, in total, the rate should go up beyond 5%. By how much, she said it is “not completely clear”.

What is clear is that wage growth has failed to keep up with rising consumer prices for 21 consecutive months, now at a -1.7% annualized decline. From the Fed’s perspective this is good, as it dampens the source of inflation — consumer buying power.

To ensure inflation keeps going down, closer to the Fed’s targeted +2% core inflation, the Fed may look to use steep yield curve inversion as a tool.

Since 1962, the only time the yield curve inverted by this much, at -1.23%, was in 1980 (recession) and 1981 (also recession). Image credit: Federal Reserve Bank of St. Louis

Yield curve inversions are telltale signs of recessions as investors are more bearish about the long-term future than the near term. For the past eight recessions, all have been preceded by inverted yield curves

And what is the ultimate insurance that inflation is put down?

Naturally — a recession, as the cool-down of an overheated economy. And that’s why nearly everyone and their dog have been forecasting a recession of the last few months.

Yet in the immediate term, both the crypto and stock markets have reacted positively to Thursday’s CPI drop.

Bitcoin (BTC), Ethereum (ETH), S&P 500 (SPX), and Nasdaq (NDAQ) all reacted positively to Thursday’s CPI print. Image credit: Trading View

Is Nexo Going Down as the Last Yield-Chasing Domino?

  • Nexo’s Token Saw a Surge in Trade Volume as Company’s Offices Raided (link)

The Holdout Crypto Lender Undergoes Ultimate Bank Run Test

BlockFi, Celsius, and Nexo. These were the three big centralized crypto lending platforms that attracted billions in user deposits.

The hook was simple. Instead of just holding cryptocurrencies in your non-custodial wallet doing nothing, why not deposit them to a crypto lending platform with an attractive interest rate — similar to a traditional savings account?

But by doing so, customers ceded control of their assets to a third party. And due to mismanagement by those third parties, unsustainable yields and exposure to FTX/Alameda/3AC/Terra — BlockFi and Celsius went bust, leaving users’ deposits stranded.

Nexo might be following in their footsteps. The crypto lender serves over 5 million customers globally. Much like Celsius, Nexo has been providing heavy yields that would put most banks to shame.

Just like Celsius (CEL) token, NEXO Token (NEXO) is in the double-digit yield range. Image credit: Nexo.io

However, it appears that Nexo’s troubles are not related to inability to pay up high yields.

Although London-based, law enforcement authorities raided 15 Nexo offices in Sofia, Bulgaria, under suspicion of money laundering, unlicensed banking activities, and tax evasion. Considering that over 300 officers, prosecutors and other agents are involved, it is a major operation.

Nexo co-founder and former Bulgarian parliamentarian, Antoni Trenchev, said to Bloomberg News that “this is a coordinated attack as is evident from the absurd allegations.”

Some allegations, such as unlicensed banking activities, are not that surprising. Just like Coinbase and BlockFi, Nexo has been hit by US regulators due to offering interest-earning accounts without registering them as securities.

As a result, eight US states issued cease-and-desist orders against Nexo, forcing the crypto lender to retreat from the US, citing “inconsistent and changing positions” of regulators.

As the Nexo raid hit the news wire yesterday, the NEXO Token plunged by -7% but held surprisngly well, all things considered.

Year-to-date, NEXO remains up by +7.5%. Image credit: Trading View

Expectedly, a massive bank run is underway while the lender’s token saw a +82% uptick in trading volume. So far, Nexo appears to have no trouble in meeting users’ withdrawal requests.

Nexo outflows (in red) drastically increased after the raid news. Image credit: Arkham Intelligence

In the meantime, the company’s official Twitter account views the troubles as transitory.

Image credit: Twitter

While Nexo’s ongoing situation continues to develop, centralized lending platforms across the industry just got — yet another — black eye.

SEC Joins the Gemini-Genesis Fray

  • Genesis Owes Clients $3B, DCG Seeks to Offload Assets: Report (link)

The Latest on Gemini-Genesis

Between LUNA, UST, 3AC, Celsius, BlockFi, and FTX — the crypto market just couldn’t catch a break in 2022.

And things haven’t exactly calmed down yet in 2023.

