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Luiz Inácio Lula da Silva wins Brazil's presidential race — what does this mean for crypto?

Luiz Inácio Lula da Silva wins Brazil's presidential race — what does this mean for crypto?

The future president reportedly said that cryptocurrencies “deserved the attention of authorities,” calling for Brazil’s central bank to create a framework for digital assets.

In a close race with outgoing Brazilian President Jair Bolsonaro, Luiz Inácio Lula da Silva, also known simply as ‘Lula,’ won the country’s presidential election following a run-off race.

According to data from Tribunal Superior Eleitoral, Lula defeated Bolsonaro in an Oct. 30 run-off election with 50.9% of the vote — roughly 60.3 million people to the soon-to-be former president’s 58.2 million. Though the election outcome showed Lula has the right to take office starting in January 2023, reports have suggested that Bolsonaro may intend to challenge the results.

Lula, who also served as the president of Brazil from 2003 to 2010, reportedly said in October that cryptocurrencies “deserved the attention of authorities,” calling for the country’s central bank to create a framework for digital assets aligned with international standards on anti-money laundering and illicit practices. He is also allied with former central bank president Henrique Meirelles, who took an advisory role at crypto exchange Binance in September but reportedly may be considering a position in Lula’s government.

During his presidential campaign, Lula announced his plan for Brazil’s government had been registered on the Decred blockchain as an example of “an innovative and incorruptible technology of records distributed by computers around the world that is also behind Bitcoin.” However, the future president has largely not publicly spoken on crypto and blockchain.

Related: Brazil’s Rio de Janeiro will accept crypto-payments for property taxes

Cointelegraph reported that more than 12,000 Brazil-based companies held crypto as of August, suggesting that digital assets may play a larger role in the country’s economy in the future. Some lawmakers have also proposed bills aimed at making crypto payments legal in Brazil.



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BTC price sees 'double top' before FOMC — 5 things to know in Bitcoin this week

BTC price sees 'double top' before FOMC — 5 things to know in Bitcoin this week

Concerns that Bitcoin may have already topped come as volatility is expected around the Fed rate hike decision and comments.

Bitcoin (BTC) begins a key week of internal and macroeconomic events still trading above $20,000.

After its highest weekly close since mid-September, BTC/USD remains tied to higher levels within a macro trading range.

Bulls have been keen to shift the trend entirely, while warnings from more conservative market participants continue to call for macro lows to enter next.

So far, a tug-of-war between the two parties is what has characterized BTC price action, and any internal or external triggers have only had a temporary effect. What could change that?

The first week of November contains a key event which has the potential to shape price behavior going forward — a decision by the United States Federal Reserve on interest rate hikes.

In addition to other macroeconomic data, this will form the backdrop to overall market sentiment beyond crypto.

Bitcoin will further see a monthly close during the week, this apt to spark last-minute volatility despite October 2022 being one of the quietest on record.

Cointelegraph takes a look at these and several other factors impacting BTC/USD in the coming days.

FOMC countdown enters final days

The headline story of the week comes courtesy of the Fed and the meeting of its Federal Open Market Committee (FOMC).

On Nov. 1-2, officials will make a decision on the November benchmark interest rate hike, this overwhelmingly priced in at 0.75%.

While this will match the Fed’s previous two hikes in September and July, respectively, markets will be watching for something else — subtle hints of a change in quantitative tightening (QT).

The rates decision is due Wednesday at 2pm Eastern time, along with an accompanying statement and economic projections.

Fed Chair Jerome Powell will then deliver a speech at 2:30pm, this completing the backdrop to market reactions.

As Cointelegraph reported, there is already talk that subsequent rate hikes will begin to trend towards neutral, marking the end of an aggressive policy enacted almost a year ago.

For Bitcoin and risk assets in general, this could ultimately provide some serious fuel for growth as conditions loosen.

Looking at the short term, however, commentators expect a standard reaction to the upcoming FOMC announcement.

“Think we see a little pullback this week which is pretty typical when the FED will be announcing rates,” popular trading account IncomeSharks summarized to Twitter followers.

“4h showing a double top and downtrend break.”

An accompanying chart showed the expected retracement to be followed by more potential upside going forward.

BTC/USD annotated chart. Source: IncomeSharks/ Twitter

An alternative perspective came from analyst Kevin Svenson this weekend, who warned that with inflation expectations “increasing,” there was little reason to hope for a rate hike decrease in the near future.

“Every time the Stock Market rallied up in this current downtrend, it did so with the expectation of a FED pivot,” he noted.

“Inflation expectations increasing recently making a FED pivot less likely. The trend is ur friend? If so, Stocks find another lower high after FOMC.”

Svenson continued that should the Fed surprise with a lower hike than 0.75%, bullish momentum should “take over.”

“Obviously, this could be wrong if the FED does a "soft pivot" and goes for 50 basis points,” he added.

“If that occurs, the market would get excited and bullish speculation would take over for the time being.”

According to CME Group’s FedWatch Tool, the chances of a lower hike than 0.75% are currently 19%.

Fed target rate probabilities chart. Source: CME Group

In a summary of the FOMC event, popular analyst @Tedtalksmacro meanwhile drew similarities with Svenson’s take.

“There’s lots of talk about a ‘pivot’ or that ‘the Fed are breaking things and need to stop hiking.’ But, the data says otherwise and points to nothing other than hawkishness again this week,” it said.

"Clear double top" sparks BTC downside talk

Bitcoin managed to avoid major volatility as it closed the weekly candle at around $20,625 on Bitstamp, data from Cointelegraph Markets Pro and TradingView confirms.

That in itself was noteworthy, marking the highest weekly candle close in six weeks for BTC/USD.

BTC/USD 1-week candle chart (Bitstamp). Source: TradingView

The daily chart meanwhile retains the 100-day moving average as current resistance.

BTC/USD 1-day candle chart (Bitstamp) with 100MA. Source: TradingView

Nonetheless, the long-established trading range the pair has acted in for months on end remains firmly in place, and even last week’s push higher failed to produce a significant paradigm shift.

For analyst Mark Cullen, it is thus a question of “wait and see” when it comes to Bitcoin’s next move.

In fresh analysis on Oct. 31, he noted BTC/USD had returned to a familiar Fibonacci level based on last week’s upside while continuing to range.

“Bitcoin pulled back to the 20.4k level at the 61.8 of the last push up & has held it so far,” he explained.

“With the FOMC meeting this week, i wonder if BTC just range between here & 21k until a catalyst pushes it in one direction or the other. Levels are clear, sit & wait.”

Tedtalksmacro drew a similar conclusion on macro markets in general — they expect the “same old hawkishness” from the Fed, and thus even FOMC delivering no surprises should be enough for last week’s bullish tone to continue.

“Nothing new is bullish — as the market seems prepared for all of the hawkishness that we have heard so far,” he concluded.

“Expect volatility this week and if everything goes smoothly, for a really, really hated rally.”

Crypto trader and analyst Il Capo of Crypto meanwhile called the two spikes above $21,000 in recent days a “clear double top” for Bitcoin.

His target of a reversion to downside and new macro lows, possibly coming in at $14,000, remains in force.

BTC/USD annotated chart. Source: Il Capo of Crypto/ Twitter

Too early to bottom

Comparisons between this year and 2018, Bitcoin’s last bear market, are abundant currently — but it may be a case of “too much, too soon.”

In analysis released late last week, on-chain analytics platform CryptoQuant argued that while Bitcoin is putting the pieces of the puzzle in place to bottom out, the market is not there yet.

“Similar to the bottoms in 2015 and 2018-2019, bitcoin prices have been trading in a narrow range (between $18,000 and $20,000 for almost two months),” it began.

“Price volatility has also dropped to one of its lowest levels ever and surged. When price volatility was this low in the past, it typically indicated that the downward trend was about to end. But in 2018, low price volatility was swiftly followed by a 50% price drop from $6.5k to $3.2k in just one month.”

