Thriller "A Bitcoin Zine"

The Rundown

Digital Industrial Revolution

It is starting to look like China is going full blockchain with plans to issue a central bank stablecoin, presumably to regain power from which controls the vast majority of payments in the country.

They’re going so far as to remove articles that say blockchain tech is a scam. Freedom of speech so being a luxury in China.

Like Russia before them, they too now claim they want to be at the forefront of blockchain implementations, with it unclear whether they can and/or what effect this might have.

Russia, The Big Error of History

Russia’s president Vladimir Putin has gone so far as to even ordered the central bank to step down when the latter hinted at a dislike towards this space.

That they want to orchestrate a drive towards blockchain integration is clear, but whether they can is a different matter.

China, The Open Markets Dilemma

A a simple trajectory of the blockchain starts in London, then USA, Russia, France , Venezuela and Iran on one hand, Saudis on the other, and now to China.

China has many very smart men and women who enjoyed and still enjoy fairly close relations or at least have interactions with western talent.

The problem is China’s firewall, which in this case is an almost physical firewall in that they have banned crypto exchanges, and thus any western interest in the country where the crypto or blockchain aspects are concerned.

It’s unlikely they’d be able to lead. It is perhaps even impossible realistically thinking because China might have surface knowledge but not the deep knowhow that comes from being at the forefront of the computer revolution during a period ranging from the 70s to the 90s when the latter went mainstream, and then at the forefront of the internet age thereafter.

Bitcoin Jumps 12% as China’s Xi Embraces Blockchain, Boosting Crypto Sentiment

Bitcoin prices are rebounding from a five-month low touched earlier this week.

Chinese President Xi Jinping said his country should seize opportunities afforded by blockchain, the technology that underpins bitcoin.

Despite China’s ban on cryptocurrency exchanges in 2017, the comments from the leader of the world’s second-largest economy could boost sentiment toward digital assets in general, providing a positive market backdrop for bitcoin, says eToro’s Mati Greenspan.

Xi Jinping, President of the People’s Republic of China and General Secretary of the Communist Party of China, said the country needs to “seize the opportunity” afforded by blockchain technology.

Speaking as part of the 18th collective study of the Political Bureau of the Central Committee on Thursday in Beijing, Xi said blockchain technology has a wide array of applications within China, listing topics ranging from financing businesses to mass transit and poverty alleviation.

“We must take the blockchain as an important breakthrough for independent innovation of core technologies,” Xi told committee members.

“[We must] clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation.”

United States, The Complacent

The United States has one very big problem. It is ruled by bankers. That’s a generalization and perhaps not a fully correct statement, but that banks have immense influence is far too clear.

Banks of course are not a monolithic entity. In addition, there’s a generational divide. The older generation which thinks this blockchain stuff is complete nonsense, and the younger one that sees the need to adapt.

This generational transition of powe…

What is an inverted yield curve?

To understand what an inverted yield curve is, you must first understand one of the most basic financial asset classes out there: Bonds.

A bond is like an IOU given to you by a bank. When you lend the bank money, it’ll give you back that same amount at a later time along with a fixed amount of interest.

For example, if you bought a two-year bond for $100 with a 2% annual return on it, that means you’ll get $104.04 back after two years (this accounts for compounding).

Yes, that’s a low return rate. However, bonds have a number of benefits that justify the small rate of return:

They’re an extremely stable investment. This is especially true when it comes to government bonds. The only way you can lose your money with them is if the government defaulted on its loans — which the U.S. government has never done.

They’re guaranteed to have a return. This means that you’ll know exactly how much you’re getting on your ROI when you purchase a bond.

Longer investments yield higher returns. The longer you’re willing to wait on your bond typically means that you’re going to have higher return rates. I say typically because there are exceptions to this (Hint: It has to do with what we’re talking about right now).

And when people refer to inverted yield curves, they’re typically referring to the yields on U.S. Treasury bonds, or bonds guaranteed to investors by the U.S. government.

The Fed Is Going to Buy Bonds Again. It’s Not a Stimulus Effort.

The Federal Reserve will resume the expansion of its balance sheet soon. Just don’t call it quantitative easing.

Following a sudden rise in overnight bank funding costs in September, Fed Chairman Jerome Powell said Tuesday that the central bank will begin increasing its securities holdings to “maintain an appropriate level of reserves.” This should be viewed as a technical adjustment and different from the large-scale asset purchases the central bank undertook to stimulate the economy following the financial crisis, he said in a speech to the National Association of Business Economists in Denver, according to the text.

