Today is the anniversary of ECB Director, Benoit Coeure’s, comments on digital currency and bitcoin, he made quite a splash at the time, let’s see how things have moved on since.
Central banks around the world are in a bind. They know two things are almost inevitable, one of them is digital currency, the other is that they will need to print more and more of their own currencies to keep the show on the road. Add to that some competitive pressure, notably the People’s Bank of China looks like they are going to be first by launching a blockchain based version of their currency.
There have been lots of clever technological ideas that politicians don’t like. Mostly because it disempowers them. Take social media, it has completely broken the government’s messaging apparatus, so much so that Benoit was reduced to tweeting out his message that Bitcoin is “brilliant but bad”.
The printing press is rather similar, it was brilliant, but bad. It gave the ruling authorities of the time all sorts of issues, so much so that is was banned. In the Ottoman empire Sultan Selim, persuaded by his clerics, introduced the death penalty for using one.
In this era, the clerics of our time are Central Bankers. I say that because their every word is analysed, when Powell speaks computerised systems analyse his words for clues about interest rate movements and place automated bets accordingly. It’s mad but true. They will do all they can to diminish bitcoin but they will be unable to stop it. When Benoit made his comments last year one bitcoin was US$5,700, it is now US$8,700. Not that the mainstream media mention it, a 50% rise. Any news on how the Euro has been doing?
Everything goes up
The stock market, bonds, house prices, almost everything is going up in “value” and yet people are complaining of being poorer. One reason is the unit of account for measurement is generally local currency and it is no longer working.
The problem of course is the supply of fiat currency is out of your control and unspecified, so although the nominal value of financial assets is rising quickly, it is becoming increasingly difficult to asses real value of assets given the distortions in monetary and interest rate policy.
The best example I can give is the S&P 500 which surges ever onward, seemingly every day. Since 2009 it is up three fold in USD terms and even more impressive four fold in AUD terms.
In bitcoin terms though, it is down over 95%. Probably an unfair comparison but the point is — the unit of wealth measurement matters and you might consider using something other than a state issued currency to do it.
Fed balance sheet
In unrelated news, here is the Federal Reserve balance sheet. Close to $300 billion added to the system in the last few weeks — I guess that money went somewhere.
TenCent isn’t that well known in the West but it is a big company in China and and makes serious money, around $15 billion a year. TenCent owns WeChat, the major social networking platform in Asia as well as a suite of online games. In short, they are hugely technically capable and hugely profitable.
Following the recent announcement in China that blockchain was becoming a focus, Tencent has now announced it will be launching a virtual blockchain bank based in Hong Kong having been given the green light from the Securities Regulator.
Whether any of this means anything ultimately, who knows. What is absolutely clear though is that Japan, China and Korea are miles in front of the rest of the world with this technology. To be fair to the US, for a long time now they have led tech and everyone else followed or copied. This time it looks rather different. US Regulators have done everything they can to block Libra, they still have not approved a bitcoin ETF and the New York licensing regime makes operating a bitcoin company there all but impossible. This time around, nobody really cares though and the whole industry is moving forward without the USA.
The largest blockchain companies in the world are
Crypto Exchange: Binance — based in Malta
Crypto Mining: Bitmain — based in China
Derivatives: Bitmex — based in Hong Kong
Finally, we sent out our latest update to investors this week on the bitcoin halvening. We are exactly six months out from that now, you will find the report here.
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