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Global inflation mounts: How stablecoins are helping protect savings

More people are using stablecoins to hedge against inflation, as they offer numerous benefits.
Economies around the world are facing…

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More people are using stablecoins to hedge against inflation, as they offer numerous benefits.

Economies around the world are facing a motley of challenges caused by rising inflation. High inflation devalues national currencies, which, in turn, pushes up the cost of living, especially in scenarios where earnings remain unchanged.

In the United States, the government has responded aggressively to inflation. The nation hit a 9.1% inflation rate in June, prompting the Federal Reserve to implement a series of fiscal countermeasures designed to prevent the economy from overheating. Hiking interest rates was one of them.

Soaring Fed interest rates have consequently slowed down consumer spending and business growth in the country.

The counter-inflation approach has also strengthened the value of the U.S. dollar against other currencies due to tight dollar liquidity checks. As 79.5% of all international trades are undertaken using the dollar, many countries are now paying a premium for imports to compensate for the dollar’s rising value, worsening inflation in those importing countries.

Subsequently, citizens in some flailing economies have started to convert their money into more stable foreign currencies to safeguard their money against value depreciation, and many of them are turning to stablecoins to achieve this.

Whitney Setiawan, a research analyst at the Bitrue crypto exchange, told Cointelegraph, “With the U.S. dollar recording steep appreciation against other fiat currencies, most crypto-savvy users have a special interest in holding stablecoins.”

Setiawan also predicted that the stablecoin sector was likely to disrupt the remittance industry in the near future due to the medley of benefits that stablecoins offer.

“With interest in stablecoins being fueled by various factors, I can predict it will be a matter of time before this asset class topples the remittance industry by a significant margin,” she said.

On this last point, remittance companies have indeed been taking notice and have, in recent months, made moves to claim a share of the stablecoin market. MoneyGram, for example, recently partnered with Stellar to offer stablecoin remittance services on its network.

What are stablecoins?

A stablecoin is a digital currency whose value is often pegged to an asset or regulated by an algorithm to maintain a stable value. 

Collateralized stablecoins are the most popular and are backed by reserves of their underlying assets. In most cases, their value tracks that of popular national currencies such as the U.S. dollar, the British pound or the euro.

This category of stablecoins is used extensively by crypto traders looking to avoid crypto market upheavals and users looking to protect their money against inflation.

Other types of stablecoins include commodity-backed, crypto-backed and algorithmic stablecoins.

Why stablecoins are ideal as instruments against inflation

Stablecoins are ideal as instruments against inflation for numerous reasons. One of them is their immutable and borderless nature.

The decentralized nature of blockchain technology on which stablecoins operate allows them to travel across borders that may otherwise be closed to cross-border financial activities.

Stablecoin transactions are also fast and cost-effective when compared to fund transfers made via commercial bank networks. This makes them convenient for people looking to send and receive money and a hedge against inflation.

Another disruptive property that stablecoins possess is their capacity to cater to the unbanked. Approximately 2 billion people in the world today lack a bank account. Stablecoins have demonstrated the ability to reach this marginalized demographic by allowing anyone with a device that can host a digital wallet, like a smartphone or laptop, to use stablecoins.

In some developing nations, many people lack the necessary documentation to open a bank account, and so they are shut out of their nation’s main financial systems. Using stablecoins allows this group of users to send and receive money easily and use their monetary assets to hedge against inflation when the need arises.

Brian Pasfield, chief technology officer of Fringe Finance — a crypto lending platform that provides lending opportunities to stablecoin holders — told Cointelegraph:

“Banks have strict monetary policies that generally taper down the dollar’s supply. This trend makes stablecoins an attractive option for those aiming to access the USD’s value, as they are generally accessible with little barrier to entry.” 

He also underscored that governments had the ultimate power when it comes to mainstream stablecoin adoption.

“The likelihood of them (stablecoins) becoming commonplace and therefore disruptors lies in the hands of governments themselves, which may seek to implement their own solutions or censor the existing avenues,” he said.

While governments have been slow to adopt official policies regarding stablecoins, or may even undercut private stablecoins with the advent of central bank digital currencies, there are several countries in which citizens have taken matters into their own hands by using stablecoins to protect their savings.

Venezuela

Venezuela has experienced an inflation rate averaging about 3,711% since 1973. The bolivar has lost so much value over the past four decades that it’s had to be reconverted several times. For perspective, the country has had to remove 14 zeroes from its currency over the past 14 years to simplify the monetary scale.