This move would be in keeping with the Fed’s “ample reserve” operating policy established in the wake of the financial crisis, in which the central bank controlled the federal-funds rate—its primary policy target—by establishing the interest it pays on bank reserves. Before the financial crisis, the Fed would control the fed-funds rate through open-market operations—the purchases and sales of securities—to maintain a scarcity of reserves.

Some market observers are calling the Federal Reserve’s recent commitment to buy billions of dollars of U.S. Treasury bills QE4—the start of a fourth round of so-called quantitative easing meant to boost a flagging economy.

The underlying problem was a systemic shortage of money. Fed officials wrongly believed the banking system was flush with more reserves than it needed. In reality, the system was operating on a knife edge where small changes in the quantity of reserves generated large changes in price.

Inverted Yield Curve Suggesting Recession Around The Corner?

If we look at the data past yield curve inversions in the US. The difference between the 10-year and 2-year Treasury yield (10Y2Y) going back to 1976.

Notice that before almost every recession, the yield curve inverted and then steepened.

And how often did the yield curve invert and no recession followed within two years of the first inversion?

Zero.

The Rundown

The 18 Millionth Bitcoin

The countdown begins to the 18 millionth Bitcoin (BTC) that was expected to be mined early Friday morning.

The most popular cryptocurrency currently has 18,000,137.5 Bitcoin in existence. At a rate of 1,800 BTC mined daily.

After this, there are just three million left to be mined from a total of 21 million Bitcoin. Notably, it is said that about 14 to 19 percent of BTC is gone or lost forever. There are also stolen coins, and some hundred thousand stashed away by Satoshi Nakamoto, the pseudonymous person believed to have created Bitcoin.

Bitcoin HalvingIn May 2020, the scheduled "Bitcoin halving" will take place wherein the reward for Bitcoin miners for solving a block that connects transactions will be down to 6.25 from 12.5 Bitcoins.

Then, there will be about 376,562.5 left to mine when the next halving occurs, which is due every four years. The code in BTC is designed in such a way that limits the production of the cryptocurrency homologizing it to gold, which opposes how the fiat money is easily printed.

5 Good Minutes

FATF Joins BIS in Calling Stablecoins “Global Risk”

Stablecoins pose a money laundering and terrorist financing risk to the world, the Financial Action Task Force (FATF) said Friday.

In documents released after its latest meeting, the intergovernmental organization referred to cryptocurrencies as a “major strategic initiative,” and said cryptos whose values are pegged to fiat currencies could have a particularly big impact.

Some 800 representatives from 205 jurisdictions met from Oct. 16 to Oct. 18 to discuss various issues under the jurisdiction of FATF, led this year by Xiangmin Liu of China, according to the publication. Crypto-related concerns were front and center.

While the document addressed cryptocurrencies broadly, it singled out stablecoins on multiple occasions, writing:

“Emerging assets such as so-called global ‘stablecoins’, and their proposed global networks and platforms, could potentially cause a shift in the virtual asset ecosystem and have implications for the money laundering and terrorist financing risks. There are two concerns: mass-market adoption of virtual assets and person-to-person transfers, without the need for a regulated intermediary. Together these changes could have serious consequences for our ability to detect and prevent money laundering and terrorist financing.”

A second document, titled “Money laundering risks from ‘stablecoins’ and other emerging assets,” said the FATF will continue to examine the characteristics and perceived risks of stablecoins and may even clarify or update its virtual currency guidance to better address this class of cryptocurrency.

“The FATF will continue to ensure its standards remain relevant and responsive and it will report to G20 Finance Ministers and Central Bank Governors in 2020 on the risks from global ‘stablecoins’ and other emerging assets,” the second document read.

The FATF’s warning followed a report from the Group of Seven (G7) advanced economies and the and Bank of International Settlements (BIS) calling stablecoins a growing threat to monetary policy, financial stability and competition.

The Hard Truth

Circle to Spin Out Poloniex

Crypto exchange Poloniex is spinning out from its parent firm Circle, the companies announced Friday.

According to a pair of blog posts, Poloniex will now become Polo Digital Assets, Ltd., an “independent international company” backed by an unnamed Asian investment firm. The trading platform will not serve U.S. customers after this year.

In Friday’s blog post, Circle co-founders Jeremy Allaire and Sean Neville…

The Rundown

One of Germany’s biggest bank predicts bitcoin will reach $90,000 due to the halvening based on a stock to flow model that measures the hardness of a money.

“The stock-to-flow approach originating in commodity-market analysis serves to quantify the ‘hardness’ of an asset. Applied to Bitcoin, an unusually strong correlation emerges between the market value of this cryptocurrency and the ratio between existing stockpiles of Bitcoin (‘stock’) and new supply (‘flow’),” they say.

