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Putting $400M of Bitcoin on your company balance sheet
Also posted on my blog as usual. Read it there if you can, there are footnotes and inlined plots. A couple of months ago, MicroStrategy (MSTR) had a spare $400M of cash which it decided to shift to Bitcoin (BTC). Today we'll discuss in excrutiating detail why this is not a good idea. When a company has a pile of spare money it doesn't know what to do with, it'll normally do buybacks or start paying dividends. That gives the money back to the shareholders, and from an economic perspective the money can get better invested in other more promising companies. If you have a huge pile of of cash, you probably should be doing other things than leave it in a bank account to gather dust. However, this statement from MicroStrategy CEO Michael Saylor exists to make it clear he's buying into BTC for all the wrong reasons:
“This is not a speculation, nor is it a hedge. This was a deliberate corporate strategy to adopt a bitcoin standard.”
Let's unpack it and jump into the economics Bitcoin:
Is Bitcoin money?
No. Or rather BTC doesn't act as money and there's no serious future path for BTC to become a form of money. Let's go back to basics. There are 3 main economic problems money solves: 1. Medium of Exchange. Before money we had to barter, which led to the double coincidence of wants problem. When everyone accepts the same money you can buy something from someone even if they don't like the stuff you own. As a medium of exchange, BTC is not good. There are significant transaction fees and transaction waiting times built-in to BTC and these worsen the more popular BTC get. You can test BTC's usefulness as a medium of exchange for yourself right now: try to order a pizza or to buy a random item with BTC. How many additional hurdles do you have to go through? How many fewer options do you have than if you used a regular currency? How much overhead (time, fees) is there? 2. Unit of Account. A unit of account is what you compare the value of objects against. We denominate BTC in terms of how many USD they're worth, so BTC is a unit of account presently. We can say it's because of lack of adoption, but really it's also because the market value of BTC is so volatile. If I buy a $1000 table today or in 2017, it's roughly a $1000 table. We can't say that a 0.4BTC table was a 0.4BTC table in 2017. We'll expand on this in the next point: 3. Store of Value. When you create economic value, you don't want to be forced to use up the value you created right away. For instance, if I fix your washing machine and you pay me in avocados, I'd be annoyed. I'd have to consume my payment before it becomes brown, squishy and disgusting. Avocado fruit is not good money because avocadoes loses value very fast. On the other hand, well-run currencies like the USD, GBP, CAD, EUR, etc. all lose their value at a low and most importantly fairly predictible rate. Let's look at the chart of the USD against BTC While the dollar loses value at a predictible rate, BTC is all over the place, which is bad. One important use money is to write loan contracts. Loans are great. They let people spend now against their future potential earnings, so they can buy houses or start businesses without first saving up for a decade. Loans are good for the economy. If you want to sign something that says "I owe you this much for that much time" then you need to be able to roughly predict the value of the debt in at the point in time where it's due. Otherwise you'll have a hard time pricing the risk of the loan effectively. This means that you need to charge higher interests. The risk of making a loan in BTC needs to be priced into the interest of a BTC-denominated loan, which means much higher interest rates. High interests on loans are bad, because buying houses and starting businesses are good things.
BTC has a fixed supply, so these problems are built in
Some people think that going back to a standard where our money was denominated by a stock of gold (the Gold Standard) would solve economic problems. This is nonsense. Having control over supply of your currency is a good thing, as long as it's well run. See here Remember that what is desirable is low variance in the value, not the value itself. When there are wild fluctuations in value, it's hard for money to do its job well. Since the 1970s, the USD has been a fiat money with no intrinsic value. This means we control the supply of money. Let's look at a classic poorly drawn econ101 graph The market price for USD is where supply meets demand. The problem with a currency based on an item whose supply is fixed is that the price will necessarily fluctuate in response to changes in demand. Imagine, if you will, that a pandemic strikes and that the demand for currency takes a sharp drop. The US imports less, people don't buy anything anymore, etc. If you can't print money, you get deflation, which is worsens everything. On the other hand, if you can make the money printers go brrrr you can stabilize the price Having your currency be based on a fixed supply isn't just bad because in/deflation is hard to control. It's also a national security risk... The story of the guy who crashed gold prices in North Africa In the 1200s, Mansa Munsa, the emperor of the Mali, was rich and a devout Muslim and wanted everyone to know it. So he embarked on a pilgrimage to make it rain all the way to Mecca. He in fact made it rain so hard he increased the overall supply of gold and unintentionally crashed gold prices in Cairo by 20%, wreaking an economic havoc in North Africa that lasted a decade. This story is fun, the larger point that having your inflation be at the mercy of foreign nations is an undesirable attribute in any currency. The US likes to call some countries currency manipulators, but this problem would be serious under a gold standard.
Currencies are based on trust
Since the USD is based on nothing except the US government's word, how can we trust USD not to be mismanaged? The answer is that you can probably trust the fed until political stooges get put in place. Currently, the US's central bank managing the USD, the Federal Reserve (the Fed for friends & family), has administrative authority. The fed can say "no" to dumb requests from the president. People who have no idea what the fed does like to chant "audit the fed", but the fed is already one of the best audited US federal entities. The transcripts of all their meetings are out in the open. As is their balance sheet, what they plan to do and why. If the US should audit anything it's the Department of Defense which operates without any accounting at all. It's easy to see when a central bank will go rogue: it's when political yes-men are elected to the board. For example, before printing themselves into hyperinflation, the Venezuelan president appointed a sociologist who publicly stated “Inflation does not exist in real life” and instead is a made up capitalist lie. Note what happened mere months after his gaining control over the Venezuelan currency This is a key policy. One paper I really like, Sargent (1984) "The end of 4 big inflations" states:
The essential measures that ended hyperinflation in each of Germany,Austria, Hungary, and Poland were, first, the creation of an independentcentral bank that was legally committed to refuse the government'sdemand or additional unsecured credit and, second, a simultaneousalteration in the fiscal policy regime.
In english: *hyperinflation stops when the central bank can say "no" to the government." The US Fed, like other well good central banks, is run by a bunch of nerds. When it prints money, even as aggressively as it has it does so for good reasons. You can see why they started printing on March 15th as the COVID lockdowns started:
The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.
In english: We're going to keep printing and lowering rates until jobs are back and inflation is under control. If we print until the sun is blotted out, we'll print in the shade.
BTC is not gold
Gold is a good asset for doomsday-preppers. If society crashes, gold will still have value. How do we know that? Gold has held value throughout multiple historic catastrophes over thousands of years. It had value before and after the Bronze Age Collapse, the Fall of the Western Roman Empire and Gengis Khan being Gengis Khan. Even if you erased humanity and started over, the new humans would still find gold to be economically valuable. When Europeans d̶i̶s̶c̶o̶v̶e̶r̶e̶d̶ c̶o̶n̶q̶u̶e̶r̶e̶d̶ g̶e̶n̶o̶c̶i̶d̶e̶d̶ went to America, they found gold to be an important item over there too. This is about equivalent to finding humans on Alpha-Centauri and learning that they think gold is a good store of value as well. Some people are puzzled at this: we don't even use gold for much! But it has great properties: First, gold is hard to fake and impossible to manufacture. This makes it good to ascertain payment. Second, gold doesnt react to oxygen, so it doesn't rust or tarnish. So it keeps value over time unlike most other materials. Last, gold is pretty. This might sound frivolous, and you may not like it, but jewelry has actual value to humans. It's no coincidence if you look at a list of the wealthiest families, a large number of them trade in luxury goods. To paraphrase Veblen humans have a profound desire to signal social status, for the same reason peacocks have unwieldy tails. Gold is a great way to achieve that. On the other hand, BTC lacks all these attributes. Its value is largely based on common perception of value. There are a few fundamental drivers of demand:
Means of Exchange: if people seriously start using BTC to buy pizzas, then this creates a real demand for the currency to accomplish the short-term exchanges. As we saw previously, I'm not personally sold on this one and it's currently a negligible fraction of overall demand.
Criminal uses: Probably the largest inbuilt advantage of BTC is that it's anonymous, and so a great way to launder money. Hacker gangs use BTC to demand ransom on cryptolocker type attacks because it's a shared way for an honest company to pay and for the criminals to receive money without going to jail.
Apart from these, it's hard to argue that BTC will retain value throughout some sort of economic catastrophe.
BTC is really risky
One last statement from Michael Saylor I take offense to is this:
“We feel pretty confident that Bitcoin is less risky than holding cash, less risky than holding gold,” MicroStrategy CEO said in an interview
"BTC is less risky than holding cash or gold long term" is nonsense. We saw before that BTC is more volatile on face value, and that as long as the Fed isn't run by spider monkeys stacked in a trench coat, the inflation is likely to be within reasonable bounds. But on top of this, BTC has Abrupt downside risks that normal currencies don't. Let's imagine a few:
A critical software vulnerability is found in the BTC codebase, leading to a possible exploitation.
Xi Jinping decides he's had enough of rich people in China hiding their assets from him and bans BTC.
Some form of bank run takes hold for whatever reason. Because BTC wallets are uninsured, unlike regular banks, this compounds into a Black Tuesday style crash.
Blockchain solutions are fundamentally inefficient
Blockchain was a genius idea. I still marvel at the initial white paper which is a great mix of economics and computer science. That said, blockchain solutions make large tradeoffs in design because they assume almost no trust between parties. This leads to intentionally wasteful designs on a massive scale. The main problem is that all transactions have to be validated by expensive computational operations and double checked by multiple parties. This means waste:
BTC was estimated to use as much electricity as Belgium in 2019. It's hard to trace where the BTC mining comes from, but we can assume it has a huge carbon footprint.
A single transactions is necessarily expensive. A single transaction takes as much electricity as 800,000 VISA transactions, or watching 50,000 hours of youtube videos.
