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What were the biggest crypto outcomes of 2021? Experts Answer, Part 2

What was the most important thing that happened within the crypto and blockchain space this year? How has it affected the whole industry?
Ahmed Al-Balaghi of BiconomyAhmed is a co-founder of Biconomy, a developer platform that empowers

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What was the most important thing that happened within the crypto and blockchain space this year? How has it affected the whole industry?

Ahmed Al-Balaghi of Biconomy

Ahmed is a co-founder of Biconomy, a developer platform that empowers blockchain developers to enable a simplified transaction and onboarding experience for their Web 3.0 project.

“The progress made by Ethereum was one of the most outstanding things to come out of 2021, and if all goes as planned, Eth2 will continue to help scale the ecosystem. The milestones reached by Ethereum also paved the way for other protocols to adopt market share, which has created even more innovation industry-wide. The rise of NFTs has also been a great outcome for the industry. It has brought Web 3.0 to the mainstream without branding it as blockchain or crypto.”

These quotes have been edited and condensed.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Andrew Levine of Koinos Group

Andrew is the CEO of Koinos Group, an engineering-first company led by battle-hardened blockchain veterans with unrivaled experience as core developers and architects of the BitShares and Steem blockchains.

“NFTs, as a concept, certainly broke through to the mainstream and demonstrated their staying power as an important economic primitive that can add value to applications by facilitating value transfer in relation to the sale of unique digital goods.”

Daniela Barbosa of Hyperledger Foundation

Daniela is the executive director of Hyperledger Foundation and the general manager of blockchain, healthcare and identity at the Linux Foundation.

“In 2021, government and public institutions raised their heads collectively to start exploring what blockchain technologies can deliver to society. From public permissionless to permissioned and hybrid approaches, many use cases are no longer just research projects. The surge of interest in decentralized digital trust infrastructures will continue, and across Europe, Canada and Asia, we already see our Hyperledger community working on digital identity and verifiable credentials use cases that will impact us all across Healthcare, Travel, Payments and Government Services.”

Donald Thibeau of the HBAR Foundation

Donald is the co-founder and chief strategy officer of the HBAR Foundation, which helps the development of the Hedera ecosystem by providing grants and other resources to developers, startups and entrepreneurs.

“The biggest outcome of 2021 has been developer community growth and acceleration. Although the impact has not yet been realized, developers and communities are forming across the globe to support distributed applications and adoption of crypto. They are enabled with more tooling, financial resources and market demand to innovate and build. These projects, started over the course of the next year, will continue to serve as the evergreen innovation in the crypto space that has made the industry what it is today.”

James MacFarlane of Eden Network

James is the head of business development at Eden Network, an optional, non-consensus-breaking transaction-ordering protocol for Ethereum blocks. 

“Without a doubt, it has to be the launch of other layer-one protocols and layer twos. They opened up the blockchain to millions and millions of users who couldn’t afford to pay Ethereum’s fees and opened up so many niches. 

The likes of BSC, Avalanche and Matic have been revolutionary and have affected the industry in many ways. For example, because Ethereum’s fees are so high, it eliminates spam transactions that occur on ultra low-cost blockchains like BSC. It’s also way cheaper/easier to launch a project on one of these other chains. The differences in transaction fees on blockchains have a lot of implications for the industry.

We have also seen Olympus DAO create a new product category of protocol-owned liquidity, making a lot of new projects rethink how to create the most value when it comes to the liquidity of their tokens.

Finally, we have seen the rise of traders on Ethereum being targeted for sandwich attacks, with users losing over $200 million to bots exploiting their trades in 2021. This number is likely to grow in 2022.”

Jason Allegrante of Fireblocks

Jason is the head regulatory counsel and global chief compliance officer at Fireblocks, a digital asset custody, transfer and settlement platform.

“By breaking through to the most regulated players, it opened the gateway for more products and services to be available to retail customers. We’ve seen firsthand the cascading impact of traditional fintech and banking sector showing their ambitions in the blockchain space, so by the end of 2022, it will become table stakes to support crypto, which will push corporations to add crypto to their strategies in the years to come.”

Lisa N. Edwards of Getting Started In Crypto

Lisa is an Elliott Wave specialist trader with 20-plus years of experience in traditional stocks and commodities, now exclusively trading cryptocurrency. She runs and co-owns Getting Started In Crypto, Thousand To Millions and The Moon Mag with Josh Taylor.