CryptoQuant flagged two important on-chain metrics — MVRV and UTXO Realized Cap — supporting the theory that the next bear market bottom is still a way off.

MVRV divides Bitcoin’s market cap by realized cap, and is “useful,” in the words of popular analyst Willy Woo, for detecting overbought oversold conditions, as well as macro tops and bottoms.

UTXO Realized Cap is the price at which different cohorts of bitcoins were transferred compared to the prior time, giving an insight into profit and loss.

“MVRV and UTXO Realized Cap 6 months and older Age Bands show that the price of bitcoin is in the value range,” CryptoQuant continued.

“However, a reasonable length of time needs to pass before the 1-3 months UTXO Age Band Realized Price is overtaken for a prolonged growth trend. Currently, this level is at $21,264.”

As such, levels above $21,000 need to hold for the trend to change, and so far, that line in the sand has proven impossible to hold for hours, let alone weeks.

“We have seen that market bottoms can be correlated with unusually low volatility in bitcoin prices,” CryptoQuant concluded.

“Nevertheless, many of the on-chain measures we have examined still do not support the conclusion that the price has reached its bottom and is rising.”
Bitcoin UTXO Realized Cap annotated chart (screenshot). Source: CryptoQuant

Supply shock risk highest since 2017

Bitcoin dormant for up to a decade has been on the move recently, but overall, the BTC supply is becoming more and more illiquid.

Fresh data this week provides the latest hint that an increase in buyer interest could spark a considerable supply squeeze and associated price hike.

Highlighting data from on-chain analytics firm Coin Metrics, Jack Neureuter, a researcher at Fidelity Digital Assets, revealed that the percentage of the supply moved in the past year is now at an all-time low.

33.7% of all available BTC has left its wallet since the end of October 2021, this also accounting for the increased volumes around November’s $69,000 all-time high.

“Put another way, 2/3 of $BTC supply hasn’t moved the past 365 days,” Neureuter added in comments.

“Marginal trading drives prices over the short-term, but large imbalances between supply and demand tend to do so in the long-term.”
Bitcoin % supply last moved in past year chart. Source: Jack Neureuter/ Twitter

Separate data from on-chain analytics firm Glassnode meanwhile shows that the chances of a supply shock are rising.

Its Illiquid Supply Shock Ratio metric, which models the phenomenon, has been trending higher throughout 2022, and is currently at levels not seen since Bitcoin’s all-time high from the last halving cycle in 2017.

Bitcoin Illiquid Supply Shock chart. Source: Glassnode

Sentiment hits six-week highs with price

Perhaps unsurprisingly, crypto market sentiment has improved thanks to last week’s price increases.

Related: BNB jumps to new BTC all-time high as Elon Musk's Twitter fuels DOGE bulls

In a sign of how much — or little — it takes to flip sentiment around, the Crypto Fear & Greed Index hit its highest levels in six weeks over the weekend.

Fear & Greed uses a basket of factors to determine how bullish or bearish the mood in crypto is, and whether the market is due for a bounce or correction as a result.

At 34/100, sentiment even managed to escape the “extreme fear” zone, which has become commonplace in 2022.

Crypto Fear & Greed Index (screenshot). Source: Alternative.me

Moreover, data from analytics firm Santiment suggested that long-term holders are planning to hodl through volatility.

“With Bitcoin back above $20.7k, traders appear to be content with long-term holding as coins continue moving away from exchanges,” it wrote in a tweet at the weekend.

Santiment additionally showed that the ratio of the BTC supply on exchanges was now at its lowest since 2018 — the year of the last macro bear market bottom.

“With the ratio of $BTC on exchanges down to 8.3%, it's the lowest seen in 4 years. October has been a big outflow month,” the post stated.

Bitcoin exchange supply annotated chart. Source: Santiment/ Twitter

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



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9 years after the first Bitcoin ATM, there are now 38,804 globally

9 years after the first Bitcoin ATM, there are now 38,804 globally

From one Candian coffee shop to a worldwide network of nearly 39,000, crypto ATMs have turned nine years old and are only expected to continue growing.

On Oct. 29, 2013, a coffee shop in downtown Vancouver, Canada opened what is understood to be the world’s first publicly available Bitcoin (BTC) automatic teller machine (ATM) operated by Robocoin. 

The crypto ATM saw 348 transactions and $100,000 transacted in its first week of operation.

As of Oct. 30, 2022 — nine years and one day on — Robocoin has ceased operations and the first crypto ATM has likely been removed or replaced, but crypto ATMs have continued to increase in number with 38,804 cryptocurrency ATMs in existence today, according to Coin ATM Radar.

The global hub for crypto ATMs has since moved however, with the United States now housing nearly 88% of the world’s supply of crypto ATMs and taking credit for 90% of all newly installed ATMs over the past few months.

In October alone, 129 of the world’s newly installed ATMs were located in the United States out of a total of 205.

Canada, home to the first crypto ATM, has only seen that number creep to 566 after nine years, though it’s still placing in second at 6.6% of the total, as per Coin ATM Radar data.

Meanwhile, Spain became the third-largest crypto ATM hub on Oct. 22 with its 0.6% share across 215 ATMs.

A July report from Research and Markets estimates the crypto ATM space is now valued at $46.4 million, which will grow more than 10 times to  $472 million by 2027, driven by remittances and increased crypto ATM installations.

However, like many crypto-related products, crypto ATM installations have been challenged this year as a result of the crypto bear market.

Crypto ATM installations slowed between January and May before a slight recovery between June and August, but September saw net crypto ATMs drop globally for the first time ever after 459 machines were removed from the global network.

Related: How Bitcoin ATMs in Greece fare during a record-breaking tourist season

Bitcoin is still the most popular cryptocurrency transacted across crypto-enabled ATMs with nearly 100% supporting BTC transactions per Coin ATM Radar. However, other cryptos also appear to be supported across the network.

Litecoin (LTC) is popular with almost 81% of ATMs supporting the crypto, and Ether (ETH) closely follows at almost 74%, Dogecoin (DOGE) sits in fourth place with just under 40% supporting the so-called memecoin.

In early October U.S. authorities warned crypto ATMs were emerging as a popular method for scammers to receive value and defraud victims most often in “pig butchering” scams where the attacker poses as a potential romantic partner, gaining trust and asking the victim to send them money, or in some cases, cryptocurrency.



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Facebook became Meta one year ago: Here's what it’s achieved

Facebook became Meta one year ago: Here's what it’s achieved

The company changed its name on Oct. 28, 2021, reflecting growing ambitions to transcend beyond social media and into Web3 and the Metaverse.

It’s been just over a year since social media giant Facebook rebranded as Meta at the Facebook Connect conference on Oct. 28, 2021.

The name change reflected the company’s growing ambitions to transcend past social media and into the world of Web3, crypto, NFTs, and the Metaverse — virtual worlds where consumers are likely to spend more of their time for both work and play.

The company has been busy.

In December 2021, Meta debuted its Horizon Worlds virtual reality social networking project, while it also opened up advertising for more crypto ads on Facebook.

In April 2022, reports emerged that the company has been considering a digital currency designed for use in the Metaverse internally dubbed as "Zuck Bucks,” though no further updates on the project have been seen since.

In May, the company filed five trademark applications for a payments processing platform with support for cryptocurrencies and digital assets called Meta Pay.

In September 2022, the company announced that 2.9 billion users would have the ability to post digital collectibles and NFTs they own across Facebook and Instagram across 100 countries by linking their wallets.

Meanwhile, on Oct. 11, Meta announced a partnership with tech giant Microsoft to bring a range of Microsoft Office 365 products into Meta’s virtual reality (VR) platform to try and coax other companies to work in virtual environments.

However, the year has not come without its challenges, particularly when it comes to the company's Metaverse ambitions. 

