Was that the Crypto Crash of 2021?

Yesterday brought falls and then no little panic to the world of Bitcoin and the other cryptocurrencies. This is how the London Financial Times reported events.

Cryptocurrency markets swung in chaotic trading and related stocks were hit after Chinese regulators signalled a crackdown on the use of digital coins, which have soared in price this year. Bitcoin tumbled as much as 30 per cent to a low of $30,101, before clawing back its losses to less than 8 per cent.

The selling was quite a panic as human emotion took over and I noted people tweeting that it had hit US $32k almost immediately after they had tweeted it had hit US $33k. Those sort of falls are described variously as catching a falling knife or piano as buyers find that purchases immediately go sharply offside. There is an element of time here because there is invariably a bounce if you can hold you position long enough. It is usually triggered by what is called a “capitulation” with someone getting out at any price and this is usually forced.

We also live in a world where according to Finder.com this is true.

A popular myth is that “Elon Musk invented Bitcoin,” and not some anonymous developer known as Satoshi Nakamoto. The founder of Tesla and Spacex denied the speculation a long time ago but 56% of Australians still agree with it.

Anyway in terms of perspective this can be compared to the recent and indeed all-time high for Bitcoin of US $64,778. So we move on with two contexts. Those who bought before this year began remained in profit yesterday but those who bought at the top saw their position halve in price. It would be those in the latter camp getting out yesterday and in some cases at almost any price.

What about the other coins?

They had an even worse day.

Other digital coins were also hit by heavy selling, with ethereum, one of the best-performing cryptocurrencies in the past month, losing a quarter of its value before moderating to losses a little over 20 per cent. More than $8.6bn of positions have been liquidated over the past 24 hours, according to data from bybt.com, a cryptocurrency data provider. ( FT)

If we switch to Dogecoin our subject of the 10th of this month we can remind ourselves of this.

But those who bought the SNL hype were making pretty quick losses and at the time of typing the price is 53.6 cents.

So those who had taken a ride on the Elon Musk wheel of fortune were not enjoying the ride. They will have enjoyed the fall below 28 cents yesterday even less but if they have hung on will have more cheer for the 36.4 cents as I type this. It makes me wonder what on earth went on with that lunar payload which will be financed with Doge? Or indeed this?

DUBAI: A Dubai developer announced on Wednesday it plans to begin accepting Dogecoin as a payment option for its latest project launch, despite recent turbulence in cryptocurrency markets. ( Arab News yesterday)

We can now switch to economics and consider a couple of the functions of money which is to be a medium of exchange and a unit of account. The concept of a unit of account will have failed yesterday and you will have exchanged at what price? Quite what the developers are on about here seems from another world.

This is accomplished using smart contracts for real estate buyers which are automated agreements that use online blockchain technology instead.

As to the moves of the various coins it was a case of Blood Sweat and for some Tears.

What goes up must come down
Spinning Wheel got to go ’round
Talkin’ ’bout your troubles
It’s a cryin’ sin
Ride a painted pony
Let the Spinning Wheel spin
You got no money, you got no home
Spinning Wheel all alone

What caused this?

The trigger came from the People’s Bank of China.

For example, it made clear that institutions must not accept virtual currencies, or use them as a means of payment and settlement. Nor can institutions provide exchange services between cryptocurrencies and the yuan or foreign currencies.

Additionally, institutions were prohibited from providing cryptocurrency saving, trust or pledging services and issuing crypto-related financial products. And virtual currencies must not be used as investment targets by trust and fund products. ( Reuters)

Perhaps they wish to protect Chinese investors from the speculation but in truth it makes me think that they are worried about it being used as a route to get money out of Hong Kong. This is far from the first time they have cracked down on the crypto world so we will have to see how serious they are.

Even through this the Financial Times ended with a bullish sweep. Here is Henri Arslanian, global head of crypto at the consulting company PwC.

“The reality is that we are seeing the continuous entry of institutional players and institutional investors in this space and that is unlikely to slow down any time soon.”

Of course if you are as grand as a “global head of crypto” you have to say that. Although on a day when it looks like some institutional players exited it may not be the best time to say it.

Speaking of vested interests.

Cathie Wood, founder of Ark Invest, a fund manager that has invested heavily in cryptocurrency-related companies, also reiterated her support for bitcoin. “We go through soul-searching times like this and scrape the models and, yes, our conviction is just as high,” she told Bloomberg Television. ( FT)


We can start with the price of Bitcoin which was just above US $40k when I began typing and is now just above US $39k. It has got to these levels and beyond because of the financial world we live in illustrated kindly by John Cunliffe of the Bank of England only a few minutes ago.

BoE MPC Member Cunliffe: UK House Price Strength In A Recession Is ‘Striking’ ( @LiveSquawk)

Somebody needs to tell him that every single policy he has voted for has contributed to this. Behind this is the fundamental point where we live in a world dominated by zero and indeed negative interest-rates plus QE has been used as a way of boosting asset prices. The trouble is if you are left out or asset poor what do you have as alternatives?

Thus the ground has been fertile for the crypto world as on the other side I note this from Craig Torres of Bloomberg.

If a currency devalued 30%, the government would be overthrown, the army would be in the streets, the banks would be closed, and hyper-inflation would rip through food prices. Bitcoin isn’t a currency, or even a legit payment system.

I replied asking if he had forgotten Argentina and Turkey? There have in fact been rough times for plenty of South American currencies and only a few years ago there was the Egyptian Pound.

But the issue of being money is a genuine one. I noted earlier the problems days like yesterday create for being a medium of exchange. How can you buy anything when the price is so volatile? That is quickly followed by unit of account as that cannot work when you do not have any idea what one Bitcoin is worth. Store of Value breaks into two categories I think as it still works for longer-term investors but for more recent players it has been a rough ride.

Still I suppose in future events like this should male holders very nervous.

Remote-First-Company/CHICAGO–(BUSINESS WIRE)– Coinbase Global, Inc. (COIN) (Nasdaq: COIN) today announced the pricing of $1.25 billion aggregate principal amount of Convertible Senior Notes due 2026 (the “notes”) in a private offering (the “offering”) to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended (the “Securities Act”).


What is the future of money and cash?

The issue of money and what it is considered to be has been something that has undergone quite a few changes in the credit crunch era. For example back then many would have described Quantitative Easing (QE) bond purchases as printing money and therefore being directly inflationary. Whereas we have learnt over time that the main effects escape consumer inflation measures and instead can be found in asset prices such as houses and bonds. Oh and don’t be too worried about if you got that wrong as the central banks did too as I recall the Bank of England assuring us QE would directly create inflation. If course that message got relegated if not redacted but we are left with the uncomfortable view that whilst one Pound is the same as another it has different impacts due to the way it is created. Money creation by banks is different to money creation by central banks. Putting that another way the “high powered money” of economics text books referring to central bank creation actually fitted better with bank creation.


Next comes the issue of the crypto era or the various digital coins that have appeared. If we look back then Bitcoin was created back in 2009, but if you indicated that it would have the role it has now you would only confuse people  back then. Who would believe you? Telling them that the crypto world would have a market value of US $2.5 trillion as it did last week might have got you a padded cell. There are of course issues with using a marginal price for a collective concept like market value but as Todd Terry put iy.

Something’s goin’ on

Whilst the coin introduced this week ( Internet Computer) is already worth over US $40 billion it is hard to call it money for now when who even knows about it? Also it would appear that many of the advocates who are pleased at the way they have avoided central bank involvement seem to have replaced them with Elon Musk, at least for the time being. We started the week noting his impact on Dogecoin and then there was this.

