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Miami stakes the claim to become the world’s Bitcoin and crypto capital

Miami has a dynamic mayor, lots of VC money and is coming off the largest ever crypto extravaganza, but is that enough without legal clarity?
As Miami comes down from the “high” of having hosted the “largest-ever” Bitcoin…

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Miami has a dynamic mayor, lots of VC money and is coming off the largest ever crypto extravaganza, but is that enough without legal clarity?

As Miami comes down from the “high” of having hosted the “largest-ever” Bitcoin event, it seems reasonable to ask: Does the Sunshine State’s entrepot really have what it takes to become “the world’s cryptocurrency capital?” — a new role foreseen by its dynamic mayor. If not, could Miami at least become the next Crypto Valley — i.e., a cradle for cryptocurrency and blockchain innovation like the Swiss canton of Zug?

The optics certainly look good. As the New York Times noted in its coverage of last week’s Bitcoin 2021 gathering, “The city has gone full crypto,” with Bitcoin ATMs sprinkling Miami’s Wynwood neighborhood. Meanwhile, crypto exchange FTX has secured the naming rights for the Miami Heats arena, while there was also a proposal by Miami mayor Francis Suarez to allow citizens to pay taxes with cryptocurrency, among other things.

But others caution that a lot of hard work still awaits — and regulatory/legislative events have to take a favorable turn before Miami can lay claim to being the capital of anything in the rapidly evolving cryptoverse.

Enabling legislation is critical

“Miami cannot do this without the Florida state legislature passing pro-crypto legislation,” Zachary Kelman, managing partner at Kelman Law, told Cointelegraph, which followed with a question about Bitcoin 2021 being a milestone event and harbinger of big things to come. Kelman answered, “Yes, but in large part due to the pent-up demand for such a conference given the crypto bull market occurring during the pandemic.”

Kelman is no crypto skeptic — quite the opposite. He belongs to the Florida Blockchain Business Association, which is actively lobbying for the necessary crypto-enabling state legislation. If that is secured, Miami could become a crypto hub, even without federal legislation, he said, because:

“Money transmission rules, which are mostly governed by state legislatures, hold the keys for crypto businesses to thrive in a particular jurisdiction. Most of the activity remains in the exchange space, followed by the growth of ‘DeFi’ projects, which also often fall under the state money transmission rules.”

Miami has other advantages over other emerging crypto hubs — even Wyoming, which already has crypto-supportive state laws — Hemang Subramanian, assistant professor at Florida International University’s business school, told Cointelegraph. Miami is an international city with a developed banking infrastructure, and many venture capitalists and high-net-worth individuals are interested in funding innovation. Moreover, “it is one the largest financial hubs in the country, with a large port and a huge expat population from South America, the Caribbean and Europe.”

Benjamin Sauter, a lawyer at Kobre & Kim LLP, agreed with Subramanian that Miami was an appealing destination and business hub “particularly as digital currencies begin to take the Latin American market by storm.” Florida also lacks a state income tax — another plus, he told Cointelegraph. But those advantages still may be unable to transform the city into a global crypto hub, even with favorable state legislation:

“Most of the serious legal work needs to happen at the federal level. Much of the current discussion focuses on Anti-Money Laundering, international cooperation and asset recovery, and tax enforcement. Wealthy individuals and companies in the [crypto] space would do well to plan for government scrutiny and enforcement measures in these areas, rather than holding their breaths for a quick fix in Miami.”

Lane Kasselman, chief business officer of Blockchain.com, which recently announced that it was moving its U.S. headquarters from New York to Miami, was understandably bullish about the company’s sunny new second home and told Cointelegraph, “Miami is already the [new] Crypto Valley, and the announcements last week prove it.” Mayor Suarez is acting as a vocal proponent for technology investment in the region, he added, and “Miami’s welcoming regulatory environment will help fuel crypto innovation.”

Miami as seen from abroad

What about the view from further afield? Thomas Nägele, an attorney who played a role in the evolution of Crypto Valley, told Cointelegraph, “I think that Miami is in a very good position to become a blockchain hub like the Crypto Valley in Switzerland and the crypto country Liechtenstein,” while adding several caveats:

“A blockchain hub is not something that can simply be imposed; it has to be supported by the community, requires a certain number of companies that are active in this area, and, last but not least, needs legal clarity.”

This last item, “legal clarity,” is of the utmost importance, Nägele stressed, and “the perfect example for that is Liechtenstein with its TVTG — also known as Blockchain Act — which provides the legal framework for the tokenization of assets.”

Ian Simpson, senior marketing and communication manager at Bitcoin Suisse AG — a company based in the Crypto Valley — told Cointelegraph, “One challenge for larger cities and countries is that crypto can be ‘swallowed up’ by the wider tech ecosystem, and this can dilute the attractiveness to blockchain projects.” He added, “Close contact and access to ideas, talent and quality services are some of the things that have made Switzerland’s Crypto Valley what it is. We’ll have to wait and see how things develop in Miami.”