Because the Venezuelan bolivar is volatile and has a value that fluctuates throughout the day, it is common practice for traders to list merchandise and service prices in U.S. dollars. Customers who don’t have dollars are usually expected to pay using bolivars, but at the prevailing exchange rate relative to the dollar.

That said, dollar bills can, at times, be scarce, and this gap is currently being filled by stablecoins. With internet penetration standing at around 72% as per 2020 statistics, online payment companies supporting stablecoin use have already started to set up shop in the country.

The companies include Reserve, a startup backed by Coinbase. Its app is now widely used in Venezuela to buy and sell stablecoins.

Even the U.S. government has joined the stablecoin foray and is increasingly using Circle’s USD Coin (USDC) stablecoin to circumvent corrupt government institutions when providing aid to Venezuelan citizens.

Turkey

Earlier this month, Turkey’s annual inflation rate hit 80%, with the Turkish lira losing approximately 27% of its value against the U.S. dollar so far this year. In 2021, the lira lost 44% of its value against the greenback. Its steep decline has caused demand for stablecoins to rise as people move to protect their money against inflation.

According to data derived from CryptoCompare, the Turkish lira is the second highest fiat-to-Tether (USDT) trading pair and currently accounts for about 21% of all national currency swaps. Tether is a dollar-denominated stablecoin backed by a basket of different assets.

The lira is also the second-most traded Binance USD (BUSD) stablecoin pair and is used in about 5.2% of trades. Binance USD is the dollar-denominated stablecoin from major cryptocurrency exchange Binance.

The growing popularity of cryptocurrencies in the country has, in the recent past, led to monetary control concerns and prompted the authorities to ban the use of cryptocurrencies as a mode of making payments.

However, crypto utility is still high despite the prohibition.

Nigeria

Nigerians are starting to use stablecoins to temper the effects of rising inflation.

According to the latest statistics released by the country’s National Bureau of Statistics (NBS), the inflation rate in the country reached 19.64% in July — a 17-year high.

According to the NBS report, the cost of necessities such as food, transport, fuel and clothing has risen sharply as a result.

The situation has been brought on by climate change, the economic aftershocks caused by the coronavirus and rising insecurity. It has been further compounded by Russia’s invasion of Ukraine, which disrupted crucial import supplies from the two countries. Nigeria imports over $2 billion worth of essential commodities annually from both Russia and Ukraine.

Inflation problems are forcing many Nigerians to start using stablecoins to prevent the devaluation of their savings. According to data pulled from Google Trends, Nigeria ranks top among countries with significant interest in stablecoins. Search statistics indicate that the nation has the highest Tether stablecoin search interest in the world.

USDT is presently the most traded stablecoin.

Argentina

Argentinians are increasingly turning to U.S. dollar stablecoins to shield their money against high inflation. The country’s inflation rate is expected to hit 95% by the end of the year.

Recent developments that have accentuated the demand for stablecoins include the July stablecoin buying frenzy that was triggered by the resignation of Economy Minister Martín Guzmán.

Major crypto exchanges serving Argentinian citizens recorded a spike in stablecoin sales in the aftermath of the announcement, with purchases jumping by over 200%.

The news also caused the value of the Argentine peso to fall by approximately 15%.

Today, Argentinian traders quote dollar prices for high-value items due to the high volatility that’s afflicted the national currency. The Argentine peso has lost over 30% of its value so far his year.

Prevailing U.S. dollar trading restrictions have also helped to increase demand for stablecoins.

Roadblocks for stablecoins

There are numerous limitations that prevent the widespread use of stablecoins as a hedge against inflation. One of them is the changing regulatory landscape that threatens to block their use in some jurisdictions. The European Union, for example, is looking to prohibit the use of dollar-pegged stablecoins in the region in the near future. Such embargoes are likely to limit the use of stablecoins as a hedge against inflation.

Moreover, most countries lack elaborate policies needed to legitimize the crypto industry. Right now, the stablecoin sector would do with extensive Anti-Money Laundering, tax policy and fraud prevention regulations in order to truly go mainstream, but many countries are unwilling to go this far due to the sheer complexity of such processes.

This has led some countries, such as China, Algeria and Egypt, to ban the trading of cryptocurrencies altogether.

