A new form of cryptocurrency promises to defy financial gravity

Can stablecoins live up to their name?

To get an idea of just how volatile cryptocurrencies are, compare them with the stockmarket. Bitcoin, the biggest one, moves as much against the dollar in a single day as the s&p 500 does in 23. For speculators, this is a feature. For anyone who wants to use these digital monies for payments, savings or lending, it is a bug. In other words, volatility is a big obstacle to cryptocurrencies becoming much more widely used.

Stablecoins are an attempt to overcome this hurdle: they are cryptocurrencies designed to hold a steady price. Their number has multiplied recently. At least 20 are now traded on crypto-exchanges and many more are in development. Despite their growing number, they still account for just 1.5% of the value of cryptocurrencies in circulation. But they are involved in a large share of all trading.

Investors use them to park assets when they do not want to hold volatile cryptocurrencies but also do not want to move back into “fiat” (government-issued money). Big venture-capital firms, such as Google Ventures and Andreessen Horowitz, have given their approval, investing more than $350m in stablecoin projects.

Most stablecoins are backed by real-world assets such as fiat or gold. Some are collateralised by a basket of other cryptocurrencies. Others have no collateral at all, but are controlled by an algorithm that increases or decreases supply to keep their prices stable.

Whatever their inner workings, the big question is whether stablecoins can live up to their name. It has become more pressing in recent days. On October 15th Tether, which is backed by dollars and is the biggest of the lot, with a typical daily trading volume of around $2.5bn, suffered the latest in a series of speculative scares. That pushed its value down to an 18-month low. It has since recovered most of its losses, but the incident was a reminder of worries about Tether’s solidity. The firm that backs it has not yet presented incontestable proof of the funds it claims to hold to secure the coin’s dollar peg.

Rivals are seizing on Tether’s wobbles as an opportunity to set themselves apart. Many new issuers now adhere voluntarily to anti-money-laundering and know-your-customer checks by national regulators. Trueusd, another dollar-backed stablecoin, submits to regular audits and holds collateral funds in an external trust. Eidoo, a company offering a gold-backed stablecoin, invites customers to keep an eye on its reserves of the precious metal through a video link to the vault where they are stored.

Still, experts outside the crypto-sphere are not convinced that stablecoins are here to stay. That is not solely because their pegs may break, as can happen with real-world currencies and assets. For Barry Eichengreen of the University of California, Berkeley, for instance, some stablecoins have characteristics that are “attractive to money-launderers and tax-evaders”. Among other things, they could be used to evade the taxes that become due in many jurisdictions when cryptocurrencies are exchanged for fiat. Regulators had better keep their eyes wide open.

Turning Wasted Natural Gas Into Bitcoin

Bitcoin miners have become energy hunters, scouring the world for cheap electricity. When most people think about bitcoin mining operations, they imagine hydro-powered warehouses in Canada or the Sichuan Mountains, but what about the oil capital of the United States? What if it were possible to turn otherwise-wasted natural gas into bitcoin?

Growing up in Texas, oil wells were a part of life. Oil prices were high, and we had a ton of it. In my quiet college town, they were everywhere. We even made national headlines as the first city in the country to try and ban fracking (And lost, obviously).

Then came the slump. From 2015-2017, oil fell from over $115 per barrel to under $35. And it wasn’t just the roughnecks and drill-hands that were affected. The drop devastated entire communities in the Lone Star State.  It created ghost towns, bankruptcies and worse. 

But now, the boom is back.

High oil prices have led to a renaissance in Texas’ Permian Basin. It has become a money machine, churning out six-figure incomes to any able-bodied person willing to put in the long hours and hard manual labor required to pull oil from the ground. The cash is so good, in fact, that drillers are literally burning potential profits.

You see, when oil is pumped. the process creates natural gas as a byproduct. And the lack of infrastructure, in addition to a global gas glut, has made it economically difficult to move or even use the resource. In this scenario, drillers have only two options – reduce production or burn the gas. I’m sure you can guess what they are choosing.

The process of burning the excess fuel is called flaring. And it has both an environmental and economic impact. Wall Street Journal estimates that over $1 million worth of natural gas is being flared every day, producing greenhouse gases equivalent to approximately 2 million cars, and that’s just in the Permian. Others estimate the numbers could be much greater worldwide. And though permits are required, they are rarely denied. Why would they be? Crude oil production has been a boon to the regional and national economy.

But what if there was a third option? One that would allow drillers to ‘have their gas and use it too.’

Turning Gas Into Bitcoin

Bitcoin’s energy consumption has been covered immensely from every side of the debate. Generally, so the argument goes, bitcoin miners’ carbon footprint is growing exponentially. Though there have been significant efforts made to reduce the environmental toll, from solar farms to hydro-plants, Bitcoin can’t seem to escape this negative stigma.

Some of the most interesting initiatives, however, are those literally turning waste into bitcoin. And the oil industry is ripe for potential in this regard.

Bernstein analysts led by Jean Ann Salisbury noted that the Permian Basin could produce an “astounding 25 bcfd of wet gas [per day] to 2025, which will mostly be treated as a byproduct based on oil price and possibly even flared! What could producers do instead with this free gas?”

Indeed, that’s the million-dollar question.