When asked if Bitcoin 2021 should be viewed as a milestone event for the crypto and blockchain space, Simpson answered that while it was a welcoming event, particularly after all the lockdowns of the past year, “It does not seem to have marked any significant change or development in the community — and as we saw it had absolutely no effect on the markets.”

Nägele, for his part, called it “a pity” that most European countries were on a quarantine list and were unable to join the Bitcoin 2021 gathering, “but what my friends were telling me, it was an amazing event, and this is always a good start for an ecosystem.” While Kasselman commented, “There’s no question we’ve reached a critical inflection point where crypto has moved from niche to mainstream,” he further explained to Cointelegraph:

“What’s notable is that the conference wasn’t just about Bitcoin, it was about the ecosystem: From DeFi to NFT to SushiSwap. Crypto is an industry, not just a [single] highly valued token.”

A new center of gravity?

Overall, is it even possible to identify the crypto/blockchain world’s nerve center, and if so, could it change? It may shift from time to time, said Nägele, “depending on where attractive conditions exist for the relevant companies. Europe and especially Switzerland and Liechtenstein were certainly early adopters, and recently, Asia is catching up. I really look forward to welcoming Miami to the club, but finally, I hope that we consider the world as the crypto hub.”

Simpson added, “The U.S. has a strong position in the blockchain and crypto space by virtue of its lead in technology and with the recent IPO of Coinbase. However, Europe and Switzerland seem to offer more openness on the regulatory side, and the Asian ecosystem also has a great deal of weight by virtue of scale.” But it is still difficult to point to a single center of gravity in the blockchain ecosystem, he added.

Related: The female speakers who made an impact at Bitcoin2021 in Miami

“While the U.S. and Europe get much of the press, Latin America and Asia show the fastest retail user growth,” added Kasselman. “It’s likely as crypto becomes more ubiquitous across financial services, we’ll see emerging markets accelerate adoption for the core products, and mature markets grow their usage of the expanding crypto ecosystem.”

“I think Miami could easily be the American capital of crypto if it isn’t already,” noted Kelman. “However, without federal legislative support, it is impossible for Miami to become the international crypto capital,” and recent signs “point to more onerous federal legislation rather than crypto-friendly laws in the near term.”

Subramanian said that regulation always follows innovation, and “in a democracy, the people’s ‘will’ will eventually play out.” That is, the requisite state and federal legislation will come eventually. “If Zug in Switzerland can become a crypto-blockchain haven, Miami can too. It is more diverse, more international, and much more capital-friendly,” he added.

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Economics

When We’ll Know The Bear Market Is Over

When We’ll Know The Bear Market Is Over

By Simon White, Bloomberg Markets Live reporter and analyst

It’s a Gordian Knot, but it remains the central…

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When We'll Know The Bear Market Is Over

By Simon White, Bloomberg Markets Live reporter and analyst

It’s a Gordian Knot, but it remains the central question for investors: When will the bear market in US equities and other risk assets be over?

Nobody has a crystal ball, but there are three strong contenders for conditions that will first need to be met:

  • A return of “fiscal credibility”.
  • Real-yield curve inversion.
  • Positive and rising liquidity.

Today’s backdrop is all about inflation. The seismic moves in assets and currencies around the world all boil down to the world’s largest central bank locked in a “death or glory” fight with unanchored price rises. The corollary is we won’t get a green light for risk assets to climb on a sustainable basis until the Federal Reserve has done enough to return inflation to a low and stable regime
The ultimate cause of the current inflation is the large fiscal deficits funded by monetary largesse in the years leading up to the pandemic. The pandemic itself and the Ukraine war didn’t jump-start the rise in prices, they merely worsened the already-changing underlying inflation dynamics.

The role of government spending is critical to understanding this. In a recent Fed paper presented at Jackson Hole, the authors show that when investors do not believe large fiscal imbalances will be stabilized the job of the central bank becomes extremely difficult.

Simply put, if there is a belief public debt will not be contained, it leads to a structural rise in inflation because any monetary tightening by the central bank causes growth to slump and the debt-to-GDP ratio rise. Due to the lack of fiscal credibility, debt buyers assume the rise in the ratio will have to be inflated away, and therefore expect higher inflation.

This is termed “fiscal stagflation,” and it means that the central bank can exacerbate inflation pressures by tightening rates when fiscal credibility is in short supply. The paper shows the massive fiscal interventions in Covid led to this loss in fiscal credibility in the US (although it is arguable it predated that, when Modern Monetary Theory came into vogue).

