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You are here: Home / Archives for Radigan Carter

Radigan Carter

Bitcoin Part 3: The Future for Taxes & Profit

November 13, 2018 by Radigan Carter

The Romans in their Decadence by Thomas Couture 1847. Displayed a year before the French Revolution

Most people don’t want freedom, they just want comfort, and that’s ok.

They don’t have time for it. They are just trying to do the best they can in this world with the circumstances they were given, and have a few more good times than bad.

Nothing wrong with that for the 3.75 billion people on the planet who make less than US$10,000 a year.

That is over half the world who are just trying to reach the third tier of Maslow’s hierarchy of needs pyramid where they have shelter, food, and their family is safe from violence.

As they grind through each day on this globally connected planet, they keep glancing at their phones, seeing how the other half is living in the fantasy world portrayed on social (not really social, healthy, or reality) media.

Over half the world wants to get to the other side where a day is measured in hashtags instead of how many meals they missed or how many family members they buried.

They likely never will.

But if the price for a shot at living the life they see on their phones is their freedom, they’ll pay it.

It is not fair, but then neither is life. Life is just real and uncaring.

Only 527 million people, 7% of the world, will reach the vaunted height of Maslow’s fourth tier, where people think their feelings are important.

They start to realize the truth behind Nobel Prize Laureate Angus Deaton’s research; people aren’t proportionally happier making more than US$75,000 a year.

Point being, it is understandable the vast majority of people in the world just want to be comfortable.

It is important to overlay this basic human need for comfort on the current worldwide dynamics at play: record levels of sovereign debt, shifting geopolitical powers, and changing generational consumer dynamics.

In the midst of this global maelstrom, the birth of arguably the most powerful technology to ever exist on the planet — blockchain — is currently being born.

Capable of giving governments an eternal, unalterable, and always accessible record of everyone and everything.

Meanwhile, most people are not concerned at all with the breathtaking technological change happening just below the surface of their iPhone as they seek comfort in the dull glow of the screen and click another heart next to someone else’s made up life on Instagram.

The world is hurtling towards absolute financial asset transparency to all governments, and has been on this trajectory for some time.

In the future, governments will have blockchain technology, and most people won’t understand the world has unalterably changed while they weren’t paying attention.

To be clear, this article isn’t about how to change this global trend.

Personally, I don’t even think it is possible.

But since the world is providing the opportunity, I’ll profit from it.

The Present World

It started with the OECD

rad pie

OECD stands for the Organisation for Economic Co-operation and Development. It was established in 1948, and consists of 36 member states today, but their influence financially is felt worldwide.

Together, the OECD countries make up $49.26 trillion of the $80 trillion annual world income, or 61.57%.

The OECD developed the CRS (Common Reporting Standard) in 2014.

The CRS is an automatic exchange of information on bank accounts at a global level between tax jurisdictions.

What started with the OECD, has now spread so that 126 countries have signed onto CRS.

126 countries now agree to share all private bank account information with other foreign tax jurisdictions directly between governments so they can all make sure they are getting maximum tax revenues owed.

2018 was the first year CRS went live. Governments are now mapping all assets in their jurisdictions and sharing with other governments directly.

Banks comply with the governments, or are shut out of operating in those jurisdictions.

Welcome to the future of absolute financial transparency.

Transparency for Taxation

If you have a moment, the 2018 Frank Knight Wealth Report is well worth a read.

rad money on the move

Great interview with historian Niall Ferguson, as well as the graphic above, showing US$200 billion in capital outflow from jurisdictions where CRS went active this year to jurisdictions which are not yet participating (namely US and Taiwan).

This capital flight is temporary. Eventually all assets will be mapped, whether governments move to blockchain first or not.

For Americans, we already have to comply with FACTA (Fair and Accurate Credit Transactions Act) and report all worldwide assets. Eventually, blockchain and cryptocurrencies will fall under this requirement.

Each year, more countries will comply with CRS until most of the capital assets in the world are fully mapped by location.

Blockchain doesn’t change the direction the world is already going, it just speeds up how fast we get to total transparency for taxation.

Combined with this transparency will be the unavoidable problems the world will face in the future.

The IMF is warning of record debt levels by the advanced economies of the world, surpassing even 2009 after the global financial crisis.

The Congressional Budget Office (CBO) is warning that in five years, by 2023, the United States will be at 117% debt to GDP with the trillions in deficits we continue to run.

2023 also happens to be the year which those born after World War II will reach maximum numbers leaving the work force for retirement and start drawing down equity retirement accounts for income.

Real Vision just did a phenomenal presentation on this problem. I’ve watched it three times. Absolutely outstanding.

In the face of these numbers, household debt continues to rise in 80 countries tracked by the IMF.

The chart below shows US treasury bond yield rates and how they invert ahead of recessions along with the timeline and actions I think are possible as bitcoin matures as an asset class.

The timing is who knows but the trajectory is likely. What really sets the timing in motion will be when the 2 YR yield inverts to the 30 YR yield.

rad graph

The Unavoidable Transparent Future

This future is inescapable. Transparency for taxation will happen.

There is no more privacy left in assets except for cash and physical gold/silver, but those each having their own benefits and problems.

By trying to remain private in a transparent world, even legal, lawfully obtained funds, a person stands to lose everything.

Fighting the system will only result in unwanted attention from bureaucrats and potentially federal agents looking to seize assets which without transparency, aren’t provable on how they were obtained.

Some will say that in a transparent world, specifically with blockchain, that privacy cryptocurrencies will flourish as people seek freedom.

Maybe for specific limited circumstances, but that isn’t my focus or interest.

My only concern is exiting positions when the timing is right and continuing wealth accumulation without any hassle or red flags as I shift to the next market cycle and asset class.

At some point all US domestic exchanges will be required to issue a 1099-B, Schedule D, and Form 8949 documenting all trades.

For overseas accounts, most likely Americans will be be required to file FACTA forms and declare trades and holdings on foreign crypto exchanges, just like current foreign bank/investment accounts are treated.

When that happens, likely most exchanges outside the US will just say no US customers as FACTA compliance isn’t a lightly taken task by an institution.

Honestly, I secretly hope the verdict is to go back to 2017, where crypto to crypto is not taxable, only the exit to USD. Would make it considerably easier for all involved — individuals, institutions, and the government would still get their tax revenue on the back end.

Will be interesting to see if institutions lobby the government to that effect once they are fully in the space.

Before institutions can truly enter the asset class in force, the SEC has to declare that the Wild West has been civilized, and is now a place of lawful commerce.

The SEC is starting this process, bringing the full weight of government enforcement to blockchain and the cryptocurrency world.

The timing of this is not an accident with Bakkt scheduled to start trading in a month.

Likely Bakkt will self-certify in a couple weeks, CFTC will clear them for trading, and that’s it, just stand still for the camera flash as the last spike is hammered in the transcontinental railroad and the west is no longer wild.

A railroad and telegraph poles now reach over the horizon, the Yale Endowment Fund can now be assured they aren’t investing alongside human traffickers in crypto, snake oil salesmen aren’t allowed to sell mercury as medicine, and it’s considered impolite to walk around town with your guns uncovered.

For those who want to accumulate wealth with the incredible profit ahead in this asset class, it is a welcome sight seeing the SEC and CFTC standing on the boardwalk with a star pinned to their chest letting the world know the territory is now safe.

For those who instead say this is not the freedom that blockchain or cryptocurrency was supposed to bring, well, sorry.

This is a western, but the Westworld variety, total control and transparency.

How did you think this story was going to end?

I am embracing the transparency early for taxes and profit.

Going fully through the looking glass, to show legal source of funds for buying bitcoin, filing capital gains forms and closing position reports with yearly taxes, so the incredible profits exited with in the near future are unquestionable and easily provable.