To briefly recap the next potential crypto crisis in the making:

Digital Currency Group (DCG) is the largest crypto investment company, valued at $10 billion as of November 2021. If you have ever heard of a crypto project or a wallet, DCG likely funded it.

Image courtesy of DCG

DCG also owns Genesis Trading as a subsidiary. Alongside market-making, Genesis provides over-the-counter (OTC) trading in cryptocurrencies, including collateralized lending for institutional and high-net worth clients.

As such, Gemini exchange, run by the Winklevoss twins, used Genesis for its Gemini Earn program.

The Gemini Earn program followed the business model of Nexo/BlockFi/Celsius — users deposit funds for others to borrow in exchange for interest rate yields.

A week after the FTX crash in November, Genesis halted user redemptions, a story all too familiar from the Celsius saga. That’s because Genesis exposed itself severely to another centralized crypto fiasco — the bankrupted Three Arrows Capital (3AC) hedge fund — to the tune of $2.4 billion loan.

But that wasn’t all:

  • Genesis had $175 million direct locked funds in FTX.
  • Genesis owed ~$300 million to Dutch exchange Bitvavo.

The result — not enough liquidity to meet users’ withdrawals.

This left Gemini exchange in an embarrassing position. Although the exchange’s funds are audited and said to be backed in a 1:1 ratio, Gemini’s separate Earn program left 340,000 customers stranded, totaling $900 million in funds owed by Genesis.

Gemini co-founder, Cameron Winklevoss, issued a public letter to DCG CEO, Barry Silbert, calling for a resolution toward returning users’ funds by January 8th.

Once that failed to materialize, Cameron published another open letter to Barry two days after the “deadline”, on January 10th. Cameron accused Barry to have “conspired to make false statements and misrepresentations to Gemini, Earn users, other lenders, and the public at large about the solvency and financial health of Genesis.”

Running through Barry’s “accounting fraud” and “private lies”, Cameron asked the DCG board of directors to remove Barry Silbert as the CEO.

The latest update on the saga is that Genesis is $3 billion in the creditors’ hole, of which $900 million is owed to Gemini’s Earn customers.

Without fresh investors to supply the liquidity for these obligations, DCG is now considering selling portions of its assets across exchanges, banks, and other custody providers. Having managed over 200 crypto projects, DCG has $500 million to pick from, according to Financial Times sources.

To compound the issue, the Securities and Exchange Commission (SEC) has now charged both Gemini and Genesis with the sale of unregistered securities.

Reminder, the now-bankrupt BlockFi had to pay a $100 million fine for the same charge. At the time, this was interpreted as “regulation through enforcement”, rather than clearing up rules for digital assets ahead of time.

Once again, Rep. Tom Emmer is not pleased with the performance of SEC Chair Gary Gensler.

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Can Volcano Bonds Keep Warm During Crypto Winter?

  • El Salvador Passes New Bill Paving the Way for $1B BTC “Volcano Bonds” (link)

El Salvador Pioneers Blockchain’s First Sovereign Bonds

El Salvador’s volcano bonds are an interesting testament to Bitcoin adoption. Not too long ago, the mainstream media painted Bitcoin as underworld, darknet internet money used by cyber criminals.

Warren Buffett referred to Bitcoin as “probably rat poison squared”.

Now, not only is Bitcoin legal tender for an entire nation, but it is used to monetize El Salvador’s development.

Here’s the idea, in a nutshell:

  • Investors can buy bonds in Bitcoin as a form of debt financing, worth $500 million.
  • The government can then use the proceeds from the bond sales to fund environmental projects.
  • Investors are paid an interest rate as the project starts generating profit. Specifically, a 6.5% annual interest rate over 10 years, denominated in USD.

In the case of El Salvador, the environmental project is Bitcoin City. This would be a tax-free coastal city, running on geo-thermal power from the nearby volcano. Hence, volcano bonds.

El Salvador’s congress just approved the digital securities law that would allow this to happen, at 62 votes in favor vs. 16 opposed. President Nayib Bukele has to sign it, which is as sure as the sunrise given that the entire project was his idea.

Image credit: Twitter

The profit generated to pay interest on $500 million worth of volcano bonds would then rely on two main factors:

  1. Bitcoin City’s tourism and its associated tax-free activities.
  2. Bitcoin City’s BTC mining operation with the nearby volcano supplying affordable energy.

