Currency

The Oil Price War Won’t Dethrone The Dollar

With the oil price war between Saudi Arabia and Russia showing no signs of relenting, some analysts are now warning that the standoff could extend much longer.  Saudi policy now appears to revolve around inflicting pain on both OPEC and non-OPEC producers over the short term, with a long-term view to returning to its former role as the swing producer and price setter.

With the Arab nation recently claiming that it’s ‘very comfortable’ with $30 oil, it might make good on its threat to maintain a 12 million bpd output clip for a whole year with minimal increase in spending by drawing upon its considerable reserves.

Given this backdrop, some pundits are now beginning to seriously consider the specter of a collapse by the decades-old petrodollar system. With Saudi Arabia–a key U.S. ally upon which the petrodollar was founded–having thrown the gauntlet on the U.S., a collapse by the petrodollar system could mean mass devaluations across major oil-producing regions.

But what are the odds that this could become a reality any time soon? CLICK for complete article

Can Stablecoins ‘Hedge’ US Dollar Hegemony Risks?

Stablecoins have the potential to temper the systemic threats posed by the United States dollar’s domination of global foreign currency reserves, according to an opinion piece published by the World Economic Forum (WEF).

The argument was made by the Fusion Foundation’s John Liu and Lapa Capital’s Peter Lyons in an article published on the WEF’s Agenda on Nov. 26

The Fusion Foundation is a non-profit organization focused on developing blockchain infrastructure for decentralized global finance; Lapa Capital is a tech-focused investment firm headquartered in New York.

IMF: USD accounts for 62% of all central bank foreign reserves

Liu and Lyons advocate the wide-ranging potential of stablecoins to underpin a more “sustainable, inclusive, and resilient global system” across trade and investment, banking and payments.

Until today, the authors note, the U.S. dollar continues to account for 62% of all foreign reserves held by central banks, as IMF data for Q1 2019 has demonstrated….CLICK for complete article

The Fragility Of Monetary Policy

Physics students study mechanical systems in which pulleys are massless and frictionless. Economics students study monetary systems in which rising prices are everywhere and always caused by rising quantity of currency. There is a similarity between this pair of assumptions. Both are facile. They oversimplify reality, and if one is not careful they can lead to spectacularly wrong conclusions.

And there are two key differences. One, in physics, students know that pulleys have mass and friction, and graduate to a more sophisticated understanding. Two, the Quantity Theory of Money (QTM) is not a simplified view of reality. It is oversimplified, to be sure, but it is a false theory.

QTM leads one to think that the groceries you can buy with a dollar are intrinsic to the dollar itself. And this leads to the idea that, the lower the dollar goes, the easier it would be to pay dollar debts. Returning to our physics analogy, pulleys are not massless and frictionless. And the value of the dollar is not 1/P (purchasing power).

Useless Ingredients

We have written a lot about when government forces businesses to pay for things that their customers do not value, and do not usually even know about. We deem these things useless ingredients. Consider an example. Suppose the federal government got more serious about the Americans with Disabilities Act, and they no longer allow noncompliant restaurants and bars to remain grandfathered under the old code. All of these businesses now must spend a lot of money getting compliant, and reducing their revenue-generating floor space for the sake of much larger bathrooms. This does not cause prices to rise, directly. If restaurants could charge more, then they would already be charging more…CLICK for complete article

Bitcoin Blasts Through Key 7.4k Resistance

Since dropping below the descending channel on Nov. 25, Bitcoin (BTC) has reclaimed $7,000, cleared some hefty resistance at $7,400 and now made its way up to above $7,500 by press time.

Investor sentiment remains muted as traders are unsure whether Bitcoin price has found a bottom yet but the technical setup is clearly improving on the shorter timeframe.

Despite this, the Crypto Fear and Greed Index shows sentiment still in the extreme fear zone. One would expect this figure to improve if the daily candle closes above the resistance at $7,350.

Bullish scenario

If Bitcoin can hold the $7,075 support and avoid dropping below the descending channel trendline at $6,712, investors may feel that the digital asset has bottomed and begin to open long positions in the current range.

From a momentum traders’ point of view, the price has completed the cycle of touching the upper trendline of the descending channel and also the bottom trendline so once further confirmation of a price bottom is provided, swing traders will probably consider entries within the current range.

Traders entering long positions without leverage are likely anticipating an 18% to 25% gain, assuming Bitcoin slowly works its way back up to the main trendline of the descending channel.

Some traders have also noted that if Bitcoin can gain above $7,300, this would complete the inverse head and shoulders pattern and possibly send the price to the middle support of the descending channel which aligns with the $7,800 resistance — a high volume node on the VPVR…CLICK for complete article

Study: Price Manipulation Was Behind Half Of Bitcoin’s Historic Run

Between March 2017 and March 2018, the media affixed various adjectives to bitcoin’s run: impressive, amazing, historic. Now it’s adding a new descriptor: deceptive.

A new study said an unknown trader on the Bitfinex exchange manipulated Bitcoin’s price so sharply that the scheme accounted for about half of the cryptocurrency’s rally, The Wall Street Journal reported.

What Happened

According to professors from the University of Texas and Ohio State University, a single trader used Tether, a cryptocurrency generally used to facilitate bitcoin trades, to boost Bitcoin demand and prices.

They found that Tether Ltd. created Tether units in the absence of customer demand — and typically when Bitcoin prices were falling — so that traders could exchange Their tether for Bitcoin and create artificial demand. This sent Bitcoin prices higher.

“Even a fairly small amount of capital can manipulate the price of bitcoin,” John Griffin, a Texas finance professor and co-author of the report, told the Wall Street Journal….CLICK for complete article

Facebook’s Libra: Does the World Need Frictionless Money?

People typically think of money as something that exists mainly to facilitate the buying and selling of goods and services, or current account transactions. But in fact, one of the major uses, if not the major one, is to facilitate debt, investment, and other capital flows, including across national boundaries. Digital money like Libra, in other words, won’t just be used to buy cups of coffee. Unless strictly regulated, its major use will probably be to facilitate capital flows. This has really important implications—both good and bad—that weren’t addressed in the Libra White Paper . The most important one is that as the digital currency is now structured, the more successful Libra is the more it may facilitate destabilizing capital flows.

I have never been terribly knowledgeable about digital and cryptocurrencies (although like most people living in China, I pay for a lot of things with my WeChat app), but I had drinks at my home earlier this week with the very smart Cristian Gil. He is an old friend who at the turn of the decade started a digital-currency trading company called GSR as a hobby, only to watch the firm morph into a serious business. After our interesting discussion on cryptocurrencies, I decided to read up on Facebook’s new digital currency and try to figure out how it might operate….CLICK for complete article