The first condition for an end to the bear market is thus fiscal credibility. With no strong commitment to bring debt down, there is little sign of it in the US at the moment.

The second condition is an inversion in the real-yield curve (as defined in the chart below). The curve steepened consistently all through the 1970s despite periods of very large interest-rate rises. The Fed in that decade did not have the will or the mandate to raise rates aggressively and persistently enough to break the back of inflation.

It wasn’t until Paul Volcker was at the helm that real progress was made. The Volcker Fed initially had “imperfect credibility” because it wasn’t willing to raise rates come what may, and the market assumed the central bank would ease when a recession hit, rejuvenating inflation. This was reflected in longer-term yields rising even as the Fed hiked aggressively.

After a false start in early 1980, when the Fed prematurely cut rates due to the slowdown, the central bank eventually got it right when it continued hiking aggressively through the 1981-82 recession, with rates peaking at 20%.

The real-yield curve began to flatten hard in 1980 as short-term real yields started to rise faster than long-term ones, and inverted in April 1981. Still, buying at that point would have been on the early side, before the multi-year rally started in August 1982.

Therefore a final condition is needed for the end of the bear market. Liquidity is one of most important medium-term drivers of equities. Its growth was still negative when the real-yield curve inverted in 1981, but by early 1982, it was positive and rising.

Buying the S&P in February 1982 after liquidity started growing would have faced about 10%-12% downside in the shorter term, before the position enjoyed an almost uninterrupted +220% rally.

With fiscal credibility in abeyance, the real-yield curve steep and still rising, and liquidity conditions very negative, none of the conditions are currently in place. Until they are it is difficult to have much confidence this bear market hasn’t got further to run.

Tyler Durden Thu, 09/29/2022 - 15:25

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This Looks A Lot Like the Dot-Com Bust With One Big Difference – Inflation

This Looks A Lot Like the Dot-Com Bust With One Big Difference – Inflation

Via SchiffGold.com,

This is starting to look a lot like the popping…

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This Looks A Lot Like the Dot-Com Bust With One Big Difference - Inflation

Via SchiffGold.com,

This is starting to look a lot like the popping of the dot-com bubble with one big difference — inflation.

Beginning in mid-June, we saw a significant bear market rally in stocks. But the recent declines have wiped out those gains and more. For instance, the Dow jumped 14% during the 2-month rally. By the close on Friday, Sept. 23, it was once again down 20% from its all-time high. That same day, the NASDAQ closed just 2% off its June low after a 23% rally.

As WolfStreet points out, the collapse of this bear market rally was predicated on the fantasy of a Federal Reserve pivot.

The bear-market rally happened because markets – meaning folks and algos playing in them – had this fabulous reaction to the Fed’s aggressive rate-hike scenario: They began fantasizing about a Fed “pivot” and about rate cuts and some even about QE all over again. Asset prices began to jump and yields began to fall.”

WolfStreet points out that this bear market rally is reminiscent of the dot-com era. During a similar two-month rally from May 27 through July 17, 2000, the NASDAQ jumped by 33% without ever getting back to its old high. Ultimately, the NASDAQ collapsed by 78%.

That bear-market rally in the summer of 2000 suckered a lot of people back into the market, thinking that stocks would be going to the moon again, and they got crushed.”

The difference between then and now is we have a CPI over 8%.

The Fed has inflated an everything bubble. Since 2008, the central bank has pumped over $8 trillion into the economy. It got away with this inflation for a long time because most of that money wasn’t getting to consumers. Instead, we saw asset prices spike – particularly the stock market and real estate.

The Fed tried to normalize rates in 2018 and the air started coming out of those bubbles. It had already pivoted back to rate cuts and QE long before COVID. In a sense, the pandemic saved the Fed’s bacon. It gave the central bank an excuse to pump trillions of dollars in new liquidity into the economy and reinflate the bubbles. But the extent of the quantitative easing and the fact that the government handed out trillions to consumers changed the dynamics. Suddenly, the inflation started showing up in the CPI.

The Fed denied it for months, calling inflation “transitory.” But once it became impossible to deny, it launched its inflation fight. Predictably, the markets tanked until they decided the Fed was about finished tightening. Now, reality has set in again and we’re back to the bear market.

WolfStreet sums it up.

These artificially inflated markets cannot even maintain their level amid rate hikes and QT. Even little-bitty rate hikes, just four in a year, and small amounts of QT caused markets to tank, just like interest rate repression and QE had caused them to soar. It was becoming clear to everyone: QT was having the opposite effect of QE.”

The question remains: what will the Fed do. Will it hold the course? Or will it do what it has done in the past — pivot back to inflationary, loose monetary policy to rescue the economy, as it did after the dot-com bust (setting up the 2008 financial crisis).

