BTC is Ceding Ground to Stablecoins as the Settlement Currency for Crypto Derivatives

However, there is one area, where stablecoins are stealing a march on bitcoin – settlement of crypto derivatives.

For the uninitiated, derivatives are financial products that derive their value from an underlying asset or a group of underlying assets. In the case of crypto derivatives, these underlying assets are cryptocurrencies or crypto-assets. The currency in which profit/ loss of a derivative contract is denominated is referred to as the settlement currency.

Derivatives are currently the most exciting area of crypto trading and have seen remarkable growth in the last 12 to 18 months. This growth is being led by new entrants which are shaking up several aspects of derivatives trading, including settlement currency. The incumbents, namely BitMex and Deribit have preferred BTC settled contracts. Deribit now also offers futures and options on ETH that are settled in ETH. However, the broader market is quickly moving towards stablecoin settlement.

New Derivatives Exchanges are Driving Stablecoin Settlement

Delta Exchange, which is a relatively new entrant in the crypto derivatives space, has been pioneering stablecoin settled futures. Delta launched its first USDC settled futures contract back in January 2019. Considering that USDC was fairly new then, the choice of USDC over the much more established USDT was a bold one. This bet on USD paid off as both volumes on Delta Exchange and USDC market cap grew rapidly in 2019. Encouraged by the response of traders, Delta Exchange went on to list USDC settled futures and perpetual swaps on several leading altcoins.

With the trader demand for stablecoin settled futures clearly established, other derivative exchanges have started to follow suit. The most notable among these is Binance. The exchange launched its futures trading platform in the 4th quarter of 2019 and has selected USDT as the quoting currency for the entire platform. Given Binance’s reach, this will give a big fillip to the market share of stablecoin settled derivatives.

Why Traders Prefer Stablecoin Settlement

Trader’s preference for stablecoin pairs has been clearly visible in spot markets. In fact, having USDT pairs on altcoins was one of the key reasons behind Binance’s strong growth in 2017. Even now, for most cryptocurrencies, the trading volume in USDT pairs is higher than that in BTC pairs.

Focusing on derivatives trading, stablecoin settlement is preferred by traders for primarily three reasons:

  • Ease of understanding: Stablecoin settlement makes trading crypto futures quite similar to trading futures on stocks in traditional financial markets. A trader bets up on the $ price of a crypto-asset/ stocks and keeps USDT/ USD as collateral. If she is right (wrong), her USDT/ USD increases (decreases). Compare this to a BTC settled futures on BTC. A trader has to bet upon the price of bitcoin while keeping BTC as collateral. It requires some mental gymnastics to wrap your head around this.
  • Protection of collateral against market moves: Let’s continue with the BTC-settled BTC futures example. Consider a trader that believes bitcoin price is about to go down and takes a short position in BTC futures. For this, she is required to keep some BTC as collateral. If the trader is proven right and bitcoin price actually goes down, the following happens: (a) she makes profit on her short futures position, but (b) the $ value of her BTC collateral also goes down. So, in this case, the trader ends up with lesser money in dollar-terms. She could have avoided this hit if she had the option of keeping collateral in a stablecoin.
  • BTC price of altcoins is hard to predict: Bitcoin is quite volatile. The volatility in altcoin prices is even higher. This makes predicting prices of altcoins in BTC-terms incredibly difficult. Let’s explore this in detail. When the market is bullish, both BTC and altcoins go up in $-terms. However, in the early parts of a rally, BTC price tends to go up more than altcoin prices. This means that BTC prices of altcoins actually go down. Given these dynamics, traders find it easier to trade futures where prices are in USD or a USD-pegged stablecoin (e.g. USDC and USDT).

Conclusion

In mature asset classes, the sizes of derivatives trading is typically 4-5x of spot trading. The rapid growth of crypto derivatives suggests that the same relationship will likely get established for cryptocurrencies too. As crypto derivatives grow and mature, standardisation and a move towards established practices from traditional financial markets is natural. We believe stablecoin-settlement is part of this process. Introduction of more complex derivatives such as options and interest rate swaps is only likely to accelerate this trend. That said, it remains to be seen whether Delta Exchange can continue to innovate in stablecoin-settled derivatives and manage to stay ahead of its peers.

Top 5 Potentially Profitable Cryptocurrencies in 2020: Investment Advice

Cryptocurrency is a potentially great digital asset for investment. Some cryptocurrencies have better options for investment in 2020. Do you want to know what digital currencies are worth investing your money in the next 12 months? Read the following recommendations.

Factors to consider when choosing a cryptocurrency for investing in 2020

Despite the international trend of cryptocurrency devaluation in 2019, some coins still possess a very good potential for making quick and long-term ROI. Do not pay attention only to the current rate of cryptocurrencies because this index is the most volatile and may change drastically within a few weeks (take, for instance, the dramatic drop of Bitcoin price in 2018). On the contrary, consider the following factors and indicators:

  • Market capitalization – the value of all issued digital coins of the particular cryptocurrency. High market cap means a large volume of the crypto coins participating in active transactions, which means an enhanced interest of investors;
  • Liquidity level – the higher it is, the faster a cryptocurrency can be sold at the market price. The most popular cryptocurrencies – Ethereum, Bitcoin and Ripple – have a high liquidity rate. Trading activity on exchanges indicates the number of transactions with certain cryptos made over a certain period. This indicator shows an actual demand in particular cryptocurrencies among traders;

Check the current top 10 cryptocurrencies with the highest market cap (January 28, 2020):

Source: https://coinmarketcap.com/

Rules to learn before investing in cryptocurrencies in 2020

According to AMarkets expert Artem Deev, the following recommendations will help to minimize risks and increase ROI for cryptocurrency investors this year:

  • Diversify your investments – never invest money in one asset. New traders and investors make this mistake repeatedly and, as a result, lose all money after the first failing deal. Diversify your investment portfolio. At least one of the chosen cryptocurrencies will bring profits and you will be able to minimize losses;
  • Do not blindly trust one source of data – always use a few sources (chats, forums, expert opinion, financial analysis, brokers);
  • Learn and observe – it is the only way to pick the best cryptocurrencies and the entry point to this extremely volatile market;

Top 5 cryptocurrencies to invest in 2020:

1. Bitcoin

In May 2020, the first and major cryptocurrency developers will offer 50% reduced rewards – 6.25 BTC instead of 12.5 BTC for each verified block. However, apart from that, Bitcoin is likely to bring the dominance index to 65-70% compared to other altcoins. In such a way, it can become the cryptocurrency with the largest market capitalization. These factors may significantly affect the growth of its price in 2020. Active use of Lightning Network may also change the BTC ecosystem. It will enable the implementation of Bitcoin in decentralized applications, micropayments, and e-commerce platforms. The current Bitcoin price (January 28, 2020) is $8 994,85.

2. Ethereum

Unlike Bitcoin, Ethereum is based on practical smart contracts used by many projects for the digitalization of transactions. The currency value may increase due to the increasing demand for its blockchain and functions, rather than a deficit of the asset as it happens with BTC right now. A major role in the success or failure of this currency will depend on upcoming fork updates and rapid implementation of the Proof-of-Stake algorithm. The approval by regulatory organizations and community decision to de-list ETH from the list of altcoins may also affect its price growth in 2020. The current ETH price is $171,38.

3. NEO

The NEO project is often included in different cryptocurrency investment ratings for the next year. This cryptocurrency breaks many stereotypes, including being the first open-source token originated from China. It claims to transform the traditional financial system by combining digital and real assets. Its unique Superconduct trading mechanism allows users to trust the funds through a decentralized platform. So, NEO’s appliance is beyond doubt, as its rapid demand growth. NEO may even hold an ICO, but so far it is trading at the level of $11,14 USD per token. The current NEO price is $11,14.

4. EOS

Chinese experts, according to CoinTelegraph, really like to include EOS to the list of the most promising cryptocurrencies for the next few years. Even if you don’t know much about crypto coins, it is definitely worth your investment in 2020. If Twitter, Uber, and Amazon ever move to a blockchain, the core of their work will definitely be EOS. The EOS system is free of Ethereum problems with scalability and it is ready to replace other competitive blockchains. If Ethereum fails, EOS can level up to 100 USD per token. EOS achievements become possible thanks to the consensus algorithm of delegated proof of ownership (DPoS) and an infinite number of similar blockchains. The current EOS price is $3,94.

5. Ripple

Some experts call XRP the “king of banking infrastructure”. The successful partnership with major financial market players made the Ripple ecosystem a breakthrough in the crypto industry. Take the latest integration with Western Union and the potential replacement of SWIFT to accelerate and reduce the cost of large money transfers between counterparties. However, do not expect huge profits with XRP in 2020, it is good for long-term investment. Even with the most optimistic approach, XRP price is unlikely to rise above 0.7 USD in the next couple of years. The current XRP price is $0,233759.

Source: https://i0.wp.com/www.tekedia.com/wp-content/uploads/2019/12/coins.jpg?resize=775%2C450&ssl=1

Cheap but potentially good for investment cryptocurrencies in 2020

Besides the obvious choices of popular cryptocurrencies, one of AMarkets experts – Basil Gamov – recommends to take a closer look at cheap but potentially great cryptocurrencies to invest in the next 12 months:

1) Chainlink (LINK) – appeared in 2017 in the USA. These crypto coins developed a technology that forms channels between different data providers employing smart blockchain technology. Chainlink allows all network operators, like information providers, to earn their token LINK. From an investment point of view, Chainlink has great potential. This is the list of partners who also believe in this crypto coin’s future: Dapps Inc, Google Cloud, ETHA, ConsenSys. The price (January 28, 2020) is $2,62. The market cap is $917 350 826.

2) Basic Attention Token (BAT) is another functional type of tokens based on the Ethereum blockchain. It is used only in the Brave browser. The cryptocurrency was launched in 2015. Developers offer a various concept of interaction for all network participants. Browser users pick to choose ads or not and can monitor the token’s price in real-time via Brave. The token has a very active and massive affiliate program, has the support of the Tor browser and DuckDuckGo search engine. The current token price is $0,218456. The market cap is $311 019 624.

3) Synthetix Network Token (SNX) is a potentially interesting platform network based on the ERC20 token. It helps to create synthetic assets (Synths) for tracking the value of physical assets. People can create and support their Synths and make money with them, without actually being the owners of these assets. The token appeared in 2017 and back then it was called Havven. The current token price is $1,19. The market cap is $193 220 205.

Final thoughts

Sure, you are free to pick any cryptocurrency to invest in 2020. Remember to diversify and work with reliable exchange services and brokers to protect your investment deals from any fraud. Make sure to include crypto coins into your asset portfolio as soon as possible while top currencies like Bitcoin and Ethereum are still hot for investment.

Just Sell And Go Away

  • Tremendous risks have been accumulated within the financial markets. We’re moving to outright shorting risk.
  • Trump’s impeachment is likely to play out under the “Bill Clinton 2.0” scenario, where the House votes to impeach, but the Senate does not remove the president from the office.
  • Credit risks are materializing at an alarming pace. The U.S. interbank market is the key issue and deserves particular attention.
  • The fundamental economic narrative remains weak. The surge in oil prices amid geopolitical tensions is still a good opportunity to sell.

The risks are rapidly building up. The fact that stock indices are still close to their all-time highs and credit spreads are tightening is outright surprising. To be fair, though, crises rarely happen when the crowd is prepared for them. Instead, the analyst community first goes from ultra defensive to balanced. And only after the risk assessments are lowered, the trouble strikes.

What kind of risks are we talking about? For the most part, the economic ones. Global economy continues to slow, dragged down by China. The country’s industrial output growth weakened to 4.4% y/y in August, the slowest pace since February of 2002. The reader is likely familiar with the number, but it’s crucial to fully understand its significance. Just like the market was late to recognize the scale of China’s growth and its consequences, it is now failing to grasp the magnitude of the slowdown. It is by no means priced in.

There’s no reason to expect an improvement either. As the U.S. presidential primaries get underway, it becomes clear that the Democrats’ stance on China isn’t much different than that of Trump’s. Virtually everyone favors a stricter policy towards China—the U.S. political elites haven’t been this united since the Russia episode not so long ago. Donald Trump himself has already promised a much tougher stance on Beijing when re-elected. And even if, hypothetically, the next American president is a Democrat, the chances for a softer policy are slim to none.

