Category Archives: Fiat Currencies

Fiat Currencies

Is crypto space a bubble? Outlook for 2018

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Many people see crypto space as a giant bubble. I would disagree, at least for now. I think we may be entering early bubble territory but won’t be quite there yet for another year or two. Here is my reasoning.

  • Cryptocurrencies have not passed the $1 trillion mark. Cryptocurrencies are a whole new asset class and asset class below $1 trillion is not massive. Just see real estate, stocks, bonds etc as a reference. Tens of trillions of dollars if not hundreds.
  • Cryptocurrencies are still not mass adopted. Very few people are acquainted with cryptocurrencies, even less own some, and even less hold a sizable amount. How many people can you think of that own more than $10,000 worth of crypto? I know only a couple.
  • Demand is increasing. Most people who are committed to crypto, commit even more. New people board the train every day. Main alt exchanges stopped registrations due to overload. Sentiment is positive. We need a really major event to evaporate enthusiasm.
  • Institutional money is underinvested. 2017 saw an influx of hedge funds into space but those are the 1% most opportunistic ones. Most of the big institutional money is on the sidelines as the financial instruments to allow you to hold bitcoin are not developed enough. We need ETF, instruments for hedging on BTC and the rest. BTC leads the way but it is a very early stage yet.
  • Very few people hold a big percentage of most of the cryptocurrencies. Their free float is very small. Thus the explosive growth. I don’t see this changing in the nearest future.
  • The fact that crypto cap is $750 billion, does not mean that $750 billion came into the sector. A lot of coins are just held by early adopters that got them for free or very few money and they never changed hands. So inflow is far less than that.
  • You cannot really short most of the currencies. It is only possible for BTC since we have the futures. So big guys that can manipulate price are not here yet.
  • Crypto withstood a lot of crisis. Death of crypto has been called many times. If you are following the sector since a few years, you would know that bulls’ conviction is quite sturdy.

Cryptocurrencies are here to stay and the innovation is just getting started in the field. Very few people probably have the vision how big that may get and what fields of life that may change. A very common comparison is between the internet and crypto currencies. I believe that every innovation dwarfs the previous one.

Not everything is rosy though. There are a few worrisome signs that i acknowledge. LTC founder sold his LTC holdings, Dogecoin (started as a joke) passed $1 billion cap and Ripple founder passed Zuckerberg in net worth shortly. I also see a lot of people with poor fundamental understanding of crypto who flock the sector to make a quick buck. Still, i haven’t heard the waiter talk crypto. These are early signs of a bubble, but as a said we might be 1-2 years away from topping.

We are in a massive bull run and bull runs don’t quit just like that. All time highs are a clear sign of an upward trend and there is nothing strange about that. And trends have the tendency to last. We haven’t broken any support levels yet, charts are off the roof. Why call a top and stay on the sideline? I would be the first to acknowledge when things turn bad but I just don’t see anything like that yet.

Crypto assets are not like anything else and every standard investment analysis seems weird. The only way to look at crypto is from a risk-reward point of view. You can lose what you invested but can make a few times over. Very favorable risk-reward.

I know most of the currencies are in beta, don’t have valid use cases yet or have many flaws and are being constantly stolen by hackers. Fundamentally this is as bad as it gets. But when we talk expectations phase, all it matters is how much more money are going to enter the sector and what is the investor sentiment. I think a lot of money are waiting to enter and we will see higher prices before we have a real hangover.

Happy investing/speculating/trading!

Currency Wars Fiat Currencies Uncategorized

New war in town – currency war

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Currency wars was something unheard of as a term in the mass media just 5 years ago. Now if you search through news paper , you will find that the most usages of the word war is related to currency.

Things are getting really serious recently as all parties are trying to outsmart the others and s most things in finance this is a zero sum game and somebody has to lose for you to win. When playing parties are countries and law makers it gets serious to make others lose for you to win.

This game is really simple – you (as a country) don’t want your currency to be very strong as costs for domestic businesses will be high compared to other countries and that brings a whole lot of problems – no foreign investors (they will go to China right?) , weak domestic companies, low exports, high unemployment etc. That brings in a lot of discontent and you don’t get elected at the next poll – simple as that. So strong currency is bad, looked at country level. Here comes the printing press – countries print money to debase currency and thus give a hand to business (make domestic costs lower). But who suffers here? The savers. If you hold money in the bank – that’s bad news. Current monetary policy favors borrowing and not saving. That’s why Germans are against running the printing press and Italians and Spaniards are in favor.

I don’t know if a little monetary policy is good here and there but one thing i know for sure that is very bad – when monetary policy substitutes reforms.

Our policy makers have run out of ideas (or don’t want to push them as our world as we know it needs very painful restart of the financial system and that’s bad for ratings) so bad since the start of the crisis that they have substituted all sound (but painful) policies with one thing and that is known under many names: monetary policy, QE or simply money printing. However, that always ends bad. 100%, no exceptions here in human history. If you are a net borrower, you don’t need to worry to much – you can only benefit. If you are net saver, start looking at the time as your worst enemy as money in the bank will eventually end up bad.

That is valid for all major currencies – dollar, yen. euro, etc. US printed three times the money supply for 5 years, Japan has never stopped to print large amounts of money, ECB just announced very ambitious plans for printing. On the other hand, all these parties are stuck in their financial reforms and that can be seen easily – GDP growth is hardly hitting 2%, unemployment stays high (especially youth figures), bureaucracy is high, taxes are high etc. So even though they try to solve all heir problems with the printing press results are not there because printing can help but can’t substitute sound policies.

As a conclusion, remember that history repeats itself. Every non gold backed currency (fiat currency) has failed in human history.No exceptions. Time span is usually 40 years. All world currencies are fiat since Nixon made them such in 1971. It may not be in the next year or two but if it happens in your life span and you are not prepared, 10-20-30 years of your labor may just disappear in a matter of days.