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Government

Biden’s Secret Promise To OPEC Backfires: Shellenberger

Biden’s Secret Promise To OPEC Backfires: Shellenberger

Submitted by Michael Shellenberger,

In early September, United States Secretary of…

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Biden's Secret Promise To OPEC Backfires: Shellenberger

Submitted by Michael Shellenberger,

In early September, United States Secretary of Energy, Jennifer Granholm, told Reuters that President Joe Biden was considering extending the release of oil from America’s emergency stockpiles, the Strategic Petroleum Reserve (SPR), through October, and thus beyond the date when the program had been set to end. But then, a few hours later, an official with the Department of Energy called Reuters and contradicted Granholm, saying that the White House was not, in fact, considering more SPR releases. Five days later, the White House said it was considering refilling the SPR, thereby proposing to do the exact opposite of what Granholm had proposed.

The hand of Russia's President Vladimir Putin (right) is now strengthened within the OPEC+ cartel controlled by Saudi Arabia's Crown Prince Mohammed bin Salman (left), which today decided to cut production by 2 million barrels.

The confusion around the Biden administration’s petroleum policy was cleared up yesterday after a senior official revealed that the White House had made a secret offer to buy up to 200 million barrels of OPEC+ oil to replenish the SPR in exchange for OPEC+ not cutting oil production. The official said the White House wanted to reassure OPEC+ that the US “won’t leave them hanging dry.” The fact that this offer was made through the White House, not the Department of Energy, may explain why a representative of the Department called Reuters to take back the remarks of Granholm, who has shown herself to be out-of-the-loop, and at a loss for words, relating to key administration decisions relating to oil and gas production.

The revelation poses political risks for Democrats who, in the spring of 2020, killed a proposal by President Donald Trump to replenish the SPR with oil from American producers, not OPEC+ ones, and at a price of $24 a barrel, not the $80 a barrel that the Biden White House promised to OPEC+. At the time, Trump was seeking to stabilize the American oil industry after the Covid-19 pandemic massively reduced oil demand. Trump and Congressional Republicans proposed spending $3 billion to fill the SPR. Senate Democratic Leader Chuck Schumer successfully defeated the proposal, and later bragged that his party had blocked a “bailout for big oil.”

Even normally strong boosters of the Biden White House viewed the Democrats’ opposition to refilling the SPR as a major blunder. “That decision,” noted Bloomberg, “effectively cost the US billions in potential profits and meant Biden had tens of millions of fewer barrels at his disposal with which to counter price surges.” Moreover, observed Bloomberg, it will take significantly more oil today to fill the SPR than it would have two years ago. In spring 2020, the SPR contained 634 million barrels out of a capacity of 727 million. Now, the reserve is below 442 million barrels, its lowest level in 38 years.

The decision looks even worse in light of the decision by OPEC+ today to cut production, which will increase oil prices. The Biden administration in recent days has been pulling out the stops trying to persuade Saudi Arabia and other OPEC+ members, a group that includes Russia, to maintain today’s levels of oil production. Last Friday, the Biden administration sought a 45-day delay in a civil court proceeding over whether Saudi Arabia’s Crown Prince Mohammed bin Salman should have sovereign immunity for the murder of Washington Post columnist Jamal Khashoggi, for which bin Salman has taken responsibility.

The behavior by the Biden White House displays a willingness to sacrifice America’s commitment to human rights for the president’s short-term political needs. Instead of pleading with OPEC+ to maintain or increase high levels of oil production, the Biden administration could have simply allowed for expanded domestic oil production. Instead, Biden has issued fewer leases for on-shore and off-shore oil production than any president since World War II. As such, the pleadings by Biden and administration officials have backfired. The perception of the U.S. in the minds of OPEC+ members has weakened while the influence of Russian President Vladimir Putin has strengthened.

Why is that? Why did the Biden administration decide to spend so much political capital trying, and failing, to get Saudi Arabia and other OPEC+ members to expand production when it could have simply expanded oil production domestically? What, exactly, is going on?

President Joe Biden greets the Saudi Crown Prince on July 15, 2022.