We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel……….Cryptocurrency is a good idea… but this cannot come at great cost to the environment

So Elon seems to have his finger on the price trigger as we mull what is behind all of this.

To be clear, I strongly believe in crypto, but it can’t drive a massive increase in fossil fuel use, especially coal

There are all sorts of issues here as we wonder what his view of the Lithium mining for his batteries is? But we see that this new form of money has its challenges too.

Bank of England

John Cunliffe of the Bank of England has been looking at this and he is concerned about the split between what is “public” and “private money”

Public money for general use in the UK is only available in the form of physical cash. It is highly visible, trusted and, indeed, is probably the image that many people in this country have in their mind when they picture money.


However, the majority of the money held and used by people in the UK today is not physical ‘public money’, issued by the state, but digital private money’ issued by commercial banks. Around 95% of the funds people hold that can be used to make payments are now held as bank deposits rather than cash. In everyday use, only 23% of payments pre pandemic were made using public money in the form of cash, down from close to 60% a decade earlier.

I am not sure where he thinks he is going with this because for most people private money is fungible with public money due to this.

And a deposit guarantee scheme gives holders of commercial bank money the protection of a backstop should the bank fail.

But the concept of money at banks was challenged not so long ago and we did see bank runs.

the government was forced to bailout the banking system at enormous cost to avoid the millions of citizens losing the money they held in the form of claims on commercial banks.

The response of ever more state backing such as the expanded deposit protection scheme as well as the “Too Big To Fail” culture means I would argue that public money is these days effectively more like 70-80% ( not all deposits are insured) than the 5% he claims.

This bit is more interesting though because it brings the crypto world into the equation.

 Money is in the end a social convention that can be very fragile under stress.

Perhaps Elon will demonstrate how fragile as as far as I can see he is operating without reference to regulation or the law. More disturbingly the law does not seem to be catching up with him whereas it is trying to with others.

Cryptocurrency exchange Binance is under investigation by the Justice Department and the IRS, with officials who probe money laundering and tax offenses seeking information ( Bloomberg)

Being a central banker John Cunliffe wants to downplay the role of cash.

As a result the use of public money in the form of physical cash has been declining……….A recent Bank of England survey, for example, found that 70% of respondents were using less cash than prior to the pandemic.

Whereas the actual amount of cash has been rising and at quite a rapid rate recently as you can see below.

What about a Digital Pound?

There will be absolute panic at the Bank of England at the prospect of this.

As I set out earlier, there is now the very real prospect of non-banks, including the large technology platforms or ‘Big Techs’, issuing new forms of digital money, such as ‘stablecoins for general payment purposes. These are likely to have greater functionality and lower transaction costs than the current commercial bank digital money offering and could quickly attract a large number of users.

The panic will be at the impact on The Precious! The Precious! which would be singing along with Queen and David Bowie.

It’s the terror of knowing
What this world is about
Watching some good friends
Screaming let me out

Putting it another way this bit is curious.

Competition acts a spur to innovation.

The banking system has been exactly the opposite of that being at best mostly an oligopoly. Also the track record of the public-sector in keeping people’s data safe inspires little confidence here.

A second area in this values category is privacy.


Money has changed quite a bit in recent times although to be fair much of that as been in our perception of it. In some ways Pink Floyd had a decent stab at it.

It’s a crime
Share it fairly
But don’t take a slice of my pie
So they say
Is the root of all evil today
But if you ask for a raise
It’s no surprise that they’re giving none away
One aspect of the future is clearly the advent of central bank digital coins which will have two features. The first is negative interest-rates in the next recession and the second is an attempt to protect the role of the banks. That creates a problem because the first undermines the second.
Actual physical cash will come under more official pressure. They will claim that this is to deal with financial crime but the reality is that the future is likely to find even a 0% interest-rate attractive. Who a decade ago would have thought I would be both thinking and typing that? I think that is why we are seeing the cash in circulation rising as people are putting some aside for such eventualities. Thus the high tech world of digital money may be creating a subset of money under mattresses and floorboards.
Also we are seeing a lot of official talk about privacy. Are you thinking what I am thinking?
Oh and as a final point there are regular flurries about the end of US Dollar dominance. But all of these new ventures seem to define themselves in relation to it, so it seems to be doing okay…..


The ECB plans for ever more QE and lower interest-rates

Yesterday brought news that there is plenty of work ahead for the European Central Bank or ECB. It came from the European Commission and the emphasis is mine.

The Commission has today taken steps to ensure that borrowing under the temporary recovery instrument NextGenerationEU will be financed on the most advantageous terms for EU Member States and their citizens. The Commission will use a diversified funding strategy to raise up to around €800 billion in current prices until 2026.

Interesting that they claim to know what future bond markets will be doing, but I was already expecting that the ECB will be brought in to buy at least some of the bonds. The borrowing will be large in annual terms and any repayment is kicked safely into the very long grass. The choice of 2058 looks to be driven by the fact that the ECB only buys bonds up to the 30 year maturity.

This will translate into borrowing volumes of on average roughly €150 billion per year, which will make the EU one of the largest issuers in euro. All borrowing will be repaid by 2058.

Then we got confirmation of the role of the ECB in this.

EU will create liquidity buffer at the ECB as part of recovery fund to ensure funding needs are always met – EU official  ( @PriapusIQ )

Ah so “liquidity buffer” is what it is called now! Regular readers will be aware that this fulfills two of the themes we have. Firstly the ECB is increasingly the buyer of first resort for Euro area debt with the kicker that “liquidity buffer” sounds like a euphemism for edging closer to buying in the primary markets. Next that the PEPP capacity ( 1.85 trillion Euros)  will be used, in spite of the regular claims that it may not be. After all at 960 billion it is already much larger than the original plan.

The Governing Council decided to increase the initial €750 billion envelope for the PEPP by €600 billion on 4 June 2020 and by €500 billion on 10 December, for a new total of €1,850 billion.

I suspect it will turn out to fulfill the definition of temporary in my financial lexicon for these times as well.

The PEPP is a temporary asset purchase programme of private and public sector securities.

There was also this in the announcement.

This will also attract investors to Europe and strengthen the international role of the euro.

This is curious as they already have plenty of opportunities to buy Euro area debt should they wish. Also the Euro is widely traded. Perhaps they mean that international investors will be attracted by the ability to front-run the ECB and make an easy turn. Language can be loose here because as I was looking at the debt issuing vehicle the European Stability Mechanism or ESM I spotted this in today’s blog from it.

As a result, the Greek economy was structurally more resilient at the start of the pandemic than it was prior to the sovereign debt crisis.

Really? The economic collapse was on top of a contraction of 20% or so previously. Also the debt to GDP ratio is now north of 200%. Plus the blog seemed to be trying to have its cake and eat it by lauding austerity.

 Past consolidation efforts, though quite painful, enabled the country to enter the pandemic with a very healthy budgetary position.

But also fiscal stimulus.

This allowed the government to combat the effects of the current crisis with countermeasures amounting to approximately 9.4% and 6.5% of GDP in 2020 and 2021, respectively.

This confusion over whether debt and deficits are bad was repeated by the man running this show which is Klaus Regling of the ESM.

And some like to compare the numbers in Europe to the US, but they are comparing apples and pears, I think, because the fiscal deficit, that’s true, is jumping up a lot more in the US, which, by the way, also means that the debt levels in the US are higher than in almost all European countries now.

So debt is apparently bad here rather than strengthening the international position of the Dollar or enhancing growth.