There is a large necessary tax on the transaction, since those checking the transaction extract a few BTC from it to be incentivized to do the work of checking it.
Many design problems can be mitigated by various improvements over BTC, but it remains that a simple database always works better than a blockchain if you can trust the parties to the transaction.
You've probably been hearing a lot about Bitcoin recently and are wondering what's the big deal? Most of your questions should be answered by the resources below but if you have additional questions feel free to ask them in the comments. It all started with the release of the release of Satoshi Nakamoto's whitepaper however that will probably go over the head of most readers so we recommend the following videos for a good starting point for understanding how bitcoin works and a little about its long term potential:
Limited Supply - There will only ever be 21,000,000 bitcoins created and they are issued in a predictable fashion, you can view the inflation schedule here. Once they are all issued Bitcoin will be truly deflationary. The halving countdown can be found here.
Open source - Bitcoin code is fully auditable. You can read the source code yourself here.
Accountable - The public ledger is transparent, all transactions are seen by everyone.
Decentralized - Bitcoin is globally distributed across thousands of nodes with no single point of failure and as such can't be shut down similar to how Bittorrent works. You can even run a node on a Raspberry Pi.
Censorship resistant - No one can prevent you from interacting with the bitcoin network and no one can censor, alter or block transactions that they disagree with, see Operation Chokepoint.
Push system - There are no chargebacks in bitcoin because only the person who owns the address where the bitcoins reside has the authority to move them.
Low fee scaling - On chain transaction fees depend on network demand and how much priority you wish to assign to the transaction. Most wallets calculate on chain fees automatically but you can view current fees here and mempool activity here. On chain fees may rise occasionally due to network demand, however instant micropayments that do not require confirmations are happening via the Lightning Network, a second layer scaling solution currently rolling out on the Bitcoin mainnet.
Borderless - No country can stop it from going in/out, even in areas currently unserved by traditional banking as the ledger is globally distributed.
Portable - Bitcoins are digital so they are easier to move than cash or gold. They can even be transported by simply memorizing a string of words for wallet recovery (while cool this method is generally not recommended due to potential for insecure key generation by inexperienced users. Hardware wallets are the preferred method for new users due to ease of use and additional security).
Bitcoin.org and BuyBitcoinWorldwide.com are helpful sites for beginners. You can buy or sell any amount of bitcoin (even just a few dollars worth) and there are several easy methods to purchase bitcoin with cash, credit card or bank transfer. Some of the more popular resources are below, also check out the bitcoinity exchange resources for a larger list of options for purchases.
Here is a listing of local ATMs. If you would like your paycheck automatically converted to bitcoin use Bitwage. Note: Bitcoins are valued at whatever market price people are willing to pay for them in balancing act of supply vs demand. Unlike traditional markets, bitcoin markets operate 24 hours per day, 365 days per year. Preev is a useful site that that shows how much various denominations of bitcoin are worth in different currencies. Alternatively you can just Google "1 bitcoin in (your local currency)".
Securing your bitcoins
With bitcoin you can "Be your own bank" and personally secure your bitcoins OR you can use third party companies aka "Bitcoin banks" which will hold the bitcoins for you.
If you prefer to "Be your own bank" and have direct control over your coins without having to use a trusted third party, then you will need to create your own wallet and keep it secure. If you want easy and secure storage without having to learn computer security best practices, then a hardware wallet such as the Trezor, Ledger or ColdCard is recommended. Alternatively there are many software wallet options to choose from here depending on your use case.
If you prefer to let third party "Bitcoin banks" manage your coins, try Gemini but be aware you may not be in control of your private keys in which case you would have to ask permission to access your funds and be exposed to third party risk.
Note: For increased security, use Two Factor Authentication (2FA) everywhere it is offered, including email! 2FA requires a second confirmation code to access your account making it much harder for thieves to gain access. Google Authenticator and Authy are the two most popular 2FA services, download links are below. Make sure you create backups of your 2FA codes.
As mentioned above, Bitcoin is decentralized, which by definition means there is no official website or Twitter handle or spokesperson or CEO. However, all money attracts thieves. This combination unfortunately results in scammers running official sounding names or pretending to be an authority on YouTube or social media. Many scammers throughout the years have claimed to be the inventor of Bitcoin. Websites like bitcoin(dot)com and the btc subreddit are active scams. Almost all altcoins (shitcoins) are marketed heavily with big promises but are really just designed to separate you from your bitcoin. So be careful: any resource, including all linked in this document, may in the future turn evil. Don't trust, verify. Also as they say in our community "Not your keys, not your coins".
Where can I spend bitcoins?
Check out spendabit or bitcoin directory for millions of merchant options. Also you can spend bitcoin anywhere visa is accepted with bitcoin debit cards such as the CashApp card. Some other useful site are listed below.
Mining bitcoins can be a fun learning experience, but be aware that you will most likely operate at a loss. Newcomers are often advised to stay away from mining unless they are only interested in it as a hobby similar to folding at home. If you want to learn more about mining you can read more here. Still have mining questions? The crew at /BitcoinMining would be happy to help you out. If you want to contribute to the bitcoin network by hosting the blockchain and propagating transactions you can run a full node using this setup guide. If you would prefer to keep it simple there are several good options. You can view the global node distribution here.
Just like any other form of money, you can also earn bitcoins by being paid to do a job.
You can also earn bitcoins by participating as a market maker on JoinMarket by allowing users to perform CoinJoin transactions with your bitcoins for a small fee (requires you to already have some bitcoins.
The following is a short list of ongoing projects that might be worth taking a look at if you are interested in current development in the bitcoin space.
One Bitcoin is quite large (hundreds of £/$/€) so people often deal in smaller units. The most common subunits are listed below:
one bitcoin is equal to 100 million satoshis
1,000 per bitcoin
used as default unit in recent Electrum wallet releases
1,000,000 per bitcoin
colloquial "slang" term for microbitcoin (μBTC)
100,000,000 per bitcoin
smallest unit in bitcoin, named after the inventor
For example, assuming an arbitrary exchange rate of $10000 for one Bitcoin, a $10 meal would equal:
For more information check out the Bitcoin units wiki. Still have questions? Feel free to ask in the comments below or stick around for our weekly Mentor Monday thread. If you decide to post a question in /Bitcoin, please use the search bar to see if it has been answered before, and remember to follow the community rules outlined on the sidebar to receive a better response. The mods are busy helping manage our community so please do not message them unless you notice problems with the functionality of the subreddit. Note: This is a community created FAQ. If you notice anything missing from the FAQ or that requires clarification you can edit it here and it will be included in the next revision pending approval. Welcome to the Bitcoin community and the new decentralized economy!
Lines of Navigation | Monthly Portfolio Update - July 202
Our little systems have their day; They have their day and cease to be - Tennyson, In Memoriam A.H.H. This is my forty-fourth portfolio update. I complete this update monthly to check my progress against my goal. Portfolio goal My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars). This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent. Portfolio summary
Vanguard Lifestrategy High Growth Fund - $716 680
Vanguard Lifestrategy Growth Fund - $41 103
Vanguard Lifestrategy Balanced Fund - $77 788
Vanguard Diversified Bonds Fund - $111 667
Vanguard Australian Shares ETF (VAS) - $202 336
Vanguard International Shares ETF (VGS) - $54 872
Betashares Australia 200 ETF (A200) - $230 058
Telstra shares (TLS) -$1 785
Insurance Australia Group shares (IAG) - $6 449
NIB Holdings shares (NHF) - $5 316
Gold ETF (GOLD.ASX) - $124 756
Secured physical gold - $20 070
Ratesetter (P2P lending) - $9 881
Bitcoin - $173 010
Raiz app (Aggressive portfolio) - $17 258
Spaceship Voyager app (Index portfolio) -$2 619
BrickX (P2P rental real estate) - $4 471
Total portfolio value: $1 800 119 (+$34 376 or 1.9%) Asset allocation
Australian shares - 41.1%
Global shares- 22.2%
Emerging market shares - 2.2%
International small companies - 2.9%
Total international shares - 27.3%
Total shares - 68.4% (6.6% under)
Total property securities - 0.2% (0.2% over)
Australian bonds - 4.5%
International bonds - 9.1%
Total bonds - 13.6% (1.4% under)
Gold - 8.0%
Bitcoin - 9.6%
Gold and alternatives - 17.7% (7.7% over)
Presented visually, below is a high-level view of the current asset allocation of the portfolio. [Chart] Comments The portfolio has substantially increased this month, continuing the recovery in portfolio value since March. The strong portfolio growth of over $34 000, or 1.9 per cent, returns the value of the portfolio close to that achieved at the end of February this year. [Chart] This month there was minimal movement in the value of Australian and global equity holdings, There was, however, a significant lift of around 6 per cent in the value of gold exchange traded fund units, as well as a rise in the value of Bitcoin holdings. These movements have pushed the value of gold holdings to their highest level so far on the entire journey. Their total value has approximately doubled since the original major purchases across 2009 to 2015. For most of the past year gold has functioned as a portfolio stabiliser, having a negative correlation to movements in Australian equities (of around -0.3 to -0.4). As low and negative bond rates spread across the world, however, the opportunity cost of holding gold is reduced, and its potential diversification benefits loom larger. The fixed income holdings of the portfolio also continued to fall beneath the target allocation, making this question of what represents a defensive (or negatively correlated to equity) asset far from academic. This steady fall is a function of the slow maturing of Ratesetter loans, which were largely made between 2015 and 2017. Ratesetter has recently advised of important changes to its market operation, and placed a fixed maximum cap on new loan rates. By replacing market set rates with maximum rates, the peer-to-peer lending platform appears to be shifting to more of a 'intermediated' role in which higher past returns (of around 8 to 9 per cent) will now no longer be possible. [Chart] The expanding value of gold and Bitcoin holdings since January last year have actually had the practical effect of driving new investments into equities, since effectively for each dollar of appreciation, for example, my target allocation to equities rises by seven dollars. Consistent with this, investments this month have been in the Vanguard international shares exchange-traded fund (VGS) using Selfwealth. This has been directed to bring my actual asset allocation more closely in line with the target split between Australian and global shares. Fathoming out: franking credits and portfolio distributions Earlier last month I released a summary of portfolio income over the past half year. This, like all before it, noted that the summary was prepared on a purely 'cash' basis, reflecting dividends actually paid into a bank account, and excluding consideration of franking credits. Franking credits are credits for company tax paid at the company level, which can be passed to individual shareholders, reducing their personal tax liability. They are not cash, but for a personal investor with tax liabilities they can have equivalent value. This means that comparing equity returns to other investments without factoring these credits can produce a distorted picture of an investor's final after-tax return. In past portfolio summaries I have noted an estimate for franking credits in footnotes, but updating the value for this recently resulted in a curiosity about the overall significance of this neglected element of my equity returns. This neglect resulted from my perception earlier in the journey that they represented a marginal and abstract factor, which could effectively be assumed away for the sake of simplicity in reporting. This is not a wholly unfair view, in the sense that income physically received and able to be spent is something definably different in kind than a notional 'pre-payment' credit for future tax costs. Yet, as the saying goes, because the prospect of personal tax is as certain as extinction from this world, in some senses a credit of this kind can be as valuable as a cash distribution. Restoring the record: trends and drivers of franking credits To collect a more accurate picture of the trends and drivers of franking credits I relied on a few sources - tax statements, records and the automatic franking credit estimates that the portfolio tracking site Sharesight generates. The chart below sets out both the level and major different sources of franking credits received over the past eleven years. [Chart] From this chart some observations can be made.