China’s response to the external challenges has been largely muted. It’s almost as if the officials have decided that if the economy goes down, it should take everyone with it (in our previous review we wrote about Germany being in a recession, which is a direct result of China’s problems). The government’s tax incentives primarily compensate for trade war losses. The PBoC is just keeping monetary conditions unchanged, but is not softening them. And both institutions are making sure that the real estate bubble doesn’t inflate.

Perhaps things could’ve simply stayed this way for a while, but the U.S. is ramping up pressure on China. In late September, it was reported that Trump’s administration considered limiting Chinese firms’ access to USD funding (both debt and equity). Treasury officials played down the reports, specifically saying they were “not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time.” But the key words here are “at this time.” If this does eventually happen, Chinese investors will be shut out of the U.S. markets.

Such a step can be very damaging to China’s financial system and economy. The country’s corporate debt stands at 165 of GDP, the broad money supply is 200% of GDP. This is 2-2.5 times higher than that of developed countries and is a sign of enormous risks. In fact, China is long overdue for a credit crisis, but has managed to avoid it, chiefly due to its closed capital account. But the Trump administration seems to have found a creative way to trigger a fundamental repricing of Chinese assets that also serve as collateral for the country’s banking system. Should the U.S. proceed with this idea, it is highly likely to trigger extreme risk aversion across global markets.

Another key story of the month was the liquidity crisis in the U.S. interbank market. The fed funds rate broke out of the Fed’s target corridor, which, in theory, shouldn’t be happening. Even worse, it seems like the Federal Reserve doesn’t have a clear understanding of why exactly that happened. So far there are two working hypotheses. One is that there is still a liquidity surplus in the system, but it is unevenly distributed across banks. The other boils down to reaching a certain “terminal” reserve level, i.e. the lower limit of the Fed’s balance sheet has been empirically established.

Of course, the Fed needs to determine the source of market stress. For traders, however, the picture tells only one thing: any positioning should account for an episode of sharp risk aversion. If the first hypothesis proves correct, it would imply that the financial institutions are experiencing difficulties obtaining a loan. Because if the whole theory is based on the assumption that the system is still operating under liquidity surplus, then someone must be hoarding that liquidity. This is called a lack of trust, and it can quickly turn into a full-fledged crisis. If the second hypothesis is to be accepted, the U.S. financial system has reached the point when there’s simply no natural supply of fresh liquidity anymore.

Perhaps the only significant takeaway from this discussion is when to expect a crash-type episode. If what we’re seeing is loss of trust between interbank players, 2019 could end much worse than 2018. If the system has hit a structural bound, the Fed’s repo purchases can buy another 3-6 months. Unlike most of the market, we do not expect recent events to push the Fed back into QE as such operations are not flexible and do not adjust to fluctuations of demand for reserves. The beginning of the U.S. fiscal year should also be very telling (it is known that the Treasury’s expenses were one of the factors that led to a surge in interest rates).

Finally, a few words on the U.S. political landscape. Democratic leader Nancy Pelosi announced that Congress officially opened an impeachment investigation against Donald Trump. We’re not political analysts, so we will not delve too deep into the issue. But the impeachment is likely to play out under the “Bill Clinton 2.0” scenario, where the House votes to impeach, but the Senate does not convict. A different outcome is very unlikely as the upper chamber is controlled by the Republicans, and the evidence for Trump’s impeachment is too weak. So far, at least.

However, if the Democrats somehow manage to succeed in removing Trump from office, the immediate effect on risk appetite will be negative. Donald Trump has proven to be an investor-friendly president. His policies have been directly beneficial for those holding higher-risk assets, and are still indirectly supporting the dollar. We also note that back in the Clinton impeachment days, the main market stories were the Asian financial crisis and the Fed’s response to that external shock. Which is why we’re putting politics third among our key trends and keeping a closer eye on credit markets and developments in China.

XAUUSD, XAGUSD: a litmus test for interbank stress.

We remain long XAUUSD, XAUEUR. If stop-loss is reached, will again buy XAUUSD at 1390 targeting 1562, stop-loss at 1335.

The stress in the U.S. interbank market has surprisingly had no initial effect on the dollar. Even as rates were skyrocketing, USD strengthened only moderately. This is interesting for the simple reason that if someone needed liquidity (and could not borrow it), that could be done by selling some assets. And if the bank settled the transaction in a foreign currency, the next step would be to convert it into dollars. In turn, the demand for the USD would cause the currency to appreciate.

But the greenback only rallied at the very end of the month. EM-currencies and commodities took a hit, and gold was no exception. The yellow metal plunged more than 5% from its recent highs. We did expect the move (see our previous review), even though this severe shortage of dollar liquidity wasn’t a factor a month ago. From the technical viewpoint, the 1480 mark, as well as the critical support at 1435 is now important for XAUUSD. A break through these levels would mean bad news for gold in the long-term, while a return to the 1300 area could even make the old targets below $1000 per troy ounce possible.

Actual trading isn’t the only reason we are carefully monitoring precious metals (as well as for cryptocurrencies). In the current environment both gold and silver help gauge the degree of the dollar-funding stress. If XAUUSD drops below the mentioned levels, but, say, EM-currencies don’t go down with it, it would be a good reason to go short on them. This strategy works for risk-related assets in general, but of course, requires thorough quantitative modelling.

EURGBP: the euro is endogenously weak, while the pound gains ground.

We remain short EURGBP, looking for EURUSD rebounds to 1.118 оr a breach of the 1.086 to enter shorts targeting 1.0325, stop-loss at 1.131/1.093 respectively.

While the dollar has been gaining broad-based strength, the euro has been just as broadly weak. In our last report we stressed the very low probability for the EURGBP parity. While this scenario still can not be ruled out, the chances are getting slimmer. However, shorting the pair at the current levels is tactically impractical: the rate has gone down significantly, thanks to both the Brexit drama and the general weakness of the European currency.

But it is not about the EURGBP anymore. EURUSD has been showing signs of life, with a shallow, but consistent downtrend emerging. The unit closed September at 1.09, which is just above the critical support at 1.086. This is of an equivalent importance to the 1435 level in gold. If things worsen in the U.S. interbank market, the euro and gold can become highly correlated and tank simultaneously. For the euro, the first intermediate target lies at 1.064, and then the move could extend towards 1.032-1.046.

USDRUB: from testing lows to testing highs.

We buy USDRUB at 65.00 targeting 68/69.7, stop-loss at 64.00.

EM-currencies in general and the rouble in particular were also late to react to surging dollar rates. Over the past 3 trading sessions, however, they did all the catching up. USDRUB is trading by a full figure higher, and it’s very likely that it’s only the beginning. From a technical point of view, the conservative target is 68. But it is very well possible that it will reach levels closer to 70 before 2020 (or at the very beginning of the year). Our models suggest that the next year is to be challenging for the entire EM universe. In the worst-case, but still realistic scenario, the rouble could depreciate by another 15% by the end of 2020.

In our previous review we also pointed out USDMXN as another candidate to go long. The unit still trades at levels where longer-term investors can enter. Among the potential losers are also ZAR and TRY. No one is immune to the U.S. interbank stress and it will first affect crosses with the dollar itself. The entire EM-sector still has a long way to fall.

We hope these trade ideas will be useful for you. Be free to try them in AMarkets.


Analytical materials and comments reflect only personal views of their authors and can’t be considered as trading advices. AMarkets is not responsible for losses as the result of analytical materials usage.

Brexit and the Pound: Plenty of Downside Left

So where are we now? It seems to me that “terrible” is not just the most likely scenario, it’s not even the worst possible scenario any more. In my view, an interim government under Labour with Jeremy Corbyn at its helm represents the worst of all possible worlds for GBP: economic dogmatism that will frighten markets coupled with a pro-Leave bias. Which is not to say that I’m any great fan of the incumbent Conservative government either, except insofar as I’m an American citizen and so grateful for any group of politicians that make our Congress seem reasonable and well-functioning by comparison.

But let’s put politics aside and look at the economics. Where is the pound nowadays? The simplest way to value the currency is relative to its past value. For this exercise, we use the real effective exchange rate (REER): the value of the currency against the country’s major trading partners, adjusted for inflation. It’s important because trade imbalances are one of the major factors moving currencies over the longer term.

On this metric, back in March, the pound was just 1.2% undervalued against a basket of currencies of the major economies. Currently, it’s about 7.1% undervalued – still not at the 10% undervalued line that has sometimes (but not always) been a barrier in the past. That means even under normal circumstances, it can fall further. And as you can see, in extraordinary circumstances, such as the Global Financial Crisis in 2008/09, that 10% line is no barrier to GBP depreciation. (Last time I used the IMF’s calculation for the GBP REER, but this time I’m using the BIS’, which is updated more frequently.)

The more theoretical way of valuing the pound would be with purchasing power parity. That’s as close a metric as we can get in forex analysis to seeing whether a currency is “fairly valued.” Looked at this way, the pound is still relatively expensive against the euro. According to the OECD’s way of calculating PPP – taking a large basket of goods and services and pricing them in different countries — the pound is 12.7% undervalued vs USD but still 8.1% overvalued vs EUR! This compares with -8.7% and +11.%, respectively, back in March. And considering that the EU is Britain’s largest trading partner (51.6% of total trade) vs 10.6% to the US and 7.6% to China, the two dominant USD trading partners, it’s clear that the pound’s value relative to EUR is the more important of the two prices. It’s got far to go before it hits up against the 20% line that has in the past provided some resistance (as that’s about the level where the currency starts to impact trade flows).

For GBP/USD to hit the -20% line, the pair would have to be at 1.14. For EUR/GBP to hit that level, the pair would have to be 1.20 (implying GBP/USD at 1.08, assuming EUR/USD stays at its current rate). It looks like the long-awaited “pound parity party” is coming up!

This analysis so far builds on what I said last time: although the pound has fallen considerably since before the Brexit vote, that doesn’t mean it’s cheap yet. It can still fall further.

Back in March, I made the balance of payments argument for why sterling should fall further: that after Brexit, the current account deficit is likely to widen further (because exports will be held up) while the financial account surplus is likely to diminish (as both direct investment and portfolio investment turns into an outflow). That argument still holds. Now I’d like to focus on the monetary reasons why the pound is likely to weaken, namely: the market isn’t at all discounting the Bank of England’s likely reaction to Brexit.

Basically, the market sees little chance of any significant Bank of England easing – it’s only pricing in a 50% chance of even one rate cut by June of next year.

The market is implying that over the next year, the BoE may cut rates about as much as the ECB – which already has negative rates – and the Bank of Japan – which hasn’t had significant inflation for about two decades.

Over the longer term, it’s expected to cut rates very little – even less than the Bank of Japan, somehow.

The small amount of rate cuts that are priced in probably reflect the fact that Bank’s policy rate may be positive, but it still isn’t that high in international terms, neither in nominal nor in real terms, even if it is positive.

However, that comparison fails to take into account the impact of the quantitative easing that other central banks undertook. If we adjust for that, we get what are called shadow policy rates.* These show much better just how tight UK monetary policy is relative to the urozone or Japan. It’s nearly the same as in the US, where rates had been lifted from almost the same starting point (effectively) nine times before coming down once (the graph only has month-end data and so doesn’t encompass the Fed’s rate cut this week).

In other words, UK monetary policy is still very tight and yet the market is only pricing in the minimum amount of loosening – about as much as central banks that are already well into negative territory for their policy rates. Is this reasonable? It was back before Brexit, when the Bank of England was in the process of “normalizing” interest rates (on the assumption that “normal” was still the way the world worked before September 2008). And that’s basically what the Monetary Policy Committee (MPC) would have us believe. Following Thursday’s meeting, they repeated their usual comments that if it looks like Brexit will go smoothly, they would raise rates “at a gradual pace and to a limited extent.” Even in the case of a no-deal Brexit, the Bank’s response “would not be automatic and could be in either direction.”

Does anyone believe that? Will the one rate cut that’s not even fully priced in be enough to fight the biggest shock to the UK economy since James Callaghan had to borrow money from the IMF in 1976? Of supermarket shelves empty while lambs that were destined for foreign markets are being slaughtered by the thousands? Central bankers may be dedicated to fighting inflation but they also have to be aware of what the population is facing. Besides, even the BoE itself said Thursday that if there was “entrenched uncertainty” over Brexit, “domestically generated inflationary pressure would be reduced.” That gives no reason to expect a hike in rates any time soon – and a lot of reasons to expect the Bank of England to join the world’s rate-cutting cycle.