“DeFi was huge, but as the year progressed, GameFi, then Metaverse, have changed the space in ways it will never be the same, bridging the gap between traditional gaming like your Sony Playstation or online shopping in a metaverse, starts the road to mass adoption. NFTs, when used correctly, change the way artists, musicians and filmmakers can be paid, and how my Coinrunners NFT model works, to repay investors with royalties, straight to the holding wallet address. There are so many game-changing, mind-blowing technologies being developed every day!”

Paolo Ardoino of Bitfinex

Paolo is the chief technology officer of Bitfinex, a digital asset trading platform offering state-of-the-art services for digital currency traders and global liquidity providers.

“I believe that in years to come, El Salvador’s adoption of Bitcoin as legal tender will represent an important milestone for the industry. The country’s Volcano Bond will equally be an important turning point in the history of finance, with a government using the natural and renewable energy provided by the local environment to mine Bitcoins and secure a bond offering.

On the more technical side, the Lightning Network saw exponential growth this year, something that I believe will set the precedent for the long-term adoption of digital token payment systems. In August, LN surpassed 25,000 active nodes for the first time, providing a strong indication that the network is growing more powerful. The increased connectivity and development of more channels have resulted in fees dropping and the network doing more developed work. The higher the capacity of the network, the more transactions that can be sent. This translates into an increased potential to have a fully functioning readily adoptable cryptocurrency payment system within the next few years.”

Roger Ver of Bitcoin.com

Roger is an early Bitcoin adopter and investor. He is the executive chairman of Bitcoin.com, a site featuring cryptocurrency news in addition to an exchange and wallet service. He is also one of the five founders of the Bitcoin Foundation.

“Due to BTC’s 1MB block size limit, ETH is on the verge of flipping it in every metric. Once that happens, the masses are likely to realize that there isn’t anything special about BTC compared to other cryptocurrencies and that crippling it with a 1MB block cap in the hopes that a layer-two scaling solution could take over will be viewed as the horrendous strategic mistake that it was. It delayed the mass adoption of cryptocurrency by years.”

Simon Peters of eToro

Simon is the crypto analyst at eToro, a social trading platform that offers investing in both stocks and cryptocurrencies.

“The pandemic and associated lockdown measures have turbo-charged the transition to this technology as we close out 2021. However, as the ultimate frontier between the real and virtual worlds, the metaverse represents the most likely evolution of the internet in the coming years. 

From Facebook to Meta, from Square to Block, fresh batches of tech titans are taking bets on the future of digital assets. First coined by Neal Stephenson’s 1992 novels The Virtual Samurai and Snow Crash, the metaverse refers to a virtual world where users can move around as avatars, interact socially and economically, with other people.

Mark Zuckerberg’s latest initiative could be the catalyst of widespread, mainstream adoption of decentralized metaverse platforms such as Decentraland and The Sandbox, who have already seen extraordinary gains in the last few weeks with their respective tokens, (MANA, the token used on Decentrand is up over 400% in the last five weeks).

Additionally, Fidelity Investments recently became the latest asset manager to announce plans to launch a Bitcoin exchange-traded fund (ETF) on the Toronto Stock Exchange. However, following positive net inflows into Bitcoin from institutional investors, the Fidelity Advantage Bitcoin ETF (FBTC) will look to invest in the underlying asset of Bitcoin, or spot. This new fund, which some have dubbed the ‘holy grail’ of Bitcoin ETFs, if approved, could encourage a new wave of liquidity to enter the space. There are already hundreds of trillions of dollars of liquid investable assets globally managed by institutional investors, versus Bitcoin’s current $1.1 trillion market capitalization, so even a small percentage of these liquid assets inflowing into crypto could cause the overall market cap to double.”

Yaniv Tal of The Graph

Yaniv is the co-founder and CEO at Edge & Node and a co-founder of The Graph, a decentralized indexing protocol used by blockchains such as Ethereum.

“For sure, the biggest story of 2021 was NFTs and the rise of the creator economy. From CryptoPunks to Bored Apes, Beeple’s $69 million sale, to generative art and music projects, NFTs have captured people’s imagination and catapulted Web 3.0 into the popular zeitgeist.”

Introduction

Apart from what has been already said about the greatest achievements of 2021, I’d like to highlight what was the most important for me. Thanks to emerging technologies with blockchain at their core, we’ve witnessed the rise of the creator economy. That’s what the crypto industry was designed for — to empower people and give them the freedom and access to be in charge of their money and wealth. For me, without any doubt, the creator economy is the biggest outcome of the year. 