These days central bankers try to tell politicians what to do as this from ECB Vice President de Guindos yesterday shows.

 It is therefore of the utmost importance that the NextGenerationEU plan becomes operational without delay, as it would allow Member States to restart their economies, enhance their resilience and foster innovation.

As an aside the use of “resilience” is always a sign of trouble. For example we are regularly told the bodies below are resilient.

For example, the profitability outlook for banks remains weak as lower-for-longer interest rates dent margins and structural challenges persist.

Returning to the main point things are really rather awkward as an ex-politician now posing as an independent central banker tells current politicians what they should do.

The Digital Euro

This has been gaining news recently and this started with Isabel Schnabel a week ago. She opened this section by getting her retaliation in first.

In our view it is wrong to describe bitcoin as a currency, because it does not fulfil the basic properties of money. It is a speculative asset without any recognisable fundamental value and is subject to massive price swings.

That left her open to this response.

Currencies such as the euro don’t have any intrinsic value either, but are simply based on trust.

The euro is backed by the ECB, which is highly trusted. And it is legal tender. Nobody can refuse to accept euro. Bitcoin is a different matter.

I am sure the ECB is highly trusted in her circles as it provides well paid employment but beyond that? Well it gets worse because whilst Facebook has had issues the rise of Bitcoin clearly shows people are willing to take quite a risk to avoid central banks.

They are surely more likely to trust the ECB than Facebook or other private operators.

Board member Panetta was on the case yesterday and I note he seemed to get in a tangle on the privacy issue.

Let me emphasise, first of all, that a digital euro would in fact increase privacy in digital payments. As a public and independent institution, the ECB has no interest in monetising or even collecting users’ payment data.

Okay so it will be pretty much completely private. But only a few sentences later we get this.

Digital euro payments could guarantee different degrees of privacy[7], involving different trade-offs with other policy and regulatory objectives such as the need to combat illicit activities.


Even though the headline measure seems a bit stuck with the Deposit Rate at -0.6% and of course money available to banks at -1%, there is quite a bit going on at the ECB. It’s role of supporting fiscal policy means that its QE bond buying looks ever more like a treadmill it cannot turn off. Or a President Lagarde put it in an interview with CNBC last week.

We may well reduce the pandemic emergency programme when the time comes, when we see the crisis coming to an end. Yes, but that’s the emergency programme. We also have another programme of asset purchases. And as I said, net asset purchases will continue until we start looking at raising policy rates.

So the EU Recovery Fund seems set to provide even more bonds for it to buy although of course it has yet to be ratified and is progressing at a sedate and indeed stately place.

It’s backstop looks ever more like being the digital Euro which as I explained back on the 11th of February.

ECB‘S Panetta: Minus 1%-2% Remuneration On Digital Euro Could Not Be Enough To Prevent Capital Flows Out Of Banks In Crisis

Perhaps the -3% suggested by the IMF?




Tesla and Elon Musk join the Bitcoin party

The credit crunch era has brought some extraordinary events but yesterday was right up there with them. Let me jump to the consequence highlighted by City-AM.

Bitcoin is extending its gain this morning, hitting a new record high of $48,216 during late afternoon trading in Asia.

We have got used to price surges and less frequently drops in this instrument as we immediately mull whether it is an asset,money or both? Actually is we know switch to the US Securities and Exchange Commission it looks as though someone else has been doing that too.

We hold and may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.

That was from the car manufacturer Tesla and there was more.

In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity. As part of the policy, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future. Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy and may acquire and hold digital assets from time to time or long-term. Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.

Boom! And indeed as we noted at the opening the Bitcoin price has done exactly that so well done to anyone reading this who has some. But for Tesla there are more than a few issues and as I am not a lawyer I will simply say I am curious about the Ultra Vires issue. There are others.


The issue of Tesla and cash is a complex one as the SEC filing points out elsewhere.

There is no guarantee that we will have sufficient cash flow from our business to pay our substantial indebtedness or that we will not incur additional indebtedness.

So you are substantially in debt but you are now punting a risky asset? How much are you in debt?

As of December 31, 2020, we and our subsidiaries had outstanding $10.57 billion in aggregate principal amount of indebtedness .

Indeed the debt could restrict the business.

Our debt agreements contain covenant restrictions that may limit our ability to operate our business.

Also Tesla has a high degree of currency risk.

We transact business globally in multiple currencies and have foreign currency risks related to our revenue, costs of revenue, operating expenses and localized subsidiary debt denominated in currencies other than the U.S. dollar, currently primarily the Chinese yuan, euro, Canadian dollar and British pound.

They also have expenses in Yuan and Japanese Yen. So apparently the solution to a risky business model is to add even more. The stock price has been extremely volatile to say the least as it is.

Our common stock has experienced over the last 52 weeks an intra-day trading high of $900.40 per share and a low of $70.10 per share, as adjusted to give effect to the reflect the five-for-one stock split effected in the form of a stock dividend in August 2020 (the “Stock Split”)

As ever with Tesla the position is highly complex. We start from a share price which has soared and is US $863 as I type this. So it could presumably raise cash easily and in fact did so at the end of last year.

Tesla unveiled a $5 billion capital raise, its second such move in three months……..With Tesla’s market capitalization at $598 billion, the new offering represents less than 1% of the company’s value. ( CNBC 8th December)

It keeps raising capital which is fine if it keeps growing. But the optics of raising money and then buying Bitcoin with some of it are again awkward. Actually the market capitalisation is now US $828 billion which is great on the way up but as the SEC filing pointed out the share price has been more than ten times lower quite recently.

I see the issue of accepting Bitcoin as payment as just a distraction here as Tesla could have done that at any time. On fact I take the opposite view to CNBC here.

The $1.5 billion worth of bitcoin will give Tesla liquidity in the cryptocurrency once it starts accepting it for payments.

Er it would have liquidity in the cryptocurrency once buyers pay for cars in Bitcoin. Holding even more just increases the risk.

Is this a distraction?

Tesla was facing some bad news as reported by the Wall Street Journal.

The State Administration for Market Regulation, China’s top market regulator, said Monday that it and four other regulators had instructed Tesla to abide by Chinese laws and regulations and strengthen internal management to ensure the quality and safety of its products.

Also following Elon Musk’s drone footage showing the new Gigafactory in Germany there have been stories that progress has been much slower and there will be delays.

What about the environment?

This is an issue that arises as for example the German Tesla factory required the chopping down of part of a forest. But Bitcoin is very energy intensive.

Exciting news for #bitcoin 

fans – it’s overtaken the Netherlands and UAE and is closing in on Argentina (in energy use, that is) ( @ruskin147 )

According to Cambridge University it is using just under 112 Terawatt hours per year or around 0.5% of the world’s electricity. Such numbers have led various wags to wonder if you could use a Tesla to mine Bitcoin? It also seems to have touched a raw nerve somewhere.

XPRIZE Carbon Removal is aimed at tackling the biggest threat facing humanity — fighting climate change and rebalancing Earth’s carbon cycle. Funded by Elon Musk and the Musk Foundation, this $100M competition is the largest incentive prize in history, an extraordinary milestone.


Now we can switch to a version of the moral maze Elon Mucl style. For example it was not long ago he was telling us this.

‘Bitcoin is almost as bs as fiat money,’ CEO said in December. ( Wall Street Journal)

Was he talking down the price then? If so did he buy and did he buy for himself as well as Tesla and very importantly in what order? After all he has had problems with his moral radar in the past.

