Whispers in the wind
Late last year during an obscure policy discussion in the bowels of the USA, a Federal Reserve governor raised the prospect of an ‘inflation averaging approach’. The idea being that inflation would be allowed to overshoot 2% for a period of time to bring the longer term average back in line.
Not 12 months later and that has morphed into the formal policy of the Federal Reserve and the notion is crossing borders with the ECB considering something similar.
The latest whispers look similarly co-ordinated. In Australia we have had a red line in interest rates at what the the Governor has defined as the ‘lower-bound’. He noted that the impact of rate cuts below that level would be minimal and thus policy tools would be focused elsewhere. No longer. Following a speech this week the market is now pricing in a further rate cut in November.
On the same day we had the European Central Bank, who are very close to negative rates already, talking about further cuts.
It’s revealing. Firstly, whatever has been done so far is not working and secondly their prescription will be a lot more of the same.
Right now deflation pressures are real, with shrinking economies and rising unemployment. No doubt they will continue to be real for some time, but there is one way out of this mess for governments and that is inflation. It is the only way. Nothing else exists in the tool box, so don’t misread the next few years of struggling economies and falling price levels.
They will succeed in the end because there simply is no other option.
One of the major criticisms of the bitcoin security model has been that miners are only providing hash rate because of the block reward. Every 10 minutes there is roughly US$70,000 up for grabs for solving bitcoin blocks. This is predominantly the 6.25 BTC that miners receive for doing so.
What happens when we hit the 21 million bitcoin limit (not until 2140)? Who will mine bitcoin then? Well we are starting to see the answer. Since the halving in May, bitcoin fees have made up somewhere close to 10% of the overall reward to miners. Prior to May it was less than 2%. We could have expected a jump to around 5% just by virtue of the halving but bitcoin has been busy for the last 6 months and clearly people are willing to pay the fees to get their transactions processed.
A healthy fee market is essential to bitcoin’s future. It would be great to see fees somewhere around 20% of the total reward at this stage in bitcoin’s development. That will no doubt happen into the next halving in 2024.
Since 2009, bitcoin miners have collected $20 billion in block rewards and users have paid over $1.16 billion in fees to process transactions on the market.
The fees are currently still cheap, it would cost about 40 cents to send a bitcoin transaction right now. If you aren’t in a hurry you could do it for 2 cents, but you would need to wait in queue. This is unlikely to remain the case.
40 cents to have your transaction permanently recorded on hundreds of thousands of synchronised ledgers around the world forever is ridiculously underpriced. Transaction costs will probably increase by two orders of magnitude in the next 10 years. We will hear stories then about high fees “killing bitcoin”. Those stories will be wrong, we need a healthy fee market and we are seeing it develop.
On the topic of supply, we reached 18.5 million total bitcoin in issuance this week. 88% of the final total.
Issuance has slowed sharply since last year and it’s only getting lower. All the way to September 2138.
You can track these statistics and many others on this excellent dashboard of the overall health metrics of the bitcoin ecosystem.
The long arm of the law
It’s all highly entertaining stuff. With McAfee’s technical skills in computing, he taunted the US authorities about their failure to apprehend him. Then, this week, they apprehended him.
To my great disappointment, McAfee was in Spain. Such a bad choice. Back in the 70’s and 80’s it was the go-to venue for villains on the run but that really hasn’t been the case for quite a while now. I’m surprised McAfee wasn’t more discerning, not least because Spain actually has an extradition treaty with the USA leaving John looking at a free flight home.
It’s not just McAfee though. One of the largest Bitcoin futures exchanges known as BitMex saw its founders arrested this week too. Their charges are rather more serious, relating to money laundering (actually more a failure to comply with KYC for American clients).
The clean up from 2017 continues, it actually bodes well. Simply, the industry is maturing. The only disturbing thing is the apparent inequality in the application of the law. When HSBC or JP Morgan get caught laundering billions they are fined as they were last week. In cryptocurrency if you do it, you go to jail. The rules are not the same for the banking coterie as they are for everyone else.
I discovered this week that the European Union has a department devoted to employment, social affairs and inclusion. They published some statistics for us complete with colourful flags:
43.9% of people 15-24 in Spain are unemployed, compared to 6% in Germany. The stats were presented with no comment as though they were the results of the Eurovision Song Contest. “Great news everyone, still under 50% unemployment”. It’s as embarrassing as it is ridiculous.
The whole idea of the European Union was to build trade and share wealth and pull up the economies of the weaker countries. They have been at it now for decades, with unlimited funding and unlimited legal power behind them and it is a total failure. The result of the whole project appears to be some very fine new roads in Spain and Portugal that nobody can afford to drive on.
The real winners in the EU are the people who work for the EU, a big fat gravy train of failure.
You would think that with employment figures like that people would be resigning rather than tweeting them out all over social media. Not a bit of it, simply there is “much more work to do” and “more help is coming”.
If it wasn’t a human tragedy it would be amusing, but it is a total disgrace.