The level of franking credits has grown substantially over the past ten years - from a total of under $1 000 per year to around $8 000 annually.
Recent years have seen a particularly high accrual of franking credits - such that by value, over half of the total value of franking credits has been received over the past three financial years.
These credits now constitute a significant element in total realised returns - in the last financial year the value of franking credits represented a 12 per cent boost to the total level of cash distributions, and over the past two years they have contributed around $8 000 each year to the total level of after-tax returns. This is the equivalent of the portfolio paying nearly $700 per month in tax liabilities.
The key reason for the rapid growth over the recent decade has been the increased investment holdings in Australian equities. As part of the deliberate rebalancing towards Australian shares across the past two years, these holdings have expanded. The chart below sets out the total value of Australian shares held over the comparable period. [Chart] As an example, at the beginning of this record Australian equities valued at around $276 000 were held. Three years later, the holding were nearly three times larger. The phase of consistently increasing the Australian equities holding to meet its allocated weighting is largely complete. This means that the period of rapid growth seen in the past few years is unlikely to repeat. Rather, growth will revert to be in proportion to total portfolio growth. Close to cross-over: the credit card records One of the most powerful initial motivators to reach financial independence was the concept of the 'cross over' point in Vicki Robins and Joe Dominguez's Your Money or Your Life. This was the point at which monthly expenses are exceeded by investment income. One of the metrics I have traced is this 'cross-over' point in relation to recorded credit card expenses. And this point is now close indeed. Expenditures on the credit card have continued their downward trajectory across the past month. The three year rolling average of monthly credit card spending remains at its lowest point over the period of the journey. Distributions on the same basis now meet over 99 per cent of card expenses - with the gap now the equivalent of less than $50 per month. [Chart] The period since April of the achievement of a notional and contingent form of financial independence has continued. The below chart illustrates this temporary state, setting out the the extent to which to which portfolio distributions (red) cover estimated total expenses (green), measured month to month. [Chart] An alternative way to view the same data is to examine the degree to which total expenses (i.e. fixed payments not made on credit card added to monthly credit card expenses) are met by distributions received. An updated version of this is seen in the chart below. [Chart] Interestingly, on a trend basis, this currently identifies a 'crossing over' point of trend distributions fully meeting total expenditure from around November 2019. This is not conclusive, however, as the trend curve is sensitive to the unusual COVID-19 related observations of the first half of this year, and could easily shift further downward if normal expense patterns resume. One issue this analysis raises is what to do with the 'credit card purchases' measure reported below. This measure is designed to provide a stylised benchmark of how close the current portfolio is to a target of generating the income required to meet an annual average credit card expenditure of $71 000. The problem with this is that continued falling credit card spending means that average credit card spending is lower than that benchmark for all time horizons - measured as three and four year averages, or in fact taken as a whole since 2013. So the set benchmark may, if anything, be understating actual progress compared the graphs and data above by not reflecting changing spending levels. In the past I have addressed this trend by reducing the benchmark. Over coming months, or perhaps at the end of the year, I will need to revisit both the meaning, and method, of setting this measure. Progress Progress against the objective, and the additional measures I have reached is set out below. Measure Portfolio All Assets Portfolio objective – $2 180 000 (or $87 000 pa) 82.6% 111.5% Credit card purchases – $71 000 pa 100.7% 136.0% Total expenses – $89 000 pa 80.7% 109.0% Summary One of the most challenging aspects of closing in on a fixed numerical target for financial independence with risk assets still in place is that the updrafts and downdrafts of market movements can push the goal further away, or surprisingly close. There have been long period of the journey where the total value of portfolio has barely grown, despite regular investments being made. As an example, the portfolio ended 2018 lower than it started the year. The past six months have been another such period. This can create a sense of treading water. Yet amidst the economic devastation affecting real lives and businesses, this is an extremely fortunate position to be in. Australia and the globe are set to experience an economic contraction far more severe than the Global Financial Crisis, with a lesser capacity than previously for interest rates to cushion the impact. Despite similar measures being adopted by governments to address the downturn, it is not clear whether these are fit for purpose. Asset allocation in this environment - of being almost suspended between two realities - is a difficult problem. The history of markets can tell us that just when assets seem most 'broken', they can produce outsized returns. Yet the problem remains that far from being surrounded by broken markets, the proliferation appears to be in bubble-like conditions. This recent podcast discussion with the founder of Grant's Interest Rate Observer provided a useful historical context to current financial conditions this month. One of the themes of the conversation was 'thinking the unthinkable', such as a return of inflation. Similar, this Hoover Institute video discussion, with a 'Back from the future' premise, provides some entertaining, informed and insightful views on the surprising and contingent nature of what we know to be true. Some of our little systems may well have had their day, but what could replace them remains obscured to any observer. The post, links and full charts can be seen here.
The Next Crypto Wave: The Rise of Stablecoins and its Entry to the U.S. Dollar Market
Author: Christian Hsieh, CEO of Tokenomy This paper examines some explanations for the continual global market demand for the U.S. dollar, the rise of stablecoins, and the utility and opportunities that crypto dollars can offer to both the cryptocurrency and traditional markets. The U.S. dollar, dominant in world trade since the establishment of the 1944 Bretton Woods System, is unequivocally the world’s most demanded reserve currency. Today, more than 61% of foreign bank reserves and nearly 40% of the entire world’s debt is denominated in U.S. dollars1. However, there is a massive supply and demand imbalance in the U.S. dollar market. On the supply side, central banks throughout the world have implemented more than a decade-long accommodative monetary policy since the 2008 global financial crisis. The COVID-19 pandemic further exacerbated the need for central banks to provide necessary liquidity and keep staggering economies moving. While the Federal Reserve leads the effort of “money printing” and stimulus programs, the current money supply still cannot meet the constant high demand for the U.S. dollar2. Let us review some of the reasons for this constant dollar demand from a few economic fundamentals.
Demand for U.S. Dollars
Firstly, most of the world’s trade is denominated in U.S. dollars. Chief Economist of the IMF, Gita Gopinath, has compiled data reflecting that the U.S. dollar’s share of invoicing was 4.7 times larger than America’s share of the value of imports, and 3.1 times its share of world exports3. The U.S. dollar is the dominant “invoicing currency” in most developing countries4. https://preview.redd.it/d4xalwdyz8p51.png?width=535&format=png&auto=webp&s=9f0556c6aa6b29016c9b135f3279e8337dfee2a6 https://preview.redd.it/wucg40kzz8p51.png?width=653&format=png&auto=webp&s=71257fec29b43e0fc0df1bf04363717e3b52478f This U.S. dollar preference also directly impacts the world’s debt. According to the Bank of International Settlements, there is over $67 trillion in U.S. dollar denominated debt globally, and borrowing outside of the U.S. accounted for $12.5 trillion in Q1 20205. There is an immense demand for U.S. dollars every year just to service these dollar debts. The annual U.S. dollar buying demand is easily over $1 trillion assuming the borrowing cost is at 1.5% (1 year LIBOR + 1%) per year, a conservative estimate. https://preview.redd.it/6956j6f109p51.png?width=487&format=png&auto=webp&s=ccea257a4e9524c11df25737cac961308b542b69 Secondly, since the U.S. has a much stronger economy compared to its global peers, a higher return on investments draws U.S. dollar demand from everywhere in the world, to invest in companies both in the public and private markets. The U.S. hosts the largest stock markets in the world with more than $33 trillion in public market capitalization (combined both NYSE and NASDAQ)6. For the private market, North America’s total share is well over 60% of the $6.5 trillion global assets under management across private equity, real assets, and private debt investments7. The demand for higher quality investments extends to the fixed income market as well. As countries like Japan and Switzerland currently have negative-yielding interest rates8, fixed income investors’ quest for yield in the developed economies leads them back to the U.S. debt market. As of July 2020, there are $15 trillion worth of negative-yielding debt securities globally (see chart). In comparison, the positive, low-yielding U.S. debt remains a sound fixed income strategy for conservative investors in uncertain market conditions. Source: Bloomberg Last, but not least, there are many developing economies experiencing failing monetary policies, where hyperinflation has become a real national disaster. A classic example is Venezuela, where the currency Bolivar became practically worthless as the inflation rate skyrocketed to 10,000,000% in 20199. The recent Beirut port explosion in Lebanon caused a sudden economic meltdown and compounded its already troubled financial market, where inflation has soared to over 112% year on year10. For citizens living in unstable regions such as these, the only reliable store of value is the U.S. dollar. According to the Chainalysis 2020 Geography of Cryptocurrency Report, Venezuela has become one of the most active cryptocurrency trading countries11. The demand for cryptocurrency surges as a flight to safety mentality drives Venezuelans to acquire U.S. dollars to preserve savings that they might otherwise lose. The growth for cryptocurrency activities in those regions is fueled by these desperate citizens using cryptocurrencies as rails to access the U.S. dollar, on top of acquiring actual Bitcoin or other underlying crypto assets.