Most notably, the SEC charged Musk with fraud in 2018 for his tweets about taking the company private at $420 per share.

Musk ultimately settled with the SEC, and was forced to give up his role as chairman of the company’s board and pay a $20 million fine on top of another $20 million fine for the company itself. ( CNBC )

Now we find he is playing what looks like a very familiar game.

Get long $DOGE tweet about it, Get long #Bitcoin

tweet about it, Feels so wrong if you have that much influence on social media. ( @bc_bitcoin)

This is a complex issue as some will front run the price to attract in the unwary who will see the surge and think it is safe to join in when in fact it is not. So far it has worked for Bitcoin investors but can even it withstand this?

Also there the whole subject of Dodgecoin where Elon has previously claimed his tweets are a joke. Indeed Dodgecoin was invented as a joke. I wonder when all this is over who the joke will be on?

GameStop and Robinhood are linked to all the money supply surges

It has been quite an extraordinary week and that has just been added to by Elon Musk.The simple addition to Bitcoin to his twitter bio has seen it rise by US $4000 in around 15 minutes. This makes even the move by GameStop which rallied after hours from a close at US $193.60 after hours to US $312 seem quite normal. It seems some limited buying is allowed again and look at the impact.We can add to that this because I am not sure I recall a broker responding to events quite like this before.

Robinhood, the online brokerage at the centre of wild trading in equities this week, has raised more than $1bn from its existing investors and tapped credit lines from banks to shore up its financial position after a turbulent four days. The company has drawn down at least several hundred million dollars via a credit facility with banks led by JPMorgan and including Goldman Sachs, Morgan Stanley, Barclays and Wells Fargo, according to people familiar with the move. ( Financial Times)

They have obviously been taking lessons from central bankers as this is described thus.

A spokesperson for Robinhood early on Friday described the $1bn infusion from its investors as a “strong sign of confidence” that will help it “further serve our customers”.

Perhaps they are regretting this.

A Robinhood user who was gifted a single share of GameStop stock when downloading the app in March just sold it for $353, a gain of more than 9,000% ( Wall Street Journal)

There is a group in Nottingham who are not regretting all this but they are somewhat bemused.

Lovely to have all these new followers .. can we just check that you know that you’re following The World Wide Robin Hood Society in Nottingham and not the Robin Hood App .. if so .. a big welcome from Sherwood.

Apparently they are run off their feet with new orders!

Oh and in the time I have been typing this Bitcoin has rallied another US $2000 so net up US $6000.

Money Money Money

Now let me switch to a news release from the European Central Bank which highlights something which is feeding all of this.

Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, increased to 15.6% in December from 14.5% in November.

This is as high an annual growth rate as it has seen in its twenty years or so ( I am only counting the period for which the Euro has existed although numbers are calculated for beforehand and it still seems true). A couple of months ago it was nudging the 10 trillion Euro barrier and since then another 121 billion ( November ) and 125 billion ( December) have been added. That gives us an idea of the scale of what is taking place as Elvis Costello blares out from the loudspeakers.

Pump it up, until you can feel it
Pump it up, when you don’t really need it
Pump it up, until you can feel it
Pump it up, when you don’t really need it

These week some ECB sources ( sauces in modern language) have been hinting at yet another rate cut potentially fulfilling some more lines of the song lyrics.

She’s been a bad girl, she’s like a chemical
Though you try to stop it, she’s like a narcotic

Before I move on let me point out that the amount of cash in circulation rose by another 8 billion Euros in December. That means the annual rate of growth is 11.3% which is not bad for something we keep being told is in decline! We get plenty of denials about money printing but if we take the subject literally the answer is yes and on quite a scale. Curiously really because the next step after claiming that money is in decline is to claim that only money launderers, drug traffickers and other criminals use it.

Broad Money

This gives us a link as to where the money is going in the economy or at least it used to.

  • Annual growth rate of broad monetary aggregate M3 increased to 12.3% in December 2020 from 11.0% in November

In theory this flows straight into nominal Gross Domestic Product with the only debate being whether it becomes inflation or real growth. Except these days with the way inflation numbers are so manipulated it is hard to tell.For example the Euro area measure HICP simply omits the fastest growing area which is below.

House prices up by 4.9% in the euro area (EA-19) and by 5.2% in the EU-27 in the third quarter of 2020, compared with the same quarter of 2019.

Even the ECB admits it can be up to a third of consumer/household spending. I will leave that there because there are plenty of apologists for this who will construct all sorts of reasons why this should be so.

So we have a wash of cash and some of it is hard to pin down.For example this month saw a 41 billion increase in money market fund shares out of not much.

So there has been an enormous shove. Care is needed because this is a Euro game and we have been looking at US Dollar investments above.But there are all sorts of links these days and the same is happening with the US money supply.

Oh and did I mention a possible interest-rate cut?


For newer readers one of the themes of my work is never to believe anything until it is officially denied. Also I would point out that if the benefits being limited was the criteria here, they would not have made all the other interest-rate cuts either.


So today’s thesis is that some of the funds created has ended up in GameStop via the creation of the Robinhood traders.Not a direct link but via the way the stimulus cheques have been oiled and implicitly funded by the central banks. Then things get even more awkward because if we briefly put on our central banker hats do we calculate the Wealth Effects at a GameStop share price of US $397 ( it has been rising as I wrote this) or US $193.60? Maybe they will be distracted by personal wealth effects.

Janet Yellen accepted $810,000 in speaking fees from Citadel, owner of Robinhood.

Reporter: Are there any plans to recuse herself from advising the President on GameStop and Robinhood situation?

Psaki: ‘No and she’s an expert and deserves that money.’ ( @IsicaLynn)

There are some really awkward elements to this whole episode.Whilst in isolation it is amusing to see some  hedge funds on the run others will have been on the other side.Also we should be careful about cheer leading for geared investments as they have consequences. Some of the trading halts have been due to the slow settlement process and margin calls on the brokers.

Industrywide collateral requirements for U.S. brokerages yesterday jumped to $33.5 billion, up from $26 billion, in the face of higher stock-specific volatility: DTCC  ( @lisaabramowicz )

Next comes the fact that shares are being pushed to many times their value which means that whilst some will gain most of the Wall Street Bets crowd will lose.


Money Supply growth has both ramped Bitcoin and made it even more unstable

Let me welcome you to 2021 as the main financial trading year catches up with the calendar one. It is a time of year to mull whether the Who will be right or not?

Meet the new boss
Same as the old boss

The good news comes from the vaccine rollout with the Oxford vaccine programme beginning today and the bad from the case numbers in the UK which seem set to add to the restrictions on our lives.What can central banks  do about it well they can visit the outer limits of monetary policy as below.

The Central Bank of Egypt (CBE) has launched a new EGP 15bn initiative to finance the dual-fuel vehicle conversion plan, with a lump-sum return of 3%.
In a Sunday letter to banks, the CBE said that the initiative aims to support the government’s ambitious, recently announced multi-year plan to replace car engines powered by traditional fossil fuels with dual-fuel engines that run on both petrol and natural gas.

Accordingly, the central bank will provide the needed financing through this initiative at low-interest rates.

Its Board of Directors approved the decision, with the financing to be made available through banks at a flat return rate of 3% used in granting loans. ( alnaasher.com)

That sort of mission creep will no doubt be copied by others and is one of the factors behind this development which has really gathered pace in the new year.