I keep screenshots of all my wire transfers from my bank to show the amounts correspond with the funding used to purchase cryptocurrencies in case it is needed when I exit from my positions in the next 5–9 years.

That will give me bank records and 7–11 years of tax returns including 1099-B, Schedule D, and Form 8949 detailing out capital gains, closing position reports, all transparent and proving legal profits.

Some will say this is overkill and unneeded. Maybe, but I measure everything in risk, and the risk associated with not being transparent is far greater.

This isn’t the future I would choose, but the world doesn’t care about what I want, and I don’t need it to teach me that lesson anymore.

None of this is advice, only what I am doing with my own investments.

So I’ll take full transparency, pay the 20% tax on long term gains, and be looking for the next frontier to head to after this one.

Why another frontier? The fun part is the uncertainty.

It lets a person know they are alive when they can still lose. — Radigan

 

Filed Under: News, Bitcoin News

Bitcoin Part 2: The Future Of The First World

October 27, 2018 by Radigan Carter

The Course of Empire- Painting 4, Destruction by Thomas Cole, 1836

Buying bitcoin in the first world is like buying a boat ticket in Pompeii when Vesuvius started smoking.

In Part 1, the focus was on the value Bitcoin brings to the billions of the unbanked, which are oppressed in the third world.

In the not so distant future, Bitcoin will also be a critical store of value for people in first world economies.

The first world has different economic problems compared to the third world, but the pitfalls can be just as deadly to a person’s wealth.

Bitcoin provides a way for people to sidestep these pitfalls, when Rudyard Kipling’s, Gods of the Copybook Headings return once again to humble first world economies.

The new Federal Reserve Chairman, Mr. Powell, says that is our future.

In the first 1:37 minutes of this video, he calmly states:

“We’ve been on an unsustainable fiscal path for a long time.”

Think about what that means.

The US has half the world’s capital in their markets, US$30 trillion out of the US$60 trillion in all world markets, is the sole world superpower, and is the world reserve currency.

Why is Chairman Powell so calm when he says: “yes, the road we’re on leads only to destruction”?

Because as the US goes, so follow all the first world economies.

That is the not so distant future that awaits us all.

Strategies for the future should be multi-faceted, to allow pivoting and adaptation, so the opportunities presented as the future unfolds, can be exploited to always be more wealthy than the year prior.

This is whar collecting the tax on human behavior means.

Most people in the first world are unaccustomed to the daily hard realities which third world countries are intimately familiar like weekly food inflation, bank and social services closures, and fuel shortages.

When they encounter this reality for the first time in the future, most will not become reflective on why their beliefs did not match the real world around them, adapt to reality, and win.

Instead, they will most likely strike out in anger and fear because something they believed to be theirs, is being taken away.

It is just basic human nature which will continue to fuel politicians. Politicians will tell whoever votes for them whatever they want to hear.

In the future, a combination of chaining younger generations deeper in debt through increased deficitary spending, together with keeping unsustainable peograms from the past 50+ years while raising taxes, will cause businesses and people to leave the country.

This is a story as old as Rome, and thanks to human nature being the one constant in the ecuation, it makes it a cycle that is boringly predictable in our society.

In this not so distant future, Bitcoin will be a hedge against this cycle which leads to increased inflation of reserve currency, suppressed to zero interest rates, and eventually the confiscation of assets by governments which will follow when the first two no longer work.

When we reach the end of this unsustainable path, having Bitcoin in a cold wallet, which a person can carry in their pocket is going to feel like taking the last boat out of Pompeii, all while hearing Mount Vesuvius just turned off the lights behind you.

Sad for the destruction and thankful for the escape, all at once.

rad3 1

Nakamoto put a reference to this page and the bailouts in the first block of Bitcoin on 03 Jan 2009

Nakamoto’s US$6 Billion Sacrifice

Knowing how Bitcoin became a store of value, shapes why it will continue to have value to the world in the future.

At first, Bitcoin was a peer to peer digital currency.

As the years passed, and the world collectively realized what Bitcoin truly was capable of, it became much more valuable — the first new store of value seen on the earth since Egyptians were painting liquid gold onto sarcophaguses 4,000 years ago.

That is the magnitude of what bitcoin has achieved in 10 years.

Nakamoto’s sacrifice of giving up his 980,000 Bitcoin, now valued at US$6 billion, and disappearing gave the first world their best chance at a new, secure, and portable store of value.

Think about it, human nature never changes. There is more than one way for a blockchain to be centralized.

What good is an electronically decentralized blockchain as a store of value if it has centralized pressure points (person, group, company) for governments and special interests to target and exert influence?

To be clear, a business or project being centralized is completely different than a store of value.

Nakamoto intentionally left himself out of the future of Bitcoin — denying every first world government the ability to exert influence on bitcoin in the future which is coming.

His sacrifice ensured Bitcoin would be leaderless, mathematically absolute, transparent, and fair.

For the first time in human history, anyone, anywhere in the world, has the same access and ability to store value which cannot be influenced by governments, geography, nationality, society, culture, religion, or politics.

Nakamoto’s sacrifice made that possible, and without it, the world wouldn’t have the store of value it desperately needs for the not so distant future.

21 Million Gold Bars

There are now 17 million Bitcoin in existence. It will take another 122 years to mine the next 4 million coins to reach total supply at 21 million bitcoin.

Estimates differ on how many Bitcoin are permanently out of circulation including Nakamoto’s 980,000, computers crashing, and private keys being lost in the early days of mining.

There could be 3 to 4 million Bitcoin lost forever, meaning there are only 13 million in circulation currently.

Only 13 million gold bars up for grabs by 7 billion people on earth.

To put the incredible odds of owning one entire Bitcoin right now into further perspective, there are 36 million millionaires in the world.

If every millionaire in the world wanted to just buy one Bitcoin, 64% of millionaires in the world wouldn’t be able to buy one whole Bitcoin.

There just aren’t enough in existence.

Financial institutions and governments understand this scarcity model even if most millionaires apparently do not.

Since they have been unsuccessful at destroying Bitcoin, the only thing left is to control the new store of value, using Bitcoin’s scarcity for their own benefit as the world continues on this unsustainable fiscal path into the future.

For example, doubt it is coincidence the SEC set the requirement “to protect retail investors” of a minimum purchase for one share of VanEck ETF to equal 25 BTC.

Driving the price high enough prevents future private ownership of entire bitcoins.

How?

The higher the prices go, the less people will want to be solely responsible for that much money on their own.

This helps ensures future retail participation is in the form of shares of funds held through retail custody solutions which institutions are currently working on now.

Most people are creatures of habit and comfort.

They’d be scared to death of having $400,000 in Bitcoin on a cold wallet in their sock drawer.

The Deadly Love Affair with the Idea of Freedom

People like their online brokerage or retirement account interface. They like being able to email or call someone when they forget their account password.

So they will prefer to use that solution for cryptocurrency and blockchain exposure as well.

Most people will never open an actual cryptocurrency exchange account, let alone have their own cold wallet, taking responsibility for their retirement savings and investments.

They just don’t have the stomach for that kind of freedom.

Just like most didn’t volunteer and go fight in Afghanistan, but love shooting fireworks and barbecuing on the 4th of July while they celebrate freedom.

Its the same thing.

Why?

Because for most people, loving the idea of freedom and the actual steps it takes to make freedom happen are interchangeable.

When in reality, nothing is further from the truth.

The idea of freedom is comfortable for everyone while the steps to real freedom are difficult and taken only by a few.

Mainstream blockchain and cryptocurrency adoption will be no different in the future.

Everyone will love the idea of the freedom it offers, but most will want it only if they can still have the comfort of a 1–800 number to call when they forget their password, and will definitely never want to handle their own private keys — that much freedom will just outright terrify them.