Last week, Altimeter Capital’s CEO and founder called Meta’s $10 billion to $15 billion a year investment into the Metaverse as “super-sized and terrifying.”

Meta’s Q3 report appeared to only solidify these concerns, with the stock price falling 23.6% following its release, while Meta’s virtual reality research and development arm Reality Labs posted an accumulated loss of $9.44 billion so far this year.

Many may also remember Meta’s Eiffel Tower fiasco when an image of Meta CEO Mark Zuckerberg's avatar standing in front of a virtual Eiffel Tower was mocked over lackluster visuals.

Mark Zuckerberg's Metaverse avatar which became an internet meme

Meanwhile, an Oct. 15 report from The Wall Street Journal suggested that the company has slashed its monthly active user goal for Horizon Worlds by more than half, suggesting the company's flagship Metaverse was "falling short."

This backlash was touched on by Zuckerberg during the Q3 earnings call on Oct. 26, noting that “we’re iterating out in the open” and that the social Metaverse platform was still an “early version.”

“It's a kind of a live early product platform, and that's evolving quickly, but obviously has a long way to go before it's going to be what we aspire for it to be,” said the CEO.

Related: FTX CEO dissects Mark Zuckerberg's intent to pump $10B/year into Meta

Nevertheless, the technology giant is continuing to push forward with its foray into Web3 and other projects including artificial intelligence, with Zuckerberg noting on the call that “we’re on the right track with these investments” and the company “should keep investing heavily in these areas.”

The company recently unveiled its latest virtual reality headset, the Meta Quest Pro during an Oct. 11 virtual event; along with the partnership with Microsoft, and a new computer platform from Reality Labs.

“Work in the metaverse is a big theme for Quest Pro. There are 200 million people who get new PCs every year, mostly for work.”

“Our goal for the Quest Pro line over the next several years is to enable more and more of these people to get their work done in virtual and mixed reality, eventually even better than they could on PCs,” said Zuckerberg.

“Between the AI discovery engine, our ads and business messaging platforms, and our future vision for the metaverse, those are three of the areas that we're very focused on,” he added.



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62% of Dogecoin hodlers in profit amid hopes of Twitter integration

62% of Dogecoin hodlers in profit amid hopes of Twitter integration

DOGE price rallied 98.5% in the last seven days following Elon Musk's acquisition of Twitter, pushing the crypto into the eighth position in global crypto rankings.

Tesla CEO and billionaire Elon Musk’s acquisition of Twitter has tipped 62% of Dogecoin (DOGE) investors into profit, amid speculation that Musk’s Twitter-buy will be positive for the meme token.

DOGE’s price rallied on Oct. 26 when billionaire entrepreneur Elon Musk changed his Twitter bio to “Chief of Twit” — the same day he visited Twitter’s San Francisco-based headquarters before officially closing the deal as the new owner on Oct. 28.

In the past seven days, DOGE’s price has surged 98.5% to $0.119 at the time of writing, according to CoinGecko.

This means that as much as 62% of DOGE holders are “Making Money at Current Price” according to data from blockchain intelligence platform IntoTheBlock — which even beats out Bitcoin (BTC) and Ethereum (ETH) hodlers at 54% and 57% respectively.

The events have also triggered DOGE’s market cap to surpass smart contract platforms Cardano and Solana into becoming the 8th largest cryptocurrency in the world with a $16.3 billion market cap, according to CoinGecko.

The link between Musk’s Twitter purchase and DOGE’s massive price surge should come as no surprise as many Dogecoin investors have high hopes for Musk — nicknamed “The Dogefather” — to integrate Dogecoin onto Twitter in some shape or form.

Dogecoin fanatic and crypto blogger Matt Wallace told his 678,400 followers on Oct. 28 that he believes a Dogecoin-integrated Twitter would showcase “what #Dogecoin is capable of.”:

While Dogecoin fan page “Doge Whisperer” speculated that a Dogecoin-based tip system could be implemented for popular tweets:

Even Cardano CEO and founder Charles Hoskinson has weighed in — stating there is now a “real possibility” of Dogecoin integrating on to Twitter:

Hoskinson then went one step further by offering to migrate Dogecoin on to Cardano as a sidechain with embedded smart contract functionality for free.

Related: How Crypto Twitter could change under Musk’s leadership

In Jan. 2022, Tesla began accepting DOGE as a payment method for merchandise purchases, with Musk also hinting at doing the same thing at SpaceX in May. 2022.

The electric vehicle company also began accepting Bitcoin-based payment for its cars in Jan. 2021, despite the CEO taking the view that Dogecoin is “better suited for transactions” in Dec. 2021.



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An introduction to decentralized NFT catalogs

An introduction to decentralized NFT catalogs

After last year’s hype over nonfungible tokens, people have been speculating about their potential. It created a bubble of unfounded expectations.

Over the last year, venture capitalists poured more than $4.6 billion into infrastructure and projects related to nonfungible tokens (NFTs). This infrastructure now needs users. They will come when people understand that they can apply these NFTs not just for speculative purposes but to design and structure their everyday activities. For these, they don’t need NFTs — they need to sort their lives out. And, decentralized catalogs are there to help them do it.

We can think about an NFT as a book someone owns, and this ownership is recorded on the blockchain. But what we’re actually missing is the library.

Not just a flower, but a garden

Multiple NFTs making up a collection form a system. This system has a structure through the standards it uses. If you’ve ever visited CryptoKitties, you’ve probably noticed the museum-like categorization of the Kitties and their attributes in their “catalog.”

A catalog of CryptoKitties

However, each item in the collection means nothing without the collection itself. You can’t take a CryptoKitty out of the original smart contract. You can copy the image or create a fractional version of it, but you will not be able to transfer its value if the derivative version of your CryptoKitty isn’t linked to the original collection. This means that the value of each NFT is not determined by a stand-alone item in the collection but by the collection itself.

In simple words, if we take a step back from each item in almost any NFT collection, we’ll discover that the actual value is not in a single NFT itself but in a perfect system of multiple NFTs bound together by one smart contract. By doing this, we stop staring at a single flower and realize we are in a well-designed garden.

Related: Throw your Bored Apes in the trash

When applying all the standardization approaches and structuring all the data properly, we are creating systematic lists of items publicly stored on the blockchain — decentralized catalogs.

How decentralized cataloging can add new value

Everyone has heard of Guinness World Records, Michelin Guide or IUCN Red List. In a nutshell, they are all extremely valuable catalogs. Behind each of them is a managing authority that invests its brand and expertise in bringing value to every new iteration of the catalog. Even if the rules of adding new items to centralized lists are not transparent or even questioned, this approach is sustainable.

However, the biggest problem these catalogs present is an extremely high barrier to entry for new, valuable lists to enter the market. Through NFT infrastructure and a Web3 mindset, though, we can democratize the process of building valuable catalogs. The difference between a normal list and a decentralized catalog is the potential value it can accumulate.

Related: Get ready for the feds to start indicting NFT traders

When you own a CryptoPunk, you are a co-owner of the CryptoPunks collection. Yes, that CryptoPunk may represent your inner self, but on its own, it’s just a JPEG. As we have already discovered, the value is in the collection itself, and the value is created not only by the expertise that went into designing the character generator but also by the owners of the collection.

By building an economy powered by co-ownership, we can make future-proof and transparent catalog systems. While yet another restaurant list will hardly add something new to society, there are plenty of situations where decentralized cataloging makes sense.

The library

Let’s imagine the most basic use case of decentralized cataloging. You own a collection of books and you want to share these books with someone. You know, however, there’s a good chance that those you lend your books to will never return them. That’s life.

So, you start a very simple process of making a record of each book you’re sharing to the decentralized catalog; only each record is actually an NFT.