Bitcoin climbed above $34,000 for the first time on Sunday, extending a record-breaking rally in the volatile cryptocurrency that delivered a more than 300 per cent gain last year. With trading in key financial markets yet to commence in 2021, bitcoin has resumed its dizzying ascent, rising more than 10 per cent in the first few days of January. By late afternoon in London on Sunday, it had given up some of its early gains to dip just below $33,000. ( Financial Times)

As so often they are rather tardy whereas back on November 17th when the price was half of what it is now I pointed out this.

Another way of looking at the change in perception of Bitcoin is the way that central banks are now looking at Digital Coins in a type of spoiler move as it poses a potential challenge to their monopoly over money.

The price is volatile and there are dangers in using a marginal price for an average concept but a “value” of over US $600 billion will be giving central bankers itchy shirt collars. Also frankly it is another sign of inflation.

UK Money Supply

Let me pivot now to a factor behind this announced by the Bank of England this morning.

Overall, private sector companies and households significantly increased their holdings of money in November. Sterling money (known as M4ex) increased by £31.9 billion in November; broadly in line with October which saw holdings increase by £33.5 billion. This is similar to strong deposit flows seen between March and July, which saw money holdings increase by £41.1 billion on average each month.

That takes the annual rate of growth of the Bank of England’s preferred money supply measure to 13.9%. This is significant not only for the rate itself which in theory feed straight into nominal economic growth but because it comes on the back of an inflated money supply which now totals some £2.53 trillion. Or as MARRS observed.

Pump up the volume
Pump up the volume
Pump up the volume
Pump up the volume

If we switch back to Bitcoin we see another factor in its rise. UK money supply is only a bit part player but we see similar ramping of the money supply pretty much everywhere we look. I get regularly asked where it goes? Also where the inflation is? Well…..

House Prices

Whilst we were off on holiday ( a stay at home one) the Nationwide released this.

“Annual house price growth accelerated further in
December, reaching a six year high of 7.3%, up from 6.5% in the previous month. Prices rose by 0.8% month-on-month, after taking account of seasonal effects, following a 0.9% rise in November. House prices ended the year 5.3% above the level prevailing in March, when the pandemic struck the UK.”

The Bank of England was cheerleading for this sort of thing in its release earlier.

The mortgage market strengthened in November. Households borrowed an additional £5.7 billion secured on their homes, following net borrowing of £4.5 billion in October. November borrowing was the highest since March 2016, and significantly higher than the average of £3.9 billion seen in the six months to February 2020.

But for it the party really got started here.

The continued strength in mortgage borrowing follows a large number of approvals for house purchase over recent months. In November, the number of these approvals – an indicator for future lending – continued increasing, to 105,000 from 98,300 in October (Chart 1). This was the highest number of approvals since August 2007 and recent strength in approvals has almost fully offset the significant weakness earlier in the year. There were 715,300 house purchase approvals up to November 2020, close to the number during the same period in 2019 (722,000).

So we now know something we had long expected which is that even an economic depression is not allowed to get in the way of house price pumping and rises. Or as the Nationwide put it.

“But, since then, housing demand has been buoyed by a raft
of policy measures and changing preferences in the wake of
the pandemic.”

Consumer Credit

By contrast there will have been wailing and gnashing of teeth at the Bank of England earlier over this.

Household’s consumer credit weakened further in November with net repayments of £1.5 billion; that followed a net repayment of £0.7 billion in October. The weakening on the month reflected a fall in new borrowing. Since the beginning of March, households have repaid £17.3 billion of consumer credit. That has caused the annual growth rate to fall to -6.7% in November, a new series low since it began in 1994.

The word repayment is like kryptonite to them. These are broad brush numbers with the only breakdown we receive below.

Within consumer credit, the weakness was broad based with net repayments on both credit cards (£0.9 billion) and other forms of consumer credit (£0.7 billion). As a result, the annual growth rates of both components fell further, to -14.5% and -3.0%, respectively. For credit cards, this represents a new series low.

I make the point because there was a brief spell we were updated on car loans but that soon ended. So I wonder what is happening now in that area? According to the UK Finance and Leasing Association or FLA then personal credit for new cars was down 17% in the year to October and down 10% for second-hand cars.

But the overall picture is of a collapse in credit card borrowing which maybe has led to this.

The cost of credit card borrowing fell by 47 basis points to 17.49% in November; a new series low.

I have followed it since the credit crunch began and all the various interest-rate cuts have until now bypassed it.

Mortgage Rates are rising

Apart from it we see that other interest-rates are rising.

The ‘effective’ interest rates – the actual interest rates paid – on newly drawn mortgages rose 5 basis points to 1.83% in November. That is close to the rate at the start of the year (1.85% in January)

Where did the Bank Rate cuts and bank subsidies ( Term Funding Scheme) go? It looks as though banks have simply boosted their margins. Especially as they pay ever less.

The effective interest rate paid on individuals’ new time deposits with banks fell by 3 basis points in November, to 0.50%, and remains much lower than in February (1.04%)………The rate on the stock of sight deposits remains the lowest since the series began, and 34 basis points lower than in February.



We see that in spite of the increasingly desperate effort to claim there is no inflation we do not have to look far to see it. Indeed this morning someone I consider to be something of a High Priest in the systemic denial has changed tack.

Ultra low interest rates raise asset prices hurting the young and those without wealth. ( Paul Johnson of the Institute for Fiscal Studies)

Why do I say denial? Well his 2015 Inflation Review told us this.

CPIH is conceptually the best overall measure of inflation in the UK.

Because it excluded the asset prices (house prices) he is now worried about. Indeed he thought making the numbers up was much better.

A home provides a flow of accommodation services that are
consumed by households. The rental equivalence approach estimates the price of consuming these services as being equivalent to what the owner would have to pay if renting the property.

Suddenly the house price rises are recorded as growth. The poor first-time buyer gets shafted twice. Firstly by higher prices and then by being told they are better off using the inflation measure recommended by Paul.

Next comes the instability created by a system built in sand and misrepresentations. Bitcoin is showing that by its drop to around US $30k as I have been typing this.

Lastly let me give you another example of reality being adjusted to suit a narrative. Remember the way that the present Bank of England Governor Andrew Bailey so botched an enquiry into overdraft interest-rates that they then doubled?

 Following discussions with reporters on how to account for the ending of fees and COVID support measures, these overdraft rates are now estimated to have been lower between April and September than previously thought, and similar since October.

So far though they seem to be failing.

The effective rate on interest-charging overdrafts was 20.62% in November, above the rate of 10.32% in March 2020 before new rules ending overdraft fees came into effect.






It is a sign of the times that Bitcoin is doing so well

The past week or two has seen quite a rally in the price of Bitcoin and as I type this it is US $16.700. This gives various perspectives and let me open with a bit of hype, or at least what I think is hype.

An independent report from Citi Bank’s Managing Director argues that Bitcoin is the digital gold of the 21st century. The devaluation of the worlds’ reserve currency—the U.S. dollar—formed the basis of the commentary. ( Crypto.Com)

As a starter Citibank have suggested that the US Dollar will fall or depreciate by 20% which has created something of a stir in itself. There are bears around for plenty of currencies tight now as others suggested that the expected December move by the ECB might put the skids under the Euro. Both roads would look bullish for Bitcoin as it is an alternative. The Citibank view starts with a comparison with Gold post Bretton Woods.

With a relatively free currency market, gold’s price grew enormously for the next 50 years.

The monetary inflation and devaluation of the greenback are the basis of Fitzpatricks’ comparison of Bitcoin with gold. ( Crypto.Com)

This is then linked to what we have seen with Bitcoin.