And unfortunately, it has yet to be answered. In their review, the analysts concluded that, because of increasing mining difficulty, Bitcoin prices would need to be much higher to remain profitable, stating “We make money only if the average price over 15 years is $18,788.”

But that’s not the end of the story. There’s still a problem that needs a solution.

Flare Mining

Oil prices are continuing to climb, and regulators are once again beginning to weigh the true cost of flaring as rig counts rise and the shale boom kicks into overdrive.

The bottlenecks are inevitable, and if regulators do begin to crack down on natural gas flaring, oil production in Texas could slow drastically.

For drillers, there’s a clear a and present risk in investing in infrastructure to support bitcoin mining, but it’s something that they’re used to. And while the 15-year average needs to hit $18,000 to remain profitable, they’re already losing potential profits by burning natural gas. So, what’s a driller to do?

One company, in particular, is offering a unique plug-and-play solution to this issue. With the understanding that the current path is unsustainable, Flare Mining has built a portable flare gas capture and processing unit which allows drillers to easily turn otherwise wasted gas into bitcoin.

The FlarePods come equipped with everything needed to process excess natural gas, turning it into energy to power mining rigs. Additionally, the pods feature a satellite internet connection which will allow drillers even in the most remote locations to remain connected.

While the FlarePods provide a glimmer of hope for oil producers looking to cut back on their losses, or even profit on their excess gas, there’s still a long way to go before such solutions become commonplace in land of crude oil cowboys.

The New Ultra-Wealthy Benchmark Is $50 Million

Millionaires are pretty much just regular upper middle class folk these days. After all, when there are 16 million of them, they get lost in a sea of ordinariness. They aren’t ultra-wealthy at all. If you want ultra-wealthy, you have to have at least $50 million to make the grade. Better yet, bump it up to billionaire.  

According to “The Wealth Report” by Knight Frank, the world now boasts $129,730 individuals with a net worth of $50 million or more as of 2017—and a total worth of $26.4 trillion.

North America is home to the biggest portion at 44,000, followed by Asia with 35,880 and Europe close behind with 35,180.

(Click to enlarge)

And these numbers reflect a 10-percent increase over 2016. It’s a significant increase when you consider that over the previous five years there was only a cumulative 18-percent increase, while in 2015, the ultra-wealthy population figures actually declined.

Indeed, Knight Frank speaks of an “auspicious time for wealth creation”.

“We have been experiencing ‘Goldilocks’ economic conditions: not too hot, and not too cold. These make it easier to do business, provide a good environment to raise capital and, above all, encourage entrepreneurialism – the key to wealth creation,” says Vincent White, managing director at the Wealth-X Institution, as interviewed by Knight Frank.

That’s why the new millionaire has to have $50 million or more in net worth and assets, while the next tier up is the “demi-billionaire” with over $500 million. Even multi-millionaires—those with $5 million or more—barely rank these days.

So why the sudden, rapid uptick in the ultra-wealthy population?

According to Knight Frank and Wealth-X, in part, it’s the “growing momentum of the global economy since the start of 2017”.

While the relationship is not linear, the report says, “many currencies gained strength against the US dollar last year, which has resulted in a net increase in our estimates […] There is an interplay between this and other factors affecting wealth growth”.

Of course, those estimates came before the emerging markets crisis the world has found itself in today, where the US dollar is the only game in town and a handful of countries are experiencing a severe currency crisis that has some talking of a repeat of 2008.

Fiscal policy changes are also on Wealth-X’s impact list, “although it can take some time for the changes to be felt”.

But back to 2017 …

While North America’s ultra-wealthy population increase by 5 percent last year, the biggest gains were in Asia, where the $50-billion-or-more population rose by 15 percent, bumping Europe out of the second-place spot. The ultra-wealthy population in Europe grew its ranks by 10 percent.

China is the biggest story here, and over the next five years, Wealth-X says the ultra-wealthy population will more than double here. And across Asia, things are looking pretty good. Japan is expected to see its ultra-wealthy ranks increase by over 50 percent, while India is expected to see an increase of over 70 percent, with Indonesia and Malaysia close behind.

We have revised up our economic outlook for the region owing to a rosier Chinese growth forecast in the short term. Steady demand from final consumer markets and rising commodity prices will support exporting countries in the region, while expectations of a very gradual monetary tightening will underpin growth overall,” Frank Knight cited Economist Intelligence Unit analyst Agathe L’Homme as saying.

And despite the present economic and geopolitical headwinds, White still expects 2018 to be a good one, with continued growth of the ultra-wealthy population in the medium term. “Even when conditions are negative, we have traditionally seen more resilience among ultra-wealthy populations,” he wrote

A piece from a book

Once upon a time there was a village in which there lived many married couples. There were certain qualities about this village, though, that made this village unique:

Whenever a man had an affair with another man’s wife, every woman in the village got to know about the affair, except his own wife. This happened because the woman who he had slept with talked about their affair with all the other women in the village, except his wife. Moreover, no one ever told his wife about the affair.

The strict laws of the village required that if a woman could prove that her own husband had been unfaithful towards her, then she must kill him that very day before midnight. Also, every woman was law-abiding, intelligent, and aware of the intelligence of other women living in that village.

You and I know that exactly twenty of the men had been unfaithful to their wives. However, as no woman could prove the guilt of her husband, the village life proceeded smoothly.

