Crypto offers a decentralized and potentially stable alternative to individuals, businesses and countries away from the traditional fiat currencies.
August 6, 2018
By: Bobby Casey, Managing Director GWP
I think there might be a subtle directional pull toward sound money. I realize that claim oozes with commitment issues, but it’s not reluctant. The abuse by major reserve holders like the US has given the rest of the world little choice but to turn to other forms of currency, and in so doing, they seem to be migrating toward first principles and best practices.
The reason I’m so tenuous about calling this a global trend or shift in the market is because I’ve only seen little indicators. I don’t mean cryptocurrency in general, but sound money in particular.
Russia is moving away from the dollar. They are selling off US treasuries in favor of gold:
- “Russian ownership of US Treasury bonds has dropped from $96.1 billion in March to an 11-year low of $14.9 billion, latest figures show.
- “The US Treasury released a list of the top 33 national investors in its bonds on Tuesday. Russia, once in the top 10, was absent.
- “Russia has been buying gold as it sells off US bonds, recently overtaking China as the world’s biggest holder of gold, with $80.5 billion-worth.”
To be fair, this sell-off of US Treasuries started back in 2011 in response to the Obama administrations sanctions against Russia.
Turkey has cut its US Treasury holdings by nearly half and is seeking to join BRICS. This unto itself isn’t monumental except that they would be aligning with China and Russia bringing a very strategic piece of real estate to the table. Their economy isn’t particularly stable, their lira is weak, and their relationships with the EU, US, as well as Russia is not great. Nonetheless, BRICS has demonstrated a willingness to open discussions. This block economically has potential to make some serious waves, and shift reserve currency influence away from the West.
Meanwhile, the US is desperately seeking buyers of their debt because it instituted tax cuts it cannot afford and refuses to cut spending. This is important because of what is happening in the EU, and other places around the world: there is a growing shortage of US dollars.
Trump’s tax initiative incentivized a repatriation of US dollars, but that alone is only a contributor to the larger forces at play. US short-term rates and LIBOR rates are rising, and the Federal Reserve is tightening. This is all making the US dollar stronger, but subsequently making other currencies weaker whereby making it difficult for other countries to buy US debt. The trade war with China is also not helping since less US dollars are being circulated throughout the world because of it.
This makes global markets a lot more fragile.
All of this points to a desperate need to get away from the US dollar for sure. We have written about that quite a bit. Market demand for something… ANYTHING… else is absolutely there. The advent of cryptocurrencies is a sign that demand extends well beyond governments. Individuals are watching as inflation eats at their savings, corporations are being vilified for the rise in prices caused by domestic inflation, and the landscape is primed for a monetary revolution.
You recall Venezuela’s roll out with the Petro – a oil-backed national cryptocurrency – back in February of this year?
“Each Petro coin is backed by Venezuela’s massive oil reserves, said to be equal to 5 billion barrels. Each coin is said to be worth the price of a barrel of oil, with the WTI currently trading at around $67 a barrel and having been at a 52-week low of $42.06/high of $72.83. The government itself is now preparing to set up 9,000 crypto mining machines.”
The roll-out was domestic, but among the 133 countries who’ve express interest in investing in the Petro, is China. This is a big step toward sound money. Backed currency coming out of a place that is the Latin American equivalent of the Weimar Republic is an astounding feat.
Venezuela still has some ways to go, but what a solution it carved for itself! It has potential if the government doesn’t screw it up.
People scoff at this attempt, many of whom generally just disapprove of the country and its leadership. But if this was such a bad idea, why did OilCoin launch back in December of 2017?
Better still, why did Signal Capital Management recently announce it would launch the “PetroDollar”? Not to be confused with the US dollar as a reserve currency for oil trade, this is actually a cryptocurrency that will be backed by oil reserves, natural gas, and other energy commodities:
- “It has a market capitalization of $1.48 mln and is set to have an ICO of around $700 mln, professing to be one of the largest ICOs to date.
- “Investors will treat the PetroDollar as a currency and not an exchange traded fund (ETFs), circumventing some tax reporting obligations, and is ‘not expected to be subject to annual tax but instead will be taxed only upon any gains (or losses) from their sale of PetroDollars,’ its official white paper reads.
- “The cryptocurrency also affirms to be ‘tradeable worldwide outside of the traditional banking system’ and is ‘expected to be in Top 20 cryptocurrencies by total market value’. After the initial ICO, it aims to back each coin by over ‘13 barrels of proven recoverable oil reserves’.”
Many other countries have either adopted blockchain technology to manage currency or are very close to doing so:
Obviously, they aren’t all sound and backed by something of value; and being a digital currency doesn’t make them inherently stable. But again, these are all indicators.
The world is hungry for something more than what the derailed traditional fiat currencies have to offer. Markets want to grow. People want real stores of wealth. Most of all, economies need choices. Cryptocurrencies is decentralized enough to provide more stability for all.
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