Most will wrongly think owning shares of a bitcoin ETF through their brokerage account will be the same as buying actual cryptocurrencies and blockchain projects themselves and keeping their investment on a cold wallet.

But it won’t be the same, and those who have physical ownership of their Bitcoin, will be owning an asset rarer than millionaires on the planet, cobtributing to the scarcity of the asset by having direct ownership of it.

rad4

From the outstanding infographic showing how the evil Cyprus bail-in worked — source

Remember the Golden Rule — “He who has the gold, makes the rules.”

Institutions were bailed out by governments in the last financial crisis of 2008.

Governments could do this because they could create additional fiat currency.

Bitcoin is different. No more can be created. Ever.

History doesn’t repeat, but it rhymes.

Cyprus was the first time a bail-in was done in a western democracy and the world did not flinch.

Most, probably can’t even remember the year it started. That is how successful it was.

This infographic does an excellent job showing how the confiscation from people’s savings to backstop their bad policy worked.

The scope of what the institutions accomplished with the confiscation, while ensuring the elite and Oligarchs were able to withdraw billions first, is terrifying, and should serve as a warning for any assets kept through an institution into the future.

When an institution has custody of Bitcoin, then they control it, can withhold access, and even confiscate it like the Cyprus example.

This is where people mistaking the idea of freedom for actual freedom can be deadly.

As the not so distant future unfolds, the world will see what happens as first world economies unwind the experiment their central banks conducted for the last decade of artificially low interest rates and exploding sovereign deficits.

At the very least, Bitcoin offers a hedge in the event the unwinding of this global experiment does not go smoothly.

But only if a person controls their Bitcoin directly and does not use a future institutional custody solution.

A store of value is only something which a person controls, and the only thing a person controls is what they physically own.

If it is not in a cold wallet, which is in a person’s possession, they don’t own Bitcoin — the bank and the government does when they decide they need it in the future.

No cold wallet, no boat ticket out of Pompeii.

Perhaps the first world can avoid the fate of previous civilizations which marched along this treacherous fiscal path.

But just in case the first world cannot avoid the fate of previous civilizations, what is the harm with using the newest store of value since King Tut was sealed away in the Valley of Kings, happens to be rarer than millionaires on the planet, and isn’t controlled by financial institutions and governments yet as a hedge against this potential danger?

While I sip a doppio espresso in the piazza, looking up at Vesuvius smoking and wonder if there is any danger at all, and if so is it near or far, it’s nice to at least have a boat ticket in my pocket.

None of this is financial advice. Just sharing what has shaped the decisions I’ve made with my own money.

Bitcoin Part 3 is next. See you there. — Radigan

 

Filed Under: Bitcoin News, Market Analysis, News

Watching Institutions Set Their Ambush For Bitcoin

October 26, 2018 by Radigan Carter

Thinking bitcoin will not go exponentially higher is betting a $44 billion empire will fail.

For the last eight months of this crypto nuclear winter, I’ve watched this dance of the red candles on the chart and just grimly smiled.

Instead of continuing to build the $USD value of my portfolio, I’ve realized that’s not the important number. The portfolio value in bitcoin (BTC) is the key and that is still strong — this is a long war, be patient.

This was reinforced a month ago reading about Mr. Sprecher, the owner of the New York Stock Exchange (NYSE).

He went from buying his first exchange for $1 or $1,000 — he says he doesn’t remember which. He used his house as collateral, and built that into a $44 billion empire.

I’ve read the article five times.

A lot of people talk about winning, but few get in the arena. He’s not building Bakkt because he needs more money, he’s building it because he likes the challenge — the thrill of the win.

It’s a feeling that once you’ve experienced it, almost makes the rest of life means less without it. I get it.

Fortune article on NYSE Owner — bitcoin exchange startup

I then circled November 1st on the calendar, which is when the Bakkt exchange goes live with futures contract being physically backed with BTC.

The Fortune article was a call to arms, telling the other institutions they have three months to get into position.

Once Bakkt is live, betting BTC won’t go exponentially higher is betting a $44 billion empire that owns the NYSE and has been a silent partner with Coinbase since 2015, is going to fail at launching a crypto exchange aimed at institutional clients.

Doubt it.

Think about Bakkt having been a silent partner with Coinbase since 2015.

I thought I was brave the first time I hit send on a $10,000 buy order and vaporized money from my bank account into the matrix to buy bitcoin.

But nope, turns out I wasn’t that cool, cause here’s Mr. Sprecher, just quietly in the back of Coinbase xeroxing their entire operation and building Bakkt a year ahead of me in 2015. Just absolute respect for that move.

There are patterns to everything. Ian Fleming said it first – twice is a coincidence, three times is enemy action.

I started looking for other data points, to see if they lined up and if a pattern would start to form.

I didn’t have to wait long.

Three days later on August 6th, Business Insider reported Goldman Sachs was looking at offering a custody solution for investors.

Goldman Sachs crypto custody

I immediately searched for other institutions looking to offer custody solutions and saw an article I had missed.

On July 31st, Bloomberg had written the 129 year old bank, Northern Trust, was testing proof of concept for crypto custody.

Northern Trust crypto custody

I find it hard to overstate the importance of Northern Trust coming into this asset class.

Northern Trust is a private wealth bank who has never, in 129 years, had even a whiff of impropriety. Their average private wealth client is worth $900 million. They serve 25% of the Forbes 400 wealthiest families in America.

Think about that, have $900 million in your accounts at Northern Trust? Half the clients there have more money than you.

And now they are announcing a bitcoin custody solution.

There’s just no hiding what that means. Institutions are coming, and they’re bringing trillions with them. Get set.

Northern Trust Private Investment statistics

Probably the most talked about ETF proposal in the space is the CBOE ETF. Not really going to say much about this other than the link below is a great breakdown of the proposal. It goes into detail on what makes the CBOE’s proposal vastly superior to the other offerings to date which the SEC has not approved.

CBOE ETF breakdown

On September 8th, Coinbase announced it was joining the crypto ETF arms race and seeking help from BlackRock.

To be fair, BlackRock in the past has said they have no interest in crypto, but we’re talking about a $6 trillion dollar asset manager. They aren’t going to tell anyone what they’re doing before it’s done.

For an example of scale, the entire gross domestic product produced by Germany, the powerhouse of the European Union, is 3.467 trillion (2016).

BlackRock manages almost twice that at $6.3 trillion.

Coinbase exploring ETF

On September 9th, Citigroup, one of the big four banks in the U.S. (JPMorgan, Wells Fargo, Bank of America, and Citigroup) announced it had developed an instrument it was calling a DAR (Digital Asset Receipt).

The DAR would work similar to the American Depositary Receipt (ADR) most institutions currently offer for investing in foreign markets.

Citigroup is currently one of the largest issuers of ADR’s in the world. They have a long established track record at this practice, issuing ADR’s since 1928.

As one of the big four banks in the U.S., Citigroup holds over 8% of total U.S. deposits by itself ($893 billion out of $10.7 trillion).

So essentially Citigroup is going to use a similar strategy for offering bitcoin and other digital assets to their customers in a product which will look and feel very similar to an ADR — which customers are already familiar with and has been used for the last 90 years.

Business Insider — Citigroup Digital Asset Receipts

On September 13th, Mike Novogratz called the bottom of this bear market. He took a screenshot of his Bloomberg terminal and showed the BGCI chart on twitter…don’t read the comments on his post unless you want to lose faith in humanity…People who have no idea the BGCI is proprietary to a Bloomberg terminal, which has a yearly subscription cost of $24,000 were throwing shade at Mr. Novogratz for no other reason than they were just emotionally bearish.

Most people don’t realize that Mr. Novogratz was one of the original backers of his friend from Princeton, Dan Morehead.

Mr. Morehead launched Pantera Capital in 2013, making the call to buy bitcoin at $103.