Then, one morning, a wise old man with a long, white beard came to the village. His magical powers, and honesty was acknowledged by all and his word was taken as the gospel truth.

The wise old man asked all villagers to gather together in the village compound and then announced:

“At least one of the men in this village has been unfaithful to his wife.”

Questions:

What happened next?

And what this got to do with stock market crashes?

Answer 1:

After the wise old man has spoken, there shall be 19 peaceful days followed by a massive slaughter before the midnight of the 20th day when twenty women will kill their husbands.

Proof:

We will use backward thinking for the proof. Indeed, the very purpose of this post is to demonstrate the utility of the backward thinking style.

Let’s start by assuming that there is only oneunfaithful man in the village – Mr. A. Later, we shall drop this assumption.

Every woman in the village except Mrs. A knows that he is unfaithful. However, since no one has told her anything, and she remains blissfully ignorant. But only until the old man speaks the words, “At least one of the men in this village has been unfaithful to his wife.”

The old man’s words are news only for Mrs. A, and mean nothing to the other women. And because she is intelligent, she correctly reasons that if any man other than her own husband was unfaithful, she would have known about it. And since she has no such knowledge in her possession, it must mean that it’s her own husband who is unfaithful. And so, before the midnight of the day the old man spoke, she must execute her husband.

Now, let’s assume that there were exactly twounfaithful men in the village – Mr. A and Mr. B.

The moment the old man speaks the words, “At least one of the men in this village has been unfaithful to his wife,” the village’s women population gets divided as follows:

Every woman other than Mrs. A and Mrs. B knows the whole truth;

Mrs. A knows about philanderer Mr. B, but, as of now, knows nothing about her own husband’s unfaithfulness, so she assumes that there is only one unfaithful man – Mr. B – who will be executed by Mrs. B that night; and

Mrs. B knows about philanderer Mr. A, but, as of now, knows nothing about her own husband’s unfaithfulness, so she assumes that there is only one unfaithful man – Mr. A – who will be executed by Mrs. A that night.

As the midnight of day one approaches, Mrs. A is expecting Mrs. B to execute her husband, and vice versa. But, and this is key, none of them do what the other one is expecting them to do!

The clock is ticking away and passes midnight and day 2 starts. What happens now is sudden realization on the part of both Mrs. A and Mrs. B, that there must be more than one man who is unfaithful. And, since none of them had priorknowledge about this other unfaithful man, then it must be their own respective husbands who were unfaithful!

In other words, the inaction of one represents new information for the other.

Therefore, using the principles of inductive logic requiring backward thinking, both Mrs. A and Mrs. B will execute their respective husbands before the midnight of day 2.

Now, let’s assume that there are exactly threeunfaithful men in the village- Mr. A, Mr. B., and Mr. C. The same procedure can be used to show that in such a scenario, the wives of these three philandering men will kill them before the midnight of day 3.

Using the same process, it can be shown that if exactly twenty husbands are unfaithful, their wives would finally be able to prove it on the 20th day, which will also be the day of the bloodbath.

Answer 2: Connection with Stock Market Crashes

If you replace the announcement of the old man with that provided, by say, the SEC, the nervousness of the wives with the nervousness of the investors, the wives’ contentment as long as their own husbands weren’t cheating on them with the investors’ contentment so long as their own companies were not indulging in fraud, the execution of twenty husbands with massive dumping of stocks, and the time lag between the old man’s announcement and the killings with the time lag between the old man’s announcement and the market crash, the connection between the story and market crashes becomes obvious.

Information Asymmetry

One of the most interesting aspects about the story is the role of information asymmetry.

You and I knew that there were exactly twentyunfaithful men in the village. We had complete information about the number of unfaithful men in that village but not their identity.

On the other hand, every woman in the village knew the identity of at least nineteen unfaithful men. For example, if you were Mrs. A, you would have known about nineteen unfaithful men, but not about your own husband’s unfaithfulness. And, if you were one of the women whose husband was faithful, then you’d know the identity of twenty unfaithful men.

But the old man did not say that there were twenty unfaithful men in the village. All he said was that there was at least one unfaithful man in the village. So, his statement, did not add anything to the knowledge of any individual woman because each of them knew of at least nineteen unfaithful men!

And yet, his statement caused the bloodbath after twenty days!

.

The lesson is simple: It’s not necessary for any new information to cause havoc in the stock market. Sudden realizations about the stupidity of gross overvaluations and dubious accounting practices followed by some companies in bubble markets can and do occur simultaneously in the minds of the crowd. And that sudden realization can cause markets to crash.

Note:

The above village story was adapted from John Paulos’ excellent book, Once Upon a Number and was repeated in his, other, also excellent, book, A Mathematician Plays the Stock Market.

Which countries are raising the most productive humans?

Two indices measure human capital using gauges of health and education

DESPITE their dour reputation, economists frequently play with metaphor and simile, just like literary folk. One familiar example is “human capital”, as Deirdre McCloskey of the University of Illinois has pointed out. Economists have been likening knowledge, skill and stamina to physical capital, such as plant and equipment, since Adam Smith, who counted “the acquired and useful abilities” of a country’s people as one of several kinds of fixed capital, alongside “useful machines” and “profitable buildings”.