But that’s just me. To gain more insight on the matter, I reached out to different experts from the blockchain industry, asking: “What are the biggest outcomes of 2021 within the blockchain space that have most affected the whole industry?”

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Economics

The retailers that should weather the coming economic storm

Conditions are about to get tougher for retailers as they face a perfect storm of falling incomes, galloping inflation, and rising interest rates.  These…

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Conditions are about to get tougher for retailers as they face a perfect storm of falling incomes, galloping inflation, and rising interest rates.  These impacts will crimp the discretionary spending power of many people. The one exception could be the under 25-year-old Gen Z demographic, who have fewer non-discretionary costs than other age groups. The retailers who sell to them could fare better than most.

Over the last six months, discretionary retail stocks have been among the worst performers on the ASX, with the S&P/ASX 300 Retailers Accumulation Index underperforming the broader market index by 13 per cent over that period. Admittedly, this recent under performance merely unwinds the 20 per cent out performance of this index in the preceding 18 month period which coincided with the recovery in the market from the pandemic lows.

Over the last six months, only 1 of the 17 stocks in this index has managed to perform better than the broader market, JB HiFi, while four generated losses of over 50 per cent. Notably these stocks, Red Bubble, Kogan, City Chic and Temple & Webster, are all online retailers, and performed very strongly over the first year of the pandemic as they were perceived to be COVID winners.

Figure 1: Total return of retailing stocks between 16 Nov 2021 and 16 May 2022

Source: Bloomberg

The market is concerned that the combination of falling incomes – as households face rising inflation on a broad basis eating into real spending power, and rising interest rates – will reduce discretionary spending power. However, it is not as simple as this. 

While these factors are likely to lead to pressure on overall discretionary consumption, these factors do not affect all segments of the economy equally.

CBA’s economic team has released data for household income and spending growth for the March quarter of 2022. This data is broken down by age demographic.

In looking at the potential impact of spending from cycling the impact of large stimulus payments that were received by households in the prior year, CBA’s data suggests that the percentage of Millennials receiving some sort of government payment has fallen the most relative to the December quarter of 2021 followed by Generation X. Gen Z and Baby Boomers have experienced less of a reduction.

Offsetting the reduction in government benefits is an increase in the percentage of people receiving a salary. This is likely as a result of people returning to work post the pandemic and the current strong labour market.

Figure 2: Share of households receiving government benefits or salaries
(change between 4Q21 and 1Q22)
Source: CBA

This then feeds into the impact on each demographic’s growth in overall income over the last 12 months. This shows that Gen Z has benefited the most from the current strong employment market with increased employment and strong wage growth while the percentage receiving government benefits remains higher than other demographics and above pre-pandemic levels. 

Figure 3: Household income and spending – annual average % change in 1Q22
Source: CBA


Not surprisingly, it is also Gen Z that has shown the strongest spending growth in the March quarter. For the other generations, spending growth has exceeded income growth, implying that their savings rates have declined to fund that growth in spending.

But savings are still well above 2019 levels for all generations and still rising. This will provide a buffer against cost increases and slowing growth in the medium term as inflation and higher interest rates bite. Gen Z has the biggest savings buffer.

Figure 4: Household savings – average deposit and offset balancesSource: CBA

Not surprisingly, overall household wealth is considerably higher than at the end of 2019, primarily as a result of rocketing residential property prices on the back of emergency monetary policy settings. The wealth effect of housing prices is an important driver of discretionary spending in Australia and has benefited retailers over the last two years.

Figure 5: Household wealth – average per household

Source: CBA

Of course, what interest rates can give, they can also take away. With variable mortgage rates likely to increase 1-2 percentage points over the next year, residential property prices are expected to fall, reversing some of this wealth effect.

There is no doubt that conditions are set to tighten for retailers over the coming year. However, reversing wealth effects from falling property prices and falling discretionary income levels will primarily impact those generations that own most of the housing stock, namely the Baby Boomers, Gen X and to a lesser extent the Millennials. Baby Boomers are more likely to be impacted by falls in house prices while Millennials will be more impacted by the need to allocate more of their income toward mortgage repayments.

For those that rent rather than own their home, rents are also likely to rise, as property owners try to pass on rising mortgage, utility and maintenance costs to tenants.

Those with families will be more impacted by rising prices of non-discretionary goods and services like food and utilities. This impact will be concentrated on Millennials and Gen X.