The Pantera Bitcoin Fund is up over 10,000% now.

Point being, these are data driven, very successful gentlemen who have built fortunes. So when someone of Mr. Novogratz’s stature is taking a screenshot of his Bloomberg terminal and publicly calling a bottom, that’s another data point lining up with the pattern.

Mike Novogratz calling the bottom on the 13th

Also on September 13th, Mr. Tom Lee, from Fundstrat, was speaking at the ETC Summit 2018.

I found their livestream on Youtube and watched Tom Lee’s presentation three times. It begins at 5:05:38.

Tom Lee’s callsign should be SteelRain — always on station with no emotion and accurate data on rapid fire.

He drew some very interesting comparisons against other recessions, showing the important metric was the 100% retracement of the last parabolic move up, not the timeframe it takes to retrace.

The fact that Mr. Lee and Mr. Novogratz were essentially saying the same thing, on the same day, half a world apart. Whoa, we’re danger close now.

Tom Lee’s presentation

So if you’re like me, been in the market for a couple years, great. The best thing I can think to do now is nothing. Keep getting some gains in the gym, and get out and live life. There’s a lot more to it than candles on a chart, and this is a long war.

If you bought BTC at $18k last winter, stay calm. Yeah you’ve been hurt, but you aren’t going to bleed out. November is around the corner. Be proud that you’ve waited out a longer bear market than the Baby Boomers did in 2008. You’re a veteran now.

And if you don’t own crypto yet, but see the value in it, and are waiting for a cheaper point to get in…may your wifi connection be fast, and your exchange not go offline.

You’re going to be in a crowded knife fight with everyone and their mother at $5,000 and below. Look at the PBV (Price by Volume) chart.

Just something to consider. None of this is financial advice.

I’m betting a $44 billion empire doesn’t lose. See you in 2019 — Radigan

 

Filed Under: Bitcoin News, News

China BlockChain Part 1-Winning the most Important Race in 500 Years

October 24, 2018 by Radigan Carter

Blockchain is virgin territory, a new frontier. Getting there first, exerting influence, and dominating the market matters.

England, France, Spain, and Portugal all knew this when the New World was discovered.

America knew this with global force projection after WWII, and most recently, the internet.

But like all history, the empires of the past are not the empires of the future.

For anyone that is paying attention, President Xi is standing in front of China, conducting a masterful performance of Ride of the Valkyries as he leads his country to dominating the 21st century and beyond.

He is weaving a strategic future plan in military restructuring and economic dominance on three continents with new technology for finances and society.

It is a bold plan — reviving the silk road, harnessing blockchain, and upsetting the geopolitical status quo.

Winning the blockchain race and applying the technology to their One Belt One Road Initiative (OBOR) will allow China to neutralize America’s global influence.

China will reemerge as the Middle Kingdom in terms of global dominance and prestige — a time when China was the center of the world.

President Xi calls blockchain a “breakthrough” technology:

“A new generation of technology represented by artificial intelligence, quantum information, mobile communications, internet of things and blockchain is accelerating breakthrough applications.”

President Xi is pushing ahead on two fronts — geopolitical and technology.

China is unique because he can do so without being challenged politically and the Chinese are already accustomed to mobile pay, which is the same user interface blockchain technology will use.

China’s policy of a government and private sector hybrid approach to furthering Chinese interests which always supports the Chinese solution over the outside approach is well documented and expected to continue into the future.rad1 1

The Geopolitics

Why would China even want to undertake a massive modern silk road project through 69 countries, connecting 40% of global GDP?

To understand that, we have to understand a bit of history, geography, and the problem China currently sees for itself.

Stay with me, it won’t be bad. Promise.

The History

The original silk road was the dominant trade route from Europe to Asia from 200BC to 1500AD.

1700 years of trade traveled overland. It’s beautiful country. If you ever get the chance, go travel through the northern ‘Stans and see some of the ancient cities. Highly recommend it, but go early. The mountain passes close as early as October.

In the 15th century, a maritime route was found from Europe to Asia. It cost less, and was less dangerous than the overland route. Win-win.

Most trade shifted to ships and the importance of the Silk Road declined.

The Geography

Ever wondered why Singapore and Kuala Lumpur are located where they are?

Singapore and Kuala Lumpur literally sit at the intersection of maritime trade between Europe, Africa, and Asia for the last 600 years.

They are located on either end of the Strait of Malacca. The strait is 500 miles long, 1.7 miles across at the most narrow.

I’ve been through the Strait of Malacca, and at times, you could almost walk across the decks of ships, one to another, going from Indonesia on one side to Malaysia on the other and not get your feet wet. There are that many ships transiting, over 100,000 per day.

Nearly 18% of all oil produced in the world transits through the strait.

This includes eighty percent of China’s oil imports, with China the largest importer of oil in the world.

The importance of the Strait of Malacca to the world economy and to China’s economy specifically, and therefore her national security, cannot be understated.

Remember, Christopher Columbus sailed right off the map to the west to find a more direct route to Asia. In a way, the Strait of Malacca has shaped the last 600 years of geopolitics and empires, and will continue to do so.

The Problem

America was the clear winner from World War II. Its cities, manufacturing, capital markets, and infrastructure untouched by the devastation due to it’s geographical advantage of having oceans separate it from the conflict.

America capitalized on this advantage by continuing to project power through maritime force, establishing military bases and friendly relations with countries surrounding China for the last 70 years.

And there is the problem — China is surrounded. Held hostage by the Strait of Malacca and U.S. influence.

China is keenly aware that eighty percent of their oil supply has to pass through a 1.7 mile wide strait, and even the natural gas shipping routes north from the Western Australia Gorgon and Wheatstone projects must pass through waters largely controlled by the U.S. and their allies.

The first step to minimizing the risk this poses is for President Xi to continue to build bases and aircraft carriers.

He’s playing the hand he’s been dealt, and the U.S. has been dealing for 70 years.

This was the reason for the island building in the Paracel Islands, Scarborough Shoal, and Spratly Islands in the South China Sea.

China is building a buffer between their ports on the mainland and U.S. allies in the South China Sea to be able to guarantee keeping a shipping lane open to the Strait of Malacca and open ocean.

Both of these are not permanent solutions. The One Belt One Road Initiative is the permanent solution to the problem.

If you don’t like the game, change the rules.

Europe bypassed the Silk Road in favor of the maritime route through the Strait of Malacca in the 15th century because it was less costly and less dangerous.

What was old is new again.

China will go back to the overland route for the same reason Europe went to sea. It’s less costly and dangerous for them.

How is building an entire economic corridors of roads, railways, powerlines, pipelines for the next 30 years less costly and dangerous?

The cost they are measuring against is the total economic destruction of the country and the end of the Communist Party if 80% of their oil imports can get turned off by other countries.

That makes thirty years of construction and loans to other countries for the OBOR look like a great deal.

It’s much less dangerous to build a road and seek mutual cooperation than to continue to build aircraft carriers and compete head on against the U.S. Navy.

By reconnecting 40% of the world’s GDP along a land trade route, China is going to completely reset the geopolitical power dynamics which most everyone alive today has taken as absolute — in essence turning the clock back 500 years.

Long live the Emperor

In March, President Xi was elected to a second term with 100% of the vote. This was after lifting the presidential term, meaning he can now be President indefinitely.

Could President Xi pull a George Washington and step down after his second term in office, retiring to his farm in peace?

Maybe. We’ll see.

In the meantime, President Xi, and by extension, China has a distinct advantage in politics and long-term strategy over our leaders in the West.

They are united in their goal of winning the Blockchain race and pursuing their long term strategic goals. Completely undistracted by the politics of election cycles.

The fact that China even knows there is a race to win shows how far ahead they are than the leaders and legislators in the West.

President Xi is giving clear direction to China’s Central Bank and the country that China will win the blockchain race.