But unlike poets, economists prefer to quantify their analogies—to measure whether thou art 15% or 20% more lovely and more temperate. In that spirit, the World Bank this week unveiled a new measure of human capital for 157 countries. Its index combines five indicators of health and education (including the chances of dying before the age of five and between the ages of 15 to 60, the chances of stunted growth, the years of education an average child will complete by age 18, and the score they can expect on school tests) to measure how much human capital a person born today is likely to accumulate. It follows a similar measure for 195 countries from the Institute for Health Metrics and Evaluation (IHME) published in the Lancet, a medical journal, in September.

Both indices try to reflect the quality of education, not just the quantity. A growing number of countries now take part in initiatives like PISA, the Programme for International Student Assessment, which in 2015 tested pupils in 72 countries. With a little effort, these various measures can be rendered comparable. That allows researchers to calculate what a year of schooling is worth in different parts of the world. For example, the World Bank calculates that a year of education in South Africa is worth only about 60% as much as one in Singapore.

Unsurprisingly, the correlation between the two indices is close (see chart). America ranks 24th on the World Bank’s new index, and 27th on the IHME’s. China ranks 46th on the first and 44th on the latter. But there are also notable discrepancies. On the bank’s index, Bangladesh does better than India, Vietnam better than Malaysia, and Britain better than France. None of that is true in the IHME’s rankings.

Different countries also stand at the top of the two tables. Singapore leads the bank’s ranking. But it lies 13th in the IHME index, which instead places Finland top. The divergence reflects two differences in approach. The World Bank’s method ignores higher education (which is even more prevalent in Finland than in Singapore). And its measures of health (stunting and survival rates) are too crude to distinguish between Singapore’s healthy population and Finland’s even healthier one.

The indices are not just exercises in measurement. They are also motivational tools. The World Bank worries that governments underinvest in human capital, because the rewards arrive painfully slowly and often without fanfare. By ranking countries, these indices may appeal to governments’ national pride and competitive spirit, much like the bank’s annual assessments of the ease of doing business around the world.

The two indices are also intended to be responsive to reforms. Although investments in human capital can take decades to pay off, countries will not have to wait as long to rise up the two league tables. Both indices are designed to be forward-looking, measuring the human capital that will be accumulated if a newborn grows up in the health and educational conditions prevailing now. For example, France’s decision to start mandatory schooling at age three will improve its ranking when the first toddlers are enrolled, long before the economy feels the benefit.

The bank’s index offers a further prod to reform. It uses research on the economic returns to health and education to weight the components of its index according to their contribution to productivity. If a country doubles its human-capital score it should, in the long run, double its GDP per person, compared with a scenario where its score stayed the same. That prospect should make a government’s eyes widen.

Unfortunately the index is still hobbled by gaps in the data and in economists’ understanding. The link between stunting and productivity, for example, remains murky. Only 65% of the world’s births are registered, as are only 38% of deaths. Many countries test their schoolchildren infrequently, if at all. If pupils are not tested until the age of 15, then any reform that helps primary-schoolers learn will not improve the country’s ranking until they grow old enough to ace the tests.

The World Bank has itself flagged these data shortcomings. It hopes the very existence of its index will motivate governments to collect the data the index needs if it is to work properly. To adapt another metaphor favoured by Ms McCloskey, the World Bank has built a sleek sports car; now it must shame governments into building roads that are worthy of it.

Importance of USD

Last week The IMF officially green-lighted the acceptance of China’s currency – the Yuan – into the IMF’s foreign exchange basket. According to Reuters, this move paves the way for the IMF to place the yuan on a par with the US dollar. This is the latest in a series of global developments that threatens to eliminate the US dollar as the world’s reserve currency. 

Experts predict this announcement will trigger one of the most profound transfers of wealth in our lifetime.  So if you want to protect your savings & retirement, you better get your money out of US dollar investments and into the one asset class that rises as currencies collapse.

*The IMF Holds Supreme Power*

The International Monetary Fund, or IMF, is one of the most secretive and powerful organizations in the world.  They monitor the financial health of more than 185 countries. They establish global money rules and provide “bail-out” assistance to bankrupt nations.  Some are warning that any move by the IMF to supplant the US dollar could be catastrophic to American investments.

And now, the IMF has made the first move.  As reported by The Wall Street Journal, the IMF officially green-lighted the acceptance of China’s currency – the Yuan – into the IMF’s foreign exchange basket.  This marks the first time in history the IMF has expanded the number of currencies in the foreign exchange basket. This means that the Chinese currency will now become a viable global alternative to the US dollar.

According to Juan Zarate, who helped implement financial sanctions while serving in George W. Bush’s Treasury department, “Once the [other currency] becomes an alternative to the dollar, rules of the game begin to change.”

Leong Sing Chiong, Assistant Managing Director at a major central bank, said this dollar alternative “is likely to transform the financial landscape in the next 5-10 years.”

Currency expert Dr. Steve Sjuggerud warned, “I’ve been active in the markets for over two decades now, but I’ve never seen anything that could move so much money, so quickly. The announcement will start a domino effect, that will basically determine who in America gets rich in the years to come, and

who struggles.

Dr. Sjuggerud says if you own any US “paper” assets - and that includes stocks, bonds, or just cash in a bank account – you should be aware of what’s about to happen and know how to prepare.  A number of experts believe a recent spike in gold and silver prices is a direct result of the IMF’s action. Precious metals notoriously rise when the US dollar falls.