The person taking the book decides to use it to put his own books on the catalog and share them with someone else, and that person shares it with their friend, too. In a few years, your book-sharing club will become an internet phenomenon, with more and more people adding books to the catalog.

It’s only a matter of time before big publishers join in as well. Some publishers may start adding newly published books to distribute them through the catalog system you created. As we know about NFT compatibility, it’s clear that all the NFT marketplaces and infrastructure we have today will become handy tools and interfaces that will work right out of the box. No need for additional listing websites, centralized bookstores or payment solutions.

Related: Time to switch from LinkedIn to MetaMask? Not yet, but soon

And it all started with you, who added the first book as an NFT to the shared collection of books.

The same approach is used in Cointelegraph’s Historical NFT Collection. It is a catalog of news from the largest crypto media outlet, and Cointelegraph readers are choosing which news should be added to it.

The real future of the NFT standard is ordinary, and that’s great. We use many ordinary things every day that were overpriced when they entered the market. As production and technology evolved, however, prices dropped and made them available for everyone.

The same thing will happen with NFTs. The only thing we need to do now is stop staring at the tulips and start designing a garden.

Ivan Sokolov is the founder of Mintmade, a project focused on building new asset classes that will power next-gen Web3 businesses.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.



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Tech talent migrates to Web3 as large companies face layoffs

Tech talent migrates to Web3 as large companies face layoffs

Web3 companies continue to hire amidst a bull market as tech giants undergo layoffs and hiring freezes.

As inflation continues to grow, coupled with a looming recession, many tech firms are having to cut portions of their staff. To put this in perspective, data from Layoffs.fyi found that over 700 tech startups have experienced layoffs this year, impacting at least 93,519 employees globally. It has also been reported that tech giants like Google, Netflix and Apple are undergoing massive job cuts. 

While many of these layoffs are likely due to an economic downturn, this has resulted in an overwhelming amount of talent flocking to early-stage Web3 companies. For example, Andrew Masanto, a serial entrepreneur who has founded a number of startups, told Cointelegraph that he recently launched Nillion, a startup specializing in decentralized computation, to help ensure privacy and confidentiality for Web3 platforms.

Although Nillion is still in its early stages, the technological innovation behind the company has already proven to be appealing. Since the company’s inception in October this year, leading talent from companies like Nike, Indiegogo and Coinbase have joined the growing startup.

For instance, Slava Rubin, founder of the crowdfunding website Indiegogo, told Cointelegraph that he had recently joined Nillion as the company’s chief business officer based on the opportunity to join a startup with an innovative business model.

“The tech behind Nillion is massively innovative, as it focuses on advancing secure multiparty computation (MPC). MPC is known for being slow and unable to work for certain use cases. The risk of failure doesn’t concern me here since it’s such a huge opportunity to solve this problem,” he said.

The notion of building technology to advance MPC also attracted Lindsay Danas Cohen to Nillion. Cohen previously served as associate general counsel at Coinbase before joining Nillion this year as the company’s general counsel.

Although Coinbase announced in June that it was cutting its staff by 18%, Cohen explained in a recent blog post that she left Coinbase to join Nillion due to the opportunity to help advance privacy and data sharing through MPC. “This would be a true zero-to-one innovation,” she wrote.

While the crypto industry continues to face a bear market, it’s clear that the projects being built during this period are seen as an exciting opportunity. “I built Indiegogo during the 2008 bear market, and I think we will see the same thing in this market. In about three to five years, we will see some very strong companies emerge that know how to use capital efficiently,” Rubin remarked.

Indeed, well-funded Web3 companies continue to hire, while large tech companies face layoffs and hiring freezes. Sebastien Borget, co-founder and chief operating officer of The Sandbox, told Cointelegraph that the popular metaverse platform currently has a total of 103 job openings. “The excitement of working in the front row of Web3 is big, and we are enjoying this interest towards our open positions,” he said. 

According to Borget, The Sandbox has grown to 404 employees this year, almost doubling in size from its 208-employee workforce it had in December 2021. Borget added that The Sandbox’s virtual real estate known as “LANDs” is now worth over $1 billion in total market cap.

Moreover, as Web3 companies continue to bring on both new and acquired talent, young jobseekers seem to be displaying a greater desire to obtain the skills needed to join these firms.

Priyanka Mathikshara Mathialagan, president of the Stanford Blockchain Club, told Cointelegraph that she has seen an increasing number of undergraduate students at Stanford taking blockchain-focused courses in preparation for careers after graduation.

Recent: What the Russia-Ukraine war has revealed about crypto

“This year, we had more students enrolled in professor Dan Boneh’s cryptography class than those enrolled in traditional computer science courses,” she remarked.

Despite the bear market, Mathialagan also believes that there have been significant improvements made within the Web3 space, resulting in a more positive outlook toward the sector. For example, she mentioned that the Ethereum Merge that took place on Sept. 15 has helped ensure a more energy-efficient platform, creating appeal for students that may want to leverage the Ethereum network for Web3 projects. Mathialagan added that while a numerous amount of theoretical research has been performed for years within fields like computer science, Ph.D. students are considering Web3 due to new opportunities for advancement. She said:

“The math used in theoretical computer science and cryptography is similar to the math needed to advance zero-knowledge proof-based applications. There is now an industry that wants to pay Ph.D. students for their research and put these findings to use. For example, there is a large demand for distributed system engineers since every single blockchain is really a distributed system. These are the people who can design consensus algorithms and new architectures for scalable and secure blockchains.” 

This seems to be the case, as Masanto shared that Nillion has hired 10 engineers within the last six months. Borget added that The Sandbox is currently hiring 17 engineers, along with game designers, architects and other individuals capable of supporting brands building in the company’s metaverse.

Skepticism remains

While it’s notable that Web3 companies are actively hiring, a number of concerns remain. For instance, although companies remain focused on building during a bear market, fundraising may be problematic. 

Given this, it’s important to point out that Nillion is currently being bootstrapped by its founding team. A spokesperson from Delphi Digital, a crypto-focused research firm, also told Cointelegraph that while the company is currently hiring across the board, no funds have been raised.

“We have been completely bootstrapped up until now.” While impressive, running a company based on personal finances or operating revenue may be concerning for job seekers. For instance, Mathialagan noted that students starting a career in Web3 want to be assured that the company will exist two to three years down the road.

Jessica Walker, chief marketing officer of Fluid Finance — a fintech company focused on revolutionizing banking with blockchain — further told Cointelegraph that it is a waiting game to see what companies have the strongest communities and teams capable of withstanding the crypto winter, adding:

“It’s important for organizations to build partnerships and roll out products, while also being able to budget their overhead costs during this time.” 

Moreover, Mathialagan believes that it’s challenging for students, along with individuals within the Web2 sector, to get connected with Web3 companies. For instance, while companies like Nillion have brought on individuals from organizations like Coinbase, Indiegogo and Nike, Masanto shared that he already knew a handful of these people prior to hiring. 

Recent: Does the IMF have a vendetta against cryptocurrencies?

Walker also remarked that due to the bear market, recruiters need to pay additional attention to detail when onboarding new team members. “Some uncertainty comes from new hires about the security of their role, especially during a bear market. At Fluid, we often try to hire from our community first,” she said.

Although strategic, Mathialagan mentioned that the Stanford Blockchain Club is compiling a list of job postings to help students connect better with Web3 firms as more hiring takes place: “For students, hiring remains the biggest single problem even beyond security issues faced by Web3 companies today.”



via cointelgraph.com
The U.S. Will Weaponize The Dollar By Backing It With Bitcoin

The U.S. Will Weaponize The Dollar By Backing It With Bitcoin

The United States government is likely to back the dollar with bitcoin in order to protect its status as issuer of the global reserve currency.

This is an opinion editorial by Luke Mikic, a writer, podcast host and macro analyst.

This is the second part in a two-part series about the Dollar Milkshake Theory and the natural progression of this to the “Bitcoin Milkshake.” In this piece, we’ll explore where bitcoin fits into a global sovereign debt crisis.

