Category: Economy

Bretton Woods III: a new world monetary order

On By mehranmuslimiblogIn Bitcoin, Economy, GovernmentsLeave a comment

In 1944, as WWII was coming to an end, the Bretton Woods system of monetary management was established. It set the rules for financial relations between countries, for their central banks and governments. It also created the IMF, the World Bank and WTO. This week, Zoltan Pozsar, Credit Suisse’s short-term interest rate strategist, published a note about a new world monetary order, which he called the “birth of Bretton Woods III”.

In his words, he see this as, “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.” What does that mean for us? And what part might cryptocurrencies play in it?

Bretton Woods I was based on a gold-based system where the U.S. dollar dominated and was freely convertible into gold. This changed dramatically in 1971 when the US had to change its currency, “so that the dollar was free-floating and backed by the full faith and credit of the government,” not gold.

Bretton Woods II then became the model. In this, the dollar still dominated, but in a system that mostly uses “inside money.” Inside money is someone else’s liability, while outside money is nobody’s liability. This is why we have a system that is largely based on debt. For example, when China holds US Treasury bonds that is inside money. When Russia sells USD to buy gold, that is outside money. It makes things pretty complicated when you factor in the full package of economic sanctions against Russia, and add in the fact that China holds massive amounts of seizable, U.S.-based inside money. It could sell its US Treasury bonds to “fund the purchase of “subprime” Russian commodities,” writes George Kaloudis in Coindesk, but it would also give China control over inflation. Such a move could also lead to commodity shortages and a recession in the West.

Pozsar’s note suggests there is a “new confiscation risk associated with US inside money,” that could spark a new monetary regime, as the world turns to focus on outside money, such as gold and other commodities, as countries try to boost their reserves. Or they might turn to cryptocurrencies, particularly Bitcoin.

At the end of his note, Pozsar wrote, “After this war is over, “money” will never be the same again…

…and Bitcoin (if it still exists then) will probably benefit from all this.”

Crypto isn’t an escape route from sanctions

On By mehranmuslimiblogIn crypto, Economy, GovernmentsLeave a comment

“Why doesn’t Russia just use Ripple if it can’t use SWIFT?” a young person asked me the other day. He is not alone in thinking that cryptocurrencies are a ‘workaround’ for Russia as it faces heavy economic sanctions. Indeed, with decentralization being a core value of crypto, it does seem that it should be a solution, but of course the reality is actually much, much different.

The reality is that crypto exchanges have far too much to lose if they allowed huge movements of crypto into the Russian Federation. Nobody wants to penalise the ordinary Russian person with crypto, and we have seen many of them protest about the Kremlin’s actions. Still, the authorities are on the look out for any infringements.

FinCEN sends a message to exchanges

For example, the United States Financial Crimes Enforcement Network, or FinCEN, a bureau of the Treasury Department, has warned financial institutions to consider crypto as a possible means Russia may attempt to use to evade sanctions. They have sent out a warning to US-based financial institutions “with visibility into cryptocurrency” (eg Coinbase) to report any activity that could be considered a potential way for Russia to evade sanctions.

Biden to sign crypto executive order

President Biden is about to sign an executive order on cryptocurrencies this week, outlining his administration’s view of the sector, and it is thought this has been brought forward as a result of the invasion of Ukraine. The Ukrainian minister of digital transformation, Mykhailo Fedorov has directly appealed to crypto exchanges on social media, urging them to block addresses of Russian users. Cointelegraph reports “many exchanges including Binance and Kraken have said that they will not unilaterally act to block ALL users in Russia from accessing their coins unless there were a legal requirement for them to do so.”

But the exchanges are taking action – because they must!

A view from the crypto exchanges

Changpeng Zhao, CEO of Binance, have taken to Twitter, to explain that since banks follow the sanctions rules, then so do cryptocurrency exchanges.

Brad Garlinghouse, CEO of Ripple, also slammed the allegations that Russia may use cryptocurrencies to get around economic sanctions. And he explains why it is wrong to think exchanges might be able to wriggle around the law. As he points out, worldwide crypto trading platforms rely on a variety of banking partners. These banks and crypto trading platforms would risk losing their licenses if a blocked country or individual breaks through all necessary security measures to conduct transactions on these platforms. That is why there are very stringent KYC and AML policies in place.

And Brian Armstrong of Coinbase has also weighed into the debate, saying that cryptocurrencies are not a way to evade sanctions, because “every United States firm must comply with the law; it makes no difference whether they engage in dollars, crypto gold, real estate, or any other type of non-financial asset.”