*The Death of the US Dollar in One Frightening Graph*

For the last 600 years, there have been six different global reserve currencies controlled by world superpowers. The latest – the US dollar – has dominated world currency for over 80 years. The alarming fact is, global reserve currencies have collapsed every 80-90 years for the last six centuries! What does this mean for America and the dominance of the US dollar? Based on recent evidence and long-standing historical trends, experts predict the imminent collapse of the US dollar! What’s more alarming? Many Americans aren’t yet doing the one thing that will save their savings & retirement from US dollar collapse.

Just take a look at the graph below. It shows the lifespan of dominant currencies going back 600 years. Notice that the US dollar has now been the dominant currency for 88 years, about the same length of time as its predecessors.

It’s obvious why experts say that the US dollar’s days as the world’s reserve currency are coming to a climactic end.

*All Fiat Currencies Collapse*

“Fiat” currency is paper currency backed by nothing tangible. As opposed to “sound money” which is backed by gold or some other valuable commodity, a fiat currency is backed by nothing more than faith in the government. The US dollar has been a fiat currency since Nixon closed the gold window in 1971 in what was the greatest heist in American history. The scary fact is, the average life span of a fiat currency is 40 years, and the US dollar has now exceeded 40 years as a fiat currency!

Prior to 1933 and for well over 100 years, the dollar was backed by gold, and $20 bought you an ounce of gold. But after the government stole all US citizens’ gold in 1933 for a $20 paper certificate, gold was revalued at US$35, meaning the dollar was devalued by 43% overnight and all foreign and domestic holders of dollars were effectively robbed.

After Nixon closed the gold window completely in 1971, it took $67 to buy an ounce of gold, devaluing the US dollar by 50% again. Today, it takes well over a thousand US dollars to buy that same ounce of gold. Why? Because the US dollar is now nothing more than a fast declining Federal Reserve note backed by a corrupt government that is saddled with $18 trillion in unpayable debt — growing by $10 million per minute!

*Protect Yourself Before It’s Too Late*

This “Paper Money Experiment” has run its course. The Federal Reserve, the US government, and Wall Street crooks have misused their power by

mismanaging the dollar, and now there are global repercussions. The debt load sitting on top of the US dollar is unsustainable and will continue to crush the dollar’s purchasing power until no one wants to hold US dollars, and they are _no longer_ accepted for global trade. The dollar’s collapse means that every single one of your paper investments that are dollar-backed – stocks, mutual funds, money markets, cash accounts, etc – will go down right along with the dollar! Meanwhile, the government and the banks will find a way to protect themselves at your expense ... !! 

So as we say goodbye to the U.S. dollar’s dominance, it doesn’t have to mean goodbye to your savings & retirement. Remove at least some of your savings & retirement from the dollar-backed, paper-based financial system and protect it with the one asset that has outlasted every fiat currency ever invented mfor the last 5,000 years: *Gold.*

*The above must be read by everyone .*

Latin America’s Love-Hate Relationship With Crypto

Latin America is an often-over-looked region in the crypto-space, but that’s beginning to change. With a population double that of the United States and rapidly approaching Europe, Latin America’s impact on the global economy is becoming increasingly impossible to ignore.

After the death of the global commodity boom that bolstered emerging markets in Central and South America, the region slowed to a crawl. But despite economic troubles in Venezuela and Argentina, Latin America as a whole is on its way back. And the fintech sector is leading the charge.

Latin America is undergoing somewhat of a transformation in the world of global finance. With the state of the banking industry in many countries in the region, people are turning to one another to solve their problems. From neighborhood initiatives to cross-border peer-to-peer lending platforms and online-only independent banking solutions, Latin America is exploring new ways to approach their personal finances.

Though crypto adoption is still lagging in much of the region, the case for it is clear. It’s embedded in the people’s distrust for banks, drive for financial sovereignty, and fierce independent nature. And while the regulatory landscape remains slippery in Latin America, crypto-users and businesses are coming together to take on the authority and create a system that works for the people.

Venezuela

Nowhere in the world has crypto adoption received more attention than in Venezuela. Just about anything with the title “The Case For Bitcoin…” will feature at least a snippet about Venezuela. Hyperinflation, spurred by corruption, irresponsible governance and bad geopolitical maneuvering, has left citizens holding a currency that is only slightly more valuable and functional than Monopoly money.

The government, led by Nicholas Maduro, has also taken note of cryptocurrencies.

Maduro’s first launch of “el petro” did not go well. The launch included presumably fake Ethereum contracts, stories of kidnapping, misleading figures, and desperate pleas to global oil markets, hoping someone would buy the coin. And now, the Venezuelan leader is doubling down on the idea. Not only is he planning a new launch of the oil-backed crypto, he’s even decided to peg the freshly launched sovereign bolivar (a new version of the previous bolivar, minus 5 zeroes…you know, to combat inflation) to it.

The “new petro” is set to officially launch on November 5^th, and apparently already has the support of 5 of the world’s largest crypto-exchanges.

“El Petro” aside, there are a number of great initiatives playing out on the ground in Venezuela. Merchants are growing more acceptant of crypto, citizens are beginning to take it seriously, and big businesses are ramping up the scale of their operations in the country.