I think the market is being too, too sanguine about the likely impact of Brexit on the UK economy and the Bank of England’s likely response. The rational course in case of a downturn would be for the Bank to cut rates and let sterling act as a “shock absorber” in troubled times. I still see plenty of downside to the pound as the prospect of below-consensus interest rates add another reason to sell on top of impending economic and political chaos.

This article was written by Investment Strategy Contributor Marshall Gittler that shared his exclusive insights in an in-depth Brexit analysis powered by BDSwiss


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Cryptocurrency vs. Penny Stocks

Since the price is low, an investor with little capital can buy shares, and, in case he can read the market correctly, his investment will have healthy returns.

When cryptocurrency was introduced in 2009, and subsequent cryptocurrencies, a lot of investors witnessed similarities between penny stocks and cryptocurrencies. Despite their similarities, they also have differences you should take note of.

After reading, you will determine which one is better for short term investments.

The Differences Between the Cryptocurrency and Penny Stocks

What makes the two different from each other comes from what makes them similar because neither of them is regulated. When you trade penny stocks over the counter, it means they are not under the monitoring and regulation of the stock exchange. No central bank controls cryptocurrencies because they are decentralized. However, lack of regulation is riskier with penny stocks since their susceptibility to fraud and scams are higher.

Cryptocurrency is less risky because of the blockchain technology they use, which is a public ledger. There is less fraudulent activity because all records, accounts, and transactions are public.

Strong Returns of Bitcoin

Bitcoin has had a strong performance over the years with huge returns and continuing customer adoption. Compared to the worldwide currencies, Bitcoin yielded bigger returns than any of them for 5 out of 6 years.

2011 – Bitcoin + 1500%

2012 – Bitcoin +299%

2013 Bitcoin + 5400%

2014 – USD + 13%

2015 – Bitcoin + 37%

2016 – Bitcoin + 130%

The percentages show how outstanding payouts were during a 5-year stretch for all assets, stocks, currency, or bond. Since Bitcoin is on the rise again, the underlying computational network has become stronger and more secure than before. In addition, there are a lot of user-friendly wallets, applications, and arising resources.

The Similarities Between Cryptocurrency and Penny Stocks

Whenever cryptocurrency is launched, founders become interested in circulating the currency virtually so certain amounts of units are resold to investors. They will either get an existing digital currency, or fiat currency, which is normally USD. The majority of cryptocurrencies have a value between $3-$4 per unit during the early months of existence, like the price of penny stocks.

There are opportunities that have a low entry fee. It involves some hunting, but you do not need a lot to get started. With penny stocks, you can get involved in big board stocks options trading at a few hundred dollars in every share. Another similarity is that penny stocks and cryptocurrency can have low commission rates and they are both volatile with gains and losses.

Cryptocurrency Volatility Decreasing

It is an encouraging sign that the volatility is decreasing because of the lower daily returns in the previous years. In the past, Bitcoin was perceived as a volatile investment, which is true. However, this has lessened because of market maturity.

There is already a decrease in variation to levels that are more synonymous to traditional currencies. That is because of the daily standard deviations which decreased the returns from 5% to 10% daily from 2014, and under 2 before that. The reason behind this is the deeper liquidity among exchanges, a better understanding and use of Bitcoin, and overall confidence in buying Bitcoin. The network experiences less panic in buying and selling cryptocurrency. With a lower variability, the asset is less risky and becomes more comparable to the behavior of investment in gold as a global hedge when there is a collapse in the currency and negative pressures from the market.

Bottom Line

You can invest in penny stocks and cryptocurrency with a low capital and they both have the potential to bring high yields, and highly speculative. A lot of traders prefer to trade in safer environments, which involves price movement investments.

Whichever you choose, there is always a risk in penny stocks and cryptocurrency investment, but you can be sure that the returns are healthy if it works out.

Why Crypto Processing Systems Is The Future

Thousands of years ago people were exchanging goods for other goods – that’s what we call bartering. Then the government-controlled currencies, also known as fiat currencies were introduced. It was a huge leap forward for our society because people were finally able to trade more conveniently and huge distances between parties became much less of a problem. The appearance of the term “money” is one of the most important keys to creating the world we live in today.

However, since the beginning of the new century, like many great inventions, traditional currencies started to become obsolete. Nowadays, our society demands things to happen immediately. By today’s standards, waiting for more than a week for goods to arrive and more than an hour for the transaction to complete is unacceptable. As CEO of cryptocurrency payment processor CoinsPaid said in his interview: “As a currency becomes more digital, customers’ wants to become more aligned to faster payment methods”. And this trend will only become more present. From exchanging bread for butter to ordering sushi via messenger app: we are on the verge of another drastic change in how we approach payments.

In this article, we will talk about how the introduction of cryptocurrency payment systems will affect both customers and businesses.

Consumers

You own your data

Financial institutions like banks collect most of the information about customers’ personalities and finance. Your bank knows your name, where you live, how much savings you have, everything about your investments, credit score, whether you married or not and the list goes on. Moreover, businesses also gather information about their consumers. Your browsing history on e-commerce sites and bits of your personal information are always stored and used by them.

Using cryptocurrency payment systems allow users to remain anonymous. The nature of blockchain technology implies that the only accessible piece of information is a string of numbers that is tied to your virtual wallet. Surely enough, there is still some personal information available to businesses, but the amount and significance of it are not comparable to what credit card transactions provide.

Less or no commission at all

One of the main ideas of the banking system is to make money using the money of its clients. ATM withdrawals fee, transaction fee, the yearly fee for having an account – almost any service offered by a bank comes along with a certain amount of money you have to pay.

Crypto wallets are superior to bank accounts on this matter. The majority of crypto processing systems offer to open a wallet for free and transaction fees are small or non-existent. For example, CoinsPaid provides its customers with 0% commission from transaction fees through its ecosystem.

Global and instant

Cryptocurrencies often don’t belong to any country, as traditional currencies do. Most of the cryptocurrencies available on the market are decentralized, which means it can be instantly traded across all of the parts of the globe. Banks on the other hand often have limitations when it comes to international trade, but all you need to trade crypto is internet access.

Businesses

Speed, thus security

Today’s payment system provided by banks is always under a risk. Billions of dollars are lost due to credit card fraud worldwide. When you buy goods or services using credit cards, your transaction often takes days to complete, because your money always has to go through a third party, before reaching the receiver. This is the time when fraudulent actions take place. The customer cancels his payment before it’s processed, which means that business may already send goods or perform service without receiving any money. When it comes to crypto, once a transaction has been performed, there is nothing that can be done to reverse it.

Moreover, fraudsters often use drawbacks of the centralized nature of the banking system. The thing is that if a person may hack into the bank’s database – he instantly has access to information of every person in that database. However, because of the fact that most cryptocurrency processing systems are decentralized, there is much less risk of such a situation.

Customer loyalty

This may be not so obvious advantage at first sight, but considering the number of people that use crypto today, this may be a turning point for some businesses. If a customer happens to be an active cryptocurrency user and there is 1 out of 10 businesses in a particular niche that accepts crypto, it may be the determining factor in customer’s choice.

Moreover, he will most likely return to the same company next time. The adoption of the cryptocurrency processing system by most businesses is inevitable in the long run, but those who can get ahead of the competition earlier can easily win over this specific target audience.

Installing a cryptocurrency processing system for your business can be done easily and in the shortest period of time. Service like CoinsPaid would be a perfect example.

Lower prices, same profit

Cryptocurrency transactions can have a commission between 0 and 1.6%. Banks, on the other hand often charge somewhere between 0.5 to 5% for one transaction, depending on location, type of currency, etc. With this in mind, businesses now can attract more customers by lowering the prices, while receiving the same amount of profit per transaction.

Conclusion

Centuries ago the introduction of traditional fiat currencies was an enormous step for better living and convenient trading. However, unfortunately, those payment options don’t satisfy the needs of the current society.

Cryptocurrency payment methods offer huge advantages over traditional ones: lower fees, faster speeds, lower prices and a higher level of security. The introduction of crypto payment systems is the next step for better trading worldwide.

Alternative Methods to Buying Cryptocurrency

You should first know that cryptocurrency exchanges are popular these days because of the Bitcoin and Ethereum digital assets. Those who have cryptocurrency can exchange with each other and fiat currencies like USD, GBP, and EUR. These facilities are highly regarded and have brought a new level of modernization that was not achieved by the established global financial system.

Do not worry because there are a lot of ways on how you can buy cryptocurrency.

From Cryptocurrency Exchanges

You are allowed to exchange fiat currencies to cryptocurrency when you buy them from cryptocurrency exchanges. It is the most common way that people go for when they want to buy cryptocurrency. Normally, newbies use this option because exchange websites are easy to use and setting up is quick.

The payment method is normally Paypal, bank transfer, or credit card. If you want to use a credit card, here is a list of Money Under 30’s top rewards credit cards. Using a rewards credit card to buy cryptocurrency has the potential to earn quite a large sum of rewards points, especially considering the current value of 1 bitcoin.

You can choose from a lot of exchanges, and each one has its own level of security that accepts different payment methods.

Coinbase

If you want to buy well-known cryptocurrencies, the most popular digital exchange is CoinBase. Here, you can buy Bitcoin, Bitcoin Cash, Litecoin, and Ethereum. You will find it easy to use Coinbase and it is widely trusted. Occasionally, it goes offline when there is a trading frenzy. The Coinbase app is downloadable to your phone or create an account with them. When you are paying, the fees are based on the payment method you choose, so make sure to check before paying. Credit card fees are 3.75%.

Buying Cryptocurrency Peer to Peer & with Cash

Peer to peer is one of the simplest ways to purchase cryptocurrency because they remove the need for a middleman. It lets users purchase and sell cryptocurrency directly from each other. When you do this, you do not have to pay for any extra fees, you can use cash, gold or silver, and it is not mandatory to provide your ID.

Buying bitcoin using cash has a couple of advantages in comparison to buying them on cryptocurrency exchanges or through bank transfers. First of all, cash purchases because you do not have to give personal information and submit documents. Furthermore, buying cryptocurrency with cash are faster for first-time buyers or have not set up a crypto wallet address. Wire transfers could take 3 business days, and account verification when you use cryptocurrency exchanges can take up 21 days if everything is fine. Bank transfer could make you lose money, especially when the market is volatile and you want to move credits.

You can buy cryptocurrency using cash from a trusted friend or peer who wants to sell their cryptocurrency. All you have to do is pay them based on the agreed amount, and pay them through bank deposit or cash-in-hand. Then, you will receive the cryptocurrency on your chosen wallet address using a private key or other methods. If you meet the seller in person, they can scan the QR code that is on your crypto wallet and the digital assets will be directly sent.

Bitcoin ATMs

The Bitcoin Automated Teller Machine is recognized as the best option for those who do not want to use the bank. Take into consideration that consumers without accessing a reliable banking system or have become disillusioned can use crypto funding. The BTC ATM appears and operates similarly to commercial bank ATMs but only accepts cash for crypto coins.

The disadvantage of using ATM to purchase Bitcoin is having to provide your ID photos or self-portraits before you can buy because your privacy can be compromised. In addition, the fees that range between 2% to 5% is a huge disadvantage. However, a lot of users say that ATMs are the best alternative because of the familiarity, convenience, speed, physical aspect, confidentiality, and liquidity it can offer.

These are just some of the current alternative ways of buying cryptocurrency. Let us know if you can think of any others. Still not ready to buy? Keep an eye out on the market trends because eventually the leading cryptocurrencies will react in real time to unfolding economic situations.

The Fiat Market Vs The Cryptocurrency Market: Competition or Partnership?

Last year the well-known futurologist Thomas Frey predicted that by 2030 cryptocurrencies will replace 25% of fiat assets. Venture investor Tim Draper stated as far back as 2017 that Bitcoin and its derbitcivatives will completely replace traditional money in 5 years. Morgan Creek Capital Management analysts in their Q2 2018 stock market review also made a statement to the effect that fiat will be completely replaced by cryptocurrency in the future.

However today traditional money and cryptocurrencies remain inextricably connected: cryptocurrency’s worth is estimated in terms of fiat, fiat is going digital, and many more cryptocurrency platforms are launching traditional asset trading. One way or the other the existing competition between the fiat and the cryptocurrency markets may very well lead to their complete merging.

Amongst the many platforms that support the relationship between fiat money and the cryptocurrency market is CoinsPaid.

The platform was developed to support storage and payment processing with cryptocurrencies, CoinPaid’s target base includes businesses looking to adopt cryptocurrencies as an alternative payment option.