While not immune, the younger Gen Z demographic is likely to fare better than other generations given it faces fewer non-discretionary costs, and is not as exposed to property and wealth effects. At the same time, it is experiencing the strongest income growth and has had the most significant increase in its savings over the last two years.

Hence, we prefer retailers that cater to this younger demographic in the discretionary segment such and Universal Store and Accent Group.

The Montgomery Funds owns shares in City Chic, Universal Store and Accent Group. This article was prepared 18 May 2022 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Goodman Group you should seek financial advice.

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Economics

What Is the VIX Volatility Index? Why Is It Important?

What Is the VIX and How Does It Measure Volatility?In finance, the term VIX is short for the Chicago Board of Exchange’s Volatility Index. This index…

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The VIX strives to predict market volatility through the lens of options trades.

Wavebreakmedia from Getty Images; Canva

What Is the VIX and How Does It Measure Volatility?

In finance, the term VIX is short for the Chicago Board of Exchange’s Volatility Index. This index measures S&P 500 index options and is used as an overall benchmark for volatility in the stock market. The higher the index level, the choppier the trading environment, which makes its other nickname pretty apt: the fear index.

It’s important to point out that the VIX measures implied, or theoretical, volatility. It measures the expectation of future volatility based on a snapshot of the previous 30 days’ worth of trading activity.

What Do the VIX Numbers Mean?

  • A VIX level above 20 is typically considered “high.”
  • A VIX below 12 is typically considered “low.”
  • Anything in between 12 and 20 is considered “normal.”

When there is increased activity on put options, which means that investors are selling more puts, the VIX registers a high number. Investing in a put option is like betting that the price of a stock will go down before the put contract expires because puts give investors the right to sell shares of a stock on a specific date at a specific price.

These are bearish investments, ones that can take advantage of emotions like fear. There is a saying on Wall Street that does “When the VIX is high, it’s time to buy” because the general belief is that volatility may have reached a peak, or a turning point.

When the VIX falls, that means that investors are buying more call options. Investing in a call is like betting that the price of a stock will go up before the call contract expires. In other words, a falling reading on the VIX indicates that the overall sentiment in the stock market is more optimistic, or bullish.Although the VIX isn't expressed as a percentage, it should be understood as one. A VIX of 22 translates to implied volatility of 22% on the SPX. This means that the index has a 66.7% probability (that being one standard deviation, statistically speaking) of trading within a range 22% higher than—or lower than—its current level within the next 12 months.

How Is the VIX Calculated? What Is the VIX Formula?

In a nutshell, the VIX is calculated by the Chicago Board of Options Exchange using market prices of S&P 500 put and call options with an average expiration of 30 days. It uses standard weekly SPX options and those with Friday expirations, but unlike the S&P 500 index, which contains specific stocks, the VIX is made up of a constantly changing portfolio of SPX options. The Chicago Board of Options website goes into more detail about its methodology and selection criteria.

How Do I Interpret the VIX?

There are many ways to interpret the VIX, but it’s important to note that it’s a theoretical measure and not a crystal ball. Even the sentiment it tracks, fear, is not itself measured by hard data, such as the latest Consumer Price Index. Rather, the VIX uses options prices to estimate how the market will act over a future timeframe.

It's also important to understand how much emotion can drive the stock market. For example, during earnings season, a company’s stock may report solid growth yet see shares plummet, because the company did not meet analyst expectations. So much of what goes on in the market can be summed up by feelings, like greed, as investors spot appreciation potential and place buy orders, which drive prices higher overall. Fear is evidenced when investors try to protect their investments by selling their shares, driving prices lower.

At its worst, fear-driven selling can send the market into a tailspin and lead to emotions like panic, which can result in capitulation.

But the VIX is not designed to cause panic. It is simply a gauge of volatility. In fact, some investors, especially traders, view the increased turbulence as a signal to buy, so that they make a profit either through speculation or hedging and thus capitalize on the situation.

Can the VIX Go Above 100?

Theoretically speaking, the VIX can top 100, although it has never reached that point since data collection began in 1990.

The two highest points the VIX has ever reached were the following:

  1. On October 24, 2008, at the height of the Financial Crisis, which stemmed from the global implosion of mortgage-backed securities, the VIX reached 89.53.
  2. On March 16, 2020, during the beginning of the COVID-19 pandemic, the VIX recorded a high of 82.69.

Analysts also believe that had data collection begun in the 1980s, the VIX would have topped 100 during the Black Stock Market Crash, on Monday, October 19, 1987.