Dash, in particular, is making waves in Venezuela. With over 200 merchants signing up to receive payments in dash per month, according to the Dash Core Group, it’s clear to see the demand for crypto is there.

Additionally, Dash has partnered with Kripto Mobile to market plug-and-play crypto phones to Venezuelans. The cellphones come pre-loaded with software to facilitate crypto purchases and even $100 in dash to kick off the spending spree.

Argentina

Buenos Aires often ranks as one of the top destinations to spend bitcoin. The city boasts a high number of merchants that accept cryptocurrencies and a growing user base. This is due, in large part, to the tech-savvy population and favorable regulatory landscape.

Argentina’s increasing financial woes, however, can’t be ignored.

More and more, Argentinians are looking at bitcoin as a safe-haven asset as the peso continues to tumble. Even with an IMF bailout, the country’s currency is caught in a larger emerging market contagion, and the decline is showing no signs of slowing anytime soon.

Nathanial Popper, author of ‘Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money’, noted, “Citizens of countries such as Argentina, whose governments have a near perfect track record of debasing their own currency and destroying the savings of their citizenry, have shown signs of preferring bitcoin to their own state’s money.”

Argentina’s economic crisis has even sparked a surge in bitcoin ATM installations as demand continues to grow.

Two bitcoin ATM companies, Athena Bitcoin and Odyssey and Odyssey Group, are looking to drastically scale up installations in the next year, with plans to boost the number of ATMs from 30 by the end of 2018 to over 1500 by the end of 2019.

Colombia

Colombia is an underdog in the crypt-race unfolding in Latin America. And it doesn’t help that the country’s financial institutions are actively fighting back against adoption.

In June, Colombian banks joined forces against Chilean crypto exchange, Buda.com, closing all of the exchange’s accounts which serve over 35,000 Colombian citizens. This move came around the time the Colombian government took the well-known “blockchain, not bitcoin” stance, advocating for greater adoption of blockchain services while simultaneously discrediting bitcoin and other cryptocurrencies.

Though the shuttering of Buda’s accounts could be seen as a major setback for adoption in Colombia, Buda pushed forward, beginning legal proceedings with the bank, and even sending an open letter to the country’s newly elected president, Iván Duque.

These developments come at a time where the government is weighing regulation and taxation on the space. Though limited details of the progress are known, popular media outlet Dinero and pro-crypto organizations, Colombian Software Federation (Fedesoft), the Fintech Colombia Association and the Blockchain Colombia Foundation noted the proposed law “demonstrates a lack of knowledge about the operation and characteristics of cryptocurrencies.”

Mexico

Mexico is also grappling with a new string of regulatory developments surrounding cryptocurrencies and fintech initiatives.

As the world’s 11^th largest economy, Mexico is a key nation to watch as cryptocurrencies begin to infiltrate the emerging market landscape. Not only are there booming fintech startup scenes in Mexico City, Colima and Guadalajara, disruption in the financial sector is practically inevitable.  

Mexicans hate banks – really. Lines are long, fees are high and generally speaking, no one really trusts that the banks have their best interest at heart. Because of these issues, over 50 percent of the 125-million-person population is without a bank.

The situation is so bad that Statista predicts the fintech industry in Mexico will grow to $70 billion in 2018.

As the leader of the fintech movement in Latin America, the Mexican government has begun to take notice.

Originally launched in March 2018, the country’s “Ley FinTech” begun with overwhelmingly supportive regulations, offering startups the opportunity to enter into the financial word on even ground. Since the launch, however, a number of revisions have been made which have place a limit on the freedom fintech companies once enjoyed.

Two major developments hit exchanges particularly hard.

Previously, exchanges were able to make instant transactions through banks within the country through Mexico’s Sistema de Pagos Electrónicos Interbancarios (SPEI), but with the new addition to the fintech law, exchanges are now held to an overnight waiting period. Additionally, exchanges are now required to receive a permit from the Bank of Mexico.

Crypto in Latin America

While some of Latin America’s largest countries try to navigate this new asset class, the movement is beginning to take root across the region. Both Peru and Chile have seen significant movements in crypto trading volume in recent months while Panama is quickly turning into an American hub, thanks in large part to its friendly regulatory approach to the space.

Brazil, too, with an election looming and an economic crisis on the brink, is getting into the action. Second only to Mexico in fintech startups, Brazil has a chance to make waves in the crypto-economy in the coming months.

It’s no secret that financial woes and bitcoin go hand-in-hand, but with trade wars escalating, the U.S. dollar continuing to climb, and the Latin American political landscape undergoing a transformation, Latin America will be a region to watch as crypto adoption prepares for its next big break.

How The Cryptocurrency Landscape Is Evolving

For better or worse, the ICO landscape has changed a lot of the past twelve months. I have been involved in every turn of this tumultuous ride. In the meantime I’ve probably accumulated enough fun stories to write a small book, but for now I’ll limit myself to a brief digest.

It used to be fabulous! You form a team – i.e., a few of your college buddies – you brainstorm, and out of your brainstorming session you pick the most exciting and most far-fetched idea to put in a whitepaper (which might take a couple of weeks to write); then you create a simple website, start a Telegram group, and open a Bitcointalk thread; and voila, you are ready to fundraise millions through ICO.