“Satoshi’s ‘stroke of genius’ was to decouple supply from price and from mining efforts (in Bitcoin’s case: computing power). It is worth noting that this ‘difficulty adjustment’ was absent in the case of all Bitcoin’s predecessors, e.g. Bit Gold…

Historically, the Bitcoin Halving has proven to be an important catalyst that propels Bitcoin into a new Bull Market.

In fact, Bitcoin tends to begin its new bull trend at least a year before its Halving.

Bitcoin Halving #1 — November 2012

Bitcoin Halving #2 — July 2016

Bitcoin Halving #3 — May 2020

1. Bitcoin has rallied 12,000%-13,300% in each of its Halvings to date

The first Bitcoin Halving spurred 13,378% growth in Bitcoin’s price whereas the second Bitcoin Halving spurred a 12,160% rally.

A 12,160% rally from Bitcoin’s mid-December 2018 bear market bottom of $3,150 would result in a ~$385,000 Bitcoin.

By the same token a 13,378% rally would lead to a ~$425,000 Bitcoin.

A $385,000 Bitcoin is very interesting because that would mean that Bitcoin’s Market Cap (i.e. $189 billion as of this writing) will have eclipsed the current Market Cap of Gold (i.e. $7.8 trillion).

Bitcoin Halvings #1 and #2 — A Detailed Breakdown

A new Market Cycle high tends to be made just before the Halving but it doesn’t eclipse the old All-Time High

Since mid-December 2018, Bitcoin rallied over 340% which closely resembles the 383% rally that Bitcoin experienced leading up to its second Halving.

If Bitcoin were to rally 383% like it did prior to Halving #2, it would reach a new Market Cycle high of ~$15,000 which is higher than the current Market Cycle local top of $13,900 as of this writing.

This turn of events would satisfy the historical tendencies of setting a new Market Cycle prior to the Halving but not a new All-Time High.

This in turn would also satisfy another key tendency: if Bitcoin rallies less pre-Halving, it will rally more post-Halving (and for a longer period of time).

Should this tendency play out once again, this would mean that Bitcoin would have a higher likelihood of rallying over 13,000% compared to the 12,000% rally from Halving #2.

On the other hand however, if Bitcoin were to rally similarly to its 663% uptrend prior to Halving #1, that would mean that Bitcoin would reach a price point of almost $24,000 prior to Halving #3.

Of course, this would lead to a new All-Time High prior to the third Halving which is something that goes against the aforementioned historical tendency.

It is for this reason that Bitcoin’s price action may continue to closely resemble its price action prior to Halving #2.

Should this be the case, it would take Bitcoin a longer time to manage its typical post-Halving growth (after all, it took Bitcoin over 500 days post-Halving #2 to manage an over 12,000% rally to new ATHs).

If Bitcoin’s post-Halving #3 growth resembles Bitcoin’s post-Halving #2 growth, then Bitcoin may see a new All-Time High over 500 days after the Halving (i.e. by Quarter 4, 2021).

3. After a new Market Cycle high is set, a retrace will occur prior to the Halving

A retrace may very well occur prior to the Halving which would figure as a financial opportunity for both traders and investors alike.

4. New All-Time High in Bitcoin’s price will occur after the Halving

Historically, Bitcoin has set a new All-Time High after every Halvi…

The United States is currently experiencing one of the longest periods of economic expansion in its history. However, the expansion has not reached all households and many are struggling to cover the costs of basic emergencies. At the same time, economic growth appears to be slowing, and there are warning signs that a recession is possible in the near future. While downturns are difficult to predict, policymakers have a responsibility both to assess whether the country is prepared for the next recession and to implement approaches to protect Americans from the worst outcomes. Although the economy has been growing since 2009, even those who have benefited from this growth are still feeling the effects of the Great Recession. While recessions are harmful in a variety of ways—most significantly because people lose their jobs—they also leave a permanent mark on people’s consciousness. For some, there is the pain of being forced to take a lower-level job. For others, jobs are not even available.

Several generations have been adversely and permanently affected by the Great Recession. Millennials, many of whom had only recently entered the labor market at the time of the recession, have altered their behavior because of the downturn, delaying big purchases such as houses. Baby Boomers with nest eggs wrapped up in the stock market saw their savings nearly wiped out. Homeowners of all ages were and continue to be profoundly affected.

Definition of Monetary Policy 3

Though most of us haven’t seen it in our lifetimes, it has existed in other lifetimes and other places. MP3 is a continuum of coordinated monetary and fiscal policies that vary who gets the money (private sector versus public sector) and how directly that printed money is provided (directly providing “helicopter money” to spenders versus more indirect means of financing spending). The following diagram maps many of the possible types of MP3 onto that continuum. In general, the more direct policies would be more effective, but also more politically difficult to do. And some of the least direct policies (or variants of them) have recently been used, but not at the scale that would likely be needed in the next significant downturn.