This chart from FRED, the Federal Reserve’s data center, details the VIX from 1990 to 2022. Shaded areas illustrate periods of recession:

Chicago Board Options Exchange, CBOE Volatility Index: VIX [VIXCLS]

FRED

How Do I Trade the VIX? Can You Buy Options on the VIX?

Investors can’t invest directly in the VIX, but they can invest in derivatives that track the VIX, such as VIX-based exchange-traded funds (ETFs), such as ProShares VIX Mid-Term Futures ETF (VIXM), and exchange-traded notes, like the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) and the iPath Series B S&P 500 VIX Mid-Term Futures ETN (VXZ).

What Is the VIX at Today?

To view the VIX’s current reading, visit the webpage maintained by the Chicago Board of Options Exchange; it is updated daily.

What Are the VIX’s Current Volatility Predictions?

The stock market has been in choppy waters for most of 2022. Tech stocks, the Nasdaq, and stocks with high P/E ratios have taken a beating as investors worry about continued inflation, the Russia/Ukraine war’s effect on energy prices, the aggressive pace of interest rate hikes from the Federal Reserve, and China’s extreme “zero-COVID” policies. All of these things are causing the storm clouds to gather around the possibility of recession.

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Economics

Over-Aggressive Fed Faces “Financial Accident” – Guggenheim Warns Recession Risk Rising

Over-Aggressive Fed Faces "Financial Accident" – Guggenheim Warns Recession Risk Rising

Via Guggenheim Partners,

Fed Aggressiveness Following…

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Over-Aggressive Fed Faces "Financial Accident" - Guggenheim Warns Recession Risk Rising

Via Guggenheim Partners,

Fed Aggressiveness Following Delayed Liftoff Sets Up 2023 Collision

The risks of tightening into a downturn.

If two trains are heading towards each other at different speeds, when will they collide?

This grade school arithmetic problem is playing out in the Federal Reserve’s (Fed) execution of monetary policy. In this case, one train is the aggressive tightening plan as telegraphed by the Fed and the other is the U.S. economy which, while still strong, is showing a few signs of cooling. Investors want to know when the collision—a recession—will occur.

The Fed’s dual mandate calls for full employment and price stability. Historically, the Fed would change the fed funds rate in response to changes in the unemployment rate and changes in inflation (i.e., the second derivative of the price level). Simply adding up these changes (flipping the sign for unemployment) has tracked well with changes in Fed policy. This relationship has held over several decades and through both tightening and loosening of monetary policy.

However, over the past year there has been a notable divergence in this relationship. The steep drop in unemployment and sharp acceleration in inflation was met by an unresponsive Fed. This breakdown in the typical reaction of the Fed can be attributed to the unique nature of the pandemic shock, the Fed’s updated policy strategy, and a misreading of the inflation surge as transitory. The result is that the Fed, as it now acknowledges, is badly behind the curve and “expeditiously” moving ahead with 50 basis point hikes to both keep inflation expectations in check and protect its reputation.

At the same time, however, inflation is now decelerating and the pace of decline in the unemployment rate is slowing. Had the Fed followed the historical pattern in the chart above, the fed funds rate would be around 2.5 percent now and the Fed would be able to start pulling back on rate hikes as the economy cooled. Instead, the Fed looks poised to hike to around 3.5 percent into next year, when inflation will have slowed further and the unemployment rate will have largely leveled off. With the passage of time as the Fed continues to hike, we will likely find ourselves experiencing the effects of increasingly restrictive monetary policy.

Well before it reaches this terminal rate the Fed will increase the risk of overshooting, causing a financial accident, and starting a recession. Such an asynchronously tight monetary stance should exacerbate the cyclical slowing of the economy and cause a recession as early as the second half of next year. Given this collision course between the Fed and the cooling economy, long term interest rates are likely near a peak.

As Scrooge asked in Charles Dickens’ A Christmas Carol, “Are these the shadows of the things that Will be, or are they shadows of the things that May be only?” Only time will tell.

And as Guggenheim's CIO, Scott Minerd, noted on CNBC earlier, don't expect The Fed to protect your downside in the market either... "we are going to be meaningfully lower in stocks by the end of the year because The Fed has made it clear that they do not have a put on the stock market."

Guggenheim's fears correspond with SocGen's previous warning that this cycle puts the peak of the Fed Funds at just below 1.0%, or less than 3 more rate hikes before the Fed is forced to reverse!

Tyler Durden Wed, 05/18/2022 - 17:00

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