The Rise of Crypto Dollars
Due to the highly volatile nature of cryptocurrencies, USD stablecoin, a crypto-powered blockchain token that pegs its value to the U.S. dollar, was introduced to provide stable dollar exposure in the crypto trading sphere. Tether is the first of its kind. Issued in 2014 on the bitcoin blockchain (Omni layer protocol), under the token symbol USDT, it attempts to provide crypto traders with a stable settlement currency while they trade in and out of various crypto assets. The reason behind the stablecoin creation was to address the inefficient and burdensome aspects of having to move fiat U.S. dollars between the legacy banking system and crypto exchanges. Because one USDT is theoretically backed by one U.S. dollar, traders can use USDT to trade and settle to fiat dollars. It was not until 2017 that the majority of traders seemed to realize Tether’s intended utility and started using it widely. As of April 2019, USDT trading volume started exceeding the trading volume of bitcoina12, and it now dominates the crypto trading sphere with over $50 billion average daily trading volume13. https://preview.redd.it/3vq7v1jg09p51.png?width=700&format=png&auto=webp&s=46f11b5f5245a8c335ccc60432873e9bad2eb1e1 An interesting aspect of USDT is that although the claimed 1:1 backing with U.S. dollar collateral is in question, and the Tether company is in reality running fractional reserves through a loose offshore corporate structure, Tether’s trading volume and adoption continues to grow rapidly14. Perhaps in comparison to fiat U.S. dollars, which is not really backed by anything, Tether still has cash equivalents in reserves and crypto traders favor its liquidity and convenience over its lack of legitimacy. For those who are concerned about Tether’s solvency, they can now purchase credit default swaps for downside protection15. On the other hand, USDC, the more compliant contender, takes a distant second spot with total coin circulation of $1.8 billion, versus USDT at $14.5 billion (at the time of publication). It is still too early to tell who is the ultimate leader in the stablecoin arena, as more and more stablecoins are launching to offer various functions and supporting mechanisms. There are three main categories of stablecoin: fiat-backed, crypto-collateralized, and non-collateralized algorithm based stablecoins. Most of these are still at an experimental phase, and readers can learn more about them here. With the continuous innovation of stablecoin development, the utility stablecoins provide in the overall crypto market will become more apparent.
In addition to trade settlement, stablecoins can be applied in many other areas. Cross-border payments and remittances is an inefficient market that desperately needs innovation. In 2020, the average cost of sending money across the world is around 7%16, and it takes days to settle. The World Bank aims to reduce remittance fees to 3% by 2030. With the implementation of blockchain technology, this cost could be further reduced close to zero. J.P. Morgan, the largest bank in the U.S., has created an Interbank Information Network (IIN) with 416 global Institutions to transform the speed of payment flows through its own JPM Coin, another type of crypto dollar17. Although people argue that JPM Coin is not considered a cryptocurrency as it cannot trade openly on a public blockchain, it is by far the largest scale experiment with all the institutional participants trading within the “permissioned” blockchain. It might be more accurate to refer to it as the use of distributed ledger technology (DLT) instead of “blockchain” in this context. Nevertheless, we should keep in mind that as J.P. Morgan currently moves $6 trillion U.S. dollars per day18, the scale of this experiment would create a considerable impact in the international payment and remittance market if it were successful. Potentially the day will come when regulated crypto exchanges become participants of IIN, and the link between public and private crypto assets can be instantly connected, unlocking greater possibilities in blockchain applications. Many central banks are also in talks about developing their own central bank digital currency (CBDC). Although this idea was not new, the discussion was brought to the forefront due to Facebook’s aggressive Libra project announcement in June 2019 and the public attention that followed. As of July 2020, at least 36 central banks have published some sort of CBDC framework. While each nation has a slightly different motivation behind its currency digitization initiative, ranging from payment safety, transaction efficiency, easy monetary implementation, or financial inclusion, these central banks are committed to deploying a new digital payment infrastructure. When it comes to the technical architectures, research from BIS indicates that most of the current proofs-of-concept tend to be based upon distributed ledger technology (permissioned blockchain)19. https://preview.redd.it/lgb1f2rw19p51.png?width=700&format=png&auto=webp&s=040bb0deed0499df6bf08a072fd7c4a442a826a0 These institutional experiments are laying an essential foundation for an improved global payment infrastructure, where instant and frictionless cross-border settlements can take place with minimal costs. Of course, the interoperability of private DLT tokens and public blockchain stablecoins has yet to be explored, but the innovation with both public and private blockchain efforts could eventually merge. This was highlighted recently by the Governor of the Bank of England who stated that “stablecoins and CBDC could sit alongside each other20”. One thing for certain is that crypto dollars (or other fiat-linked digital currencies) are going to play a significant role in our future economy.
There is never a dull moment in the crypto sector. The industry narratives constantly shift as innovation continues to evolve. Twelve years since its inception, Bitcoin has evolved from an abstract subject to a familiar concept. Its role as a secured, scarce, decentralized digital store of value has continued to gain acceptance, and it is well on its way to becoming an investable asset class as a portfolio hedge against asset price inflation and fiat currency depreciation.Stablecoins have proven to be useful as proxy dollars in the crypto world, similar to how dollars are essential in the traditional world. It is only a matter of time before stablecoins or private digital tokens dominate the cross-border payments and global remittances industry. There are no shortages of hypes and experiments that draw new participants into the crypto space, such as smart contracts, new blockchains, ICOs, tokenization of things, or the most recent trends on DeFi tokens. These projects highlight the possibilities for a much more robust digital future, but the market also needs time to test and adopt. A reliable digital payment infrastructure must be built first in order to allow these experiments to flourish. In this paper we examined the historical background and economic reasons for the U.S. dollar’s dominance in the world, and the probable conclusion is that the demand for U.S. dollars will likely continue, especially in the middle of a global pandemic, accompanied by a worldwide economic slowdown. The current monetary system is far from perfect, but there are no better alternatives for replacement at least in the near term. Incremental improvements are being made in both the public and private sectors, and stablecoins have a definite role to play in both the traditional and the new crypto world. Thank you. Reference:  How the US dollar became the world’s reserve currency, Investopedia  The dollar is in high demand, prone to dangerous appreciation, The Economist  Dollar dominance in trade and finance, Gita Gopinath  Global trades dependence on dollars, The Economist & IMF working papers  Total credit to non-bank borrowers by currency of denomination, BIS  Biggest stock exchanges in the world, Business Insider  McKinsey Global Private Market Review 2020, McKinsey & Company  Central banks current interest rates, Global Rates  Venezuela hyperinflation hits 10 million percent, CNBC  Lebanon inflation crisis, Reuters  Venezuela cryptocurrency market, Chainalysis  The most used cryptocurrency isn’t Bitcoin, Bloomberg  Trading volume of all crypto assets, coinmarketcap.com  Tether US dollar peg is no longer credible, Forbes  New crypto derivatives let you bet on (or against) Tether’s solvency, Coindesk  Remittance Price Worldwide, The World Bank  Interbank Information Network, J.P. Morgan  Jamie Dimon interview, CBS News  Rise of the central bank digital currency, BIS  Speech by Andrew Bailey, 3 September 2020, Bank of England
The fee schedule below provides the applicable rate based on the account's 30-Day Volume and if the order is a maker or taker. Bittrex Global Fee30 Day Volume (USD)MakerTaker$0k - $50k0.2%0.2%$50k - $1M0.12%0.18%$1M - $10M0.05%0.15%$10M - $60M0.02%0.1%$60M+0%0.08%>$100MContact TAM representative Trading expenses are incurred when an order is prepared by means of the Bittrex worldwide matching engine. While an order is being executed, the purchaser and the vendor are charged a rate primarily based on the order’s amount. The fee charged by Bittrex exchange is calculated by the formula amount * buy rate * fee. There aren't any charges for placing an order which is not being executed so far. Any portion of an unfinished order will be refunded completely upon order cancelation. Prices vary depending on the currency pair, monthly trade volume, and whether the order is a maker or taker. Bittrex reserves the right to alternate fee quotes at any time, including offering various discounts and incentive packages.
Your buying and selling volume affects the fee you pay for every order. Our expenses are built to encourage customers who ensure liquidity in the Bittrex crypto exchange markets. Your buying and selling charges are reduced according to your trade volume for the last 30 years in dollars. Bittrex calculates the 30-day value every day, updating every account's volume calculation and buying and selling charge between of 12:30 AM UTC and 01:30 AM UTC every day. You can check your monthly trade volume by logging in and opening Account > My Activity. https://preview.redd.it/n1djh2ob4zh51.jpg?width=974&format=pjpg&auto=webp&s=2eebb9c9ac63de207c4dd2e49bc45aeb53a8dec8
6. Withdrawing Funds
Withdrawing any type of funds is likewise simple. You can profit by buying and selling Bitcoin, Ether, or any other cryptocurrency. You determine the crypto address—to which the amount will be credited—and the transaction amount. The withdrawal fee will be automatically calculated and shown right away. After confirming the transaction, the finances will be sent to the specified addresses and all that you need to do is to wait for the community to confirm the transaction. If the 2FA is enabled, then the user receives a special code (via SMS or application) to confirm the withdrawal.