Cryptocurrency Exchanges Including Coinbase Create The Crypto Rating Council:

Cryptocurrurrency exchange operators including Coinbase, Kraken and Circle have teamed up to create a system that rates digital tokens on how close they are to securities.

The points-based rating system, unveiled by Coinbase in a blog post Monday, determines whether a digital asset falls under U.S. securities law using guidance from the Securities and Exchange Commission.

“The result of the analysis is a score which makes it easy for members to synthesize the analysis across many tokens and make their own, independent business decisions…

The Rundown

Bankers Start to Recognize Bitcoin’s & Crypto Role in Financial Evolution

SWIFT Chairman of the Board, Yawar Shah

Speaking during the Sibos 2019 conference held recently in one of the world’s financial capitals, London, “The financial industry is undergoing an extraordinary change, because of new entrants like Facebook’s Libra and the emergence of technologies like crypto assets,” said Yawar Shah, chairman of Swift, the global interbank financial telecommunication system used by banks around the world to send and receive information about financial transactions.

Shah’s presentation concerned payments and…

The Real Story Of The Repo Market Meltdown, And What It Means For Bitcoin:

Last week the financial system ran out of cash. It was a modern version of a bank run, and it’s not over yet. Stepping back, it reveals two big things about financial markets: first, US Treasuries are not truly “risk-free” assets, as most consider them to be, and second, big banks are significantly under-capitalized. The event doesn’t mean another financial meltdown is necessarily imminent—just that the risk of one is heightened—since the brush fire can be doused either by the Fed, or by the banks raising more equity capital. However, it provides a “teachable moment” regarding systemic fragility and anti-fragility.

What’s Happening, In Plain English?

Somebody—probably a big bank—needs cash so badly that it has been willing to pay a shockingly high cost to obtain it. That’s the layman’s explanation of what’s happening. Interest rates have betrayed common sense—interest rates in the repo market should be lower than rates in unsecured markets, for example, because repos are secured by assets and thus supposedly lower-risk. But repo rates spiked way above unsecured lending rates last week, even for “risk-free” collateral such as US Treasuries.

But US Treasuries are not risk-free. Far from it. (By this, I’m not referring to the US potentially defaulting on its debt obligations. Rather, I’m referring to the practice in the repo market that allows more people to believe they own US Treasuries than actually do. It’s called “rehypothecation.”) Why was someone willing to borrow cash at a 10% interest rate last Tuesday, in exchange for pledging US Treasury collateral that yields only 2% or less? That trade lost someone a whopping 8% (annualized) overnight, but presumably the trade allowed the bank to stay in business for another day. As risk premiums go, 8% is shockingly high—for a supposedly risk-free asset!

At a systemic level, the traditional financial system is as fragile as Bitcoin is anti-fragile.

An anti-fragile system is one that becomes stronger and more resilient as a result of shocks, not weaker. This describes Bitcoin, whose network security grows as the system’s processing power grows. Here I distinguish between price volatility and systemic volatility. Bitcoin’s price is highly volatile, but as a system it is more stable. In stark contrast to the traditional financial system, Bitcoin is not a debt-based system that periodically experiences bank run-like instability. In this regard, Bitcoin is an insurance policy against financial market instability. Bitcoin is no one’s IOU. It has no lender of last resort because it doesn’t need one. For me, Bitcoin is empowering because it provides a choice to opt out of the traditional financial system. In light of the traditional financial system’s instability, despite all of Bitcoin’s drawbacks, I find that a powerful concept.

Coin Analysis: Bitcoin

Bakkt Launch Incoming…What to Expect:

On September 22, a product designed to remake Bitcoin as a mainstream investment for the world's investment managers will go live. When ICE Futures U.S., one of the world's largest commodities markets, opens trading at 8 p.m. ET that day, it will offer Bakkt Daily and Monthly Bitcoin Futures, the first physically delivered crypto-currency contracts ever traded on a federally regulated exchange.

If the exchange works as planned, it will give institutional investors a secure, well-monitored place to trade Bitcoin, the world's most widely used cryptocurrency. That in turn could…

The Rundown

The US Quietly Printed $75 Billion out of Thin Air (For the Banks). This Is Why Bitcoin Matters

The United States Federal Reserve has suddenly injected $53 billion in short term lending markets by buying US Treasuries and other securities for the first time since 2008. They are to print another $75 billion today as money seemingly dries up with the culprit apparently being too much government debt offerings.

“Banks get the overnight capital they need by pledging collateral, usually Treasury bonds, in exchange for cash. When the Fed provides the cash, they basically print the…