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Three currency wars, not one

This short blog post describes three different types of currency wars that seem to be happening at the moment. The phrase “currency wars” is not new – typically is has referred to deliberate devaluation of one’s own currency to increase competitiveness of exports.  If your currency is worth less, then your goods are cheaper to … Continue reading Three currency wars, not one

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This short blog post describes three different types of currency wars that seem to be happening at the moment.

The phrase “currency wars” is not new – typically is has referred to deliberate devaluation of one’s own currency to increase competitiveness of exports.  If your currency is worth less, then your goods are cheaper to foreigners, so they buy more of them, which is generally good for your country.

Yet with increased discussion and relevance of fintech, wallets, central bank digital currencies, Libra, bitcoin, etc, it seems to me that there is more going on.  I’ve identified three distinct wars (battles? fronts?) being fought:

  1. Currency devaluation to increase competitiveness
  2. Offshore e-money supremacy
  3. Public money vs private money

1. Currency devaluation

This is typically what people mean when they talk about currency wars.

Countries try to keep their currencies from becoming too strong so that their exports remain competitive.  There are a few ways of doing this, including officials talking down the value of the currency, lowering interest rates and talking about keeping them low (sometimes called “forward guidance”), increasing the amount of money in circulation (via quantitative easing or other means), and trading in the market, selling local currency for foreign currency.

This is the stuff Wikipedia talks about in the “Currency war” entry.

2. Offshore e-money supremacy

You may be familiar with “dollarisation” – think of physical hard currency (typically USD) being used outside of the USA.  There are many examples of this, typically in emerging economies such as in Latin America, Africa and some countries in Asia.

Although a regulator may not have sight or strong jurisdiction over use of their currency abroad, it certainly increases that country’s power over the foreign country (Is is soft power?  Hard power?  Something in between?).

Now, with the rise of use of e-money wallets from China (WeChat Pay, Alipay etc), we see a rise of Chinese RMB being used electronically outside of China to facilitate commerce.

As an example, someone in Cambodia buying a coffee and paying from their WeChat wallet to the merchant’s WeChat wallet (in RMB but maybe any of the currencies they support – currently GBP, HKD, USD, JPY, CAD, AUD, EUR, NZD, KRW). This could look like a merchant transaction or just a consumer to consumer (peer-to-peer if you want) transaction.

The point is, commerce is happening using foreign currencies outside the visibility of local authorities, and maybe outside the direct visibility of that currency’s authorities too. And it’s not just coffees – similar methods can be used for larger business transactions too.

Once people are paying in the foreign currency, it’s not a huge leap to be pricing in those foreign currencies too.

What do we call this? Renminbification?  Renminbing?  Yuanning? I want to claim all of these words.

Now, if the private sector has been successful in pushing usage outside the border, imaging what a state-sanctioned central bank digital currency could do.

Electronic currency usage outside the border is a new war, and wallets (e-money) are the new weapons.  Wallets and apps can spread much more quickly than physical cash: they’re more effective weapons.

3. Public money vs Private money

Central banks have a job to do – typically to keep the economy ticking along nicely and maintaining the safety and predictability of the payment systems (electronic and physical). Their tools are related to their influence on their currency – whether this is affecting the value of their currency, the cost of borrowing money, or the amount of money in circulation.

Examples of private money include:

  • electronic money without issuer (including cryptocurrencies such as Bitcoin, Ether, etc)
  • privately issued money (stuff like Libra, issued by private entities)
  • perhaps you can include issuer-less physical money (gold).

(Of course it doesn’t really matter whether this stuff is recorded on a blockchain or not, and whether these are backed by anything or not, or redeemable or not – they’re still all examples of private money.)

Even e-money (digital money issued by a private entity, backed 1:1 with bank deposits or very low risk assets (eg government bonds) denominated in the same currency) can feel less under the central bank’s control than deposits in bank accounts. Examples are your USD in Venmo, your RMB in WeChat Pay, your INR in PayTM, your SGD in PayLah.

If private money is used extensively in a community, then the tools that central banks have to fulfil their duties are less effective.  Everyone wants to do a good job and everyone wants their tools to be effective.

So central banks naturally tend to have an uneasy relationship with money outside of their control. It dilutes their ability to do their job.

Today, I’m less interested in the public vs private money competition in developed and stable economies – the public money is pretty good/stable/useful. Where it will get interesting is in emerging and unstable countries, perhaps those who already prefer to use someone else’s currencies. Is there a role for private currencies in those places? Those were Libra’s target markets. It feels like there is something brewing between public money and private money.

I’ve written a little about this before in “State sponsored money – under pressure?