The Bitcoin Milkshake Theory

Most people believe the monetization of bitcoin will most hurt the United States as it’s the country with the current global reserve currency. I disagree.

The monetization of bitcoin benefits one nation disproportionally more than any other country. Like it, welcome it or ban it, the U.S. is the country that will benefit most from the monetization of bitcoin. Bitcoin will help to extend the life of the USD longer than many can conceptualize and this article explains why.

If we move forward on the assumption that the Dollar Milkshake Thesis continues to decimate weaker currencies around the world, these countries will have a decision to make when their currency goes through hyperinflation. Some of these countries will be forced to dollarize, like the more than 65 countries that are either dollarized or have their local currency pegged to the U.S. dollar.

Some may choose to adopt a quasi-gold standard like Russia recently has. Some may even choose to adopt the Chinese yuan or the euro as their local medium of exchange and unit of account. Some regions could copy what the shadow government of Myanmar have done and adopt the Tether stablecoin as legal tender. But most importantly, some of these countries will adopt bitcoin.

For the countries that may adopt bitcoin, it will be too volatile to make economic calculations and use as a unit of account when it’s still so early in its adoption curve. 

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Despite what the consensus narrative is surrounding those who say, “Bitcoin’s volatility is decreasing because the institutions have arrived,” I strongly believe this is not a take rooted in reality. In a previous article written in late 2021 analyzing bitcoin’s adoption curve, I outlined why I believe the volatility of bitcoin will continue to increase from here as it travels through $500,000, $1 million and even $5 million per coin. I think bitcoin will still be too volatile to use as a true unit of account until it breaches eight figures in today’s dollars — or once it absorbs 30% of the world’s wealth.

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For this reason, I believe the countries who will adopt bitcoin, will also be forced to adopt the U.S. dollar specifically as a unit of account. Countries adopting a bitcoin standard will be a Trojan horse for continued global dollar dominance.

Put aside your opinions on whether stablecoins are shitcoins for just a second. With recent developments, such as Taro bringing stablecoins to the Lightning Network, imagine the possibility of moving stablecoins around the world, instantly and for nearly zero fees.

The Federal Reserve of Cleveland seems to be paying close attention to these developments, as they recently published a paper titled, “The Lightning Network: Turning Bitcoin Into Money.”

Zooming out, we can see that since March 2020, the stablecoin supply has grown from under $5 billion to over $150 billion. 

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What I find most interesting is not the rate of growth of stablecoins, but which stablecoins are growing the fastest. After the recent Terra/LUNA debacle, capital fled from what’s perceived to be more “risky” stablecoins like tether, to more “safe” ones like USDC. 

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This is because USDC is 100% backed by cash and short-term debt.

BlackRock is the world's largest asset manager and recently headlined a $440 million fundraising round by investing in Circle. But it wasn’t just a funding round; BlackRock is going to be acting as the primary asset manager for USDC and their treasury reserves, which is now nearly $50 billion.

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The aforementioned Tether appears to be following in the footsteps of USDC. Tether has long been criticized for its opaqueness and the fact it’s backed by risky commercial paper. Tether has been viewed as the unregulated offshore U.S. dollar stablecoin. That being said, Tether sold their riskier commercial paper for more pristine U.S. government debt. They also agreed to undergo a full audit to improve transparency.

If Tether is true to their word and continues to back USDT with U.S. government debt, we could see a scenario in the near future where 80% of the total stablecoin market is backed by U.S. government debt. Another stablecoin issuer, MakerDao, also capitulated this week, buying $500 million government bonds for its treasury.

It was crucial that the U.S. dollar was the main denomination for bitcoin during the first 13 years of its life during which 85% of the bitcoin supply had been released. Network effects are hard to change, and the U.S. dollar stands to benefit most from the proliferation of the overall “crypto” market.

This Bretton Woods III framework correctly describes the issue facing the United States: The country needs to find someone to buy their debt. Many dollar doomsayers assume the Fed will have to monetize a lot of the debt. Others say that increased regulations are on the way for the U.S. commercial banking system, which was regulated to hold more Treasurys in the 2013-2014 era, as countries like Russia and China began divesting and slowing their purchases. However, what if a proliferating stablecoin market, backed by government debt, can help soak up that lost demand for U.S. Treasurys? Is this how the U.S. finds a solution to the unwinding petrodollar system?

Interestingly, the U.S. needs to find a solution to its debt problems, and fast. Nations around the world are racing to escape the dollar-centric petrodollar system that the U.S. for decades has been able to weaponize to entrench its hegemony. The BRICS nations have announced their intentions to create a new reserve currency and there are a host of other countries, such as Saudi Arabia, Iran, Turkey and Argentina that are applying to become a part of this BRICS partnership. To make matters worse, the United States has $9 trillion of debt that matures in the next 24 months.

Who is now going to buy all that debt?

The U.S. is once again backed into a corner like it was in the 1970s. How does the country protect its nearly 100-year hegemony as the global reserve currency issuer, and 250-year hegemony as the globe’s dominant empire?

Currency Wars And Economic Wild Cards

This is where the thesis becomes a lot more speculative. Why is the Fed continuing to aggressively raise interest rates, bankrupting its supposed allies like Europe and Japan, while seemingly sending the world into a global depression? “To fight inflation,” is what we’re told.

Let’s explore an alternative, possible reason why the Fed could be raising rates so aggressively. What options does the U.S. have to defend its hegemony?

In a world currently under a hot war, would it seem so far-fetched to speculate that we could be entering an economic cold war? A war of central banks, if you will? Have we forgotten about the “weapons of mass destruction?” Have we forgotten what we did to Libya and Iraq for attempting to route around the petrodollar system and stop using the U.S. dollar in the early 2000s? 

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Until six months ago, my base case was that the Fed and central banks around the globe would act in unison, pinning interest rates low and use the “financial repression sandwich” to inflate away the globe’s enormous and unsustainable 400% debt-to-GDP ratio. I expected them to follow the economic blueprints laid out by two economic white papers. The first one published by the IMF in 2011 titled, “The Liquidation Of Government Debt” and then the second paper published by BlackRock in 2019 titled, “Dealing With The Next Downturn.”

I also expected all the central banks to work in tandem to move toward implementing central bank digital currencies (CBDCs) and working together to implement the “Great Reset.” However, when the data changes, I change my opinions. Since the creepingly coordinated policies from governments and central banks around the world in early 2020, I think some countries are not so aligned as they once were.

Until late 2021, I held a strong view that it was mathematically impossible for the U.S. to raise rates — like Paul Volcker did in the 1970s — at this stage of the long-term debt cycle without crashing the global debt market.

Debt held by the public is nearly as high as times during WWII

But, what if the Fed wants to crash the global debt markets? What if the U.S. recognizes that a strengthening dollar causes more pain for its global competitors than for themselves? What if the U.S. recognizes that they would be the last domino left standing in a cascade of sovereign defaults? Would collapsing the global debt markets lead to hyperdollarization? Is this the only economic wild card the U.S. has up its sleeve to prolong its reign as the dominant global hegemon?

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While everyone is waiting for the Fed pivot, I think the most important pivot has already happened: the Dalio pivot.

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As a Ray Dalio disciple, I’ve built my entire macroeconomic framework on the idea that “cash is trash.” I believe that mantra still holds true for anyone using any other fiat currency, but has Dalio stumbled upon some new information about the USD that has changed his mind?

Dalio wrote a phenomenal book “The Changing World Order: Why Nations Succeed or Fail” that details how wars occur when global empires clash. 

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Has he concluded that the United States could be about to weaponize the dollar, making it not so trashy? Has he concluded that the U.S. isn’t going to willingly allow China to be the world’s next rising empire like he once proclaimed? Would the U.S. aggressively raising rates lead to a capital flight to the U.S., a country that has a comparatively healthier banking system than its competitors in China, Japan and Europe? Do we have any evidence for this outlandish left-field, hypothetical scenario?

