Monero sees a sustained price surge as the boarder crypto market struggles.
Last week Bitcoin and Ethereum—the two largest cryptocurrencies—dropped by 7.6% and 6%, respectively. Most of the market followed them into the red. However, privacy-oriented cryptocurrency Monero (XMR) seems to be withstanding the bearish trend proving its value as sound money during times of crisis.
Monero Hits Three-Month High At $244
On Sunday, Monero reached a three-month top at $244. On a weekly basis, XMR is one of the few exceptions among the top 50 cryptos that are above the negative range, at 3.3%. On a 3-month scale, Monero gains are even more pronounced compared to both Bitcoin and Ethereum.
Source:Trading View
Last month, it was Terra's (LUNA) with its algorithmic stablecoin ecosystem and Anchor Protocol that defied expectations and breached $90 ATH. However, since Terra began bolstering its UST stablecoin with up to $10 billion worth in Bitcoin reserves, its fate became more tied to Bitcoin. The question then is, why would Monero outperform both dApp-oriented cryptocurrencies and Bitcoin recently?
The Use Case For Bitcoin, Ethereum, And Smart Contracts
Bitcoin and Ethereum solve two different problems at the moment: one is thought of as the digital equivalent of gold while the other is essentially a decentralized operating system. However, both fail where Monero succeeds.
Bitcoin uses proof-of-work which has been time-tested on a large scale. It would take impractical amounts of CPU power to take over 51% of Bitcoin’s network in order to compromise it. Bitcoin is also locked to its 21 million coins supply. Therefore, there is no central bank to devalue it by arbitrarily increasing its supply as the Federal Reserve did to the dollar.
While Bitcoin is the top energy consumer with estimated annual consumption of 141.3 TWh, it taps into 76% of renewable energy sources, using less electricity than tumble dryers.
Image credit: Messari, sourced by CoinShares
On top of Bitcoin’s limited supply and physical transaction-proofing lies the Lightning Network, comparable to Visa (NYSE:V) in speed and transaction fees.
On the other hand, Ethereum and other smart contract platforms, such as Terra, Solana, Algorand, Avalanche, and Cardano, serve a different purpose.
Their native cryptocurrencies are primarily used to transact in a decentralized financial infrastructure—DeFi. Their dApps recreate the world of finance without banks, clearing houses, market makers, and brokers.
Furthermore, they are all proofing their transactions with economic staking (Ethereum soon to be). Therefore, their energy consumption is minuscule, comparable to Visa.
Source: Crypto Carbon Ratings Institute (CCRI)
At the same time, Bitcoin soars above in its own category, with a single transaction equaling 1.5 million Visa transactions.
Monero Beating The Odds With Its Unique Privacy Centric Approach
Monero has a hybrid coin supply limit. Just like Bitcoin, Monero’s supply is capped but at an even lower range of 18 million XMR. However, as an incentive mechanism, Monero has a dynamic supply issuance. Specifically, when the total number of XMR coins reaches 18.3 million, the issuance is set to be reduced to 0.3 XMR per minute.
While not technically hard-capped, this is still leagues ahead of any fiat currency, including the likes of Dogecoin with its annual 5 billion new DOGEs inflated annually. Therefore, Monero represents sound money just like Bitcoin.
Moreover, although Monero uses proof-of-work just like Bitcoin, it doesn’t use the same type requiring specialized ASIC rigs. In practical terms, this would mean that if both networks were equal in scale, Monero would be using multiple times less energy than Bitcoin.
So far, Monero has 1 point over Bitcoin and 1 point neutral. The next one is the big one. Monero was designed as a cryptocurrency with an emphasis on “crypto.” While Bitcoin and others may be called cryptocurrencies, every transaction on their blockchains is publicly transparent. Therefore, explorable by analytics software that companies like Coinbase (NASDAQ:COIN) issue to federal law enforcement agencies.
These agencies are displeased at Monero’s inherent privacy feature, to say the least. Case in point, the Internal Revenue Service (IRS) issued a bounty of $625k for cracking Monero’s privacy cloak. What this means in the real world we have seen clearly thus far:
- The Canadian government went ahead with the spectacular display of freezing bank accounts and sanctioning exchange crypto wallets and Bitcoin addresses.
- EU introduced a new rule which prohibits unhosted wallets, so every transaction can be reported by a crypto exchange while removing the standard minimum transaction threshold of $1,000.
- Dr. Pippa Malmgren, named a Global Leader for Tomorrow by the World Economic Forum (WEF), declared at the World Government Summit 2022 in Dubai the following:
“We are about to abandon the traditional system of money and accounting, and introduce a new one. And the new one, the new accounting is what we call blockchain…It means having an almost perfect record of every single transaction that happens in the economy.” - Dr. Pippa Malmgren at the World Government Summit 2022
In other words, clear-cut signs are emerging that money will no longer be money as we know it. When something is digital, it is inherently traceable because it is not separated from the wider internet network. For this reason, physical cash is the true private money as a separate physical unit inherently detachable from one’s identity.
Monero is the digital equivalent of physical cash, using advanced encryption to neutralize its immersion into the traceable digital sphere. And unlike physical cash, it cannot be arbitrarily devalued by the central banking system. In the end, Monero’s core decentralized application (dApp) is sound money.
Why Did The Crypto Market Go Down?
During the C19 event, lockdowns have caused many to question how is it possible for the economy to recover after such a mass scale economic dormancy. The problem is, that such a thing is not possible without unprecedented intervention by central banks. Consequently, as they ramped up money printing, the inflation is at a record 40-year high, poised to go up further.
Seamlessly shifting from C19 into the Russia-Ukraine conflict, the West’s reaction further worsened economic forecasts. To say that Russia received sanctions is an understatement of the century.
A more precise framing is to say that a new world monetary order is being crafted, as put forward by Zoltan Pozsar, former Federal Reserve and U.S. Treasury Department official and now working for Credit Suisse (SIX:CSGN).
“We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West.” - Zoltan Pozsar at Credit Suisse
The Federal Reserve is trying to stamp down on these “inflationary forces” with rapidly increased interest rate hikes. However, because this elevates the cost of borrowing, it is also bad for the equity market. Specifically, Deutsche Bank analyst Matthew Luzzetti warns that:
“We no longer see the Fed achieving a soft landing. Instead, we anticipate that a more aggressive tightening of monetary policy will push the economy into a recession,” - Fortune Magazine
This is in line with a similar report from Bank of America’s Michael Hartnett who warned that:
“‘Inflation shock’ worsening, ‘rates shock’ just beginning, ‘recession shock’ coming,” - CNN report
Consequently, because there is a high correlation between the equity and crypto market, the latter follows the former. This is mainly due to the large influx of institutional investors over the years, who are prone to perceiving cryptocurrencies as risky assets akin to growth tech stocks.
Source: TradingView
Equity market, represented by the S&P 500 and NASDAQ 100, pushes Bitcoin up and down. With Bitcoin, other cryptos tend to follow.
As more signaling is introduced into the public sphere that all transactions will be traced and because Monero doesn’t have a classic institutional investment scheme and a dApp ecosystem, it stands out from the crowd.