7. How to Trade on Bittrex Global
Currency selling and buying transactions are performed using the Sell and Buy buttons, accordingly. To begin with, the dealer selects a currency pair and sees a graph of the rate dynamics and different values for the pair. Below the chart, there is a section with orders where the user can buy or sell a virtual asset. To create an order, you just need to specify the order type, price, and quantity. And do not forget about the 0.25% trade fee whatever the quantity. For optimum profit, stay with liquid assets as they can be quickly sold at a near-market rate effective at the time of the transaction. Bittrex offers no referral program; so buying and selling crypto is the easiest way to earn. https://preview.redd.it/hopm6fih4zh51.jpg?width=1302&format=pjpg&auto=webp&s=68c0aaae86f64c3e6b9d351c3df2a9c331f94038
Bittrex helps you alternate Limit and Stop-Limit orders. A limit order or a simple limit order is performed when the asset fee reaches—or even exceeds—the price the trader seeks. To execute such an order, it is required that there's a counter market order on the platform that has the identical fee as the limit order.
Differences between Limit Order and Stop Limit Order
A stop limit order is a mixture of a stop limit order and a limit order. In such an application, charges are indicated—a stop charge and the limit.
Let’s discuss how you could trade conveniently with our service. The key features include a user-friendly interface and precise currency pair statistics (timeframe graphs, network data, trade volumes, and so forth). The platform’s top-notch advantage is handy, easy-to-analyze, customizable charts. There is also a column for quick switching between currency pairs and an order panel beneath the fee chart. Such an all-encompassing visual solution helps compare orders efficiently and in one place. You can use the terminal in a day or night mode; when in the night mode, the icon in the upper-right corner changes and notice the Bittrex trading terminal in night mode is displayed. The main menu consists of 4 sections: Markets, Orders, Wallets, Settings. Markets are the trade section. Bittrex allows handling over 270 currency pairs. Orders. To see all open orders, go to Orders → Open. To see completed orders, go to Orders → Completed. Wallets. The Wallets tab displays many wallets for all cryptocurrencies supported by the exchange and the current balance of each of them. After refilling the balance or creating a buy or sale order, you will see all actions in the section. Bittrex allows creating a separate wallet for every coin. Additionally, you can see how the coin price has changed, in terms of percentage, throughout the day. Here’s what you can also do with your wallets:
Hide zero balances: hide currencies with zero balance
Green and red arrows: replenish balance/withdraw funds
Find: search for a cryptocurrency
The Settings section helps manage your account, verification, 2FA, password modification, API connection, and many more.
How to Sell
The process of selling crypto assets follows the same algorithm. The only difference is that after choosing the exchange direction, you need to initiate a Sell order. All the rest is similar: you select the order type, specify the quantity and price, and click Sell *Currency Name* (Sell Bitcoin in our case). If you scroll the screen, the entire history of trades and orders will be displayed below.
LONG and SHORT
You can make a long deal or a short deal. Your choice depends on whether you expect an asset to fall or rise in price. Long positions are a classic trading method. It concerns purchasing an asset to profit when its value increases. Long positions are carried out through any brokers and do not require a margin account. In this case, the trader’s account must have enough funds to cover the transaction. Losses in a long position are considered to be limited; no matter when the trade starts, the price will not fall below zero with all possible errors. Short positions, in contrast, are used to profit from a falling market. A trader buys a financial instrument from a broker and sells it. After the price reaches the target level, the trader buys back the assets or buys them to pay off the initial debt to the broker. A short position yields profit if the price falls, and it is considered unprofitable the price matches the asset value. Performing a short order requires a margin account as a trader borrows valuable assets from a broker to complete a transaction. Long transactions help gain from market growth; short from a market decline.
Trade via API
Bittrex also supports algorithmic trading through extensive APIs (application programming interface), which allows you to automate the trading process using third-party services. To create an API key, the user must enable the two-factor authentication 2FA, verify their account, and log in to the site within 3 minutes. If all the requirements of the system are fulfilled, you can proceed to generate the API key. Log in to your Bittrex account, click Settings. Find API Keys. Click Add new key (Create a new key). Toggle on / off settings for READ INFO, TRADE, or WITHDRAW, depending on what functionality you want to use for our API key. Click Save and enter the 2FA code from the authenticator → Confirm. The secret key will be displayed only once and will disappear after the page is refreshed. Make sure you saved it! To delete an API key, click X in the right corner for the key that you want to delete, then click Save, enter the 2FA code from the authenticator and click Confirm.
Bittrex Bot, a Trader’s Assistant
Robotized programs that appeared sometimes after the appearance of cryptocurrency exchanges save users from monotonous work and allow automating the trading process. Bots for trading digital money work like all the other bots: they perform mechanical trading according to the preset parameters. Currently, one of Bittrex’s most popular trading bots is Bittrex Flash Crash Buyer Bot that helps traders profit from altcoin volatility without missing the right moment. The program monitors all the market changes in the market every second; also, it even can place an order in advance. The Bittrex bot can handle a stop loss—to sell a certain amount of currency when the rate changes in a favorable direction and reaches a certain level.
8. Secure Platform
Bittrex Global employs the most reliable and effective security technologies available. There are many cases of theft, fraud. It is no coincidence that the currency is compared to the Wild West, especially if we compare the 1800s when cowboys rushed to the West Coast of America to earn and start something new in a place that had no rules. Cryptocurrency is still wild. One can earn and lose money fast. But Bittrex has a substantial security policy thanks to the team’s huge experience in security and development for companies such as Microsoft, Amazon, Qualys, and Blackberry. The system employs an elastic, multi-stage holding strategy to ensure that the majority of funds are kept in cold storage for extra safety. Bittrex Global also enables the two-factor authentication for all users and provides a host of additional security features to provide multiple layers of protection. Bittrex cold wallet: https://bitinfocharts.com/en/bitcoin/address/385cR5DM96n1HvBDMzLHPYcw89fZAXULJP
Bittrex Global is a reliable and advanced platform for trading digital assets with a respected reputation, long history, and active market presence and development nowadays. The exchange is eligible to be used globally, including the US and its territories. The legal component of Bittrex Global is one of the most legitimate among numerous crypto-asset exchanges. The Bittrex team has had great ambitions and managed to deliver promises and more. The exchange staff comprises forward-thinking and exceptional individuals whose success is recognized in the traditional business and blockchain sector. Bittrex's purpose is to be the driving force in the blockchain revolution, expanding the application, importance, and accessibility of this game-changing technology worldwide. The exchange fosters new and innovative blockchain and related projects that could potentially change the way money and assets are managed globally. Alongside innovation, safety will always be the main priority of the company. The platform utilizes the most reliable and effective practices and available technologies to protect user accounts. Bittrex customers have always primarily been those who appreciate the highest degree of security. Because of the way the Bittrex trading platform is designed, it can easily scale to always provide instant order execution for any number of new customers. Bittrex supports algorithmic trading and empowers its customers with extensive APIs for more automated and profitable trading. One of the common features which is not available on the exchange is margin trading. No leverage used however adds up to the exchange's stability and prevents fast money seekers and risky traders from entering the exchange. Bittrex is a force of the blockchain revolution and an important entity of the emerging sector. The full version First part Second part
Testing the Tide | Monthly FIRE Portfolio Update - June 2020
We would rather be ruined than changed. -W H Auden, The Age of Anxiety This is my forty-third portfolio update. I complete this update monthly to check my progress against my goal. Portfolio goal My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars). This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent. Portfolio summary Vanguard Lifestrategy High Growth Fund – $726 306 Vanguard Lifestrategy Growth Fund – $42 118 Vanguard Lifestrategy Balanced Fund – $78 730 Vanguard Diversified Bonds Fund – $111 691 Vanguard Australian Shares ETF (VAS) – $201 745 Vanguard International Shares ETF (VGS) – $39 357 Betashares Australia 200 ETF (A200) – $231 269 Telstra shares (TLS) – $1 668 Insurance Australia Group shares (IAG) – $7 310 NIB Holdings shares (NHF) – $5 532 Gold ETF (GOLD.ASX) – $117 757 Secured physical gold – $18 913 Ratesetter (P2P lending) – $10 479 Bitcoin – $148 990 Raiz app (Aggressive portfolio) – $16 841 Spaceship Voyager app (Index portfolio) – $2 553 BrickX (P2P rental real estate) – $4 484 Total portfolio value: $1 765 743 (+$8 485 or 0.5%) Asset allocation Australian shares – 42.2% (2.8% under) Global shares – 22.0% Emerging markets shares – 2.3% International small companies – 3.0% Total international shares – 27.3% (2.7% under) Total shares – 69.5% (5.5% under) Total property securities – 0.3% (0.3% over) Australian bonds – 4.7% International bonds – 9.4% Total bonds – 14.0% (1.0% under) Gold – 7.7% Bitcoin – 8.4% Gold and alternatives – 16.2% (6.2% over) Presented visually, below is a high-level view of the current asset allocation of the portfolio. [Chart] Comments The overall portfolio increased slightly over the month. This has continued to move the portfolio beyond the lows seen in late March. The modest portfolio growth of $8 000, or 0.5 per cent, maintains its value at around that achieved at the beginning of the year. [Chart] The limited growth this month largely reflects an increase in the value of my current equity holdings, in VAS and A200 and the Vanguard retail funds. This has outweighed a small decline in the value of Bitcoin and global shares. The value of the bond holdings also increased modestly, pushing them to their highest value since around early 2017. [Chart] There still appears to be an air of unreality around recent asset price increases and the broader economic context. Britain's Bank of England has on some indicators shown that the aftermath of the pandemic and lockdown represent the most challenging financial crisis in around 300 years. What is clear is that investor perceptions and fear around the coronavirus pandemic are a substantial ongoing force driving volatility in equity markets (pdf). A somewhat optimistic view is provided here that the recovery could look more like the recovery from a natural disaster, rather than a traditional recession. Yet there are few certainties on offer. Negative oil prices, and effective offers by US equity investors to bail out Hertz creditors at no cost appear to be signs of a financial system under significant strains. As this Reserve Bank article highlights, while some Australian households are well-placed to weather the storm ahead, the timing and severity of what lays ahead is an important unknown that will itself feed into changes in household wealth from here. Investments this month have been exclusively in the Australian shares exchange-traded fund (VAS) using Selfwealth.