Let’s also not forget, this is not just a race with the United States versus China. The second-most used foreign currency in the world — the euro — probably wouldn’t mind gaining power from a declining U.S. empire. We have to ask the question, why is Jerome Powell refusing to align monetary policies with one of our closest allies in Europe?

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In this illuminating 2021 webinar, at the Green Swan central banking conference, Powell blatantly refused to go along with the “green central banking” policies that were discussed. This visibly infuriated Christine Lagarde, head of the European Central Bank, who was also part of the event.

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Some of the quotes from Powell in that interview are illuminating.

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Is this a sign the U.S. is no longer a fan of the Great Reset ideologies coming out of Europe? Why is the Fed also ignoring the United Nations begging them to lower rates?

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We can speculate about what Powell’s intentions may be all day, but I prefer to look at data. Since Powell’s initial heated debate with Lagarde and the Fed’s subsequent rate increase on the reverse repo days after, the dollar has decimated the euro.

Reverse repo rates initially increased on May 31, 2022

In April 2022, Powell was dragged into another “debate” with Lagarde, led by the head of the IMF. Powell reaffirmed his stance on climate change and central banking.

The plot thickens when we consider the implications of the LIBOR and SOFR interest rate transition that occurred at the beginning of 2022. Will this interest rate change enable the Fed to hike interest rates and insulate the banking system from the contagion that’ll ensue from a wave of global debt defaults in the wider eurodollar market?

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I do think it’s interesting that by some metrics the U.S. banking system is showing comparatively fewer signs of stress than in Europe or the rest of the world, validating the thesis that SOFR is insulating the U.S. to a degree.

A New Reserve Asset

Whether the U.S. is at war with other central banks or not doesn’t change the fact that the country needs a new neutral reserve asset to back the dollar. Creating a global deflationary bust, and weaponizing the dollar is only a short-term play. Scooping up assets on the cheap and weaponizing the dollar will only force dollarization in the short term. The BRICS nations and others that are disillusioned with the SWIFT-centered financial system will continue to de-dollarize and try to create an alternative to the dollar.

The global reserve currency has been informally backed by the U.S. Treasury note for the past 50 years, since Nixon closed the gold window in 1971. In times of risk, people run to the reserve asset as a way to get a hold of dollars. For the past 50 years, when equities sell off, investors fled to the “safety” of bonds which would appreciate in “risk off” environments. This dynamic built the foundation of the infamous 60/40 portfolio — until this trade ultimately broke in March 2020 when the Treasury market became illiquid.

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As we transition into the Bretton Woods III era, the Triffin dilemma is finally becoming untenable. The U.S. needs to find something to back the dollar with. I find it unlikely that they will back the dollar with gold. This would be playing into the hands of Russia and China who have far larger gold reserves.

This leaves the U.S. with their backs against a wall. Faith is being lost in the dollar and they would surely want to retain their global reserve currency status. The last time the U.S. was in a similarly vulnerable position was in the 1970s with high inflation. It looked like the dollar would fail until the U.S. effectively pegged the dollar to oil through the petrodollar agreement with the Saudis in 1973.

The country is faced with a similar conundrum today but with a different set of variables. They no longer have the option of backing the dollar with oil or gold.

Enter Bitcoin!

Bitcoin can stabilize the dollar and even prolong its global reserve currency status for much longer than many people expect! Most importantly, bitcoin gives the U.S. the one thing it needs for the 21st-century monetary wars: trust.

Countries may trust a gold-backed (petro-)ruble/yuan more than a dollar backed by worthless paper. However, a bitcoin-backed dollar is far more trustworthy than a gold-backed (petro-)ruble/yuan.

As mentioned earlier, the monetization of bitcoin not only helps the U.S. economically, but it also directly hurts our monetary competitors, China and to a lesser degree, Europe — our supposed ally.

Will the U.S. realize that backing the dollar with energy directly hurts China and Europe? China and Europe are both facing significant energy-related headwinds and have both infamously banned Bitcoin’s proof-of-work mining. I made the case that the energy crisis in China was the real reason China banned bitcoin mining in 2021.

Today, as we transition into the digital age, I believe a fundamental shift is coming:

For thousands of years, money has been backed by trust and gold, and protected by ships. However, in this millennium, money will now be backed by encryption and math, and protected by chips.

If you will allow me to once again engage in some speculation, I believe the U.S. understands this reality, and is preparing for a deglobalized world in many different ways. The U.S. appears to be the Western nation taking the friendliest approach to Bitcoin. We have senators all across the U.S. tripping over themselves to make their states Bitcoin hubs by enacting friendly regulation for mining. The great hash migration of 2021 has seen the lion’s share of the Chinese hash being transferred to the U.S., which now houses over 35% of the world’s hash rate.

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Recent sanctions on Russian miners could only further accelerate this hash migration. Apart from some noise in New York, and the delayed spot ETF decision, the U.S. looks as though it’s embracing bitcoin. 

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In this video, Treasury Secretary Janet Yellen talks about Satoshi Nakamoto’s innovation. The SEC Chair Gary Gensler continually differentiates Bitcoin from “crypto” and has also praised Satoshi Nakamoto’s invention.

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ExxonMobil is the largest oil company in the U.S. and announced it was using bitcoin mining to offset its carbon emissions.

Then there’s the question, why has Michael Saylor been allowed to wage a speculative attack on the dollar to buy bitcoin? Why is the Fed releasing tools highlighting how to price eggs (and other goods) in bitcoin terms? If the U.S. was so opposed to banning bitcoin, why has all of this been allowed in the country?

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We’re transitioning from an oil-backed dollar to a bitcoin-backed dollar reserve asset. Crypto-eurodollars, aka stablecoins backed by U.S. debt, will provide the bridge between the existing energy-backed dollar system and this new energy-backed bitcoin/dollar system. I find it awfully poetic that the country founded on the ideology of freedom and self-sovereignty appears to be positioning itself to be the one that most takes advantage of this technological innovation. The bitcoin-backed dollar is the only alternative to a rising Chinese threat positioning for the global reserve currency.

Yes, the United States has committed many atrocities, I’d argue that at times they’ve been guilty of abusing their power as the global hegemon. However, in a world that’s being rapidly consumed by ramped totalitarianism, what happens if the mighty U.S. experiment fails? What happens to our civilization if we allow a social-credit-scoring Chinese empire to rise and export its CBDC-backed digital panopticon to the world? I was once one of these people cheering for the demise of the U.S. empire, but I now fear the survival of our very civilization is dependent upon the survival of the country that was originally founded on the principles of life, liberty and property.

Conclusions

Zooming out, I stand by my original thesis that we are in a new monetary order by the end of the decade. However, the events of the previous months have certainly accelerated that already-rapid 2030 timeline. I also stand by my original thesis from the 2021 article surrounding how bitcoin’s adoption curve unfolds because of how broken the current monetary regime is. 

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I believe 2020 was the monetary inflection point that will be the catalyst that takes bitcoin from 3.9% global adoption to 90% adoption this decade. This is what crossing the chasm entails for all transformative technologies that reach mainstream penetration.

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There will however be many “hopeful moments” along the way, like there was in the German Weimar hyperinflationary event of the 1920s. 

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There will be dips and spikes in inflation, like there was in the 1940s during U.S. government deleveraging. 

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Deglobalization will be the perfect scapegoat for what was always going to be a decade of government debt deleveraging. The monetary contractions and spasms are becoming more frequent and more violent with each drawdown we encounter. I believe the majority of fiat currencies are in the 1917 stages of the Weimar hyperinflation. 