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Tyler Durden Thu, 10/06/2022 - 22:20

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Economics

Are Retail Investors Done? Biggest Liquidation Since 2020 As Retail Is Now ‘Selling The Rally’

Are Retail Investors Done? Biggest Liquidation Since 2020 As Retail Is Now ‘Selling The Rally’

When it comes to the stock purchasing (and…

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Are Retail Investors Done? Biggest Liquidation Since 2020 As Retail Is Now 'Selling The Rally'

When it comes to the stock purchasing (and selling) habits of institutional and retail investors, even as the former had aggressively unwound their exposure throughout 2022 with both gross and net leverage at multi-year lows, retail investors showed remarkable stoicism, patience and resiliency. But all that changed in recent weeks, and according to JPMorgan's Peng Cheng, retail traders have now capitulated, not only selling stocks for the second week in a row, but in a stark reversal from their momentum-chasing ways, retail investors sold both the Monday and Tuesday rallies.

  • Specifically, in the past week they net sold - $1.1B (1.9-SD  below 12M average), and more notably they sold the rally on both Monday (SPX +2.59%) and Tuesday (+3.06%). Curiously, they remain buyers in ETFs (+$1.4B) and net bought S&P 500 (+0.7z leverage adjusted) but sold Russell 2000 ETFs (- 2.0z).
  • Retail traders net sold -$2.4B of single stocks. Large cap tech names including AAPL (-$470MM), META (-$134MM), and GOOG (-$128MM), in particular, suffered from heavy selling.

As both retail and gross flows and social media posts show, we are well beyond peak retail enthusiasm and we can now conclude that the distribution phase where institutions sell to retail - which defined markets for much of the past two years - is truly over.

Even more notable is that as the chart below shows, the last two weeks represented the worst selling in single stocks since March 2020 (on the other hand, inflows into ETFs, although showing signs of slowdown, remained positive).

Some more details broken down by industry group and thematic:

  • Large-cap: At the industry group level, volumes were slightly higher, driven by Autos and Consumer Services, partially offset by Tech Hardware. Looking at Large-cap single-stock, retail pared down exposure again this past week (-$2.0B) across most industry groups. We again observed some of the strongest retail selling across Technology, especially Tech Hardware (e.g. AAPL, CSCO). This was partially offset by buying within Autos (e.g. TSLA, RIVN, QS).
  • Thematic: Retail investors again shed exposure this past week across themes, though Green / EV Infrastructure (JPAMIGRN) and Long Rising Oil Beneficiaries (JPAMNRGY) were marginal bright spots. We observed heavier selling across Domestic (JPAMDOME) and Covid-19 Domestic Recovery (JPAMCRDB). On the wage side, we also saw Retail cut exposure to US Wage Growth Sensitive Basket (JPAMWAGG)

Bearish sentiment was also evident in the options market. According to JPM, retail traders sold -$1.0B of delta and bought $520MM of gamma this past week. They supplied -$1.3B of delta on SPX/SPY, QQQ, and IWM, mostly via put option buying.

Finally, just to make things "interesting", here is the latest confirmation that anyone trying to make even a little sense of the market is destined for catastrophic failure: as noted above, JPM said that "retail investors sold the rally on both Monday and Tuesday."

Well, one look at VandaTrack's latest weekly research shows that "retail investors have been chasing the last two days rebound by buying US$ 860 mn worth of US securities on Monday and US$ 960 mn on Tuesday. A considerable amount given that they are usually contrarian and reduce their purchases during rallies. We expect this trend to continue and foresee a slowdown in inflows if the rebound will fade; however, we could see a ramp up in purchases if the rally gains traction."

And while retail investors may have bought... or sold... stock in during the latest meltup, depending on whose "research" one reads, one thing is clear: the recent sell-off in retail favorites such as AAPL and TSLA has had a large impact on retail portfolios’ performance and as of yesterday, the average retail portfolio’s relative drawdown is again close to -32% and has started to underperform the S&P 500 again.

As Vanda notes, "additional losses will be both financially and psychologically hard to handle for the average retail trader", and the greater the eventual drawdown, the less likely retail will be to rush into the next dip and buy it.

Tyler Durden Thu, 10/06/2022 - 15:39

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Bonds

What Is the New York Stock Exchange and What Does It Do?

What Is the New York Stock Exchange in Simple Terms?With more than 2 billion shares trading hands each day, the New York Stock Exchange (NYSE) is the world’s…

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The New York Stock Exchange is located on Wall Street in New York City.

wdstock from Getty Images Signature; Canva

What Is the New York Stock Exchange in Simple Terms?