All irony aside, that is how it used to work. Case in point, Filecoin. Their original whitepaper contained seven-plus pages including references. It was even shorter than the cornerstone of the genre – the Bitcoin whitepaper, which spans over eight and a half pages. In less than one month, Filecoin raised $257 million, $202 million of which was raised in the crowdsale. At the time the company didn’t have a product; no alpha, beta, nothing. A year later, finally, the team presented what they call a “demo of Filecoin”. What I could see on the video looks like a very basic prototype – twelve months after collecting $257 million, it is not very impressive.

The reason why I touched on Filecoin is not to spread FUD (the industry’s jargon for Fear, Uncertainty, and Doubt). However, I believe this case demonstrates very well how the ICO landscape has changed. Had Filecoin started their ICO a year later, not only they would not be able to raise $257 million, but they would also find themselves struggling to raise money, period.   

How the investors are approaching the new ICO landscape

Much has changed in these twelve months.  Ether “mooned” in January to almost $1,500 and then landed in September at around $170; we have seen the emergence of SAFT and STO, the death (or perceived death) of the crowdsale. More importantly, the market sentiment has changed, the indicative investor profile has changed completely, from a crypto “whale” or “hamster” to a crypto VC. And this crypto VC should not be confused with a traditional VC, although some of the crypto VCs may have a traditional VC background.

Nonetheless, the investor approach to potential investments has become more professional and more realistic. No longer do they expect a 100x return, but they do expect a product, financials, and even a business plan. In the words of Justin Jung, put his title here, “The good period when you could raise money based on a whitepaper and an idea had passed. You need to build a company, raise some money, have a team and a product already, then you can start doing ICO”. 

Even though this “professionalization” of the ICO landscape is natural and desired by many, there is something to reminisce about those early days when someone with a great idea could make a pitch to the crowd and raise funds directly from it to turn his idea into reality. In addition, for the first time in history, anyone (at least in theory) could invest into the future and get a piece of the great things to come. Something that was not possible during the dotcom boom or at any other point in time.

This democratization of the investment process was uplifting. No longer did the gatekeepers (investment banks, VCs, PEs, hedge funds and such) have the first night privilege or the tithe. Possibly, this shift has even influenced Jay Clayton and the establishment to reassess who can invest in private companies. The good came with the bad. The easiness with which it was possible to raise millions from the public has led to the emergence of countless scams.  

Even the investment mechanisms have changed. Back then, most of the investments in ICOs were in cryptocurrency, and it was almost unheard of in the ICO landscape for a company to convert their cryptocurrency into fiat immediately. But this has changed. CREDITS, who started its ICO back in the fall of 2017 and raised all of its $20 million hard cap in ethers, had only decided to convert the funds into fiat when the market turned; all the more recent ICOs we have interviewed (AlchemyCoin, Buddy, Yamzu) were immediately liquidating all of the crypto investments.   

Telegram made headways by raising $1.8 billion in fiat only. Nowadays, it has become the norm. All of our interviewees again with the exception of CREDITS received the large majority of funding in fiat. We observe the same change in terms of private sale vs. crowdsale. Here also, CREDITS is the only project on the list that raised most of its funds in a crowdsale (approximately $17 million out of $20 million total raise). And even the $3 million that was raised in private sale did not come from funds or other large investors. This is the very same strategy that Anant, COO of Buddy, who started his ICO in August 2018, considers his biggest mistake:  “We had a strategy that focused on traditional investors rather than funds. When we noticed this being a hurdle, we made a shift in our fundraising strategy and soon after, we witnessed a shift in our fund growth and overall sale advancements.”

The same goes for the marketing strategy. For CREDITS, whose ICO was early enough to catch the hype, the most effective channels to attract investors were marketing and PR. The same channels that AchemyCoin, Buddy and Yamzu named as the least effective.

There are various reasons for that change, but for now I’ll just say there was something genuine about the crypto culture at that time when anyone on Etherscan could trace all the funds raised by an ICO. It also allowed for a certain amount of due diligence and control on the part of the community. A community would vigorously watch any tokens being moved out of the founders’ wallets. It could not prevent fraud, but it could deter it.  

Since this summary of the new ICO landscape is not meant to be just my sentimental journey through time, but also something that the community could benefit from, below I have summarized some of the best advice found in the interviews that we conducted.  Hopefully, this will not deter an inspiring ICO entrepreneur from pursuing his dream, but make his journey less turbulent.

Lessons learned from the changing ICO landscape:

• Team. “ having a highly-experienced team on board during the ICO launch is already a 50% of success” says Igor Chugunov.

• Product: have a product built before the ICO. (This was the number one advice from Buddy, CREDITS and Yamzu founders).

• Vet all ICO service providers. (Yamzu).

• Invest in IR and consider an equity raise instead. Constantin Kogan: “focus on IR and hot intros with equity offering instead of a token sale. Token sale is becoming more expensive, yet generating less investment”. Rudy Kadoch echoes this sentiment: “do not raise money at the moment through private or public sale but raise a small amount in private equity with an opportunity for the investor to transform stock into tokens”.

• Private Sale. Crowdsale hasn’t been working for the past 6 months. Focus on Private Sale instead. All of our respondents agree on this point.