Conclusion

The world seems to be growing apart, with a marked increase in nationalism, trade wars, and protectionism. Currency wars seem to be another front where nation states are competing for relevance and dominance. But there’s more to it than just competitive devaluation of your own currency.

Note: I’ve written this to start the discussion, it’s probably wrong in many places – I’m not an economist and I don’t have any particular inside track. But I haven’t seen these threads put together yet anywhere in the narrative so I hope it’s helpful. Happy to discuss!


Interesting geeky tidbit: When I wrote The Basics of Bitcoins and Blockchains in 2018, the British Pound, US dollar, Chinese Yuan, and a bunch of other currencies (but not the Zimbabwe Dollar!) were all designated as legal tender in Zimbabwe.

This fun quirk sadly ended in mid-2019 when a statutory instrument was announced: “The effect of the instrument is that from today only RTGS dollars, whether in the form of bond notes or coins or electronic currency, are legal tender in Zimbabwe.  All other currencies ‒ the instrument specifically mentions US dollars, British pounds, South African Rands and Botswana Pula ‒ are no longer legal tender.”

This is all pretty weird.  Firstly, usually it’s your own money that’s legal tender which they’ve fixed. But also the statement itself is weird – RTGS (Real Time Gross Settlement) is typically an electronic system run by a central bank and used only by banks to settle up between themselves. Normal people and businesses don’t have access to RTGS money.  Typically, physical notes and coins are not considered “RTGS” money. I don’t know why they used that phrasing.

Source: https://bitsonblocks.net/2020/02/07/three-currency-wars-not-one/

Blockchain

BitGo To Introduce Crypto Custodial Services To New York Clients

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Digital asset trust company, BitGo has added another feather to its cap. The company announced today that it has received a Trust Charter that will enable it to operate as an independent qualified custodian in the United States’ commercial hub, New York. The license was issued by the New York State Department of Financial Services.

Go, BitGo

California-based digital asset solutions provider, BitGo has expanded its horizon. It will now render cryptocurrency custodial services to New York-based institutional clients. The news was confirmed after the state’s Department of Financial Services issued the New York Trust charter to the company.

The news reiterates the company’s motive to exhaust the possibilities of the new financial landscape. It announced in December last year that it had over $16 billion in assets in its custody. With the surge in institutional interest, BitGo now has its eyes set on the world’s financial and commercial epicenter. Speaking on the latest milestone, BitGo CEO Mike Belshe said:

“We are extremely proud to receive the approval for a trust charter from NYDFS to serve the world’s premier financial organizations that are based in New York State. The past year has been exceptional for BitGo and the digital asset markets overall, primarily due to the influx of large financial services institutions that bring a new level of credibility, liquidity and stability to the crypto ecosystem.”

The license will enable New York’s premier institutions to key into the digital revolution while staying within the state’s regulatory framework. BitGo’s list of reputable partners adds an extra layer of trust. It claims to be backed by Goldman Sachs, Craft Ventures, Digital Currency Group, Redpoint Ventures, and Valor Equity Partners.

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What’s In Store?

BitGo intends to go all-in for its prospective clients. Asides from its fully secured custodial services, it outlined several benefits of the New York Trust.

It will adopt a sophisticated, independently verified system control – SOC 2 Type 2. The SOC 2 Type 2 compliance records how a company safeguards customer’s data. This system control type verifies compliance with standard procedures and often gives a competitive edge.

Prospective clients will benefit from BitGo’s “comprehensive insurance coverage,” which it says covers up to $100 million in digital assets. Its multi-signature technology is yet another selling point.

New York – The New Crypto Hub?

The city of New York is becoming a destination for mainstream cryptocurrency companies. This week, leading blockchain sports and entertainment platform, ChiliZ announced that it would set up an office in New York.

Perhaps this is fueled by the state’s unwavering efforts to maintain a regulated framework that attracts investment and prioritizes asset protection. The New York Financial Services Law, which was enacted five years ago, necessitates the regulation of companies in the digital asset space. The state’s Department of Financial Services approved the sale and trading of eight cryptocurrencies in August last year.

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Source: https://cryptopotato.com/bitgo-to-introduce-crypto-custodial-services-to-new-york-clients/

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Co-founder of Floyd Mayweather-promoted ICO sentenced to 8 years

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Sohrab Sharma, the co-founder of the notorious celebrity-spruiked initial coin offering of 2017, Centra Tech, has been sentenced to eight years in prison for his leading role in the fraudulent scheme that duped investors out of more than $25 million.

Shama had previously pled guilty to conspiring to commit wire fraud, securities fraud, and mail fraud for material misrepresentations made by him and his co-conspirators to solicit investors to participate in the scheme.