China is the largest holders of blockchain patents in the world with the People’s Bank of China submitting 41 patent applications in the last 12 months alone.

China’s State TV has said China expects blockchain to be 10x more valuable than the internet.

The China Center for Information Industry Development (CCID) officially publishes their ranking of crypto and blockchain projects consisting of the top 33 projects in their view.

The CCID is under China’s Ministry of Industry and Information Technology, a state agency of the People’s Republic of China.

China’s Communist Party has even released a book titled “Blockchain — A Guide for Officials”.

Not only is the Communist Party expecting state officials to be studying the book and understand blockchain, but one of the cabinet-level ministries is working on a blockchain standardization for the tech’s development in the country.

There is no one in a western government doing anything similar to this, and at this point, the chances of catching up are slim.

To put this race into scale, the current total market capitalization for the five largest internet based stocks in the U.S. are: Facebook ($470B), Amazon ($934B), Apple ($1.05T), Netflix ($157B), and Google ($813B).

Widely referred to as the FAANG stocks with a total market cap of $3.404 trillion U.S. dollars.

When the Chinese State TV is broadcasting to the country that blockchain will be worth 10x what the internet is worth, China believes the prize money for the country who can win the blockchain race and dominate this new frontier is at least $34 trillion U.S. dollars.

China believes blockchain will be worth more than the entire U.S. Stock market which is $30 trillion.

Wait a second.

How is a Chinese Mayor running around Shenzhen with his “Blockchain Guide for Officials” and building a deep water port on the coast of Pakistan so ships don’t have to go through a strait named Malacca going to make blockchain more valuable than the entire U.S. stock market?

It comes down to two factors. Adoption and network effect.

Adoption

China is about four to five years ahead of the West in mobile pay. Everyone uses their phones. No one uses cash or credit cards.

This is mostly due to the fact that credit cards never took off. When you’re sitting in Din Tai Fung eating some of the best dumplings you ever had in your life in Beijing, you just scan the QR code and pay with your phone.

Wall Street Journal video showing how widespread and easy mobile pay is in China.

For comparison, China does $9 trillion per year in mobile pay, compared to $112 billion in the United States.

So for China, as more blockchain comes online, the user interface isn’t going to change. They are already used to scanning QR codes and paying with their phone.

Network Effect

The most common way to value network effect is through Metcalfe’s Law.

In fact, Wall Street analysts use Metcalfe’s Law to value the FAANG stocks.

Essentially Metcalfe’s Law says that for every person who is added to a network the increase in value isn’t by one person, but exponentially by the number of interactions that one person can have with others on the network.

Now, we’re talking about China using blockchain along the One Belt One Road Initiative and connecting 69 countries through economic corridors, totaling 40% of the worlds GDP with trade from three continents.

And before it even starts, China is already at $9 trillion on mobile pay.

Thinking about the network value exponential increase, I don’t think I can accurately comprehend the exponential value increase that blockchain is going to provide when multiplied by the number of people along the One Belt One Road Initiative, all using blockchain.

It would only take a bit over a 300% increase to equal the U.S. stock market, and considering bitcoin has gone up over 80,000% using the network effect in the last seven years from 2011–2018, I would consider 300% easily doable by 2049.

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The Future — Shoes from Africa through Pakistan to Europe and Asia along the OBOR

A Chinese entrepreneur opens factories in eastern Africa where they make shoes for popular brands.

As a way to pre-clear customs on arrival in the deep water port of Gwadar, Pakistan, the entry point to the OBOR, as well as prove the authenticity of the shoes, a blockchain based NFC chip is installed in the shoes, and a different one on the container once inspected and sealed at the factory in Ethiopia. This helps cut down on the $400 billion per year business of counterfeiting and streamline customs and shipping.

The QR code is scanned on the container upon arrival — tracking data, import taxes all automatically captured.

The container is then loaded on a truck, leaving the port and entering onto the OBOR, in route either to Europe or to Asia.

As the truck enters the OBOR, the truck passes under a sensor which records the truck number, time, date, location, insurance and registration data as well as the container data and drivers data — all recorded to the blockchain which cannot be tampered with, altered, or destroyed.

Every time the truck passes through a new country, same thing, blockchain sensor records the information and tolls are automatically paid. If the NFC chip is tampered with, the code doesn’t work and the truck will be stopped for inspection.

Along the economic corridor, as the driver stops for fuel and food at Chinese trade alliance built facilities, all transactions are paid for through mobile pay Chinese blockchain apps developed by private companies through cooperation with the Chinese government.

The Middle Kingdom Returns

If China wins the blockchain race and is successful with implementing it within the One Belt One Road Initiative, the money Chinese companies will make across the OBOR through the network effect will be immense.

The geopolitical risk the Chinese government will mitigate for essentially pennies on the dollar by building the OBOR and bypassing the Strait of Malacca means political survival for the Communist Party while mitigating the threat posed by the U.S. Navy and allies.

The increased prosperity within China, as well as the geopolitical influence along the OBOR and throughout the world will be unlike anything seen in the last 500 years.

And going back to President Xi’s original comment,

“A new generation of technology represented by artificial intelligence, quantum information, mobile communications, internet of things and blockchain is accelerating breakthrough applications.”

It shows he is already thinking along these lines of what blockchain can accomplish as he pushes forward on the geopolitical and technological fronts to secure a better future for China.

Seeing parts of the old Silk Road was pretty cool. Maybe I’ll get a shot to ride along the 21st century version some day when China turns the clock back 500 years.

Stay frosty out there. — Radigan

 

Filed Under: Market Analysis, News

Bitcoin Part 1: Stores of Value

October 24, 2018 by Radigan Carter

The 4,600 year old Meroe Pyramids from the Kingdom of Kush in the eastern Sahara desert, Sudan. A store of value hasn’t changed much since then in parts of Africa. Bitcoin is changing that. Picture is mine.

The unbanked is really just a polite word for the oppressed.

There is an important but overlooked difference in how a store of value is viewed from the perspective of the unbanked versus from the relative safety of a western republic.

This disparity in how a store of value is viewed will drive the value and demand of bitcoin going forward in the future as the oppressed will see the value in bitcoin — regardless of what regulatory bodies or investors decide in first world societies.

For the BILLIONS of people who are unbanked in the world, they have only another day of trying to survive to look forward to tomorrow.

Another day of trying to meet the two lowest levels in Maslow’s hierarchy of needs for themselves and their families.

Bitcoin provides the best way to store value in case they have to flee from armed conflict in their own country, their government hyperinflates their savings away, or criminals and corrupt government officials try to steal their wealth.

Those are the measurements the oppressed use when evaluating a store of value — not whether the price dropped against the US dollar for the last eight months.

The hard reality for the unbanked and oppressed

Two trucks raced by me into oncoming traffic, the Special Police insignia of the hand and all seeing eye unmistakably emblazoned on their doors as the midnight blue 2-ton trucks careened back into the lane ahead of me.

In the shadows of the back of the truck, hard men with grim faces in blue camouflage and full riot kit held on, swaying back and forth.

Brake lights suddenly at the next intersection.

Damn it. Another riot.

Braking hard and moving to the right as a wave of blue and black camouflage started pouring out of the trucks, getting online facing the protestors who were to the left down the side street.

I was just trying to get to the grocery store and pick up a whole beef tenderloin from Hamid, the butcher at my local supermarket. Was hosting a dinner party tonight at my villa.

Dodging a riot on the way to the grocery store. Just a normal Friday in Khartoum.

It didn’t even feel out of place anymore. The surreal part was living this way just felt normal now.

Through the intersection to the left, past the police line formed up now like Spartans at Thermopylae with their shields overlapping, I glimpsed a large crowd swirling around a gas station with a line of cars stretching further than I could see, at least 300 meters, dusty from waiting for days to get gas.