This is a major test for Bitcoin investing, as the world’s first sovereign Bitcoin bond experiment. In turn, much of it depends on BTC mining profitability which remains a fine balancing act.

The more miner revenue is sustainable, without having to go into too much debt, the less selling pressure is put on BTC from miners.

And lower selling pressure from miners generally leads to positive Bitcoin price action. If we take a long-term outlook for El Salvador’s 10-year bonds, Bitcoin miner revenue has been steadily increasing.

Despite a deflated asset bubble of 2021, annual Bitcoin miner revenue in 2022 still nearly doubled the year 2020. Image credit: Blockworks

Shanghai Upgrade: Ethereum’s Pre-CPI Print Action Explained

  • Ethereum’s Annual CO2 Emission Dropped from 21.95M Tons to Just 8.8k Tons (link)

Unlocking the Power of Staking: Flood or Drought?

What’s going on with Ethereum (ETH), the most popular smart contract blockchain?

It’s safe to say that Ethereum entrenched its market position after the FTX crash. Solana’s exposure to FTX/Alameda rapidly shrank its total value locked (TVL), at $293 million. Comparatively, Ethereum scalability network, Polygon, has a TVL of $1.29 billion.

But that’s not the only reason ETH has been rising ahead of the CPI print. The culprit?

The much-anticipated Shanghai upgrade. Scheduled for March, this upgrade, codenamed EIP 4895, is expected to deliver on two fronts:

  • Make Ethereum faster, cheaper and more efficient.
  • Allow users to unstake locked funds because the upgrade reduces the amount of ETH needed to secure the network.

So far, over half a million validators have staked $22.5 billion worth of ETH.

To incentivize staking, therefore securing the network, Ethereum yields ~4.2% annual percentage yield (APY). Image credit: Dune Analytics

All of those funds have been locked since Ethereum transitioned from a proof-of-work to proof-of-stake consensus last September, which reduced the network’s energy footprint by ~99%.

The minimum amount of ETH that users can stake is 32 ETH. Given this high barrier to entry, an entire liquid staking industry was born.

What does that mean?

A platform like Lido Finance allows users to participate in Ethereum staking, but without splurging the required 32 ETH (~$45k) minimum to become a network validator. Moreover, Lido mints another token — stETH — equal to the value of locked (staked) ETH.

These tokens can then be freely used in a variety of Ethereum’s lending dApps, as if the user didn’t lock up their ETH in the first place.

This is why they are called liquid staking tokens — they free up locked up liquidity. Other platforms do the same but with different names. Coinbase has cbETH, while Binance has bETH.

Altogether, liquid staking has become very popular over time, due to its low barrier to entry in accessing Ethereum yields — but without the 32 ETH lockup.

From under 5% in December 2020, liquid staking has become dominant, to a present ~44% staking share. Image credit: Dune analytics

But what does all of that have to do with ETH price going up ahead of the Shanghai upgrade in March?

Well, the speculation is that unlocking staked user funds would remove lingering doubt about Ethereum’s future.

The popularity of liquid staking already showed an interest in the concept. Now, given the fact that Ethereum’s staking ratio is quite low compared to its competitors, there is some anticipation that we will see an influx of new Ethereum users post-Shanghai upgrade.

Image credit: Messari.io

Although this is still in the realm of speculation, ETH’s price uptick of +17.3% since the start of the year lends it some credence.

On the bearish side of things, one could speculate that unlocking ETH withdrawals will result in a user exodus. In the end, this will largely depend on the mood of the market in March.

Tweets of the Week

$BTC is now back above the cost basis of short-term holders.


BREAKING: FTX developed a line of credit to Alameda Research worth $65 billion by using a backdoor that let them borrow FTX customer funds, per CoinDesk.


Core goods CPI seeing rapid disinflation (blue) while core services (orange) is taking longer to roll over (actually moved higher y/y in December)


The downfall of Centralised Exchanges.

DEXs building On-chain Orderbooks will be the winners in 2023



What is “transitory?”

How many months?

This is the consecutive number of months the six-month growth rate of CPI was above 3.0%.


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