Bitcoin move happened in the aftermath of the Great Financial crisis (of 2008) which saw a new change in the monetary regime as we went to ZERO percent interest rates.

The next step is this.

Fitzpatrick pointed out that the first bull cycle in Bitcoin from 2011 to 2013 when it increased by 555 times resulted from this.
Currently, the COVID-19 crisis and the government’s associated monetary and fiscal response are creating a similar market environment as gold in the 1970s. Governments have made it clear that they will not shy away from unprecedented money printing until the GDP and employment numbers are back up.  ( Crypto.Com)

He then applies his technical analysis.

“You look at price action being much more symmetrical or so over the past seven years forming what looks like a very well defined channel giving us an up move of similar time frame to the last rally (in 2017).”

Which leads to this.

Fitzpatrick did not stop there; his price prediction chart sees Bitcoin price at $318,000 by December 2021.  ( Crypto.Com)

That in itself will no doubt be contributing to the present rise as it puts us in what is called FOMO or Fear Of Missing Out territory.

The Economics

The issue of the money supply and its growth is an issue of these times whereas the situation for Bitcoin is different.

Bitcoin’s total supply is limited by its software and will never exceed 21,000,000 coins. New coins are created during the process known as “mining”: as transactions are relayed across the network, they get picked up by miners and packaged into blocks, which are in turn protected by complex cryptographic calculations. ( coinmarketcap.com)

So there are two differences. Firstly there is a cap and with the present number in circulation being 18.5 million it is not that far away. Secondly whilst there is growth the process of creation is likely to be slower rather than fiat money which as I am about to discuss has been rather up,up and away.

If we start with the world’s reserve currency which is the US Dollar I note a reference to money printing in the Citibank report which we could argue is QE.

Consistent with this directive, the Desk plans to continue to increase SOMA holdings of Treasury securities by approximately $80 billion per month……Similarly, the Desk plans to continue to increase SOMA holdings of agency MBS by approximately $40 billion per month. ( New York Fed)

So we have US $120 billion a month from the main two efforts where bonds are swapped for electronically produced money.

My preferred way of looking at this is the money supply and if we do that we see that in the year to the 2nd of this month the narrow measure of the US money supply has risen by 41% over the past year. This sort of measure used to be called high powered money although right now due to the plunge in velocity it is anything but. However it has been created and I also note that having gone through US $2 trillion in August the amount of cash in circulation is also rising and was US $2.04 trillion in October. So mud in the eye for those predicting its death,especially as we note the switches to using electronic money in retail. As the Belle Stars put it.

This is the sign of the times
Piece of more to come

If we go to the wider money supply measure called M2 we see that it has grown by 23.9% in the year to November 2nd. That is quite something for a number that is now just shy of 19 trillion. So there is a money supply argument in the background. We can add to it by noting fast rises in other types of fiat money. Japan has been at the game for some time and we have seen notable expansions in Euros and UK Pounds as well.


There was a time that the lack of an interest-rate from Bitcoin was a weakness. The 0% compared unfavourably to what you could get in fiat currencies. After all pre credit crunch many of the major currencies provided interest-rates of 4 to 5%. But now life is very different as we have seen the US Federal Reserve cut interest-rates to just above 0%. Indeed in some cases now Bitcoin has a relative advantage because the spread of not only negative official interest-rates but of negative bond yields ( which total around US $17 trillion now) makes it look much more attractive than before.

Who would have thought that a 0% interest-rate would be attractive? But increasingly that is true.


When we look at something like this we see that it requires a combination of reality and psychology/belief. The former gets reinforced because as I have pointed out over the past decade the direction of travel has been both clear and consistent. This morning has seen an example of part of this journey.

Italy’s Ruling 5-Star: ECB Should Cancel Covid-Related Debt It Owns – Party Blog Doing So Would Be “Not Only Fair But Easily Achievable” ( @LiveSquawk )

These sort of proposals appear and will no doubt be denied and rejected. But in a year or two’s time past history suggests it may well be on the agenda and then get implemented. It is quite a cynical game but we see it played regularly and feeds into our “To Infinity! And Beyond” theme.

Also there will be demand from those looking to park what are considered to be ill gotten gains. The official response will be around crime but it is probably more likely to be another version of this.

Many Turkish companies and individuals bought foreign currency last week even as the lira registered its biggest weekly gain in almost two decades, Bloomberg reported, citing currency traders it did not identify. ( Ahval )

Turks are using the Lira rally as a chance to buy more US Dollars in a clear safe haven trade. People will disagree about how safe that is but there will be similar flows into Bitcoin. It has its own risks as we note the issues around security and the wide swings in price. The latter are something of an irony because they are exacerbated by a strength which is the supply restrictions and limit. But this is a time of risk in so many areas.

Another way of looking at the change in perception of Bitcoin is the way that central banks are now looking at Digital Coins in a type of spoiler move as it poses a potential challenge to their monopoly over money.

I will be particularly interested in reader’s thoughts on this topic



Is this a reinvention of Bitcoin or just another passing phase?

Over the past few weeks there has been something of a rave from the grave going on in financial markets. If we look at the news then maybe John Lennon was partly right with his “About a lucky man who made the grade” if that man or indeed woman is a holder of Bitcoin. This is how @fastFT has reported it.

The price of bitcoin soared to its highest level since January 2018, as the cryptocurrency’s recent rally shows little signs of fizzling out. In Asian trading hours on Wednesday, the price of bitcoin traded on the Bitstamp exchange rose as much as 10 per cent to as high as $12,935.58, putting the digital currency on track for its biggest one-day jump in more than a month. Bitcoin’s price pulled back to just under $12,600 in afternoon trading.

So it is back at least for now and the June futures contract on the Chicago Mercantile Exchange is doing better than that because it is at US $12,990 as I type this and peaked at US $13,172.5 overnight. If we look back we see that it did not pass US $4000 until latish in March and US $6000 on the 9th of May. If we return to @fastFT we are told this.

Bitcoin’s value has now jumped for the last eight trading sessions in a row, bringing its overall return for the year to 250 per cent. Still, the digital currency remains some way below its peak of more than $19,000 reached at the end of 2017.

The current position provokes two thoughts. Firstly as a pure chart it reminds me of the “bowl theory” taught to me some years back by a colleague. It is not complex in that you simply draw a bowl shape around such a rise and it predicts that when any fall breaks the line you will see a sharp drop which is both fast and large. Putting it another way the rally needs to keep accelerating to survive as the bowl curve gets steeper.

On the other side of the coin the mention of the US $19,000 peak reminds me of this from the 11th of December 2017.

Bitcoin is in the “mania” phase, with some people even borrowing money to get in on the action, regulator Joseph Borg said. “We’ve seen mortgages being taken out to buy bitcoin. … People do credit cards, equity lines,” he said. Bitcoin has been soaring all year, starting out at $1,000 and rocketing above $19,000 on the Coinbase exchange last week. ( CNBC )

That “madness of crowds” phase when people borrowed to get in on the previous rise, which sadly was the time in fact to get out.

What has driven this?

One factor has been the turn in expectations for monetary policy around the world. We have seen some actual interest-rate cuts by the Reserve Banks of India, Australia and New Zealand as well as hints from the US Federal Reserve and the European Central Bank or ECB. The general expectation for the latter has moved to more QE being announced in September as well as a deposit rate cut. The latter may be more significant here because whilst only a small change of 0.1% is expected it will take it further into negative territory. That would be no surprise for us on here as we have been expecting another phase in the “war on cash” but I think the acceleration in Bitcoin has been affected by that view spreading. After all if we look back many “ECB Watchers” were telling us interest-rates would rise in 2019.