United States attorney, Ilan Graff, described Sharma as having “led a scheme to deceive investors by falsely claiming that the start-up he co-founded had developed fully functioning, cutting-edge cryptocurrency-related financial products.”

“In reality, Sharma’s most notable inventions were the fake executives, fake business partnerships, and fake licenses that he and his co-conspirators touted to trick victims into handing over tens of millions of dollars.”

The court found that Sharma and co-defendants Robert Farkas and Raymond Trapani founded Centra around July 2017, claiming that the firm offered a crypto debit card and other digital asset-related products. The group conducted an ICO from July 2017 until October 2017, distributing unlicensed securities in the form of CTR tokens.

To promote the offering, the group issued materials falsely claiming the team had partnerships with Visa, Mastercard, and Bancorp, money transmitter licensing in 38 U.S. states, along with an entirely fictional CEO boasting more than 20 years experience in the banking sector and a master’s degree from Harvard University.

While the team raised $25 million at the completion of the ICO, authorities found those crypto assets were worth more than $60 million at certain times during 2018.

The U.S. Marshals Service seized 100,000 Ether from Centra which it sold for roughly $33.4 million earlier this year. The proceeds will be made available to potential use in a remission program to compensate victims of the fraud.

Sharma was also sentenced to three years of supervised release and ordered to forfeit more than $36 million.

In December, Centra co-founder Robert Farkas was sentenced to one year in prison for his role in the scheme. Trapani has also pleaded guilty.

Celebrities DJ Khaled and Floyd Mayweather, who promoted the offering on social media in 2017, agreed to six-figure settlements without admitting to wrongdoing in 2019 after Centra’s investors filed a lawsuit against the pair.

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Source: https://cointelegraph.com/news/co-founder-of-floyd-mayweather-promoted-ico-sentenced-to-8-years

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Blockchain

Spike in digital land and NFT sales push Axie Infinity (AXS) price to new highs

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The popularity and sale of NFTs have exploded over the past few months as many artists and collectors have been consistently selling entire NFT collections for millions of dollars.

One platform that has emerged as a fan favorite is Axie Infinity (AXS), a blockchain-based trading and battling game inspired by games like Pokémon and Tamagotchi. In the game, players collect, breed, raise, battle and trade token-based creatures known as Axies. 

In the past two months, the market cap for AXS has increased 600% from $19.25 million to its current value of $115 million as users rush to the platform for a chance to win a rare and valuable Axie. 

Data from Cointelegraph Markets and TradingView shows that the price of AXS has surged 74% over the past 24-hours, going from $1.78 on March 3 to a new all-time high of $3.10 on March 4 on the back of a 1,000% surge in the 24-hour trading volume. 

AXS/USDT 4-hour chart. Source: TradingView

While AXS has been in an uptrend for months, the altcoin really started to gain momentum at the beginning of February following the launch of Ronin, an Ethereum (ETH) network sidechain designed to help AXS users escape high transaction costs and network congestion on the Eethereum network.

Since Ronin’s launch on Feb. 1, the number of active users on the platform has skyrocketed as NFTs began to explode in popularity and mainstream news channels reported on record-setting sales for one-of-a-kind pieces of digital art.

Axie Infinity active users. Source: Axie Infinity

Digital land in Lunancia, the player-controlled virtual realm of the Axie universe, is also attracting increased attention with one user recently spending a total of $1.5 million to purchase nine digital land plots.

VORTECS™ data from Cointelegraph Markets Pro began to detect a bullish outlook for AXS on March 3, prior to the recent price rise.

The VORTECS™ score, exclusive to Cointelegraph, is an algorithmic comparison of historic and current market conditions derived from a combination of data points including market sentiment, trading volume, recent price movements and Twitter activity.

VORTECS™ Score (green) vs. AXS price. Source: Cointelegraph Markets Pro

As seen in the chart above, the VORTECS™ score for AXS reached a high of 76 on March 3, just hours before the price began to rise from $1.84 to its new all-time high at $3.10.

Despite the recent pullbacks experienced in the wider cryptocurrency market, key on-chain metrics like Glassnode’s Reserve Risk indicator show that the Bitcoin rally is still in its early, suggesting that there is plenty of room for BTC to appreciate before it reaches the peaks seen in previous bull markets.

Continued strength for Bitcoin price is likely to translate into an increased interest in NFTs and as the nascent sector expands, projects like AXS could continue to rise in popularity.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Source: https://cointelegraph.com/news/spike-in-digital-land-and-nft-sales-push-axie-infinity-axs-price-to-new-highs

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