Fuel shortages, rising inflation, and basic food items increasing over 100% in price overnight had resulted in injuries, deaths, and mass arrests of people as the riots and protests continued the last few months.

Political opposition leaders had started being kidnapped off the street in broad daylight by the Secret Police.

The Secret Police would tell their families to never ask questions or talk about it. If they did, their loved ones would suffer even worse.

This wasn’t the west. Or even Dubai for that matter.

Shooting protestors in the head, firing indiscriminately into an unarmed crowd of protestors, even flooding protestors with 10,000 gallons of raw sewage to disperse the crowd.

Firing 40mm tear gas grenades directly into mosques while people were praying because the Imam was speaking out against the terrible effects on the poor of the city from the 100% inflation in bread prices.

Using 2-ton police trucks to plow through protestors, like a game of human demolition derby, as they crushed protestors to disperse crowds.

All of that was done here — and the people kept protesting.

Level 1,000 kind of courage.

The protests and social media were now calling for ousting President Bashir completely.

When that happened, the regime brought an entire battalion of the hated and feared Border Guards militia into the capital — over 1,000 men in 250 brown camouflaged hilux pickups with technicals (large anti-aircraft machine guns)mounted in the bed of the trucks.

A few of the Sudanese I worked with actually left the country with their families, fleeing to Egypt, after that long convoy drove in from the desert.

army

Khartoum Special Police. When they got on line, it’s about to go down — those sticks ain’t for walking.

The Border Guards militia used to be Janjaweed, responsible for almost half a million people killed in the Darfur genocide.

How in the middle of a fuel shortage and inflation crisis could the regime still have battalions of militia fully outfitted and loyal to the regime?

With the migration crisis in recent years, the EU has given over $200 million in migration-related funds to the regime in Khartoum to help stem the flow of migrants through Sudan to Libya and then onward to Europe.

The sad and terrible truth is the corrupt regime takes those funds intended to help refugees, takes their personal cut, and funnels the remaining funds to militias like the Border Guards for additional equipment, training, and money for them to stay loyal and continue torturing, extorting, raping, killing, and selling people to Libyan slave traders.

This policy by the regime also applies to ISIS.

As long as ISIS doesn’t do anything to attract any unnecessary attention from western powers to disrupt the flow of money from the EU or bring US sanctions back, they are left alone to freely transit Sudan to Libya or Egypt because terrorism and unrest in the region is good for business in the regime.

Why?

If the Sudanese regime actually stopped those who perpetrated the violence which led to migration in the first place of the oppressed and unbanked, then the money flowing in from the EU to the regime in Khartoum to help refugees and stem the flow of migrants to the EU would stop.

By ensuring the violence continues, the regime in Sudan insures they will always receive more money from the EU to stop the violence.

This isn’t unique to Africa or the Sudan. Very similar economics of violence in the governments of Afghanistan and even in Pakistan to an extent.

Pretty sickening seeing how this works first hand, isn’t it?

This is the world the unbanked and oppressed live in every day, and the environment which shapes how they view a store of value.

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Rams guarding the temple of Amun in Naqa, one of the capital cities from the Kingdom of Kush in the 4th century BC. Take a right off the highway about an hour north of Khartoum, drive through the desert — no roads, just GPS coordinates for 40 minutes — and all of a sudden, these ruins are sitting there, in the middle of nowhere in the desert. Not another living soul out there. It’s an absolutely amazing site. Picture is mine.

4,600 Years Old and a Store of Value is the Same

Africa is amazing. From the hand carved churches in Lalibela, Ethiopia, and ruins of the Kingdom of Kush in Sudan, to the Skeleton Coast of Namibia.

Most Africans are incredibly kind people.

I had a flat tire on a dark street in Khartoum one night. Most of the street lights don’t work, so it’s usually pitch black, even in the middle of the capital.

A hilux pickup pulls up behind me shining their lights so I could see what I was doing. Turns out it was three Sudanese mechanics from the tire shop down the road. They saw me breakdown, stopped cooking their dinner, loaded up their shop jacks, and came to help.

Just a lot of good people, trying to do the best they can in pretty rough conditions under a totalitarian regime.

In Africa it is still common to use real estate and gold for a store of value.

Just like it was when the Black Pharaohs of the Kingdom of Kush set the first block in the picture above for the temple of Amun in Naqa, 400 BC.

Or as he was more commonly known in Egypt, Amun-Ra, the sun god.

Think about that.

From Pharaohs to Facebook. For 25 centuries — 2,500 years — a store of value has not changed in this part of the world.

The demand for gold is still significant on the continent, with nearly 28 metric tons of gold for jewelry in Egypt alone, and the South African Kruggerand is still one of the most popular and recognized gold bullion coins overseas.

Land is also still widely considered a store of value in Africa.

The unfinished buildings in the photo below where I’m talking to the Gulf War veterans were common throughout Khartoum.

Families would pool income for years, building houses as they could afford the construction.

The thought process behind it was the government could not inflate away construction like savings in a bank account, and soldiers or criminals couldn’t take the foundation of an unfinished house away at the barrel of a rifle like they could their car or other valuables.

Only problem, if a family had to flee armed conflict, they abandoned their life savings in their house, which now had little to no value in an unsafe conflict zone.

The oppressed firmly understand what a store of value is on a continent where inflation and corruption are real problems in every day life.

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Talking with Sudanese veterans of the first Gulf War. Prime example for bitcoin and a blockchain store of value. They lost everything leaving Iraq and the government of Sudan will not help them. The Secret Police and Riot Police are out of frame but there. I was trying to convince them to leave — I didn’t want to see old veterans getting beat by the Police cause it embarrassed the Regime to have veterans begging America for help. Really felt bad for these guys. Picture is mine.

The people who need bitcoin the most don’t care about blockchain or peer to peer digital currency.

Wait, what?

Let me explain.

Sudan, and to a larger extent, Africa, desperately needs a store of value that is safer and more portable.

One that is harder to be stolen by criminals, inflated away by the government, or confiscated by corrupt officials in times of conflict.

Bitcoin fills these needs perfectly. Better than property, gold, or US dollars.

The people who need bitcoin the most — whether that is in Sudan, Zimbabwe, or the Democratic Republic of Congo (DRC) — spans a continent larger than the US, China, India, and most of the EU combined.

Expecting a person in one of these places that desperately needs a portable store of value to understand scarcity, proof of work mining, decentralized public ledgers, and the difference between a store of value, peer to peer digital currencies, security tokens, and utility tokens is absolutely ridiculous.

That is like expecting someone to understand the SWIFT banking network, fractional reserve banking, the treasury yield curve, and the last 70 years of geopolitical strategy which has ensured the US dollar as the world reserve currency before they trade Sudanese pounds for US dollars on the black market.

Great if they do, but most people don’t. They just know the dollar holds its value better in times of uncertainty in their country.

They know as they continue to try and just meet their families daily needs amidst chaos, or flee conflict, they stand a better chance of not being left destitute if they have US dollars.

Similarly, we are entering a time where bitcoin as an emerging asset class will start to be accepted as a store of value at face value just like the US dollar.

And just like the U.S. dollar was before it, for the people that need it most, they won’t be able to explain why the system works, they’ll just know it does work and they didn’t lose everything.

And there’ s nothing wrong with that.

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Driving at 8am through a haboob (sandstorm) blowing in from the Sahara in Khartoum. Picture is mine.

For Africa, a lot of places are 100% cash based with the US dollar being dominant — especially where cut-off from SWIFT banking relationships and they only have the black market for buying US dollars.

But technology is changing this, unleashing a Pandora’s box on corrupt governments throughout the continent as people no longer have to rely solely on US dollars through the black market, gold, or property as stores of value.