As cryptocurrency adoption continues, businesses already set up with cryptocurrency payment processing platforms are likely to fare better than those restricting payments to fiat currency. Cross-border fees, exchange rates and transaction times are just a few hurdles that such platforms remove.

The advantage of platforms such as CoinsPaid is that users are, not only able to receive and send cryptocurrencies, but are also able to store and exchange. The platform also caters for fiat money, which is key as both forms of payment coexist.

As the likes of Facebook, Telegram and even governments develop and issue cryptocurrencies, the existence of independent but regulated platforms is key.

After a slow start, the adoption of cryptocurrencies has taken place at a far quicker pace than had been the case with bank cards and international wire transfer platforms.

Transaction times and fees, transparency, and lack of geographical boundaries continue to be the cryptocurrency advantage over fiat money and the traditional banking platform.

Fiat players in the crypto industry: how the fiat market is adapting to the cryptocurrency market

According to Coinmarketcap, at the beginning of August of 2019, the total market capitalization of 2,420 cryptocurrencies amounted to $302.7 billion. Compared to the fiat market, this is only 0.36% of the $81 trillion of all 159 fiat currencies in circulation recognized by the UN.

Making services cheaper with cryptocurrencies

The cryptocurrency market is only at the beginning stage of its development. However, fiat platforms are already seeing their potential, which addresses inefficiencies and excessive fee structures.

Large players are adding to existing service capabilities to support the buying, selling and implementation of cryptocurrencies. According to a study carried out by Blockchain Clovr, 15.8% of respondents (112 out of 707) use cryptocurrency to send money home and the number is likely to only rise further.

The popular international payment system Neteller also provided users with the option of buying and selling Bitcoin, Ethereum, Ethereum Classic, Litecoin and Bitcoin Cash with the help of one of 28 available global currencies. Webmoney, Payeer and many others provide similar services.

Banks’ cryptocurrencies.

Banks’ controversial position when it comes to cryptocurrencies is well-known. For example, Bank of America, Citigroup, and Lloyds Banks forbid their customers to buy cryptocurrency using their credit cards. Morgan Chase’s CEO Jamie Dimon called Bitcoin a scam before announcing the development of its own cryptocurrency for accounting and payments.

In reality, large banks have also had to change strategy vis-à-vis cryptocurrencies. Thus in 2015, Goldman Sachs invested in an innovative financial company Circle and at the beginning of 2018 Circle acquired one of the largest cryptocurrency exchanges Poloniex for $400 Mln.

The Bank of England, China, and a number of EU member states are just a few of many central banks and governments looking to develop cryptocurrencies. Liechtenstein’s Bank Frick was the first to allow its customers to make direct investments in digital assets, protecting user funds through cold storage.

The crypto industry’s active development, which involves an increasing number of companies and consumers, is turning into an opportunity for traditional market players to strengthen their positions and play a significant role in the evolution of the financial system.

How the cryptocurrency market is adapting to the fiat market

Cryptocurrency platforms have from the beginning been trying to find a compromise between digital and fiat currencies to attract traditional traders and popularize cryptocurrencies.

Depositing and withdrawing cryptocurrencies

Popular crypto exchanges (Bitfinex, CEX.io, Bittrex, and others) support deposit and withdrawals in fiat currencies, as well as the trading of crypto assets in pairs to fiat. In this area, platforms that support the transfer, storage, and trading of both fiat and cryptocurrencies also include CoinsPaid. Looking ahead, the next key development will be the addition of custodial services to support the adoption of cryptocurrencies as an alternative to fiat money.

Earlier this year, the SEC cited a lack of custodial services as one of the reasons for delaying the approval of Bitcoin ETFs. As the market evolves, a number of players are already exploring and providing such services. CoinsPaid is targeting to provide custodial services by 2020.

Collaboration with custodians

Custodians are organizations that hold custody of securities and other assets that belong to customers.

Cryptocurrency services are moving to a qualitatively new level of customer service, attracting third-party custodians who provide security for client funds or introducing their custodian solutions.

Thus Coinbase became an official custodian in the summer of 2018, having concluded an agreement with n SEC-accredited broker Electronic Transaction Clearing and received the approval of a New York regulator. Coinbase Custody service is aimed at large institutional investors, and BitGo company and Xapo cryptocurrency wallet provide custody services for a wide range of users.

Bank License Acquisition

Some cryptocurrency services acquire a banking license to simplify internal operations. For example, a successful startup called Circle plans to obtain a U.S. federal banking license for trading tokens, which U.S. law classifies as securities, and also to avoid difficulties associated with registering a cryptocurrency platform in various states.

The cryptocurrency bank Foundrs Bank is also working on acquiring a European license. The largest cryptocurrency exchange Binance has a 5% stake there.

Since the advent of cryptocurrencies, many supporters of this new money have been positioning them as a replacement for fiat. Today it has already become apparent that digital currencies are not only analogous to monetary units, but also solve many other problems, providing fast and secure transactions, transparent and stable management of financial payment systems in companies, significant reductions in costs due to absence of intermediaries, and others.

At the same time, the cryptocurrency market works in close conjunction with the fiat market, and companies that use the strengths of both systems gain a serious competitive advantage. Therefore, the leading players in the fiat and cryptocurrency markets are joining forces to provide business and private users with even more opportunities using new multifunctional solutions (Coinbase, CoinsPaid, BitGo, Xapo, and others).

The fiat Market Vs The Cryptocurrency Market: Competition or Partnership?

Last year the well-known futurologist Thomas Frey predicted that by 2030 cryptocurrencies will replace 25% of fiat assets. Venture investor Tim Draper stated as far back as 2017 that Bitcoin and its derivatives will completely replace traditional money in 5 years. Morgan Creek Capital Management analysts in their Q2 2018 stock market review also made a statement to the effect that fiat will be completely replaced by cryptocurrency in the future.

However today traditional money and cryptocurrencies remain inextricably connected: cryptocurrency’s worth is estimated in terms of fiat, fiat is going digital, and many more cryptocurrency platforms are launching traditional asset trading. One way or the other the existing competition between the fiat and the cryptocurrency markets may very well lead to their complete merging.

Amongst the many platforms that support the relationship between fiat money and the cryptocurrency market is CoinsPaid.

The platform was developed to support storage and payment processing with cryptocurrencies, CoinPaid’s target base includes businesses looking to adopt cryptocurrencies as an alternative payment option.

As cryptocurrency adoption continues, businesses already set up with cryptocurrency payment processing platforms are likely to fare better than those restricting payments to fiat currency. Cross-border fees, exchange rates and transaction times are just a few hurdles that such platforms remove.

The advantage of platforms such as CoinsPaid is that users are, not only able to receive and send cryptocurrencies, but are also able to store and exchange. The platform also caters for fiat money, which is key as both forms of payment coexist.

As the likes of Facebook, Telegram and even governments develop and issue cryptocurrencies, the existence of independent but regulated platforms is key.

After a slow start, the adoption of cryptocurrencies has taken place at a far quicker pace than had been the case with bank cards and international wire transfer platforms.

Transaction times and fees, transparency, and lack of geographical boundaries continue to be the cryptocurrency advantage over fiat money and the traditional banking platform.

Fiat players in the crypto industry: how the fiat market is adapting to the cryptocurrency market

According to Coinmarketcap, at the beginning of August of 2019, the total market capitalization of 2,420 cryptocurrencies amounted to $302.7 billion. Compared to the fiat market, this is only 0.36% of the $81 trillion of all 159 fiat currencies in circulation recognized by the UN.

Making services cheaper with cryptocurrencies

The cryptocurrency market is only at the beginning stage of its development. However, fiat platforms are already seeing their potential, which addresses inefficiencies and excessive fee structures.

Large players are adding to existing service capabilities to support the buying, selling and implementation of cryptocurrencies. According to a study carried out by Blockchain Clovr, 15.8% of respondents (112 out of 707) use cryptocurrency to send money home and the number is likely to only rise further.

The popular international payment system Neteller also provided users with the option of buying and selling Bitcoin, Ethereum, Ethereum Classic, Litecoin and Bitcoin Cash with the help of one of 28 available global currencies. Webmoney, Payeer and many others provide similar services.

Banks’ cryptocurrencies.

Banks’ controversial position when it comes to cryptocurrencies is well-known. For example, Bank of America, Citigroup, and Lloyds Banks forbid their customers to buy cryptocurrency using their credit cards. Morgan Chase’s CEO Jamie Dimon called Bitcoin a scam before announcing the development of its own cryptocurrency for accounting and payments.

In reality, large banks have also had to change strategy vis-à-vis cryptocurrencies. Thus in 2015, Goldman Sachs invested in an innovative financial company Circle and at the beginning of 2018 Circle acquired one of the largest cryptocurrency exchanges Poloniex for $400 Mln.

The Bank of England, China, and a number of EU member states are just a few of many central banks and governments looking to develop cryptocurrencies. Liechtenstein’s Bank Frick was the first to allow its customers to make direct investments in digital assets, protecting user funds through cold storage.

The crypto industry’s active development, which involves an increasing number of companies and consumers, is turning into an opportunity for traditional market players to strengthen their positions and play a significant role in the evolution of the financial system.

How the cryptocurrency market is adapting to the fiat market

Cryptocurrency platforms have from the beginning been trying to find a compromise between digital and fiat currencies to attract traditional traders and popularize cryptocurrencies.

Depositing and withdrawing cryptocurrencies

Popular crypto exchanges (Bitfinex, CEX.io, Bittrex, and others) support deposit and withdrawals in fiat currencies, as well as the trading of crypto assets in pairs to fiat. In this area, platforms that support the transfer, storage, and trading of both fiat and cryptocurrencies also include CoinsPaid. Looking ahead, the next key development will be the addition of custodial services to support the adoption of cryptocurrencies as an alternative to fiat money.

Earlier this year, the SEC cited a lack of custodial services as one of the reasons for delaying the approval of Bitcoin ETFs. As the market evolves, a number of players are already exploring and providing such services. CoinsPaid is targeting to provide custodial services by 2020.

Collaboration with custodians

Custodians are organizations that hold custody of securities and other assets that belong to customers.

Cryptocurrency services are moving to a qualitatively new level of customer service, attracting third-party custodians who provide security for client funds or introducing their custodian solutions.

Thus Coinbase became an official custodian in the summer of 2018, having concluded an agreement with n SEC-accredited broker Electronic Transaction Clearing and received the approval of a New York regulator. Coinbase Custody service is aimed at large institutional investors, and BitGo company and Xapo cryptocurrency wallet provide custody services for a wide range of users.

Bank License Acquisition

Some cryptocurrency services acquire a banking license to simplify internal operations. For example, a successful startup called Circle plans to obtain a U.S. federal banking license for trading tokens, which U.S. law classifies as securities, and also to avoid difficulties associated with registering a cryptocurrency platform in various states.

The cryptocurrency bank Foundrs Bank is also working on acquiring a European license. The largest cryptocurrency exchange Binance has a 5% stake there.

Since the advent of cryptocurrencies, many supporters of this new money have been positioning them as a replacement for fiat. Today it has already become apparent that digital currencies are not only analogous to monetary units, but also solve many other problems, providing fast and secure transactions, transparent and stable management of financial payment systems in companies, significant reductions in costs due to absence of intermediaries, and others.

At the same time, the cryptocurrency market works in close conjunction with the fiat market, and companies that use the strengths of both systems gain a serious competitive advantage. Therefore, the leading players in the fiat and cryptocurrency markets are joining forces to provide business and private users with even more opportunities using new multifunctional solutions (Coinbase, CoinsPaid, BitGo, Xapo, and others).

Facebook’s Libra Cryptocurrency is Already Facing Some Challenges

The entire internet was bombarded with news about the recently announced Facebook’s Libra cryptocurrency. Despite the positive impact that Facebook hoped the digital coin will have, the announcement has received a chilly response. Regulators, nonprofits, and politicians have all expressed their concerns regarding the ambitious project of Facebook.

The Libra cryptocurrency project has been initiated by the Libra Association which has been co-founded by the social network Facebook. The purpose of the digital coin is to be the monetary authority for cryptocurrency, aiming to be used by almost 1.7 billion adults who don’t have a bank account. It has been designed with the purpose to serve as a cheap and easy method of transferring money online.

Yet, despite the Libra’s cryptocurrency showy announcement, it seems that many people from the public show their concerns or lack of interest. The digital cryptocurrency has already started to face some challenges which could result in a scenario that its creators never thought about.