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This article was very centered on nation-state adoption of bitcoin, but don’t lose sight of what’s truly unfolding here. Bitcoin is a Trojan horse for freedom and self-sovereignty in the digital age. Interestingly, I also feel that hyperdollarization will accelerate this peaceful revolution.

Hyperinflation is the event that causes people to do the work and learn about money. Once many of these power-hungry dictators are forced to dollarize and no longer have the control of their local money printer, they may be more incentivized to take a bet on something like bitcoin. Some may even do it out of spite, not wanting to have their monetary policy dictated to them by the U.S. 

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Money is the primary tool used by states to exercise their autocratic, authoritarian powers. Bitcoin is the technological innovation that’ll dissolve the nation-state, and fracture the power the state has, by removing its monopoly on the money supply. In the same way the printing press fractured the power of the dynamic duo that was the church and state, bitcoin will separate money from state for the first time in 5,000+ years of monetary history.

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So, to answer the dollar doomsdayers, “Is the dollar going to die?” Yes! But what will we see in the interim? De-dollarization? Maybe on the margins, but I believe we will see hyperdollarization followed by hyperbitcoinization.

This is a guest post by Luke Mikic. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.


via bitcoinmagazine.com
How The United States Weaponizes The Dollar To Retain Global Hegemony

How The United States Weaponizes The Dollar To Retain Global Hegemony

The dollar wrecking ball is hurting emerging markets and competing currencies alike. Will the U.S. be the last country to print the global reserve currency?

This is an opinion editorial by Luke Mikic, a writer, podcast host and macro analyst.

This is the first part in a two-part series about the Dollar Milkshake Theory and the natural progression of this to the “Bitcoin Milkshake.”

Introduction

  • “The dollar is dead!”
  • “The Petrodollar system is breaking down!”
  • “The Federal Reserve doesn’t know what it’s doing!”
  • “China is playing the long game; the U.S. is only planning four years ahead.”

How many times have you heard claims like these from macroeconomists and sound money advocates in recent times? These types of comments have become so prevalent, that it’s now a mainstream opinion to declare that we’re about to see the imminent death of the U.S. dollar and subsequent fall of the great U.S. empire. Is modern America about to suffer the same fate as Rome, or does the country still have an economic wild card hidden up its sleeve?

Similarly dire predictions were made about the U.S. dollar in the 1970s during the
“Great Inflation,” after the abandonment of the gold standard in 1971. It took the dynamic duo of Richard Nixon and Henry Kissinger to pull a rabbit out of the hat to save the U.S. dollar. They effectively backed the USD with oil in 1973, birthing the petrodollar experiment.

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It was an ingenious move that prolonged the life of the dollar and the hegemonic reign of the U.S. as the world’s dominant superpower. The lesson we should take away from this example in the 1970s is to never underestimate a great empire. They’re an empire for a reason. Could the United States be forced to play another monetary wild card today to retain their power as the global hegemon in the face of de-dollarization?

History doesn’t repeat, but it often rhythms.

Another similarity to the 1970s is emerging today as Federal Reserve Chair Jerome Powell is aggressively raising interest rates in an attempt to fight the most ravaging inflation we’ve seen since that time. Is Powell simply fighting inflation or is he also attempting to save the credibility of the U.S. dollar in the midst of a 21st-century currency war?

I believe we are on the precipice of the implosion of a globally interconnected, fiat-based financial system. There are currently over 180 different currencies all around the world, and in these two articles I’ll outline how we will end the decade with two currencies left standing. Another dynamic duo, if you will. 

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Most people assume these two currencies left standing will be in violent opposition to each other, but I’m not so sure. I believe they will form a symbiotic relationship where they compliment each other, the same way a plump cherry compliments a milkshake on a warm, sunny day.

But how do we get there, and why do I believe the U.S. dollar will be one of the last dominos to fall? Simple gravity! Yes, the U.S. is running the largest fiscal deficits of all time. Yes, the U.S. has $170 trillion of unfunded liabilities. But gravity is gravity, and there’s an estimated $300 trillion of economic gravity around the world making it likely that the U.S. dollar will be the last fiat currency to hyperinflate. This is the biggest mistake people make when they analyze the dollar. We often only look at the supply of dollars and an exponentially growing Fed balance sheet. 

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However, everyone is forgetting the first lesson of Economics 101: supply and demand. There is an enormous demand for dollars all around the world.

This is a Bitcoin publication, so I will also be discussing the role that bitcoin may have in the cascading fiat currency collapse that I expect to unfold in the coming months and years.

If you accept the hypothetical assumption that one day the world will operate on a bitcoin standard, most people will then assume this is bad for the United States, as it is the current global reserve status holder. However, the monetization of bitcoin benefits one country disproportionally more than any other: the United States.

  • A strong dollar will lead to hyperdollarization.
  • A consequence of hyperdollarization is increased bitcoin adoption.
  • A consequence of increased bitcoin adoption is increased stablecoin adoption.
  • A consequence of increased stablecoin adoption is increased U.S. dollar adoption!

This dynamic feedback loop will ultimately become an all-consuming, fiat currency black hole.

Welcome to the “Bitcoin Milkshake Thesis,” the delicious macroeconomic dessert you haven’t heard of. 

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Let me explain many of these complicated-sounding macroeconomic theories prevalent today: petrodollars, eurodollars, dollar milkshakes, bitcoin milkshakes, Ray Dalio’s “Changing World Order.”

Most importantly, I will explain how they all relate to the most delicious dynamic duo in the macroeconomic dessert place: the Dollar Milkshake meets the Bitcoin Milkshake.

The Dollar Milkshake Theory

By now, you’ve probably at seen the effects that the “Dollar Milkshake Theory” had on financial markets. The Dollar Milkshake Theory, created and proposed by Brent Johnson in 2018, helps to explain why every asset class in the world is cratering. From global equities, blue chip tech stocks, real estate and bonds, money is flowing out of assets and the currencies of sovereign nations and into the global safe haven: the U.S. dollar.

If there is one chart that explains the Dollar Milkshake, this is it.

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Distilled into its simplest format, the Dollar Milkshake Theory explains how the macroeconomic endgame will unfold for our debt supercycle. It details in what order Johnson believes the dominos will fall as we transition to a new monetary system.

The “milkshake” part of this delicious dessert consists of trillions of dollars in liquidity that global central banks have printed over the past decade. Johnson articulates that the USD will be the straw that sucks up all of that liquidity when capital seeks safety in times of financial risk. Capital flows to where it is treated best. Johnson proposes that the U.S. dollar will be the last fiat currency standing, as sovereign nations are forced to devalue and hyperinflate their own national currencies to source the U.S. dollars they need during a global sovereign debt crisis.

Put very simply, the Dollar Milkshake Theory is a manifestation of the structural imbalances present in our monetary system. These imbalances were expected and even predicted by John Maynard Keynes at the Bretton Woods conference in 1944 and critiqued by Robert Triffin in the 1950s and 1960s. The consequences of abandoning the gold standard without using a neutral reserve asset was eventually going to come back to haunt the global economy.

With the dollar wrecking ball currently wreaking havoc on our financial system and bankrupting governments all around the world, I thought it would be timely to revisit what I said over a year ago:

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That quote originated from an article I published in a series titled “Bitcoin The Big Bang To End All Cycles.” In the piece, I analyzed the history of 80-year, long-term debt cycles and the history of hyperinflation to conclude that the inflation that had just reared its head in 2021 was not going to be transitory, and instead would be an accelerating catalyst that would propel us toward a new monetary system by the end of the decade. Despite expecting acceleration, the acceleration we’ve seen since mid-2021 has still surprised me.

Here, I will take a more granular look at the intermediary steps involved in this global sovereign debt crisis, exploring the role bitcoin will play as this unfolds. That will give us hints as to which is likely to be the next global reserve currency after the unwinding of this debt supercycle.

Many are puzzled by the U.S. dollar decimating every other fiat currency on the globe. How is this possible? There are two major systems that have led to the structural imbalances present in our global economy: the eurodollar market and the petrodollar system.