Mobile payments was the first step. Governments can no longer marginalize and oppress people by shutting them out of traditional banking infrastructure or put restrictions on assets held in their accounts.

SWIFT recently noted the impact mobile payment has in African Payments: Insights into African transaction flow.

Since 2014, SWIFT notes the percentage of Sub-Saharan Africans using mobile payments has doubled to 21%, while the amount of traditional financial accounts in Sub-Saharan Africa has not changed.

The paper also noted 200,000 households emerged from extreme poverty in Kenya after the mobile money service M-Pesa became available to them.

Why is that significant?

Sub-Saharan Africa currently has the lowest savings rate in the developing world according to the UN at 18%.

Think about it this way, for all the decades of humanitarian aid to the continent in various forms through governments and the UN, the ability for people to save their earnings, start businesses, and accumulate wealth was still the lowest in the world at 18%.

Mobile payments started from zero, and in only four year has more than doubled, now beating traditional savings in Sub-Saharan Africa at 21%.

Mobile payments was the tool the oppressed and unbanked needed to directly surpass traditional banks in the region and regain some control over their own lives. They did this in only four years.

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The Old Way — From African Payments: Insights into African transaction flow

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The New Way — From CNN

Bitcoin — Starving Corrupt Regimes of Income

In the illustrations above, it is striking that currently utilizing traditional banking infrastructure, payments from Africa to China must still go from an African bank, through a US institution, then to a Chinese bank for business transactions.

Similarly, any aid which is sent to Africa from the US, EU, or other programs must go through a government and bank in Africa.

Bitcoin and blockchain changes all that.

In the future, nothing will prevent the UNHCR (UN High Commissioner on Refugees) from registering refugees with their own cryptocurrency wallet and aid organizations sending funds directly to refugees if they desire.

No more funding being redirected by corrupt officials.

No more feeding militias or terrorist organizations, enabling the very evil which aid organizations try to stop.

Just bitcoin and blockchain starving these evil organizations from their main source of funding — the exploitation of human beings.

Sure, sounds great, who doesn’t want to save the world, but can we really expect refugees to understand how this works?

They already do.

Mobile payment in Africa is not only paving the way for adoption, but already proves the model in the free market by overtaking traditional savings through banks in only four years.

M-Pesa already serves over 32 million customers in Africa with US$1.713 billion transferred on the network in 2017.

BitPesa, using the bitcoin blockchain, is another step beyond that entirely.

Now, an African business can transfer funds from their bank account to Bitcoin in BitPesa from the Democratic Republic of Congo to pay a Chinese supplier for parts.

BitPesa then convert the bitcoin to Chinese Yuan and deposit to the supplier’s account.

In addition, the UN is already seeing evidence of Africans turning to bitcoin for savings. Referencing Zimbabwe’s inflation in 2015, the UN estimates there will be 725 million mobile phone subscribers in Africa by 2020.

32 million customers at US $1.713 billion using M-Pesa to 725 million mobile subscribers in two years.

Saying that sentence out loud is the sound of freedom and self-determination for the oppressed.

What about Bitcoin price volatility?

As a store of value for the oppressed, bitcoin’s volatility is a non-issue.

Whoa, what?

It’s true. What they really value is portability and the ability to hide in plain sight when it comes transiting with their life savings.

BTC currently having a higher return (+35.70% BTCUSD for last year) than either gold or the US dollar is just a bonus.

Bitcoin is the best solution on the planet to meet the demand of portability and hiding in plain sight.

Before bitcoin, holding their savings in US dollars or gold was as good as it got for portable wealth.

Gold and US dollars still ran the risk of being stolen at checkpoints in transit, and is hard to disguise any serious amount of life savings.

But people still risked it.

Given the choice, people always choose what gives them the most value to protect their family, even if there is a risk.

What about property?

The other option for saving wealth is pouring a foundation of a house a person couldn’t afford to finish for another four years.

Just so the corrupt government couldn’t inflate their savings away through terrible and unstable monetary policy.

Knowing full well it was entirely possible they may have to flee from an armed conflict with their family before then, leaving the unfinished house and their entire life savings behind.

Which would you prefer if you were living in this situation?

The Final Reason — BTC Still Worth More Than Local Currency

The Sudanese pound inflated over 465% in less than a year to the US dollar on the black market when I was there, going from 8:1 to 52:1 in 2018.

The price of bread literally doubled overnight one weekend, from Thursday night to Friday morning.

They lost over 85% of their purchasing power in less than year. What cost 8 Sudanese pounds now costed 52 because all imports are priced in US dollars.

Then the government started restricting bank withdrawals and publicly beating currency exchangers who were dealing in US dollars.

People withdrew what savings they could and bought US dollars, holding them in secret at home.

Knowing the daily inflation rates, where to buy US dollars on the black market, the cost of cooking gas just to be able to eat — all just daily life in Khartoum.

And Khartoum was considered nice and safe by comparison to other places on the continent.

For the oppressed in the world, an 85% drop in price on BTC is going to be inline or even much less to the hyperinflation that will be happening around them in a country which is truly in trouble.

When the economy and country is in shambles, having a private key written down somewhere on their person to a BTC wallet will be the lightest, most secure method of traveling to get to safety with their life savings available to them — all while looking like they have nothing of value to steal.

For the people that live this everyday — they know that.

The corruption and friction points in banking that the oppressed and unbanked currently have to deal with are driving bitcoin adoption as a store of value faster than in western markets where people can depend on their currency being stable, peace, and prosperity.

After 4,600 years the world finally has a better store of value for the oppressed than property, gold, or a reserve fiat currency.

The oppressed are getting theirs. I got some as well. Hope you consider getting some, too.

Next up, Bitcoin Part 2: The Not So Distant Future

Until then, I’ll be grilling in the backyard, drinking bourbon, and missing the sound of gunfire in the distance. — Radigan

 

Filed Under: Bitcoin News, News

China & Blockchain Part 2 : The World’s Most Undervalued Market

October 24, 2018 by Radigan Carter

Imagine if Facebook, Amazon, Apple, and Google had just gone public. You were a programmer building the platform — but you couldn’t own any shares.

That is exactly what is happening in China today.

Mr. David Li, the founder of Trinity recently explained on an AMA an interesting difference on how blockchain projects are valued between China and the West.

“For the Chinese who are working on blockchain projects, the price of the underlying project means nothing to them — since they can’t own it. They are focused solely on the tech.”

Thinking about the significance of that statement, I looked at the current daily trading volume for bitcoin to Chinese Yuan (BTCCNY).

The Chinese Yuan accounted for only 0.79% in daily trade volume to bitcoin.

Interesting.

When was the last time the Chinese public had a straight forward onramp from Yuan to bitcoin anyway?

December 2013. Almost 5 years ago.

China stopped mainstream financial institutions on the mainland from dealing with bitcoin in December 2013, when the overall market cap for all cryptocurrencies was only $15.7 billion U.S.

 

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Logarithmic chart from 2013 to Present — Total Cryptocurrency Market Cap

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Closer look at May 2013 to December 2013 market capitalization

The last time there was direct Chinese participation, the total market capitalization went up 881% in 6 months.

Since then, almost 5 years, the market has risen 1310% without the Chinese having a direct path to market participation.

That is a lot of pent up demand.

Imagine working in Shenzhen, seeing the market go up over 1300% while you are programming a blockchain project — and you can’t legally own any of it.

But that still doesn’t paint the entire picture.

The other part to remember is the difference in projects which made up the market in December 2013 at $15.7 billion compared to today, at $221 billion.

It’s a different world.

Here are the Top 25 cryptocurrencies by market cap in December 2013. I pulled this off archived pages from www.coinmarketcap.com

map 2

Some of these projects no longer exist from five years ago.

Today is a very different picture where the projects in scale and function go well beyond the scope of most projects in the Top 25 in 2013.