Delayed release date

Facebook’s Libra cryptocurrency has been announced to be released in the first half of the next year. However, some policy experts tend to have doubts regarding the cryptocurrency’s release to take place as planned.

Angela Walch, a researcher from the University College London’s Center for Blockchain Technologies, believes that the chances for the Libra digital cryptocurrency to receive regulatory approval in time for its announced release date are very small. She explains that the concept behind the new digital cryptocurrency is very complex and could have global scale consequences. Thus, before Libra will receive regulatory approval, all specialists must take their time to analyze the effects the cryptocurrency could have.

Scams

As mentioned before, Facebook’s Libra cryptocurrency faces skepticism politicians, nonprofits, and regulators. However, a series of scams can make things even harder for the launch of the digital coin.

A multitude of fake accounts and scams are already online trying to sell Libra on Facebook, Instagram, and other social media networks such as YouTube, something very similar to what is happening with fake online brokers, say the experts from InvestinGoal. Facebook announced that the social network does its best to remove any scam, post, page, or ad that violates its policies. However, seeing that scams regarding the Libra cryptocurrency are able to take place right on the social network’s own platform, the public is once again drawn to skepticism regarding the digital coin.

Low level of interest

According to a recent study, another challenge that Facebook’s Libra is facing these days is a low level of interest from adults. Since its announcement, the internet has been filled with negative speculations and concerns regarding the functionality and the consequences the digital coin could have. Thus, according to the study conducted by CivicScience, only 5% of 1,799 US adults showed a little interest at all in Facebook’s cryptocurrency. A percentage of 86 expressed that US adults are not interested at all in the digital coin.

Perhaps one of the reasons might be the fact that Facebook has a bad rap among its users when it comes to privacy protection. The social network has faced many cyberattacks in the past which made its users doubt its capability of keeping their data safe. Consequently, a percentage of 77 said that they lack trust in the social network Facebook.

Francis Menassa, JAR Capital: You Can’t Always Get What You Want

The factors pointing towards more accommodative monetary policy from the Fed this year. The domestic economy seems to have remained relatively robust, however, with strong consumer spending growth and a fifty-year low in the unemployment rate.

It is these competing economic forces that have been confounding policymakers, eventually leading to the July cut in rates. Judging by recent historical standards, that should drive US equities higher for a while longer, but with markets up over 20% already year to date, and brushing up against all-time highs, how much more should we expect?

Low unemployment rates and inflation

If softer growth expectations are allowing for easier monetary policy, should that really be super bullish for US stocks? With interest rates close to zero can we really expect fixed income investments to diversify away equity risk when the equity bull market comes to an end? These are the issues that investors should be tackling now, considering a rebalance of their portfolios while equity markets are in good shape.

Figure 1 – 50-year low unemployment rate driving up wage growth

Starting with the economic fundamentals, this cycle so far has been marked out by low-interest rates and a supposed breakdown in the Phillips Curve (Figure 2). That is the relationship between unemployment and inflation. The idea being that lower levels of unemployment tighten the labor market which adds to rising wage pressure which in turn pushes up price inflation.

Figure 2 – Phillips curve sleeping?

So far this cycle, we have seen the unemployment rate fall to historic lows, pushing up wage growth (although by less than we would normally expect, Figure 2) but having no effect on inflation. In fact, one of the factors concerning US policymakers has been the fall in core PCE inflation (the Feds preferred measure) at a time when it really should be rising.

That reaction function of policymakers is instructive. It suggests that they are more concerned about the risks for deflation (falling prices) than about inflation running hot above their target. That could be because the normal Fed rate-cutting cycle would usually mean interest rates falling by 5% or so in order to stabilize growth or to push the economy out of recession and back into growth.

This time around there is just half that degree of firepower available to the Fed assuming that interest rates will not fall below zero. Therefore, policymakers are prepared to be proactive and to provide insurance against the possibility of a broad economic slowdown.

Is it the last rate cut?

That to us suggests that it is more likely than not that this cut in rates will be the last for a while, and that the Fed may even be prepared to let the economy run hot for a while in order to shore up the growth situation before adjusting policy again. That would be our central case but let us consider a couple of scenarios around that.

First, the Fed could be successful in reigniting an acceleration in economic growth which would almost certainly drive up bond yields from here. Given the revealed preference of policymakers for insuring growth, that could mean inflation running around 1% above target next year and a significant steepening of the yield curve.

On the other side of the coin, if the growth fundamentals have already deteriorated to the point where policymakers are unable to reignite growth, then the possibility of recession will likely take bond yields below zero, but probably not by much.

In our bullish scenario, where growth reaccelerates, bond yields are likely to rise, making them unattractive to investors today. In our bearish scenario, bond yields are unlikely to fall by enough in order to offer the kind of diversification benefits that balanced multi-asset investors have come to expect. For investors to protect their wealth within a multi-asset context therefore, they will need to look elsewhere in order to diversify away from equity risk. One obvious alternative is the now deep and liquid market for derivatives.

Instead of buying bonds for diversification, investors could buy put options on the equity market, maybe cheaper out of the money contracts which would rally significantly should equity market volatility pick up. The VIX is now towards the lows for the year making this a good opportunity to put in place that kind of portfolio protection, but this approach comes with a cost With bond yields looking so unattractive in either of our scenarios, however, it may be that investors really should consider the prospect of lower portfolio returns or accept a higher level of risk. Either way, investors should make an active choice, and now it seems the time to do it. You can’t always get what you want!

Types of ULIP Funds

As a tool that provides you dual cover, there is no better bet than a life insurance policy. Catering to the primary rationale of a life cover along with investment feature makes ULIP a unique policy for you to explore. By its very nature, the ULIP is a life insurance policy that gives the best results when you stay invested for long after the initial lock-in period of 5 years is over.

What is ULIP?

It is an acronym for Unit Linked Insurance Plan that over and above the life cover provided to you, gives you the feel of investments with superior yields from market instruments. A part of the premium after being earmarked for the coverage of life risk is invested in the capital market, with an aim to hive off higher yields to help you grow your money faster.

What are the different ULIP Funds in the market?

There are many ways of categorizing ULIP Funds depending on the different perspectives towards mobilizing your investment prudently in a meaningful strategy. According to the below mentioned classifications, one can buy ULIP policy online.

1: Investment Target: It is the most popular classification based on risk and investment target.

• Equity Funds: The money being invested in equities and socks of companies makes it the riskiest of all. However, matching the high risk, the yields are also high.

• Debt Funds: Your ULIP funds are invested in fixed income government securities like treasury bills and corporate bonds. The nature of such investments carries low to medium risk providing matching yields.

• Cash Funds: The money is directed towards low-risk money market instruments and bank deposits. Being ideally suited for low risk or zero risk profile, the returns are also low.

• Balanced Funds: Investment of ULIP funds are directed towards a blend of equity and debt fund instruments in order to temper the risk factor between high and low. The ratio is such that the investments are categorized as medium risk with high rewards.

2: Investment Objective:

• Child Plan: The most popular amongst this plan is for your children’s education. It helps you meet an important life goal covering for the increasing cost of education and within the envisaged time frames. Your child’s education continues unhampered even in your absence.

• Pension Plan: This is typically designed to build a corpus for your post-retirement needs. A long term proposition, designed ideally to continue until your retirement to help you lead a comfortable post retired life.

• Health Plan: The coverage for medical emergencies is an important component of your investment planning. The rising cost of healthcare and the complications involved makes an investment into such plans smart.

• Wealth Creation Plan: Highly recommended option where you are mainly focused on wealth creation that may come in handy for your other non-specific life goals.

3: Death Benefit: Classification of ULIP funds under this category create two plans, which are crucial as to how the death benefit is treated.

• Type I: The death benefit disbursed to your nominee is in the form of the sum assured or the fund value, which is higher of the two. In the initial years, the fund value being low, the sum assured is higher.

• Type II: The death benefit paid to your nominee is the total of both the sum assured and the fund value, for which you pay a higher premium.

ULIP Riders:

With ULIP, you are offered a bunch of riders that help you add value to your cover and enhance the death benefits in many ways. The most important riders worth exploring are:

1: Accidental Death and Disability Rider: The provision of these riders helps your nominee reap the benefit when such an event occurs.

2: Critical Illness Rider: Certain critical illnesses like heart attack and organ failure may incapacitate you. You are covered by a lump-sum payment as per terms of the rider on the first diagnosis of these diseases.

3: Waiver of Premium: In the event of accidental disability and critical illness your capacity to earn is impaired. With this rider in place, you enjoy a waiver of future premium without hampering the continuity of your policy.

4: Term Rider: In addition to the payment of death benefit to your nominee, a monthly inflow is assured in terms of this rider.

Benefits of ULIP Funds:

Of the many pros, the most important advantages of ULIP Funds are listed below to help you make an informed decision for buying a ULIP:

1: Double Benefit: You get a unique feature of investment along with cover for life.

2: Methodical Savings: Through the purchase of a ULIP, the habit of compulsory savings is inculcated in you. It helps build your future corpus brick by brick over a long period of time.

3: Choice of Fund: Not everyone is disposed towards the risk of funds on the same scale. There is bound to varying risk profile. ULIP allows you to choose the best funds that are in sync with your risk perceptions.

4: Freedom to Switch: You are free to switch between funds depending on their performance and other market influences.

5: Tax Savings: The investment in ULIP attracts the usual tax savings in the form exemption under Section 80C of the Income Tax Ac, 1961 up to Rs.1.5 lakhs in an FY. The maturity benefits are exempt under Section 10 (10D).

How does ULIP work?

At any given time period, there are several ULIP subscribers paying a premium into the same portfolio. A part of the premium, after deduction adjustments are invested into instruments like equity, debt and balanced subject to your preference. Your invested ULIP funds are converted into units and the value of such units is known as NAV (Net Asset Value). These allocations are handled by professional fund managers employed by all the insurers. Operating and expense charges are recovered, but IRDAI has imposed a cap on such charges to make it competitive.

Bottom Line:

ULIP funds offer a unique opportunity to you to make the best out of a life insurance plan. The life cover and investment feature make ULIP one of the most coveted investment options that are not only safe but also high yielding. The dual benefits offered are seldom obtained in any instrument in India other than ULIP.

Can New ECB Head Christine Lagarde Help the EUR?

She’s more of a politician than an economist, but that might be just what the ECB needs at this juncture as the ECB hits up against the limits of what monetary policy can do. On the other hand, her candidacy is likely to mean a somewhat weaker euro than would’ve been the case under a different ECB head.

First of, is Lagarde’s Appointment Even Legal?

Article 283(2) of the Treaty on the Functioning of the European Union says that the President shall be selected “from among persons of recognized standing and professional experience in monetary or banking matters…” Ms. Lagarde is a lawyer by training and was the Finance Minister of France before becoming head of the IMF.

She has no direct experience in monetary policy or for that matter in commercial or central banking – you can argue about whether the IMF is a bank (it does make loans, although not on commercial terms – neither does the ECB, for that matter). But I expect everyone to simply gloss over this question. She may not be a PhD economist like Draghi, but she’s not Ivanka Trump, either.

Her appointment is even more unusual given that the new #2 at the ECB, Luis de Guindos Jurado, has only a BA in economics and was also a politician – he was most recently the Economy Minister for Spain. But he was Economy Minister for Spain during the Eurozone’s financial crisis and managed the bailout of the country’s banks and overhaul of its banking sector, so that experience certainly qualified him.

The qualifications of these two contrast with the outgoing team –Draghi did his PhD in economics at MIT under some of the most famous economists in the world, while de Guindos’ predecessor, Vitor Constâncio, has an MA in economics and served twice as the Governor of the Banco de Portugal.

New ECB Chief Economist

Having these two less-well-versed people at the top of the ECB board will shift a lot of the power to the new ECB Chief Economist, Philip Lane, who recently took over from Peter Praet. No one argues about Lane’s qualifications. He’s a PhD economist rated among the “Top 5% of Economists in the World” and the former Governor of the Bank of Ireland. Lagarde and de Guindos will probably rely on him for the more technical aspects of policy.

Lane made clear his views just this week in an extensive speech entitled “Monetary Policy and Below-Target Inflation.” He said: “In the context of the euro area, the ECB has been active and creative in deploying non-standard measures, in addition to extending the range for the policy rate into negative territory. Our assessment is that this policy package has been effective and further easing can be provided if required to deliver our mandate.