Whilst Bitcoin is priced in US Dollars and the explicit effect on it will be the fall in the US Treasury ten-year yield to 2% I also think that the emergence of this has had a strong impact.


For that we had to look all the way back to yesterday.

Oh and there is an odd link here because the countries which have cut interest-rates recently are the ones doing best in the cricket world cup.

The Libra Factor

The environment changed with this announcement from Facebook.

The mission for Libra is a simple global currency and financial infrastructure that empowers billions of people. Libra is made up of three parts that will work together to create a more inclusive financial system:

  1. It is built on a secure, scalable, and reliable blockchain;
  2. It is backed by a reserve of assets designed to give it intrinsic value;
  3. It is governed by the independent Libra Association tasked with evolving the ecosystem.

This shook things up in two main ways. Firstly in terms of psychology and awareness. Secondly that a big player in the online world was giving things a push. Of course, Facebook is not what it was ( if you have never seen the millennial job interview where she defines it as something her parents look at I recommend that you do….), but nonetheless it remains a significant player.

Back to the central banks

They have been quickly on the Libra case as this from Reuters highlights.

“A wider use of new types of crypto-assets for retail payment purposes would warrant close scrutiny by authorities to ensure that they are subject to high standards of regulation,” Quarles said ahead of a summit of Group of 20 countries in Japan this week.

Governor Carney of the Bank of England raised the topic at his Mansion House speech last week also.

As designed, Libra may substantially improve financial inclusion and dramatically lower the costs of
domestic and cross border payments.The Bank of England approaches Libra with an open mind but not an open door.

Much of that is public relations flim flam as a genuinely successful cryptocurrency would be like Kryptonite is to Superman for central banks. Not only would it challenge their monopoly over money it would further challenge the business model of “the precious” and frankly there is not much of it left as it is.

So they will be sitting in an ivory tower version of Mount Doom plotting to stop any version of their ring of power being thrown into the fire.


As we observe the situation we can learn a few lessons. For example I have seen some arguing that Bitcoin is a safe haven but that is only true on the rallies it has seen. In another form that relates to one of the functions of money which is to be a store of value. That is hard to argue if we look at the money chart below.

There are clear phases where it has destroyed value.

If we move to another function which is medium of exchange then the Libra plan offers clear hope for the future. Should Facebook push this then it could easily break new ground and get the cryptocurrency world into the ordinary persons life. Maybe it will help with it being a unit of account which is the area where most ground needs to be made.

So the outlook has brightened but there are two warning signs. Firstly the chart pattern and the bowl theory logic which suggests that the only way is not up. Next is the issue of past revolutions. For example the Victorians had a great success with railways leading to all sorts of things including proper timekeeping across the UK. But it is also true that many of the companies involved went bust.

What does risk-off actually mean?

Today I intend to look at a subject which gets bandied about a fair bit but is not always well explained. Along the way we find that some of our regular themes and subjects are in play here. Whilst the concept of risk off may look simple we have learnt in the credit crunch era that such things rarely are as we introduce the issue of perception. One man or woman’s risk-off may seem rather risky to others. Also we have been taught that things that the finance equivalent of economics 101 would tell us are risk-free in fact are not. So let us advance cautiously.

Sovereign bond markets

There was a perception that these were risk-free although as someone who worked for many years in them I was only too aware that you could lose money in them. The bond market in my country the UK saw several solid falls in my time meaning that investors lost money. The risk-free element here was that you would always get your nominal amount back at the maturity of the UK Gilt. Although that always was something of an Ivory Tower definition as in the meantime inflation could and in the UK’s case is usually very likely to eat into the real value of your investment and foreign investors also have a currency risk. As over time the UK Pound £ has tended to depreciate then on average you would be a loser here.

At this point we see that “risk-free” was never really that anyway. Those who recall the heights of the Euro area crisis will recall the European Central Bank insisting that Greek government bonds be recorded as risk-free in banking accounts, or more specifically a risk-weighting of 0. This was something of a further swerve as the ECB with its many national treasuries is not linked to them in the way that most central banks which only deal with one are.

Be that as it may central banks have advanced the case of sovereign bonds being risk-free by the advent of the QE ( Quantitative Easing) era where they have bought them on an enormous scale. This has two main features, investors tend to be too busy congratulating themselves when large profits are made to worry much about the risk assumed. Next comes the concept of the world’s main central banks being effectively buyers of last resort for sovereign bonds and thereby providing a put option for the price. On this road we see that whilst in theory the risks have got higher in practice they may well have got lower because the central bank will not allow falls. The latter argument is reinforced by those of us who believe they cannot do so without revealing that they have not achieved the successes they claim.


The thoughts above are highlighted by the fact that sovereign bond markets have been rallying strongly again over the last week or two. The risk-off theme has seen them rally in a new version of what used to be called a flight to quality. We have learnt that bonds may not be quality but that has been anaesthetised by the likely reality of central bank action. Putting this into numbers the US ten-year yield is 2.37% as I type this compared to this on the 22nd of March.

I will come to the cause of this in a moment but if we stick with the event we see that the ten-year US Treasury Note now yields 2.5%. The Trump tax cuts were supposed to drive this higher as we note that it was 3.24% in early November last year.

This type of risk-off trade has also been seen elsewhere as for example the UK ten-year Gilt yields 1.04%. This has mostly been missed in the wider debate as the UK could plainly borrow if it chose but we seem locked into a belief that borrowing is unaffordable when it is the reverse. The headliner in terms of numbers is Germany which has a ten-year bund yield of -0.11% and therefore is actually being paid to borrow all the way up to the ten-year maturity. Japan is the same although the negative yield is smaller.


There are currencies which are perceived to be safe havens and thus see a flow of buying when fear appears. The stereotypes for this were the German Deutschmark and the Swiss Franc. In more modern times not only has the Euro taken over the role of the Deutschmark in the main but we have seen the Japanese Yen not only join the list but often be at the top of it. The present state of play is summarised by Dailyfx.com below.

The Japanese Yen’s current backstory is of course fundamental, with risk aversion stemming from increased US-China trade tensions supporting what is, after all, perhaps the quintessential anti-growth currency play.

The US Dollar has haven appeal too, of course, but the Japanese Yen is certainly beating it at present, with USD/JPY having wilted very sharply back to lows not seen since the start of February.

As they point out the picture is muddied by the fact that there are times that people go “holla dollar” or as Aloe Blacc put it.

I need a dollar dollar, a dollar is what I need
Hey hey
Well I need a dollar dollar, a dollar is what I need
Hey hey
And I said I need dollar dollar, a dollar is what I need
And if I share with you my story would you share your dollar with me
Bad times are comin’ and I reap what I don’t sow.
The other side of the coin is emerging market currencies which tend to be hit and at the moment our eyes are usually drawn to the Turkish Lira or the Argentine Peso. Hence the rumours out of Turkey yesterday that capital controls may be on the way as frankly there is not much else left to try.
The last couple of weeks has perhaps seen a new entry to the charts. What I mean by that is the way that the price of Bitcoin has been rallying and at times surging. As I type this it is above US $8000 on several exchanges which leaves us with plenty to mull as the last year or so has left us observing various crises in the new coin structure.
I have left to last the main other side of the coin which is equity markets which fall and the go lower. That is partly because of the ch-ch-changes here where even relatively small falls tend to have markets on alert for more central bank easing. This trend has been exacerbated by the way that US President  Donald Trump focuses on the stock market so much. However that does provide another argument in favour of bond markets as for example we have already seen the reverse QE programme called QT given an end date. I have written before that I would not be surprised if we saw more bond purchases by the US Federal Reserve in what would no doubt be called QE4. That could easily be sparked if the Chinese should start to sell their holdings of US Treasuries in any real size.
Thus we see that it is really only a perceived risk-off really and let me conclude by throwing in another factor. For some time individuals have seen foreign property investments as a type of risk-off trade but now we are seeing house price falls in many of the places they invested that may change. Although of course from the perspective of places like Argentina and Turkey that is small-fry and should things really light up again in the Middle-East many things will look relatively risk-free.