In fact, just the four Chinese projects below in today’s Top 25 by market cap would have equaled 44% of the entire market capitalization of all blockchain projects in 2013.

#13 Tron — $1.4 billion

#14 NEO — $1.2 billion

#16 Binance — $1.1 billion

#19 VeChain — $719 million

With China not having a direct route to cryptocurrency markets and western institutional investors not in the Chinese blockchain space yet, these current valuations are based mostly on western individual buyers.

The next questions then are:

If China has no direct route to buy any of the projects they are currently working on, are they really even accurately valued at current prices?

Would China want their projects to be accurately valued before the Chinese had a chance to buy their own projects?

How is it possible to gauge current western institutional involvement in the Chinese blockchain space?

The impact on the value of Chinese projects when the People’s Bank of China (PBoC) has their own cryptocurrency in place.

Yesterday, it was reported “Bank of Communications (BoCom) a Chinese state-owned commerical bank has issued RMB9.3 billion (US $1.3 billion) of residential mortgage backed securities (RMBS) through its proprietary blockchain network, Jucai Chain.”

China is getting closer to issuing a Chinese sovereign cryptocurrency. That day is coming.

President XI is calling blockchain a breakthrough technology, the PBoC have filed for 41 blockchain patents this year, and China State Television say blockchain will be worth 10x more than the internet, estimated at $34 Trillion U.S. dollars.

The Digital Currency Research Lab (DCRL), the research wing of the People’s Bank of China, is the organization furiously filing blockchain patents.

From a report in November 2017, the DCRL said:

“ — it’s inevitable for the central bank to launch its own digital currency to upscale the existing circulation of the fiat currency.”

When that happens, we will see China reopen exchanges on the mainland.

But it won’t be a bitcoin to Chinese Yuan pair.

It will be a — for lack of a better term —a CryptoYuan, paired not just to bitcoin, but to most other Chinese blockchain projects as well.

Similar in function to tether pairings currently, but fully backed by the PBoC and stable in value to the Yuan.

Where Chinese can transfer CryptoYuan direct from their bank accounts to an exchange and buy projects through the direct pairing.

In essence, the Chinese government is signaling their intent of competing directly with stable coins like Tether and cutting out BTC completely as a reserve cryptocurrency, all while maintaining control of their own money supply.

By launching a CryptoYuan, controlled by the People’s Bank of China, this will align the interests of the government, banks, and people simultaneously.

It will give the Chinese government the taxing mechanism that they need through financial transaction transparency. They will not be relying on people to self report like what is currently happening in the West.

Think of it like a 1099 from a brokerage account. The person gets a copy for their records, as does the taxing authority for the Chinese government, but it’s on the blockchain and immutable.

Also, this will not be unique to the Chinese government. The West will eventually follow as taxation through transaction transparency is a driving factor for countries with record low, or negative interest rates as they all seek maximum tax revenues available.

It is the reason the Common Reporting Standard (CRS) has been adopted by most major economies in the world through the Organization for Economic Co-operation and Development (OECD) to determine which country has taxing jurisdiction over assets without relying on the owner to self report.

A Chinese sovereign currency will also give the Chinese banks a secured place in the new Chinese blockchain future. The banks will be running the nodes for the blockchain, tracking the transactions from CrpytoYuan to digital assets and back in all accounts.

Notice how you never hear so much as one Chinese banker ever say a bad word about blockchain?

Compare that to the West, where every week it seems like a different banker is on CNBC espousing his personal views on why blockchain will never work and cryptocurrencies are a terrible idea.

Not in China.

The only person that occasionally speaks is the PBoC Director and when he does, all he says about blockchain is “the blockchain belongs to the public and serves the public interest.”

And he calls bitcoin “inspiring”, saying it gives “ordinary people (the) freedom to participate.”

The PBoC sets the tone for the entire financial sector in China.

The silence from the rest of the bankers in China is deafening.

They know their government is putting the pieces in place for their entire country to participate and they will play a key role. They don’t have to say anything.

A sovereign cryptocurrency will give the Chinese people a direct link to their bank accounts to buy blockchain projects.

We will see what the final product looks like when it launches, but if it is what the government is hinting at, China will actually have a more frictionless way to buy blockchain projects and cryptocurrencies than the West.

The Western Disconnect in the Way Chinese Blockchain Projects are Viewed

Global Coin Research recently wrote a fascinating article describing the difference in mindset between Chinese market participants vs western market participants.

Market participants in China know there are bad actors and fraud to watch out for in all markets, cryptocurrencies and blockchain included.

For most western investors, blockchain and cryptocurrencies are their first taste of what an unregulated market feels like.

For individual investors in the blockchain space, we willingly accept this is the digital frontier and know there is no safety out here.

Win or lose, it is completely on us.

There is no regulatory body coming to save us. No bank to call when we send funds to the wrong address on the blockchain or lose a private key.

But for institutional investors, all of that sound terrible, and being comfortable with it completely insane.

In the last two to three years we have seen institutional money start to make forays into the western blockchain space.

But it has been completely safe expeditions.

A long only bitcoin fund.

Possibly buying tokens at steep discounts before the project launches to the public.

Buying a percentage of platforms or exchanges with known entities from previous deals in traditional markets.

Why?

Think about the makeup of the investors who are in these institutional funds. The smallest Limited Partner (LP) allowed in these funds are Accredited Investors who have $1 million liquid net worth. There are different opportunities and rules when these investors hit the $5 million and $10 million mark depending on the fund.

The average age of a millionaire in the U.S. is 59 years old, almost perfectly in the middle of the baby boomer generation in America which is the massive aging population born between 1946–1964.

Talk to most baby boomers. What do they have to say about bitcoin, let alone the blockchain or other cryptocurrency projects?

How about investing in China?

If they have an opinion, far and wide, it is mostly negative on both accounts.

This mindset is what institutional Fund Managers are up against when they bring blockchain deals to their LP’s to invest in.

Chinese markets and Cryptocurrencies combine their clients worst fears.

If the millionaire baby boomer isn’t comfortable with the deal, they won’t invest. If they don’t invest, the fund doesn’t make money.

So the fund managers have stayed with the majority of western projects and traditional type venture investing in the space so far in order to close deals and keep the funds viable.

This is the greatest strategic advantage to the individual investor currently available, but will not last forever.

Eventually the fund managers will have the right connections in China to convince their baby boomer clients to invest in Chinese blockchain deals.

Just look at Global Coin Research’s twitter followers. Venture Capitalists and Institutional Investors reading the same research individual investors are — all looking for an edge in news which is not usually translated to english.

This is not by accident.

China is the only level playing field currently for western individual investors competing at the same price point as institutional investors for projects — for now.

The Dragon Awakens

There is a lot of action currently behind the scenes in the West as institutions prepare custody solutions to allow institutional money from endowments, hedge funds, state pension funds, etc. to join us brave privateers that beat them to this New World of cryptocurrency and blockchain.

Bakkt even announced yesterday their first contracts for BTC in November will be a one to one ratio.

All this is bullish.

But the real news has not been announced yet.

China launching the first sovereign cryptocurrency in the world and reopens exchanges so their country can participate.

When that happens we’ll see how high this dragon can go with five years of pent up demand and the largest middle class in the world reentering the cryptocurrency market.

And this time, it will be with the full support of the Chinese government.

Combine that with institutional money eventually flowing into Chinese blockchain projects and we’ll see Chinese projects accurately valued for the first time since they launched.

We will also see if this is when the West wakes up to the fact they are losing the blockchain race.

Whether China launching the CryptoYuan and reopening exchanges is the 21st century Sputnik moment the West needs to spur them into action remains to be seen.

None of this is financial advice. I only know I cannot accurately value any Chinese projects until the PBoC Director lets China participate again.

See you there. — Radigan

Filed Under: Market Analysis

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