At the same time, an extended phase of below-target inflation poses a communication challenge in maintaining focus on the medium-term inflation goal…”

The policy under Lane

This assessment suggests to me that, first off, Lane agrees with Draghi both on past ECB policy and the need to ease further. Thus we are likely to see ECB policy continue much as it has under Draghi, with an emphasis on getting inflation back up and supporting growth. And secondly, that Lane sees the need for a strong spokesperson for the Council who can explain ECB policy and win the support of the various constituents who are affected by it.

It looks to me like a well-thought-out team: a monetary expert to devise policy, and a seasoned politician to act as spokesperson and take the flack for the what’s bound to be the continued failure to meet their targets.

Furthermore, with the ECB approaching the limits of what monetary policy can do, much of its work from now on will be political rather than monetary: working towards a banking union and capital markets union and persuading EU politicians to do their part with structural reforms.

Draghi’s statement after every ECB Council meeting ends with a plaintive cry for help from other parts of the EU governance machinery: “In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities,” he says each time, but to what effect? Perhaps Lagarde won’t have the same authority as Draghi does when it comes to explaining the implications of M3 growth, but on the other hand, maybe her relations with the politicians will win her a hearing on other matters that he was less successful at.

The ECB Governing Council

Lagarde’s appointment is in some ways a return to the time when former Bank of France Gov. Jean-Claude Trichet was President (2003-2011). Although an economist by training, Trichet functioned largely as the spokesman for the Governing Council.

Draghi, by contrast, has definitely led the group, often seeming to take bold decisions by himself – his “whatever it takes” statement of support for the euro was not the result of late-night haggling and compromise, like most EU decisions.

The ECB Governing Council may be shaping up to be more like the FOMC, which is also led by a lawyer nowadays – but obviously with a good number of economists and a large staff to present options and ideas. That comparison isn’t so reassuring though, considering that Fed Chair Powell has had some problems getting the hang of the communications side of his new job.

And Powell had two advantages over Lagarde: he was on the FOMC for several years before taking over the top job, and the Fed’s policy is less complicated than the ECB’s, which has a bewildering array of programs with their accompanying acronyms (TLTRO, APP, NIRP, FG, etc).

The ECB will also lose one of its other main thinkers when Benoit Coeure leaves at the end of this year. Draghi, Coeure and the previous Chief Economist, Peter Praet, were the trio really running monetary policy. It’s not yet clear who will replace Coeure – if the person doesn’t have a strong monetary background, then basically it will be Peter Lane running the technical side of the show.

The Bottom Line

The euro is a political project, not an economic project, and it makes some sense to have someone who can handle the politics in charge of it.

What are Lagarde’s preferences? That’s the key for the euro. We don’t know for sure yet, but in April 2016 she said that negative interest rates in the Eurozone and Japan were “net positives” for the global economy.

At the IMF she urged help for Greece and took the lead in apologizing for the IMF’s pushing of counter-productive austerity programs – showing she is more pro-growth than anti-inflation, and also that she is not doctrinaire.

I would expect her to continue with the ECB’s search for new and creative ways to get inflation back up to their target of “below but close to 2%” – although the experience of Japan shows how hard it’s likely to be, absent structural reforms.

The market certainly expects her to continue in the vein that she was working at the IMF – the plunge in Italian bond yields today demonstrates that they consider her a “dove,” perhaps in contrast to the person who was thought to be the front-runner for the position, the uber-hawk Jens Weidmann. In that respect, I think her appointment should be seen as a small negative for the price of the euro, but a positive for its long-term future.

BDSwiss Special Market Analysis was written by Renowned Fundamental Analyst Marshall Gittler

Why ESG is a New Trend – an exclusive interview with Francis Menassa, JAR Capital

We sat down for an exclusive interview with Francis Menassa, JAR Capital.

As European legislation includes more ESG (Environmental, Social, and Governance) or sustainable factors and there is an increasing number of funds on offer, the trend is set to continue. Even a recent World Bank report stated that incorporating ESG into fixed income investments should be part of the overall credit risk analysis and should contribute to more stable financial returns.

Yet, Francis Menassa, Principal, JAR Capital believes that assessing environmental, social and governance factors in fixed income investing is nothing new. Here he answers some key questions about the state of ESG investing in 2019 and tells us a bit about his experience investing in the sector.

Francis Menassa, JAR Capital

Interest in fixed income ESG is gathering momentum: why now?

So far in 2019, we are seeing a major push for ESG investing strategies. In fact, in the last two years investing in ESG fixed income has increased 34% and now accounts for over a third of responsible investing, according to the Global Sustainable Investment Alliance. In Scandinavia, Holland and France, many fund groups incorporate sustainability at the heart of their investing strategy, and there are a growing number of family offices in the US that are switching to sustainability.

The particular interest in fixed income is partly because there have been a number of industry-wide approaches and some major policy developments which are now beginning to take effect.

For example, the EU’s 2014 Non-Financial Reporting Directive which was fully implemented at the end of 2017. It will apply to every country on a national level to implement and requires large companies to disclose non-financial and diversity information. This also includes providing information on how they operate and manage social and environmental challenges. The aim is to help investors, consumers, policy makers, and other stakeholders to evaluate the non-financial performance of large companies. Ultimately, the Directive encourages European companies to develop a responsible approach to business.

Why has the EU Non-Financial Reporting Directive created opportunities in fixed income?

One aspect of this law is that it requires previously unrated or poorly rated companies to increase transparency when issuing debt. As a result, many companies are now actively working to improve corporate governance and channels of communication. Because more companies are working on reducing their environmental and reputational risks and even legal risks, there are now many more opportunities for sustainable fixed income investment.

From our perspective as investors, ESG is a natural selection in risk management. The EU Non-Financial Reporting Directive is just another tool that enables us to conduct more thorough due diligence of a company; the balance sheet, governance structure, and environmental issues to name a few. The better we understand a company, the more we can minimise our risks.

What is your experience of ESG in the high yield sector?

Inevitably, investing in the sustainable high yield bond market is higher risk. It involves a complex analysis of companies’ opaque debt structures. There are also reporting inconsistencies and gaps in accessible information which make it difficult to compare companies. Often, they are completely new to the concept of sustainability ratings and the rating process itself.

However, our investable universe is limited to around 1000 companies. Because we have been investing in this sector for over 15 years, we have been able to develop relationships with our target companies. In some cases, we already invest in their bonds and the companies approach us with further financing needs. In others, our investing approach provides added value.

You state that your approach adds value. How does this work?

The European car industry is a good example of where we can add value. In terms of components, most cars are produced by the suppliers and almost 60% are privately held. To begin with, many of the companies that we invested in had no published data and there was very little transparency in their operational structure. Yet we found that most complied to sustainable standards, but their lack of active public engagement meant no sustainability rating which limited their financing options and potentially raised the overall costs of financing. We were able to offer guidance on sustainability standards, resolving problems in resourcing as well as communication procedures and subsequently their ESG ratings improved.

How does JAR Capital incorporate ESG factors into the due diligence process?

There is undoubtedly a lack of information in this sector. Until recently, incorporating ESG factors into fixed income investment analysis, particularly in high yield, was easier said than done. Unlike the equity space, there have been no ESG credit ratings (rating agencies had little or no access to ESG information) or sustainability indices against which to benchmark performance.

However, we have always assessed environmental, social and corporate governance factors as an integral part of the decision-making process. In the last decade, we have developed our own ratings universe, partnering with ISS-oekom, one of the largest independent rating agencies in the sustainable space. Additionally, we now employ ESG experts to enhance our analysis. Our extensive due diligence has meant that we have had no defaults in any of our funds.

What’s next for ESG in the high yield sector?

We are now seeing more wide-ranging approaches to high yield debt. Advancements in technology mean that there are more sophisticated methods of data collection and interpretation. We now have a range of benchmarks to draw from as well as highly regarded sustainability standards, both private and governmental. In March 2019, the European Parliament adopted rules under its Sustainable Finance Action Plan to require asset managers to use a common reporting standard to disclose how they consider ESG factors and to prevent them from greenwashing.

On a private level, the FNG Label, established in 2015 for sustainable mutual funds provides a transparent standard for funds which pursue a consistent and rigorous sustainability strategy.

In time, integrating sustainability criteria should become a standard part of investment analysis. But we strongly believe that ESG should involve active engagement and dialogue with analysed companies, providing them with incentives to improve their ESG credentials. In the long run, this will benefit both investors and issuers.

Trading USD using Consumer Price Index (CPI)

To be a successful forex trader, it is essential to know the factors behind demand and supply of currency. The Central Banks control the entire world’s money supply. Traders will be better prepared when they are properly able to comprehend the effect of policy decisions made by Central Banks on the currency markets.

The Central Bank of any nation has 2 major functions – One controlling inflation and other controlling fluctuation in the currency value.

Central Banks use CPI as an indicator for measuring inflation. The Consumer Price Index (CPI) is one of the most significant economic indicators that have a major influence on forex trading. The currency of a nation is directly impacted by the policy of its own central bank’s interest rate decisions and indirectly by the decisions of central banks from other nations.

Forex traders are advised to keep track of the CPI of most major trading nations like the US, EU, Japan, and Australia.  Below section provides comprehensive information on the same.



What is CPI?

The Consumer Price Index is one of the most important economic indicators when determining currency value. It calculates the average change in prices of goods and services for a given period. These prices are on which the consumer buy any item from the given basket of products and services.

The CPI is usually computed monthly, quarterly or yearly but can be more often. CPI is also called as the Cost of Living Index. The CPI gives information about consumer level inflation, one of the central banks biggest concerns, and further help to provide data about the overall consumption expenditure.

When the prices of goods and services rise the economic situation turns into inflation. The CPI will then tend to increase with a rise in the price rates and further, the economy weakens. On the other hand, the lowering of CPI leads to a reduction in the overall inflation and hence strengthens the economy.

The basket of goods used to compute the CPI for most nations has more than 200 categories of items. These are divided into eight major groups, as follows:

  • Housing
  • Apparels
  • Transportation
  • Education and Communication
  • Recreation
  • Medical Care
  • Food and Beverages
  • Other Goods and Services

The major uses of the Consumer Price Index are:

  • CPI is an essential Economic Indicator: It is used for determination of Inflation and prominently useful in the government’s economic and fiscal policies.
  • The Deflator of other economic statistics: CPI data supports in the computation of other commercial series for deriving an inflation-free Dollar value. Examples of other economic series are Income and Wages, Retail Sales, National Income and Product Account.
  • Customizing of Dollar Values: The CPI assist in the calculation of Income payments, Social security payments, Retirement benefits, and Income-tax structure. The CPI prevents these economic components from any impact due to inflation. So the Labor Bureau refer this CPI and make further valid adjustment in these economic factors. Hence any inflation-induced Dollar value is avoided from hampering the benefits of financial services given to US citizens.

Calculation of the Consumer Price Index

The US Bureau of Labor Statistics, under its Department of Labor, provides the CPI for the United States. The Bureau computes the CPI for 30 days and releases this index during the middle of the month. The U.S. BLS collects data from Consumer Expenditure (CE) survey which primarily records the expenditure weights.

Consumer Price Index (CPI) for a single item is measured as follows:

CPI = (Cost of the market basket in the given year / Cost of the market basket in a Base year) x 100

Types of CPI

  1. Urban Consumer Group:  This group constitutes over 93 percent of the total urban population in the US. The Consumer Price Index for all the Urban Consumers (CPI-U), computes consumption expenditure of all urban dwellers. The people under the category of Professionals, Self-employed, Retired, Unemployed and living below the poverty line will come in the CPI-U.
  2. Urban Wage Earners Group: The group constitutes 29 percent of the total US population. The CPI for the Urban Wage Earners and Clerical Workers (CPI-W) will compute the income of the clerical and wage earners only. The group considers only those households which earn one-third monthly income from wages or clerical jobs. The group must have at least one of the household member is employed for a minimum of 37 weeks consecutively. The CPI-W consider the cost of social security benefits of these wage group.

The CPI does not include that portion of the population who are rural families, agricultural households, defense personnel, convicted people and mentally disabled.

Importance of the Consumer Price Index

The CPI is a crucial economic indicator for all market watchers. The index helps to provide information about consumer prices. Further, based on this index, the market can get awareness about what may happen in the Financial Market.