WolfStreet argues that there will be no Fed pivot. He thinks the central bankers will be willing to tank the economy to get inflation back to 2%, just as Jerome Powell promises.

There have been lots of people who said that the Fed will keep doing QT “until something breaks.” Last time it did QT until the repo market broke. That was when the banks stopped lending to the repo market, which then blew out, which cause the Fed to bail it out in September 2019.

“But this time, the biggest thing that the Fed is in charge of has already broken: price stability. Inflation is the worst it has been in 40 years. And the Fed is tightening in order to fix this huge thing that has broken – to bring this inflation back under control and down to 2% (as per core PCE). This could be a long and tough slog. And other things that might break along the way are by comparison just minor inconveniences.”

This is where I part ways with WolfStreet’s analysis. I think the things that break will be far more and “minor inconveniences.”

Just consider the impact on the national debt. When you run the numbers, it becomes clear the US government can’t operate in a high interest rate environment. And the US government isn’t alone under a big pile of debt. Corporations are overleveraged and consumer debt is at record levels.

So far, the Fed has stayed resolute to follow through with its inflation fight. Peter Schiff said the Fed still thinks it can do the impossible, and it will ultimately pivot. But not until it can no longer deny the impacts of its tighter monetary policy.

I think when Powell is really confronted with how ugly this is going to be, then we’re finally going to get that pivot. But this is a giant game of chicken, and I think Powell is going to keep up this pretense as long as he possibly can.”

The mainstream has conceded a recession looms, although most people say it will be short and shallow. But as Peter Schiff said, the bust needs to be proportional to the boom.

We’ve never had a boom this big. We’ve never had interest rates this low for this long. We’ve never had an economy more screwed up than the one we have right now. We’ve never had bigger asset bubbles, bigger debt bubbles, more misallocations of capital and resources. So, we have more mistakes that we need to fix now than ever before. So, how are we going to do that with a short shallow recession? We’re not. It’s going to be a massive recession. And again, the Fed has no stomach for that, and that’s why the Fed is going to pivot.”

Alan Greenspan was able to engineer a recovery after the dot-com bust with some rate cuts. Ben Bernanke was able to engineer a recovery after 2008 with rate cuts and QE. (And by recovery, I mean reinflate the bubbles.) But they didn’t have to contend with 8.3% CPI. Jerome Powell does. And that changes everything.

Tyler Durden Thu, 09/29/2022 - 13:45

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Economics

Signs Are Pointing Toward Equities Capitulation

Signs Are Pointing Toward Equities Capitulation

By Michael Msika, Bloomberg Markets Live commentator and reporter

The extreme stress showing…

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Signs Are Pointing Toward Equities Capitulation

By Michael Msika, Bloomberg Markets Live commentator and reporter

The extreme stress showing in credit and currency markets has yet to be fully reflected in equities, though this moment may not be far away.

The selloff in stock markets has so far been an orderly one: volatility is nowhere near where it was in the early part of the year, while the Stoxx 600 is still well above pandemic lows.

Contrast that with the blowout in credit markets, where the Markit iTraxx Europe Index of investment-grade credit default swaps has surged to its highest level in 10 years, exceeding Covid highs.

It’s a similar story for foreign exchange and government bonds, with the Bank of England having to provide support in the face of sharp declines, a complete turn in the monetary tightening narrative. The intervention was enough to calm financial markets on Wednesday, but more could be needed in the near future.

For Barclays strategists led by Emmanuel Cau, capitulation in equities may have “a final leg” amid the twin “shock” of a recession and monetary tightening. They expect more equity selling if earnings fundamentals deteriorate and central banks don’t come to the rescue.

Signs are emerging that panic selling in many asset classes may soon spill over into stocks. The Stoxx 600 just hit its lowest level since November 2020 before bouncing yesterday, and is in oversold territory, all of that on heavy volume.

Among the wall of headwinds for equities right now is that they have almost lost their edge to bonds. Corporate investment grades are close to yielding more than stocks, with the difference between them at its lowest level since August 2011. The picture is similar when comparing shares with government 10-year bonds.

Meanwhile, European markets are falling into bear territory one after the other. Spain’s IBEX just became the latest to do so, despite outperforming this year on demand for value stocks. The FTSE 100 is now the only major European index to have dodged the bear tag thanks to the pound’s extreme weakness, though in dollar terms it’s down 30% from its peak.

Technically, things don’t look much better. The Stoxx 600 has now clearly broken major resistance between 414 and 408, and as long as it remains below those levels, further downside is likely, according to DayByDay analyst Valerie Gastaldy.

The European benchmark has “clearly broken below” a 38% retracement from its 2020 low, and could now fall to a level representing a drop of that extent from its 2009 trough “without any particular timing,” she says.

Tyler Durden Thu, 09/29/2022 - 10:54

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