With more than 2 billion shares trading hands each day, the New York Stock Exchange (NYSE) is the world’s largest exchange for securities trading, which is the buying and selling of debt or equity, such as stocks and bonds. The NYSE is located in a historic building in the heart of New York City’s financial district at 11 Wall Street.

The NYSE was known for centuries as the "Big Board" because brokers would use an auction-based system to buy or sell shares of stock from its trading floor, and share prices were updated throughout the day on a large board that traders could see from the trading pit. 

A ringing bell signaled the beginning and the end of the trading day. The opening bell signaled the start of the trading day at 9:30 AM, and the closing bell happened at 4:00 PM, marking the end of the trading day. Trades at the NYSE took place on an actual trading floor up until the onset of the COVID-19 pandemic, when everything moved online; floor trading resumed for vaccinated brokers in May 2021.

Is the NYSE a Stock Exchange or a Stock Index?

The NYSE was a privately-owned exchange, or a place for trading, from its inception in the late 1700s until 2006, when it was bought by Intercontinental Exchange, which took shares public. Its ticker symbol is ICE.

However, since the New York Stock Exchange is the world’s largest trading exchange, with over 80% of the S&P 500 companies trading on it, the NYSE Composite, made up of 2,000 stocks listed on the NYSE, has come to be known as a benchmark stock market index. Glancing at how it’s doing gives investors a sense of the overall health of the financial markets. An exchange-traded fund (ETF) based on the NYSE Composite was introduced in 2004; its ticker symbol is NYA.

In addition, the New York Stock Exchange owns a smaller stock exchange, the American Stock Exchange, which it acquired in 2008. Now known as the NYSE American, it is where small-cap companies trade on lower volumes.

What Does the New York Stock Exchange Do? Who Works There? How Does It Make Money?

The NYSE has two purposes:

1. It facilitates buy-and-sell trades of securities.

2. It enables companies to raise capital by selling stock.

The NYSE was originally founded as a space exclusively for securities trading under the Buttonwood agreement in 1792. Prior to that, traders had to sell securities alongside commodities like coffee and tobacco and often had to do so outside, in rain and snow, which is how they got the nickname curbstone brokers.

The Buttonwood Agreement also established regulations and set standard commission fees that brokers could charge clients. Now, with a roof above their heads, traders could call out buy and sell orders from the trading floor; those transactions would be recorded, which provided a level of transparency as well as liquidity that before had not been possible. It was the beginning of efficient market operations as we know them.

Today, computers do most of the buying and selling at the NYSE, although there are still several hundred brokers and traders who shout their orders from the trading pit each day. The scene plays host to dozens of media outlets as well as executives and celebrities who ring the opening bell.

The NYSE makes money through revenues from transaction fees it charges to brokerages, asset-management companies, and market makers. In addition, all members of the NYSE are required to pay yearly membership fees as well as an additional fee to apply.

What Are the New York Stock Exchange’s Hours? Can I visit the NYSE?

The NYSE operates Monday–Friday from 9:30 AM–4:00 PM eastern time. It is closed in observance of the following holidays; when the holiday falls on a Saturday, it closes the Friday before.

  • New Year’s Day
  • Martin Luther King, Jr. Day
  • Washington’s Birthday
  • Good Friday
  • Memorial Day
  • Juneteenth
  • Independence Day
  • Labor Day
  • Thanksgiving Day
  • Christmas Day

The NYSE was open for tours up until the September 11, 2001 attacks; it is no longer accessible to the public.

Which Companies Are Listed in the New York Stock Exchange? How Does a Company Get Listed?

The NYSE lists over 2,000 U.S. and international stocks—for the current lineup, check the directory on its website.

What Is the Difference Between the NYSE and the Nasdaq?

The NYSE and the Nasdaq are both stock exchanges, but the NYSE is much larger. It has a market capitalization of $26 trillion as of 2021, compared with the Nasdaq, which has a market cap of $19 trillion.

In addition, there are several other key differences:

Differences between NYSE and Nasdaq Exchanges

The NYSE sets prices through an auction market, which means that shares are bought directly by buyers from sellers, and share prices are set based on the highest price a bidder is willing to pay and the lowest price a seller will accept.

The Nasdaq uses a dealer market, which means that buyers and sellers do not interact directly; rather, the trades are handled by a dealer, often a larger brokerage known as a market maker, which maintains inventories of stocks and facilitates trades from its own accounts.

Where Is the New York Stock Exchange at Right Now?

For a live feed of NYSE prices, check out its website.

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