* This has been to bring my actual asset allocation more closely in line with the target split between Australian and global shares. A moving azimuth: falling spending continues Monthly expenses on the credit card have continued their downward trajectory across the past month. [Chart] The rolling average of monthly credit card spending is now at its lowest point over the period of the journey. This is despite the end of lockdown, and a slow resumption of some more normal aspects of spending. This has continued the brief period since April of the achievement of a notional and contingent kind of financial independence. The below chart illustrates this temporary state, setting out the degree to which portfolio distributions cover estimated total expenses, measured month to month. [Chart] There are two sources of volatility underlying its movement. The first is the level of expenses, which can vary, and the second is the fact that it is based on financial year distributions, which are themselves volatile. Importantly, the distributions over the last twelve months of this chart is only an estimate - and hence the next few weeks will affect the precision of this analysis across its last 12 observations. Estimating 2019-20 financial year portfolio distributions Since the beginning of the journey, this time of year usually has sense of waiting for events to unfold - in particular, finding out the level of half-year distributions to June. These represent the bulk of distributions, usually averaging 60-65 per cent of total distributions received. They are an important and tangible signpost of progress on the financial independence journey. This is no simple task, as distributions have varied in size considerably. A part of this variation has been the important role of sometimes large and lumpy capital distributions - which have made up between 30 to 48 per cent of total distributions in recent years, and an average of around 15 per cent across the last two decades. I have experimented with many different approaches, most of which have relied on averaging over multi-year periods to even out the 'peaks and troughs' of how market movements may have affected distributions. The main approaches have been:
An 'adjusted income' approach - stripping out the capital gains components of Vanguard funds to reach an estimate of underlying income generation, both across the entire investment period, and during the sharpest low of the Global Financial Crisis
A long-term asset class approach - relying on long-term historical data on averages of the income produced by various asset classes
A 'tax method' approach - this derives an income estimate as a percentage of the portfolio by drawing on taxable investment income totals from tax return records
Simple historical rolling average - this is a rolling three-year measure, based on the actual distributions record of the portfolio
Average distribution rate approach - this method uses a long-term average of annual distributions received as a percentage of the total portfolio since 1999
Each of these have their particular simplifications, advantages and drawbacks. Developing new navigation tools Over the past month I have also developed more fully an alternate 'model' for estimating returns. This simply derives a median value across a set of historical 'cents per unit' distribution data for June and December payouts for the Vanguard funds and exchange traded funds. These make up over 96 per cent of income producing portfolio assets. In other words, this model essentially assumes that each Vanguard fund and ETF owned pays out the 'average' level of distributions this half-year, with the average being based on distribution records that typically go back between 5 to 10 years. Mapping the distribution estimates The chart below sets out the estimate produced by each approach for the June distributions that are to come. [Chart] Some observations on these findings can be made. The lowest estimate is the 'adjusted GFC income' observation, which essentially assumes that the income for this period is as low as experienced by the equity and bond portfolio during the Global Financial Crisis. Just due to timing differences of the period observed, this seems to be a 'worst case' lower bound estimate, which I do not currently place significant weight on. Similarly, at the highest end, the 'average distribution rate' approach simply assumes June distributions deliver a distribution equal to the median that the entire portfolio has delivered since 1999. With higher interest rates, and larger fixed income holdings across much of that time, this seems an objectively unlikely outcome. Similarly, the delivery of exactly the income suggested by long-term averages measured across decades and even centuries would be a matter of chance, rather than the basis for rational expectations. Central estimates of the line of position This leaves the estimates towards the centre of the chart - estimates of between around $28 000 to $43 000 as representing the more likely range. I attach less weight to the historical three-year average due to the high contribution of distributed capital gains over that period of growth, where at least across equities some capital losses are likely to be in greater presence. My preferred central estimate is the model estimate (green) , as it is based in historical data directly from the investment vehicles rather than my own evolving portfolio. The data it is based on in some cases goes back to the Global Financial Crisis. This estimate is also quite close to the raw average of all the alternative approaches (red). It sits a little above the 'adjusted income' measure. None of these estimates, it should be noted, contain any explicit adjustment for the earnings and dividend reductions or delays arising from COVID-19. They may, therefore represent a modest over-estimate for likely June distributions, to the extent that these effects are more negative than those experienced on average across the period of the underlying data. These are difficult to estimate, but dividend reductions could easily be in the order of 20-30 per cent, plausibly lowering distributions to the $23 000 to $27 000 range. The recently announced forecast dividend for the Vanguard Australian Shares ETF (VAS) is, for example, the lowest in four years. As seen from chart above, there is a wide band of estimates, which grow wider still should capital gains be unexpectedly distributed from the Vanguard retail funds. These have represented a source of considerable volatility. Given this, it may seem fruitless to seek to estimate these forthcoming distributions, compared to just waiting for them to arrive. Yet this exercise helps by setting out reasoning and positions, before hindsight bias urgently arrives to inform me that I knew the right answer all along. It also potentially helps clearly 'reject' some models over time, if the predictions they make prove to be systematically incorrect. Progress Progress against the objective, and the additional measures I have reached is set out below. Measure Portfolio All Assets Portfolio objective – $2 180 000 (or $87 000 pa) 81.0% 109.4% Credit card purchases – $71 000 pa 98.8% 133.5% Total expenses – $89 000 pa 79.2% 106.9% Summary The current coronavirus conditions are affecting all aspects of the journey to financial independence - changing spending habits, leading to volatility in equity markets and sequencing risks, and perhaps dramatically altering the expected pattern of portfolio distributions. Although history can provide some guidance, there is simply no definitive way to know whether any or all of these changes will be fundamental and permanent alterations, or simply data points on a post-natural disaster path to a different post-pandemic set of conditions. There is the temptation to fit past crises imperfectly into the modern picture, as this Of Dollars and Data post illustrates well. Taking a longer 100 year view, this piece 'The Allegory of the Hawk and Serpent' is a reminder that our entire set of received truths about constructing a portfolio to survive for the long-term can be a product of a sample size of one - actual past history - and subject to recency bias. This month has felt like one of quiet routines, muted events compared to the past few months, and waiting to understand more fully the shape of the new. Nonetheless, with each new investment, or week of lower expenditure than implied in my FI target, the nature of the journey is incrementally changing - beneath the surface. Small milestones are being passed - such as over 40 per cent of my equity holdings being outside of the the Vanguard retail funds. Or these these retail funds - which once formed over 95 per cent of the portfolio - now making up less than half. With a significant part of the financial independence journey being about repeated small actions producing outsized results with time, the issue of maintaining good routines while exploring beneficial changes is real. Adding to the complexity is that embarking on the financial journey itself is likely to change who one is. This idea, of the difficulty or impossibility of knowing the preferences of a future self, is explored in a fascinating way in this Econtalk podcast episode with a philosophical thought experiment about vampires. It poses the question: perhaps we can never know ourselves at the destination? And yet, who would rationally choose ruin over any change? The post, links and full charts can be seen here.