  • First, The CPI measures the cost of out-of-pocket expenditure made by the consumer. CPI records the change in prices and data about expenditure-based weights. The expenditure based weight is attached to each good or service. Therefore these weight assesses the price change impacts on the whole index.
  • Second, the GDP CPI index is broader. It includes prices spend by the consumer as well as the government, businesses peers and foreigners.
  • Third, the Personal Consumption Expenditure (PCE) is narrow in focus. The PCE index is focused only on the individual’s consumption expenditure, unlike CPI, which measures the average household’s purchasing power.
  • Fourth, the CPI follows the Laspeyres formula while PCE obeys the Fisher-Ideal equation. The GDP CPI index also depends on the PCE index, unlike the CPI which is an independently calculated index.

Why is CPI considered as the main driver for interest rate policy?

Let’s take a look with the following scenarios:

When inflation is rising it means that the prices for goods and services are rising, making it more expensive for consumers to buy things. In the US, the Fed will take steps to decrease inflation by raising interest rates. Higher interest rates makes it more difficult for businesses to do business, and that slows the economy and reduces inflation.

In the case of low inflation, the prices of goods and services are cooling down. Hence the Reserve Bank will lower the core Interest Rates in order to stimulate economic activity. When the Bank gives an easy loan at lesser Interest Rates its easier to buy things and do business. When economic activity expands inflation rises.

  • There is an inverse relationship exists between the CPI and the Interest Rates.

The Central Banks tend to increase Interest Rates when there is high inflation and decrease them when there is low inflation. Therefore, when Interest Rates fall, the CPI rises, and when Interest Rates Increases, the CPI decreases.

Effect of CPI on US Dollar Index

Some proficient Forex Brokers like Tickmill provide the opportunity to trade 62 currency pairs, including majors, minors, and exotics. However, among the currencies, the major one remains the US Dollar Index.

The US Dollar Index is computed against six major rival currencies. Among them, the Euro constitutes almost half of the overall weight. When the US Dollar Index gets impacted it extends the effect onto the other related currency pairs. Theoretically, the CPI and USD Index relationship is straightforward. If the CPI goes up, then the US Dollar also soars. 

If the Consumer Price Index is rising then it means costlier goods. The Federal Reserve addresses the inflation problem by boosting interest rates. Higher interest rates provide the opportunity for banks to charge more for loans, and other financial institutions to go long on US denominated assets. The overall effect translates into higher demand for USD, hence its appreciation against other currency pairs.

Let’s get straight to the point. The US Dollar Index is a geometrically-averaged computation against its six major rival currencies. The index was created to maintain an external bilateral trade-weighted average value against the greenback. The rivals are the Euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. It may seem like only “six” countries are taken for the calculation but the actual numbers remain different.

The weight for the currencies remain in this manner:

weight of currencies
Source: theice

The Euro itself contains 19 members of the European consortium of countries who follow the Euro currency. As a result, there are overall “24” countries considered for greenback formula, adding the other five rivals. Along with these 24 nations, most of the world countries closely follow the US Dollar. Hence, the greenback becomes a great indicator of its global position and the current world economic situation.

The ICE Futures US compiles and regulates the formula for the US Dollar Index.

The formula is as follows: USDX = 50.14348112 × EURUSD-0.576 × USDJPY0.136 × GBPUSD-0.119 × USDCAD0.091 × USDSEK0.042 × USDCHF0.036

The inverse correlation between the CPI and US Dollar Index

There is, of course, a direct relationship between CPI and USD from the theoretical front. However, things appear more evident in real life. The graph plotted below is of US Dollar Index and the Inverted CPI for some stipulated period.

CPI & USD Index Correlation
Source: Finance Magnates

Global Business Impact

The Global economies are integrated like never before. The US Federal Reserve is one of the strongest Central Banks in the world, it’s policy decisions spill over into the world economies. Strengthening or weakening in the USD has a direct and substantial impact over the world businesses.

Any increase in the interest rates provides appreciation in the dollar and that offsets all other currency.  It means other currencies are now depreciated versus the USD, if their economies are weaker. This means that Import, Export and other cross border transactions of those local economies directly get affected because of fluctuation and the change in USD levels and that is what forex traders try to capitalize on – the changes in value of the currency. Hence a trader must always know the USD Index and its effect on the Global Businesses.

Conclusion

Forex Traders look forward to the CPI numbers. The most precise one is Core CPI as it excludes high volatile consumer goods but it is not the only number to watch. Under the current Federal Reserve Chair Jerome Powell, the central bank has set a target of 2.0 percent for inflation.

In conjunction with the Core CPI, traders also keep a watch on the unemployment figures over the period. Both numbers are significant from the overall economic growth perspective, therefore, considering them together is the key.

Tokenised Securities 101: Everything you need to know

What are tokenised securities?

Before you can understand what a tokenised security is, you must first know what constitutes a security. A security is a tradable financial asset. However, the term security differs from jurisdiction to jurisdiction depending on how the regulatory body defines it.

For instance, the UK’s Financial Conduct Authority defines securities as either equities, debentures, government bonds, pensions, and anything that may be admitted to the Official List. The United States’ Securities and Exchange Commission (SEC) defines a security as a tradable financial asset of any kind, providing it can pass the Howey test.

The term ‘security’ is, then, that of one with two meanings: it has both a conceptual and legal definition. What constitutes a security isn’t universally agreed upon, however, it is probably fair to define one as I did so prior: a tradable financial asset.

A tokenised security is therefore a tokenised tradeable asset. But what does it mean for a security to be tokenised? This means taking existing financial instruments and starting to maintain shareholder balances on an encrypted distributed ledger or a blockchain.

This process of issuing digital tokens that represent an underlying financial instrument on a blockchain is called ‘tokenisation’. It is easier to consider tokenised securities away from the abstract definition. For instance, tokenised securities can take the form of a tokenised stock or tokenised bond.

Cryptocurrencies and tokenised securities

Like anything blockchain-related, it doesn’t take long until you hear talk of cryptocurrencies. Cryptocurrencies and tokenised securities are both built upon the same underlying technology: blockchain.

Cryptocurrencies were conceived as digital money and designed to be independent of any platform, whereas tokenised securities were conceived as a means of digital ownership, a solution to various problems and are run within a platform.

What is a security token offering (STO)?

You’ve probably heard of an initial public offering (IPO). You may even have heard of an initial coin offering (ICO), but chances are, you have little idea what a security token offering (STO) is.

An STO is where an investor is issued with a security token, but unlike an ICO, a security token represents an investment contract into an underlying investment asset such as a stock, bond or fund.

STOs are commonly described as a hybrid approach between cryptocurrency ICOs and the more conventional IPO. This is because an STO seemingly overlaps these two methods of raising capital through investment.

What is the purpose of tokenised securities?

Using blockchain technology to maintain transactions and ownership is vastly different to the historical way of storing this information in a spreadsheet or privately owned central database.

Storing information on a distributed ledger increase efficiencies in several areas. These include: paper-free transfer speed and cost, transparency, auditing and the maintenance of the shareholders’ registry. Tokenised securities will improve clearing and settling processes for traditional stocks in the post-trade market.

The decentralized nature of blockchain would reduce the time, cost and counterparty risk of clearing and settlement. It was estimated, by a 2014 Oliver Wyman report, that as much as $80 billion is spent annually on post-trade processes, with the majority of that money going to depositories and agents along the settlement process.

Blockchain technology would dramatically reduce this amount and alleviate the need for intermediary agents, allowing the counterparties to deal directly with one another.

There has long been a problem among cryptocurrency traders accessing traditional financial markets. Namely, that they cannot easily trade equities, indices or commodities without having to first swap their cryptocurrency for fiat.

However, through the tokenisation of derivative products such as CFDs, cryptocurrency traders can gain access and trade traditional markets whilst simultaneously using their cryptocurrency as collateral.

This means that crypto traders need not exit the crypto market (which can often come with fees or opportunity cost) to profit from trading traditional markets.

Where can you trade tokenised securities?

There are currently only a handful of tokenised securities exchanges due to the fact that this technology is such a recent innovation. However, the trading space for tokenised securities is currently exploding with many companies working on developing their exchanges at this instance.

Are tokenised securities regulated?

The legal status of cryptocurrencies and tokenised securities varies across the globe. Countries can broadly be categorised into three groups in terms of the legal recognition of these markets.

Firstly, there are countries that have been proactive in passing laws that recognize and regulate cryptocurrencies and tokenised securities. Countries in this list include Belarus and Malta.

Secondly, there are countries that allows the markets to exist but are yet to pass industry-specific laws. These include countries such as Brazil and France.

The last group of countries are those that have taken measures to ban cryptocurrencies and tokenised securities, such as China and Iran.

There are few countries with fully-scoped crypto legislative frameworks, partly due to poor institutional acceptance and the tendency of regulation to be reactive instead of proactive.

Author: Currency.com

Description: Currency.com is the world’s first regulated tokenised securities exchange. As a project it is democratising investment in traditional markets by allowing clients to trade and profit using cryptocurrency as collateral.

How Do They Build the First Blockchain City of Melaka Straits? Exclusive Interview with an Official Representative

The application of this technology in tourism can be very versatile as well. One can use it for keeping a record of the luggage and visas, passengers check-in, booking services without commission fees, and even building tourist smart cities.

Melaka Straits City – a tourist Blockchain-city of the future supported by the government of China

Over 835 acres off the coast of the Malaysian city, Malacca, will soon be turned into a tourist blockchain-city with extensive infrastructure. The project was launched by China Wuyi and SWT International Sdn Bhd and supported by the government of China and several major corporations, including Poly and CCCC.

China Wuyi is a big construction and engineering company, a subsidiary of the Fujian Construction Engineering Group and one of the 250 largest international contractors according to the Engineering News-Record.

The city project was designed by another large company, CPG Corporation. It is known for the development of a few popular buildings in Singapore such as Changi Airport, the Parliament House, and Solaris Business Park.

In total, 635 acres of reclaimed land will be used for the construction of Melaka Straits City. Another 200 acres of the marine area will be kept for building chalets and water recreation facilities. This territory belongs to the local company, SWT International Sdn Bhd. Its main areas of interest are tourism and sustainable development. The company’s activity is based on the innovative production of energy for further waste incineration.

China Communications Construction Company is working on the construction of transport infrastructure, and China Poly Group Corporation deals with issues of capital management and resource allocation.

The authors of the Melaka Straits City project are planning to raise $120 million during the initial stage.

Blockchain-city in detail

Developers intend to make Melaka Straits City the leading tourist destination in Malaysia. The Ministry of Tourism of China foresees 3 million tourists to visit it every year. 5 gorgeous boutique hotels and about 100 villas with a beautiful sea view and private access to the beach will be built along the coastline.

A huge educational cluster will take thirty-two hectares with kindergartens, colleges, universities, and student dormitories. Four campuses which are expected to promote Melaka Straits City as a regional education center will be among the most important elements of the tourist smart city.

To find out more details about the project development, we interviewed the official representative of Melaka Straits City, Lim Keng Kai.

Is Melaka Straits City going to look like a real city of the future?

Lim Keng Kai: Partly, yes. The working methods of our city planner CPG Corporation are famous for being innovative. Its style is highly noticeable in the  Melaka Straits City architecture as well. For example, the boutique hotels and the exhibition center designs look so futuristic, they will probably become the main attractions of the city.

But Malacca is a city with a rich history, and we are willing to emphasize this. Over different periods, it was colonized by the Portuguese, the Dutch, and the British, and in 2008 it was included in the UNESCO World Heritage Sites List. That is why we’ve planned to build a distinctive cultural street in the center of the city. It will be inspired by the styles of different colonial eras and is going to make tourists familiar with Malaysian traditions and history.

Shopping centers with a duty-free zone will be built in the city as well, which will not only attract visitors but also have a positive impact on the country’s income growth.

Among other things, two hectares of land will be allocated for the construction of a national conference center. The building, equipped to accommodate 20,000 visitors, can become an official meeting venue for the government and international delegations. A water theme park – the largest in Southeast Asia – will become another attraction of Melaka Straits City. The project feature is a combination of sea and land rides.

The tourist smart city attractiveness will also be reinforced by concert halls, golf courses, tennis courts, and racetracks.

The process of construction and subsequent development of Melaka Straits City will be carried out based on the blockchain technology. In order to create a first-class tourist destination, the developers are going to introduce this technology to the traditional industry. Technological innovations will be focused on the improvement of the fundamental infrastructure and integrated with the city statistics. The creators put emphasize on safety and security management of all smart city systems.

How exactly will Blockchain be used in Melaka Straits City?