Where next for the world of Bitcoin?

The world of Bitcoin and indeed all the other altcoins has seen quite a reversal as 2018 has progressed. The days of “free money” have gone and they have been replaced by this according to MarketWatch.

Bitcoin is breaking all sorts of records at the moment, most of them unwanted, and in a few days it will equal a milestone not matched in four years.

Not since October of 2014 has the price of bitcoin   seen four consecutive monthly declines, and a negative close for the month of November, which now seems a foregone conclusion, would match this feat having fallen every month since August, according to Dow Jones Market Data.

So a clear change although in the fast moving world of Bitcoin it is still over ten times higher than it was back then. If anything the fall seems to be picking up the pace.

After opening November above $6,500, bitcoin is down more than 40%, and since the four-month streak began on Aug. 1, the value of the world’s most famous digital currency has more than halved.

As I type this the Bitcoin price is at US $3763.7 which is down some US $282 or a bit under 7%. I note that just to add to the confusion there is also now a Bitcoin Cash. This was created by a fork out of Bitcoin.

Bitcoin cash was one of the marvels of the bitcoin bubble. It is a fork from bitcoin. A fork of a cryptocurrency takes place when someone, anyone declares that a blockchain is going to be transferred to a new set of rules and network infrastructure. ( Forbes)

It did lead to what was free money for a while.

When the fork came out, bitcoin did not fall and bitcoin cash went through the roof rising from the low hundreds to shoot quickly above $1,000. It was free money for bitcoin holders who could get their hands on their bitcoin cash by navigating the technical issues, which were mighty. ( Forbes)

But the gains were short-lived.

The central bankers revenge

From a central banking point of view the altcoin world is a disaster as they have no power to set interest-rates and no control over the total amount of it. Even worse it bypasses “the previous” and in the bull market days saw very heavy disinflation as the price of goods and services became much cheaper. At the limit it would make them be an anachronism and then irrelevant.

John Lewis of the Bank of England put it like this on the 13th of this month.

Existing private cryptocurrencies do not seriously threaten traditional monies because they are afflicted by multiple internal contradictions. They are hard to scale, are expensive to store, cumbersome to maintain, tricky for holders to liquidate, almost worthless in theory, and boxed in by their anonymity. And if newer cryptocurrencies ever emerge to solve these problems, that’s additional downside news for the value of existing ones.

There are of course issues there but being “almost worthless in theory” is a critique that could be pointed at central bank fiat currencies which also rely on an act of faith to have value. Also the bit about new companies would have applied to the proliferation of railway companies back in the day. Whereas we know that whilst many failed the railways are still with us. Those suffering commuters who use Southern Rail may wish that they didn’t but they do.

Let us look at his paradoxes or as he might have put it seven deadly sins.

The congestion paradox

But cryptocurrency platforms are different. Their costs are largely variable, their capacity is largely fixed. Like the London Underground in rush hour, crypto platforms are vulnerable to congestion: more patrons makes them *less* attractive.

The storage paradox

Each user has to maintain their own copy of the entire transactions history, so an N-fold increase in users and transactions, means an N-squared fold increase in aggregate storage needs.

The mining paradox

Rewarding miners with new units of currency for processing transactions leads to a tension between users and miners.  This crystalises in Bitcoin’s conflict over how many transactions can be processed in a block. Miners want this kept small………But users want the exact opposite: higher capacity, lower transactions costs and more liquidity, and so favour larger block sizes.

The concentration paradox

This starts in intriguing fashion.

 97% of bitcoin is estimated to be held by just 4% of addresses, and inequality rises with each block.

However this critique is also applicable to the central banking enthusiasm for higher house prices and the “wealth effects”

An asset is valued by the market price at which it changes hands. Only a fraction of the stock is actually traded at any point in time. So the price reflects the views of the marginal market participant.

You can’t all sell at once and certainly not at that price. The list below is somewhat breathtaking in the circumstances.

But for cryptos they are much larger because i)Exchanges are illiquid ii) Some players are vast relative to the market iii) There isn’t a natural balance of buyers and sellers iv) opinion is more volatile and polarised.

As central banks have sucked liquidity of out markets with their actions, for example the Japanese government bond market has often been frozen, the opening point is a bit rich. Ditto point ii) if we look at the size of central bank balance sheets and of course there was no natural balance between buyers and sellers when they surged into markets. For example some of the recent turmoil in the Italian government bond market has been caused by the “unnatural” buying of the ECB being reduced. As to the last point, well maybe, but so many things are polarised these days.

The valuation paradox

The puzzle in economic theory is why private cryptocurrencies have any value at all.

Fiat currencies anyone?

The anonymity paradox

The (greater) anonymity which cryptocurrencies offer is generally a weakness not a strength. True, it creates a core transactions demand from money launderers , tax evaders and purveyors of illicit goods> because they make funds and transactors hard to trace.

This is both true and an attempted smear. After all the recent money laundering spree undertaken in the Baltics by customers of Danske Bank seems to have been at 200 billion Euros or so much larger than the altcoin universe in total.

Of course for a central banker it needs central bankers.

 Keep a cryptocurrency far from regulated institutions and you reduce its value, because it drastically restricts the pool of willing transactors and transactions. Bring it closer to the realm of regulated financial institutions and it increases in value.

The innovation paradox

Perhaps the biggest irony of all is that the more optimistic you are about tomorrow’s cryptocurrencies, the more pessimistic you must be about the value of today’s.

Odd though that this sort of logic is not applied to forward guidance.

Expect it to be worthless in the future, and it becomes worthless now.


There is a lot to consider here and let me start by offering some sympathy for those who did this back in the day. From CNBC.

Bitcoin is in the “mania” phase, with some people even borrowing money to get in on the action, regulator Joseph Borg said. “We’ve seen mortgages being taken out to buy bitcoin. … People do credit cards, equity lines,” he said. Bitcoin has been soaring all year, starting out at $1,000 and rocketing above $19,000 on the Coinbase exchange last week. ( CNBC )

Hard to believe that was the 11th of December last year as it feels like a lifetime ago. Also yes I do feel sorry for them even though it was pretty stupid. A fortnight or so earlier we were looking at some of the issues above.

That statement is true of pretty much every price although of course some have backing via assets or demand. So often we see a marginal price used to calculate a total based on an average price that is not known………This leaves us with the issue of how Bitcoin functions as a store of money which depends on time. Today’s volatility shows that over a 24 hour period it clearly fails and yet if we extend the time period so far at least it has worked rather well as one.

As to the store of value function that still holds as early buyers have still done really rather well but more recent ones have taken a bath and a cold one at that. Looking ahead it does not look as though the market has capitulated enough to find the ground to rally, But in the background there are still flickers of good news.

Ohio appears set to become the first state to accept bitcoin for tax bills, a show of support for a technology that has garnered lots of hype but failed to gain traction as a form of payment. ( WSJ)