Much of the dollar-denominated debt mentioned above was created by banks outside of the U.S. This is where the term “eurodollars” comes from. I’m not going to bore you with an explanation of the eurodollar market, rather just give you the basics that are relevant to this thesis. The key takeaway we need to understand is that the eurodollar market is rumored to be in the tens and even hundreds of trillions of dollars!

This means there is actually more debt outside the U.S. than there is within the country. Lots of countries either chose, or were forced, to take on U.S. dollar-denominated debt. For them to repay that debt, they need to access dollars. In times of an economic slowdown, lockdown of the global economy or when exports are low, these other countries sometimes have to resort to printing their own currencies to access U.S. dollars in the foreign exchange markets to pay their dollar-denominated debts.

When the dollar index rises — indicating that the U.S. dollar is getting stronger against other currencies — this puts even more pressure on these countries with large dollar-denominated debts. This is exactly what we’re witnessing today as the dollar index (DXY) reached 20-year highs.

The one-month chart for the dollar index (DXY) going back to 1981 shows 20-year highs.

For a more detailed breakdown on the Dollar Milkshake Theory and the devastating effects it’s having on markets today, I dedicated a blog to explaining the thesis.

This milkshake dynamic creates an enormous demand for U.S. dollars outside of the country, which enables and actually requires the Fed to create enormous amounts of liquidity in order to supply the world with the dollars the world needs to service its debts. If the Fed wants the global economy to function effectively, it simply must supply dollars to the world. This is a key point. In a globally interconnected world during peacetime, it makes sense the Fed would supply the world with the needed dollars.

Since we’ve been on the petrodollar system for the past 50 years, we’ve experienced many calls for the death of the dollar. However, the most threatening times our financial system faced have emerged when there’s been a shortage of U.S. dollars, and the DXY has strengthened relative to other currencies.

The Deadly Dollar Bull Runs

The dominant narrative in the macroeconomic environment over the past decade has surrounded the Fed and central banks with historically unprecedented loose monetary policy. However, this appears to be changing in 2022.

As we watch the Fed and central banks around the world raise interest rates in an attempt to control inflation, many are shocked and confused as to what this new paradigm of tightening monetary policy will mean for our deglobalizing global economy. It’s paramount to remember: All fiat currencies are losing purchasing power against goods and services.

All currencies are being rapidly devalued and will eventually return to their intrinsic value of 0. Of the hundreds of currencies that have existed since 1850, most have gone to 0. Currently, we’re in the process of witnessing the final 150 or so trend to 0 in a globally competitive debasement to the bottom.

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One of the major measurements everyone uses to measure this relative strength is the dollar index. It is measured against six major currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

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The DXY has had three major bull runs since 1971 that have threatened the stability of the global financial system. Every time the U.S. dollar has rallied, it’s destroyed the balance sheets of emerging market countries that have taken on too much U.S. debt with too little reserves. 

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In this dollar bull cycle, it’s not just fringe emerging markets that are suffering from the soaring U.S. dollar. Every single currency is being decimated against the mighty greenback. The Japanese yen has long been regarded as a safe haven alongside the U.S. dollar and for years it’s been held up as the poster currency by Keynesian economists. They’ve had the joy of pointing toward Japan’s enormous 266% debt-to-GDP ratio, alongside the Bank of Japan’s enormous 1,280-trillion-yen balance sheet with decades of low inflation.

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Japan held $1.3 trillion of U.S. Treasurys as of January 2022, beating out China as the largest foreign holder of U.S. debt. 

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Both the Japanese and the Chinese have recently resorted to selling their U.S. Treasury holdings as they suffer from the global dollar shortage.

A weak Japanese yen is typically bad for China because Japanese exports become more attractive the weaker the yen gets. This is why every time the yen has significantly weakened, the yuan has typically followed. There appears not to be an exception to this rule in 2022, and close attention should be paid to the other exporting Asian currencies, like the South Korean won and the Hong Kong dollar.

Then we have the Hong Kong dollar peg, which is also on the brink of a major breakout, as it continues to knock on the 7.85 peg. 

This peg has been held for over 30 years.
This peg has been held for over 30 years.

Shifting our attention to another energy-impoverished area, we can see that the USD is also showing enormous strength against the euro, which is the second-largest currency in the world. The EUR/USD has broken a 20-year support line and has recently traded below parity with the dollar for the first time in 20 years. The eurozone is suffering tremendously from a fragile banking system and energy crisis with its currency losing 20% of its value against the dollar in the past 18 months alone. 

The euro has lost 20% of its value against the dollar in just 18 months.

The European Central Bank looks to be in crisis mode as they’ve barely gotten interest rates into the positive realm, while the Fed has moved its federal funds rate to almost 4%. 

The Fed has moved its federal funds rate to almost 4%.

This has caused significant capital flight out of Europe, and due to the recent volatility in their bond market, ECB President Christine Lagarde was forced to announce a new form of quantitative easing (QE). This “anti-fragmentation” tool is a new form of QE where the ECB sells German bonds to buy Italian bonds in an attempt to keep the fracturing eurozone together. 

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This dollar bull run is wreaking havoc on the world’s largest and safest currencies. The yen, euro and the yuan are the three largest alternatives to the U.S. dollar and all are competitors if the U.S. were to lose its reserve currency status. But the emerging market currencies are where the real pain is being felt the most. Countries like Turkey, Argentina and Sri Lanka are all experiencing 80%-plus inflation and serve as great examples of how the dollar wrecking ball hurts the smaller countries the most.

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What Comes Next?

The DXY has had a hell of a run over the past 12 months, so a pullback wouldn’t surprise me. Both the DXY and the more equally-weighted broad dollar index are very extended after having parabolic rises in 2022 and are both now breaking down from their parabolas. 

One-day chart of the DXY showing a parabolic increase
One-day chart of the trade-weighted broad dollar index, also showing a parabolic increase
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Could we see a Fed balance sheet shoot to $50 trillion while simultaneously seeing hyperdollarization as the eurodollar market is absorbed?

It’s possible, but I think the Fed is racing the clock. The petrodollar system is breaking down rapidly as the BRICS nations are racing to set up their new reserve currency.

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It’s important to notice, this milkshake scenario was always going to unfold. The structural imbalances in our financial system would’ve always inevitably manifested themselves in this domino effect of currency collapses that Brent Johnson articulated.

Interestingly, I believe some recent events have actually accelerated this process. Yes, I see all the signposts that the dollar doomsayers are pointing out; the dollar will die eventually, just not yet. However, let’s entertain the idea that the dollar is in fact dying, and the USD will lose reserve currency status.

Who would take over the global reserve currency of the world?

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For the economic reasons I’ve mentioned above, I don’t believe the euro, the yen or even the Chinese yuan are viable replacements for the U.S. dollar. In a recent article titled, “The 2020s Global Currency Wars,” I explored the theses of Ray Dalio and Zoltan Pozsar and explained why I believed both were ignoring the geopolitical, demographic and energy-related headwinds facing all the competitors to the U.S.

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I do believe that commodities are significantly undervalued and that we will see a 2020s “commodities supercycle,” due to decades of underinvestment in the industry. I also believe securing commodities and energy will play a key role in a nation’s security, as the world continues to deglobalize. However — disagreeing with Pozsar here — backing money with commodities isn’t the solution to the problem the world is facing.

I believe the U.S. dollar will be the last fiat currency to hyperinflate, and I actually expect it to hold on to the reserve currency status until this long-term debt cycle concludes. To go one step further, I actually think there’s a strong possibility that the United States will be the last country ever to hold the title of “global reserve currency issuer” if they play their cards right.

We will explore the Bitcoin Milkshake Theory in part two.

This is a guest post by Luke Mikic. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.


via bitcoinmagazine.com