Coinbase - The reference platform for investing in cryptocurrencies: here is the complete guide. Coinbase is currently the most famous website or web platform for trading cryptocurrencies. This is not a classic Exchange but a real Broker that allows you to buy, sell and convert many of the main cryptocurrencies - Bitcoin and Ethereum among others - using traditional currency such as the Euro. In this complete guide to Coinbase we will try to explain all its features in detail. Founded in 2012 by Brian Armstrong and Fred Ehrsam, it was born as a simple online Bitcoin wallet. Over time it has transformed into a cryptocurrency trading site that now reaches over 33 countries. Being a broker, registering on the site requires all the necessary steps (KYC) to verify the user who holds the account. By signing up via the following secure link you can immediately earn 10 Dollars which will be credited to you by Coinbase. Complete Guide to CoinBase Coinbase as well as an intermediary for the purchase and sale of over 15 cryptocurrencies directly in Euro, also provides a real exchange (crypto exchange site) called Coinbase Pro (ex-GDax): The exchange behaves as a normal stock trading site with purchases and sales in real time with obviously much lower commissions when compared with those of classic trading platforms. What Coinbase Pro offers. Coinbase can receive crypto from other exchanges and specifically generates more permanent online wallets that will always remain at your disposal. To all intents and purposes, Coinbase's main task is to act as an archive for its cryptocurrencies for all those who do not want to try their hand at decentralized wallets. The transfer between Coinbase and Coinbase Pro, for example, will be quick and free (but this does not apply to other exchanges) thus allowing all those who wish to trade between the main cryptocurrencies to be able to avoid expensive passages on other exchanges. Coinbase Pro allows you to exchange a range of cryptocurrencies with each other higher than that of its brother site but at a much lower cost. While on Coinbase the exchange between cryptocurrencies involves the payment of a maximum commission of 2%, on Coinbase Pro the rates fluctuate between 0.15 and 0.25%. Values that will tend to decrease as the volumes traded increase. The Coinbase account will also allow you to operate on Coinbase Pro. However, an additional request for user verification via Webcam may occur. All these levels of security are obviously necessary to protect customers and comply with the stringent regulations of the various countries in which the company operates. Thanks to the guide, let's see what the interface shows us. In this complete guide to Coinbase we also want to clarify the visual aspect. Once inside the site you will find yourself in the Dashboard or Home Page which will show from top to bottom the value of your Portfolio with its historical graph, the list of cryptocurrencies that you decide to keep under observation, a box that shows the 5 heaviest cryptocurrencies in your Portfolio (a pie chart is also available) and a second box with the latest transactions. In the center of the page there is also the link to register with Coinbase Earn. By subscribing to the waiting list, you will have the opportunity to receive an invitation that will make you earn additional cryptocurrencies simply by following some very short video courses lasting a few minutes. In addition to the Home Page, there is the Prices page with the listing of all the cryptocurrencies available on Coinbase and a very long list of those not available. By selecting the star on the right you can decide which ones to always keep in the foreground on the home page. Clicking on one of them will open a new screen that will offer a large amount of technical and historical information on the crypto in question as well as a fair number of constantly updated news. Your funds are well organized. The Portfolio page will report the amount of the balance in Euro of all the cryptocurrencies deposited on Coinbase. Here you can send and receive crypto to external wallets. By clicking on Overview you will be sent back to the Prices page just described. The Safe item, on the other hand, allows you to set aside cryptocurrency at a higher level of security. Finally, a brief description of the "Make Transactions" item visible at the top right and present in almost all Coinbase pages. By clicking on it in any position you find it on the site, a small screen will open with the items "Buy, Sell, Convert". To purchase, you will first need to associate a payment method to your account. The Credit Card would be the most immediate choice due to its rapidity in crediting if it were not for the high commissions required by Coinbase. We therefore recommend that you be patient and use a normal Sepa standard bank transfer to credit the funds. Selling your cryptocurrencies on Coinbase, depositing them in your Euro account, is simple and immediate as well as foolproof thanks to the Preview that will always be shown before confirming the transaction. This will involve the payment of a commission between 0.99 and 2.99 Dollars. Rather high fees due to its wallet nature. For those who love trading, we obviously recommend moving to the Pro version. The site offers a complete and comprehensive technical support page: https://support.coinbase.com/ We conclude this complete guide to Coinbase with a note on the mobile versions. There are two versions of for smartphones: a standard one called Coinbase Bitcoin Wallet and a personal one called Coinbase Wallet. This second app allows you to transfer your cryptocurrencies from Coinbase Standard to an encrypted wallet on your smartphone (Coinbase Wallet). The substantial difference is the following: Coinbase Standard is an online wallet and therefore subject to the remote risk of an external cyber attack while Coinbase Wallet stores the encryption key locally on the phone. https://play.google.com/store/apps/details?id=com.coinbase.android https://play.google.com/store/apps/details?id=org.toshi We remind trading enthusiasts of the availability on our blog of the article dedicated to Exodus Wallet. If you liked this article and would like to contribute with a donation: Bitcoin: 1Ld9b165ZYHZcY9eUQmL9UjwzcphRE5S8Z Ethereum: 0x8D7E456A11f4D9bB9e6683A5ac52e7DB79DBbEE7 Litecoin: LamSRc1jmwgx5xwDgzZNoXYd6ENczUZViK Stellar: GBLDIRIQWRZCN5IXPIKYFQOE46OG2SI7AFVWFSLAHK52MVYDGVJ6IXGI Ripple: rUb8v4wbGWYrtXzUpj7TxCFfUWgfvym9xf By: cryptoall.it Telegram Channel: t.me/giulo75 Netbox Browser: https://netbox.global/PZn5A https://www.coinbase.com/join/rosa_fj https://coinbase.com/earn/eos/invite/6r5m2fwn https://coinbase.com/earn/oxt/invite/tkdjy946
https://preview.redd.it/mnxeb74hk4j51.jpg?width=990&format=pjpg&auto=webp&s=32d152a7495971c10e1af12185abe5e77b61fd14 How popular is DeFi? Link, known as the leader of the oracle machine, has increased by 305.19% for the past three months, with an investment return of 17,052%, climbing to the fifth spot in the cryptocurrency ranking list by market value in the short term; Since its issuance, YFI, which has soared 350 times all the way, has attracted 630 million US dollars of investment in 5 days, and was even dubbed the next Bitcoin in this circle; From Comp for lending, KNC and BAL, governance tokens for decentralized exchanges, to SNX which is a stable currency payment network, various governance tokens of the DeFi ecosystem have emerged in an endless stream, stirring the blood in the market. Such a boom is not only reflected in the currency price, but also pushes the brand new DEX based on the AMM (automated market making) model an overnight hit. UniSwap, known as the next-generation casino, has surpassed the world's first-tier centralized exchanges such as Binance, OKex, and Huobi in user activity, daily trading volume, and daily turnover. With the rapid rise of UniSwap, the DEX threat theory has once again triggered heated discussions among the media and communities in the blockchain industry. DEX on the Rise The success of UniSwap is by no means something accidental. As early as 2018 when centralized exchanges suffered the hacker theft one after another, Vitalik Buterin, founder of Ethereum, predicted that the future lay in decentralized exchanges and that Ethereum, by developing a "better" decentralized platform, could empower the cryptocurrency community to regain the dominance from the centralized cryptocurrency exchange. To realize the decentralized concept of returning to users their asset ownership, geeks in the blockchain industry have made many attempts. Kyber Network, Bancor, Balancer, 0X, Curvefi, etc. are all DEXs based on Ethereum blocks. For a long time, affected by the performance of Ethereum and cross-chain issues, these DEXs were once stagnant. With the lessons learned from Ethereum DEX, newcomers to the DEX have focused on high performance, high TPS, and rich assets as the ultimate goal for product development. Amid the DEX threat theory, major exchanges have deployed their own public chain DEX products in a response to their respective development strategies: Binance launched Binance DEX on its Binance Chain, and Bittrex Exchange unveiled Ethfinex on the Ethereum and EOSfinex on the EOS blockchain, two platforms where users can exchange for fiat currencies; last year, CoinEx officially launched CoinEx Chain, a public chain dedicated to decentralized transactions, followed by CoinEx DEX. Since the birth of the DEX in the blockchain world, this field has never run out of competition. By independent development or other’s advantage? From 2017 when it was established to 2019 as it stabilized, DEX has witnessed its annual trading volume skyrocketing from less than US$5 million to over US$2.5 billion. As DeFi gains fame and grows rapidly, DEX has grown into the most popular source of money, attracting a flood of speculators. In the past month, the trading volume of the global cryptocurrency market DEX has exceeded US$ 4 billion, more than twice the figure across 2019. In the past two years, despite the increasingly in-depth exploration in the DEX, the cross-chain issue remains a stumbling block in its development path. DEX will not outperform CEX in the trading experience until a cross-chain solution is worked out. The concept of DeFi went viral in 2019. With the continuous improvement of the DeFi ecosystem, the current Ethereum blockchain has developed into a complete decentralized financial system, covering mortgage lending, interest from deposit, leveraged trading, token exchange, identity authentication, and other infrastructure essential to traditional financial systems. In addition to the mouth-watering profit, the DeFi ecosystem has also brought along explosive growth in both the type and quantity of digital assets, making DEX a market favorite. Compared with the DEX dedicated to public chains, the Ethereum-based DEX has been equipped with more possible functions and thus become more attractive thanks to the comprehensive supplementary infrastructure on Ethereum. This also presents DEX pioneers with new opportunities. Dubbed “Swap’s summer”, the summer of 2020 has seen a market rush in Swap development after UniSwap became a hit. Miniswap, Justswap, and btswap are no more innovative than UniSwap according to their product structures and white papers. By comparison, OneSwap has injected unique essence into its product design and governance model based on UniSwap's automated market making. Upgraded UniSwap OneSwap, which has a double mining model + order book, has received an investment of tens of millions from CoinEx even before the product is launched. It is known that OneSwap is jointly developed by a group of technology geeks who have engaged in the cryptocurrency community for many years. The project was initiated by a member of the team in an attempt to upgrade UniSwap after he experienced the convenient AMM enabled by UniSwap. Without limit orders, users have to trade in the price set by the platform, which, however, compromised their experience. In addition, the lack of liquidity mining and transaction mining rewards cannot reduce the losses of liquidity providers caused by unilateral market conditions. "DEX still has much room for perfection, and could even surpass CEX in trading experience" The OneSwap development team always believes that UniSwap still has a long way to go before it becomes the strongest DEX in the DeFi ecosystem. They have endeavored to, relying on their abundant experience in exchange product development and digital currency trading, create the most powerful DEX product in the DeFi ecosystem based on smart contracts. OneSwap is called the “upgraded UniSwap” in the community. By the combination of the Constant Product Market Maker (CPMM) model in the Uniswap project and the on-chain order book, it reduces restrictions on users’ trading, and, through its OneSwap Wallet, improves user interaction methods and further enhances their experience in trading and product usage. OneSwap boasts one-click token issuance and listing essential to DEX. Unlike the listing review mechanism on Binance DEX, the setting of OneSwap is more consistent with the concept of decentralization. Anyone can put his or her good projects and ideas, if any, into practice through OneSwap without permission. In terms of product design, OneSwap will add to its function menu the Candlestick chart, order form, and depth chart according to user habits, apart from limit orders. These functions will offer OneSwap users an experience as smooth, easy-to-use, and convenient as in the CEX. A new source of money?A two-prongedplatform withtransaction mining + liquidity mining To support on-chain governance, OneSwap will issue a ERC20 governance token called ONES. The total number of ONES remains constant at 100 million, 50% of which will be used as community funds to support the construction of the OneSwap ecosystem and 50% will be owned by the OneSwap team. Community funds can be applied for through on-chain governance. 5% of the part held by the team will be unlocked initially, and the rest will be unlocked at a rate of 5% every six months until all is unlocked after four and a half years. After the OneSwap product was launched, the OneSwap team will take part of the initially unlocked tokens as airdrop rewards for the open beta. Then OneSwap will officially start liquidity mining and transaction mining, and the governance token ONES will also be simultaneously launched on centralized trading platforms across the world. The first round of mining activities will last for one month, and mining rewards are yet to be made public. Liquidity mining is a popular way of obtaining governance tokens in the DeFi ecosystem. Well-known DeFi projects including COMP, Cure, and Banner have all enabled liquid mining. Transaction mining could date back to 2018 when Fcoin grew popular. The transaction mining model initiated by Fcoin in 2018 once set off a bull market that year, pushing many investors into financial freedom in the rush of transaction mining. In addition, transaction mining based on the DeFi ecosystem is still a blue ocean, which is not common in the current market. The success of OneSwap's double mining model, if possible, would surely start a craze in the cryptocurrency market. The OneSwap team has not yet announced specific mining rules, but disclosed that it has developed the smart contract code. To ensure the product security, OneSwap will invite three well-known security agencies in the blockchain industry to audit the code and announce the auditing results in early September at the soonest. Conclusion DeFi did not rise to fame without reason in 2020. Such overnight popularity is an inevitable result of Ethereum's efforts to build a decentralized consensus mechanism and improve infrastructure in the past few years. Ethereum has almost become the only public chain in the DeFi circle and the only construction base for well-known DEX. If OneSwap succeeds, it means a huge breakthrough for both DeFi and Ethereum, and decentralization in its true sense is around the corner.