Ultimately, the reason Ripple or other cryptocurrencies won’t really help Russia is this; blockchains work on an open ledger, so any illegal transaction would be even more traceable than cash, gold or other assets.

KPMG reports surge in Singapore crypto investments

On By mehranmuslimiblogIn crypto, Economy, Fintech, GovernmentsLeave a comment

KPMG’s ‘Pulse of Fintech’ report highlights the strong growth in Singapore’s crypto markets. According to the latest report, “Singapore has seen a tenfold increase in crypto-related investments last year worth $1.48 billion, up from $110 million in 2020,” and this surge is expected to continue.

Government support

It is true that the city-state has for some time been recognised as a cryptocurrency hub, with over $1.48 billion in investment completed in 2021 alone. KPMG suggests that this growth is “in part due to government efforts to stimulate the capital market.” One of the actions it has taken is the establishment of a special-purpose acquisition company (SPAC) listing framework that positions Singapore as the best location for firms that are growing fast, as well as unicorns, wishing to go public.

Currently, regulators are making decisive efforts to regulate what they see as speculative digital assets. However, KPMG believes that that this will not hamper Singapore’s crypto investments, and that they will continue to grow this year.

Singapore crypto market changes from services to software

Whilst it is true that in January, Singapore’s central bank ordered cryptocurrency businesses to stop advertising their services to the public, and a significant number of firms have been refused the crypto licenses needed to operate a regulated cryptocurrency business in Singapore, KPMG forecasts that growth will continue because “the majority of cryptocurrency and blockchain investments last year were focused on software and underlying infrastructure rather than services.” Indeed, this sector now accounts for a third of the total fintech investment in Singapore, which rose to $3.94 billion last year , according to KPMG.

Asia-Pacific region going strong

Another highlight of the report is that the Asia-Pacific region is doing well in general. The region saw fintech investments hit a record high of $27.5 billion in 2021, with total funding surpassing $17.4 billion in the second half alone (compared to $11.5 billion in 2020). Furthermore, in 2021, venture capital funding rose to $19.6 billion from $11.5 billion in 2020.

KPMG’s trends to watch out for in 2022

Although KPMG reports cover all world regions, these are its predictions for 2022 in the Asia-Pacific region – ASPAC:

  • Singapore growing on the radar of companies looking for a base from which to expand outside of the Asia-Pacific region;
  • growing investment from Asia-Pacific based countries into developing regions, including the Middle East, Africa, and Southeast Asia;
  • continued growth of embedded finance, including banking and insurance.

How to Survive a Bear Market

On By mehranmuslimiblogIn Altcoins, Bitcoin, crypto, Economy, Stablecoins, TipsLeave a comment

The year has not started well for crypto investors. Many of you will be trapped in the falling market and unable to cash out without incurring heavy losses. According to data from Intotheblock, 28% of Bitcoin investors and over 31% of Ethereum investors are in a situation where the assets are worth less than they paid for them.

The question most would like an answer to, is how can I survive this? Here are a few suggestions.

  1. Use dollar-cost averaging

If  you have stablecoins or fiat, you can buy the dip. But when you do, the most recommended strategy is to implement something called “dollar-cost averaging (DCA).” For example, let’s say you have $1,000 in reserve funds. A good DCA strategy would be to break up the amount into five tranches of $200 or even 10 tranches of $100 and place trades using those smaller amounts. So, instead of spending all your money in one go, it usually works out better to buy a small amount and wait to see if the asset falls in price further. If it does, buy a little more, and so on.

  • Diversify your investments

One way to hedge your bets is to use DCA for a range of different crypto assets. To choose your assets, look at the following: 1. Previous all-time-high; 2. Past performance and 3. Future roadmap announcements.

You should also look at whether an asset is considered to be ‘overbought’ or ‘oversold’. If an asset is deemed to be ‘overbought’, it means that its price is considered to be too high and that it will fall soon. If it is oversold, its price is considered to be undervalued, and that is usually a sign that prices will rise soon.

  • Don’t panic

In a bear market, you really need to manage your emotions as much as your money. Fear and greed can lead to investors making foolish, snap decisions that result in losses. Greed, for example, often leads to investors staying in a a trade beyond your take profit level in the hope the asset will rise even higher in price. What you need to do is set a stop for losses. Basically, take profits when you can and don’t panic when the bears arrive!