Lim Keng Kai: The basis of the blockchain technology in the Melaka Straits City will be DMI platform with DMI coin. It will mainly be used in payment of government-based services in the city. DMI will also feature an exchange that can allow tourists who visit Melaka Straits City to exchange their fiat currencies for DMI coins that they can use freely.  

When tourists visit Melaka, they will be required to exchange their money into digital currencies that they can use to pay for services using their mobile phones or computers. The DMI web application will be available on PC and the mobile applications will run on Android and iOS devices to provide flexibility regardless of the preference of the individuals.

The businesses and merchants in Melaka Straits City will have accounts and a unique QR code where tourists simply scan using their codes and make payments. This is easy mobile banking that can be done in seconds. The transactions will all be stored in the DMI blockchain where any issues that arise can be resolved.

The main purpose of the Melaka Straits City project is to build a tourist city based on blockchain technology.  In particular, it implies the creation of a new tourist blockchain city brand which will enhance tourism development in the country and improve education.

Green is the New Black

Given the impressive growth of its market – worldwide spending on Cannabis reached 9.5 billion USD in 2017 and is expected to grow to 32 billion USD by 2022 – it is no wonder why so many traders have been flocking into Cannabis Stocks and Indices over the last year. While this market offers tremendous opportunities for sensible traders, it is important to understand both the drivers of this growth, as well as the different ways to access a balanced exposure to this trading niche.

The 4 factors driving cannabis’ market growth

Aside from the inherent hype that surrounds the Cannabis industry, there are four key factors that many experts agree are fuelling the recently-experienced growth. These are: Technology, Product Diversity, International Expansion and Displacement of Black Markets.

Factor 1: Technology

The industry’s long-term sustainability lies primarily behind medical products. From production companies applying engineering to maximize the strength of certain components, to biotechnology companies increasing investments in research and trials and becoming more experienced, the conditions are set for a growth in the number of medical applications of Cannabis. Cannabinoids have been proven to have a very positive impact in the treatment of a wide range of ailments. Researchers are exploring its potential to tackle such enduring problems as epilepsy, Parkinson’s disease, anxiety, depression and even breast cancer.

Factor 2: Product Diversity

Cannabis is a rich source of CBD or Cannabidiol, a non-psychoactive compound exhibiting a myriad of health and medicinal benefits without inducing the feeling of being “high” or any addictive behaviours. As this component can be used in the production of many medical and non-medical products, growers have been engineering a large variety of strains, to optimize certain components and increase its applicability across industries and products.

Factor 3: International Expansion

Today, Cannabis recreational consumption and, most importantly, production has been legalized in several countries. This can be evidenced by the fact that large companies like Aurora Cannabis, Tilray and Canopy Growth are now active in many countries. This regulatory wave is expected to continue, with countries like Luxembourg already announcing liberalisation of the Cannabis market over the upcoming years.

Factor 4: Displacement of Black Markets

As more jurisdictions loosen their regulations and some cases legalize its recreational usage, experts concur that a significant chunk of the black market revenues will be absorbed by large corporations, like those present in the main Cannabis Stock Indexes.

High returns vs high volatility

A wide media coverage, as well as a large number of mergers and acquisitions in the sector – expected to continue due to consolidation and the entry of new companies in the market – have translated into a high volatility for some stocks during recent years.

When comparing the Cannabis Stock Index against the USA 500, it is evident that higher returns have come at the expense of higher volatility, something which traders need to keep in mind.

An indexed approach to Cannabis Trading helps to diversify away from company-specific risks. It is important however to ensure that the provider has applied a “pure exposure” methodology to index construction. Indices such as BITA’s Cannabis Stock Index, offered through Plus500’s online trading platform, are built with this framework in mind, ensuring that all index components derive a large majority of their revenues and earnings from core cannabis businesses.

 

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What Does Kill Startups: An Exclusive Interview with Nelia Kovbasa

According to the data provided by Startup Genome Report, 92% of young companies are closed due to the overestimation of their capabilities and exceeding staff. The remaining 8%, managed by a competent team, have a strong idea, profound financial support, use an effective business building model and provide a sound market assessment. However, if at least one element of such a working mechanism fails, the chances of the project to shoot can dramatically decrease to zero. As a result, only 2-3% of companies can eventually achieve their goals.

What does kill startups and how do start-up companies maneuver all the pitfalls while building a business that can bring millions?

FX Empire exclusively interviewed Nelia Kobvasa, the expert in the field of technical innovations, and the CEO of GTM + to find out what she thinks about the future of startups. Nelia has been working in the IT for 5 years, during that time she managed to gain quality experience in promoting, creating and managing startups and projects. She considers GTM + as the main project today, the company that provides IT outsourcing and outstaffing services for businesses that want to work with broad-minded people who understand customer problems.

Nelia, why do the majority of startups die?

NK: “In fact, there can be a lot of reasons – burnout, legal difficulties, misunderstandings among the team members. In 2016, researchers Lance Surety Bonds and Prestely came out with 20 main reasons causing young companies to fail, and today these findings are still relevant. The main problem areas are having no demand for the product, lack of funding, weak team and marketing, high competition, wrong pricing policy, no particular business model. The collection and processing of feedback from users is also of significant importance, as well as the timeliness of product release, concentration on the core idea, mutual understanding between founders and investors, team enthusiasm and readiness to restart if the initial idea turned out to be faulty”.

The founder of Start Co, Eric Matthews, is confident that entrepreneurs fail because they create a product no one needs. How to estimate the practical value of the project at the very initial state?

N.K.: “It is important to pay maximum attention to the preliminary business idea testing. Before the stage of product creation, talk to at least 50 potential customers, try out your idea. You need to make it asap to answer the main question of how anticipated the product could be. Just over a year ago, the founders of Barefoot Wine, Michael Haligan and Bonnie Harvey, conducted a survey among the representatives of international accelerators to find out the success factors and the reasons why startups fail. It turned out that more than 50% of projects are closed due to poor quality testing, which resulted in overall inability to operate, lack of marketing entry strategies, underestimation of possible obstacles and inability to create a strong desire to pay for the product from the side of consumers. ”

One of the most pressing issues for startups is getting investors. How can an entrepreneur attract funds to develop the project?

NK: “Finding investments is not the most difficult task for a team that has something to share with the world. Meet your potential investors as soon as you could to show them your ready MVP (Minimum Viable Product). This minimum viable product should be successfully tested with the reviews received from customers along with a justified strategy for entering the market, and the backbone of the team formed. These key conditions indicate the viability of the product and bring you big money in investments.

What you may say about the chosen niche potential? What companies attract investments easier and what spheres witness active financial support nowadays?

NK: “Undoubtedly, there are priorities in the investment world, where the current trends are shaped by the directions of development. Despite this, everyone has equal chances to become successful. Any project that offers a unique, sought-after idea and complements it with all the components necessary for its implementation can shoot. As for trends, according to the report by CB Insights, most of the venture capital investments in 2018 were aimed at supporting projects related to the Internet ($ 21.2 billion), mobile applications ($ 9 billion), and healthcare ($ 10.9 billion). Fintech industry financing has also significantly increased ($ 39.6 billion) – artificial intelligence, cybersecurity, digital medicine. ”

Is there a universal formula that will help a novice entrepreneur to build a business capable of reaching world recognition?

NK: “Unfortunately, many startup owners think that launching a project is more important than figuring out how to make it generate money. This is a mistake. You need to think about its financial side right away. I recommend using the Canvas method to create a business model. This is a working scheme that will help an entrepreneur literally in a few minutes to unscramble the business, view its strengths and weaknesses, and highlight the priorities.

The best way is to print a sign on a sheet of A1 format and fill it with colored stickers. Each segment of the table characterizes a separate component of the business structure that needs to be filled to the maximum with the key elements: for example, in the consumer column describe the potential client, and in the sales channels – all points of interaction with customers. When all sectors are filled, one quick glance at the scheme will be sufficient to analyze the current state of the business.

We, at GTM +, provide outsourcing services and also work with start-up companies. I recommend such clients to start with Canvas planning. It helps to develop a clear plan of action in each direction.

By dividing the corporate structure into segments, try to fill them with key components as much as possible – for example, characterize your potential buyer in the consumer’s column and describe absolutely all contact points with customers in the sales channels. Сompile key values, resources, partners and activity sectors, determine revenue flows and cost structure in a similar manner. This is the way to determine the logic of building relationships between the main elements of the business, while a fleeting glance at the diagram will be enough to analyze its current state.”

Learn the Basics of Trading Currencies

What is Currency Trading?

Currency trading is when a person buys and sells different types of currencies, money, that are used worldwide. Foreign Exchange, or Forex, is the more commonly used name.  Anyone can trade currencies, market access is easy, however, you’re encouraged to learn everything you can before starting to help avoid unnecessary losses. You can start the learning process from sites like Forexhandel and nextmarkets and try trading demo accounts to get a feel for how it forex trading works.

What is Foreign Exchange?

The currency market or Foreign Exchange is the most liquid market in the world. It contains all the worlds money and continues to grow annually. The U.S. Dollar is the primary currency traded and it is traded against virtually every other currency on the market. Its safety and liquidity make it invaluable to traders, allowing them to enter and exit the market at will.

The OTC (over-the-counter) foreign exchange market, what you are accessing with a forex or CFD broker, has no physical location or central exchange and is usually open 24-hours per day, Sunday evening through Friday evening. Forex trading with CFD’s is a speculation on the direction an underlying currency pair like the EUR/USD (US Dollar versus the EU Euro) is going to move.

You make money by buying or selling the pair before the move begins and profit on the amount of movement that happens. For example, if you buy the EUR/USD at 1.1200 and it moves up to 1.1400 you make 0.0200. That may not sound like a lot but when you factor in the leverage provided by CFD trading it can amount to hundreds of dollars in profit.

Trading currencies can be very difficult, especially for those with no clue how to make a good trade.  There are three primary sessions successful traders focus on. These include the European, Asian, and United States trading session. These sessions may overlap but the main trading is associated with the hours these markets are open (when the traders are awake, business hours).

This means that certain pairs will have more active during certain times of the day. Those who stay with pairs based on the dollar will find the most volume in the U.S. trading session and when the opposing pair’s market is open.

The Basics of Trading

A lot is the standard number of units in trading currencies. When you buy a position it will be in lots, one lot two lots, three lots or more depending on how large a trade you want to make. Each lot represents a regulated quantity of a financial instrument as set out by the exchange you are using or the regulator in charge of your jurisdiction.

Some exchanges and brokers allow micro-lots for smaller trading accounts and those with lower risk tolerance. The micro-lot is equivalent to 1,000 units of one currency. If you have an account that is financed with the use of U.S. dollars, a micro-lot signifies 1000 USD of the base currency. A mini lot is 10,000 units of your base currency and a standard lot is 100,000 units.

What are Pairs and Pips?

A currency pair is an expression of exchange between two currencies. For example the EUR/USD. There are literally hundreds of pairings, any currency can be traded against another one, you just have to find the right market or exchange.

A Pip is the smallest amount of movement among major currency pairs. It is usually tracked as the fourth significant digit after the decimal place but this is not true in some cases. The USD/JPY (Japanese Yen) only goes to two significant digits at most exchanges.

How Forex Trading Works

Currencies are traded against each other because the exchange rates are always fluctuating. If you buy one currency when it is cheap and then sell it when it is expensive you can make money. Traders watch the market using financial charts of price movement to pinpoint when they want to buy or sell. Because most forex trading is done with pairs and speculative CFDs you never really have to own the currencies you are trading.

For example, if you think the EUR/USD is going to go higher you would buy 1 lot of EUR/USD. If it moves up you can profit, each PIP will be equal to $0.10 or more depending on your leverage. If you think the EUR/USD will move lower you would sell 1 lot. If it does move lower you will profit for each pip that it falls.

So, what makes Currency Trading trendy nowadays?

Currency trading is popular for three reasons; the market is easy to access, it is challenging, and you can make a lot of money. The problem is that too many would-be traders get into trading forex without the full knowledge of the risks. Just like with any investment, it is possible to lose a lot of money. If you make a trade and the market does not move in the direction you want but in the opposite direction, you will lose money with each PIP the pair falls.

Final thought

Learning the basics in currency trading is not complicated. Building your own strategy to make and making it work is a different story. You will need a lot of patience and practice to reach your goals. There are many helpful articles and applications online that can help you develop your skills in getting ahead of the game in trading currencies.

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