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\This post has been written by Hedgehog, an MCS influencer and one of Korea's famous cryptocurrency key opinion leaders.* https://preview.redd.it/bbpp5xnhqph51.png?width=1024&format=png&auto=webp&s=a20d1f5bafd59fa278e1ed677a510f505efd77df #Be_a_Trader! Greetings from MCS, the derivatives trading platform where traders ALWAYS come first. Cryptocurrency traders are realizing valuable profits through intense trading in their own way. The strategy I am going to share with you is not complicated and may not be the best strategy, but it is a way to trade Bitcoin that is 100% profitable.
🎯 Bitcoin Trading Strategy with 100% Profitability
https://preview.redd.it/k2g3j0ajqph51.png?width=1300&format=png&auto=webp&s=f51122288180606dd46c3a4b0cfc7af2ebd844d0 Once MCS traders have a complete understanding of funding fees, you can start trading Bitcoin with 100% profit. This trading strategy is called the 1x Short Strategy. Due to the nature of the Bitcoin perpetual contract inverse product, if I take a 1x short position, my bitcoin quantity will vary depending on the bitcoin price, but strangely my assets will remain constant. In this situation, if you receive funding fees, you will continue to accumulate huge interest. If you are new to the 1x short strategy, you may have not resonated with the details above. I will now explain the details one by one below.
👉 How Can My Assets Be The Same When The Bitcoin Quantity Fluctuates?
https://preview.redd.it/svtr2hwjqph51.png?width=1386&format=png&auto=webp&s=3a252e579956ea055ee3d97e270191b0edb20526 The above chart is a shows the BTC profit and loss when entering the 1x short position with 1 BTC at 10,000 dollars (blue line) and holding 1 BTC as it is (red line). When 1 BTC is held as it is, the amount of BTC does not change depending on the price change. However, if I took a 1x short position with 1 BTC for 10,000 dollars, my BTC profit or loss will fluctuate as shown in the in the blue line according to the change in BTC price. You don't have to worry too much if a 1x short position generates BTC profit or loss. Let's look at the chart below. https://preview.redd.it/3vclmzhkqph51.png?width=1388&format=png&auto=webp&s=9a45d517a0264e8d215d94e4ca95877e8514630a In the chart above, the blue line is a position of 1x short with 1 BTC at 10,000 dollars, and the red line is just holding 1 BTC. In this chart, you can see how the value of the asset changes according to the price change. In a glance, you can see that the value of 1 BTC changes according to the price changes. Surprisingly, the blue 1x short position line stays stable in value. I believe that the more experienced MCS traders realized why the value of the 1x short remained constant. However if you encountered this for the first time, it may be a little difficult to understand. For everyone who did not completely understand, I will explain the 1x short strategy with an example.
💡 Example: Suppose Hedgehog has 1 BTC in his MCS account and the current BTC price is $10,000. Hedgehog entered 10,000 short contracts with 1x leverage at $10,000 using 1 BTC as margin. Then this can be organized as follows. Hedgehog's Original Capital = 1BTC Hedgehog's Original Fiat Capital = $10,000 Over time, the price of Bitcoin has reached $15,000. Many traders believe that for a short position, if the price increases, there will be a loss. However there is an exception for 1x short positions. Hedgehog's BTC quantity and asset value can be summarized as follows. Short Position PNL Equation = (1/Average Closing Price - 1/Average Entry Price) * Quantity As time has passed, the Bitcoin price is assumed to be $15,000, so the average end price = $15,000 Since Hedgehog entered 10,000 short contracts at $10,000 with 1x leverage, average entry price = $10,000, contract quantity = 10,000 contracts If substituted, (1/15000 - 1/10000) * 10000 = -0.33333333BTC Hedgehog's loss in BTC is -0.33333333 BTC. Hedgehog's current BTC Holdings = 1BTC - 0.33333333BTC = 0.66666667BTC Hedgehog's Asset Value = 0.66666667BTC * $15,000 = $10,000.00005
Wait What‼️ Although the amount of BTC decreased, the price of bitcoin increased by the amount of lost BTC, and the asset value of Hedgehog remained the same.‼️ It is the same in the scenario when the bitcoin price falls. In the case of a 1x short position, if the bitcoin price falls, the amount of BTC increases accordingly, but the bitcoin price decreases, so the asset value of Hedgehog remains at about $10,000. Do you now understand how the 1x short strategy freezes the asset value? Let's move onto the 2nd question.
👉 But Receiving Funding Fees For Short Position Isn't Guaranteed
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What would happen if sovereign governments gave bitcoin a gold peg?
This is a totally theoretical post, but I believe it is a really interesting idea and would love to get the Internet's feedback on it, and what you think the ripple effects would be in the scenario described. Am very interested in writing this up and republishing it widely so it can be read by monetary policymakers in all major developed countries - if you know anyone like that, pass it on. In a move that would act like a bridge to a pre-Bretton Woods type of gold peg, (here is a great paper on a history of this in the US: https://fas.org/sgp/crs/misc/R41887.pdf) sovereign governments with gold holdings could (again, it is a theoretical idea - I am saying they COULD do this NOT that anyone or any country is doing this that I know of) establish open market operations to purchase bitcoins (partly as a diversification strategy) using their physical gold holdings at a fixed peg rate of 5 ounces per bitcoin. The reason I say 5 is because the current chart here seems to suggest that somewhat of a convergence to 5 oz is already occurring: https://www.xe.com/currencycharts/?from=XBT&to=XAU&view=10Y If any government did this and offered to buy physically delivered bitcoins from private holders of bitcoin (no other coins just BTC) in exchange for private delivery of physical gold, then the standard governmental unit of physical gold (held in places like Fort Knox) - known as the Good Delivery Bar which is 400oz of gold - could be procured by any holder of 80 or more coins in a secure and sanctioned exchange with the government in question - the most impactful of course would be if the US did this. My theory is that any time the exchange rate mechanisms in the forex or crypto markets violated the peg, there would be arbitrage opportunities that would bring the peg back in line. It would not only stabilize BTC, but the stabilization might spread via the 24/7 exchange rate mechanism in the crypto market to stabilize many cryptos that are still somewhat worthy experimental stores of value. Depending on the strength, credit, and depth of gold holdings of whatever governments engaged in this, it would seem that such a strategy could transform bitcoin into a new type of sound money, and also signal that owning bitcoin and gold is a priority of governments as well as their citizens. The gold standard was powerful both because it was tethered to something of limited quantity in the earth's crust with unique properties, but also because pre-Bretton Woods gold standards acted very much like a peg - and the government honored the peg no matter what. So in some sense it was still the "faith and credit of the government" that made that peg work so famously. I was partly inspired by this recent award-winning documentary www.inmoneywetrust.org in formulating this idea, and partly by my own academic interest in cryptocurrency. I believe bitcoin, above all others, because of its deflationary nature and algorithmically fixed quantity, is powerful all in itself - but with a peg from a real government to a real precious metal that many governments do in fact hoard (for whatever reason) - it could become both an international currency, and a form of truly sound money backed by governments' physical gold reserves and a legal or policy commitment to a peg of 5 ounces to 1 bitcoin. What do you all think would happen if a major government or many major governments did this? Remember the idea is to convince monetary policymakers in governments to willingly and openly bypass completely the fiat currencies of their governments and to make no informational commitment to those free-floating fiat markets for forex - so the bitcoins transacted for in the peg wouldn't be bought with dollars or yen or anything that could be printed by fiat. This would simply be a convertibility guarantee by major governments that 1 bitcoin, transferred to the Treasury by a private citizen or business (again so the Treasury could diversify holdings of sound money), would be convertible and be guaranteed to be convertible to 5 oz of physical, deliverable gold bullion (or 80 bitcoins per bar). Here is a list of the largest physical gold holders on earth who could theoretically engage in this type of operation: https://www.investopedia.com/ask/answers/040715/what-countries-have-largest-gold-reserves.asp Thanks Reddit! Looking forward to your thoughts! Alex Kaufman
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