• Avoid adviser/influencers who don’t contribute to the project. (Buddy, Yamzu).

• Hot Trends for 2019 according to Justin, Constantin, and Rudy

• Fintech

• STO platforms

• Cross-chain interoperability protocols

• New more powerful blockchain platforms

• On-chain governance

• Stable coins

The next recession

Toxic politics and constrained central banks could make the next downturn hard to escape

JUST a year ago the world was enjoying a synchronised economic acceleration. In 2017 growth rose in every big advanced economy except Britain, and in most emerging ones. Global trade was surging and America booming; China’s slide into deflation had been quelled; even the euro zone was thriving. In 2018 the story is very different. This week stockmarkets tumbled across the globe as investors worried, for the second time this year, about slowing growth and the effects of tighter American monetary policy. Those fears are well-founded.

The world economy’s problem in 2018 has been uneven momentum (see article). In America President Donald Trump’s tax cuts have helped lift annualised quarterly growth above 4%. Unemployment is at its lowest since 1969. Yet the IMF thinks growth will slow this year in every other big advanced economy. And emerging markets are in trouble.

This divergence between America and the rest means divergent monetary policies, too. The Federal Reserve has raised interest rates eight times since December 2015. The European Central Bank (ECB) is still a long way from its first increase. In Japan rates are negative. China, the principal target of Mr Trump’s trade war, relaxed monetary policy this week in response to a weakening economy. When interest rates rise in America but nowhere else, the dollar strengthens. That makes it harder for emerging markets to repay their dollar debts. A rising greenback has already helped propel Argentina and Turkey into trouble; this week Pakistan asked the IMF for a bail-out (see article).

Emerging markets account for 59% of the world’s output (measured by purchasing power), up from 43% just two decades ago, when the Asian financial crisis hit. Their problems could soon wash back onto America’s shores, just as Uncle Sam’s domestic boom starts to peter out. The rest of the world could be in a worse state by then, too, if Italy’s budget difficulties do not abate or China suffers a sharp slowdown.

Cutting-room floors

The good news is that banking systems are more resilient than a decade ago, when the crisis struck. The chance of a downturn as severe as the one that struck then is low. Emerging markets are inflicting losses on investors, but in the main their real economies seem to be holding up. The trade war has yet to cause serious harm, even in China. If America’s boom gives way to a shallow recession as fiscal stimulus diminishes and rates rise, that would not be unusual after a decade of growth.

Yet this is where the bad news comes in. As our special report this week sets out, the rich world in particular is ill-prepared to deal with even a mild recession. That is partly because the policy arsenal is still depleted from fighting the last downturn. In the past half-century, the Fed has typically cut interest rates by five or so percentage points in a downturn. Today it has less than half that room before it reaches zero; the euro zone and Japan have no room at all.

Policymakers have other options, of course. Central banks could use the now-familiar policy of quantitative easing (QE), the purchase of securities with newly created central-bank reserves. The efficacy of QE is debated, but if that does not work, they could try more radical, untested approaches, such as giving money directly to individuals. Governments can boost spending, too. Even countries with large debt burdens can benefit from fiscal stimulus during recessions.

The question is whether using these weapons is politically acceptable. Central banks will enter the next recession with balance-sheets that are already swollen by historical standards—the Fed’s is worth 20% of GDP. Opponents of QE say that it distorts markets and inflates asset bubbles, among other things. No matter that these views are largely misguided; fresh bouts of QE would attract even closer scrutiny than last time. The constraints are particularly tight in the euro zone, where the ECB is limited to buying 33% of any country’s public debt.

Spending ceilings

Fiscal stimulus would also attract political opposition, regardless of the economic arguments. The euro zone is again the most worrying case, if only because Germans and other northern Europeans fear that they will be left with unpaid debts if a country defaults. Its restrictions on borrowing are designed to restrain profligacy, but they also curb the potential for stimulus. America is more willing to spend, but it has recently increased its deficit to over 4% of GDP with the economy already running hot. If it needs to widen the deficit still further to counter a recession, expect a political fight.

Politics is an even greater obstacle to international action. Unprecedented cross-border co-operation was needed to fend off the crisis in 2008. But the rise of populists will complicate the task of working together. The Fed’s swap lines with other central banks, which let them borrow dollars from America, might be a flashpoint. And falling currencies may feed trade tensions. This week Steve Mnuchin, the treasury secretary, warned China against “competitive devaluations”. Mr Trump’s belief in the harm caused by trade deficits is mistaken when growth is strong. But when demand is short, protectionism is a more tempting way to stimulate the economy.

Timely action could avert some of these dangers. Central banks could have new targets that make it harder to oppose action during and after a crisis. If they established a commitment ahead of time to make up lost ground when inflation undershoots or growth disappoints, expectations of a catch-up boom could provide an automatic stimulus in any downturn. Alternatively, raising the inflation target today could over time push up interest rates, giving more room for rate cuts. Future fiscal stimulus could be baked in now by increasing the potency of “automatic stabilisers”—spending on unemployment insurance, say, which goes up as economies sag. The euro zone could relax its fiscal rules to allow for more stimulus.

Pre-emptive action calls for initiative from politicians, which is conspicuously absent. This week’s market volatility suggests time could be short. The world should start preparing now for the next recession, while it still can.