Since the 2008 financial crisis, central banks have turned to unconventional monetary policy in an attempt to spur global economic growth. Featuring ultra-low interest rates and unprecedented quantitative easing, trillions of dollars have been released into the financial system and near-zero interest rates have become the new normal. Today, total debt held by global central banks exceeds $18 trillion and multiple countries such as Switzerland and Japan have implemented a negative interest rate policy, charging depositors for holding funds in the central banks.
For over five years, the US Federal Reserve has maintained a target Federal Funds rate between 0.00-0.50%, exerting significant downward pressure on global interest rates and forcing investment capital into exceedingly risky markets in pursuit of yield. The Fed has quadrupled the US monetary base via debt purchases yet the velocity of money has dropped sharply. This means additional dollars flooding into the financial system are not being lent to consumers, but utilized by institutional banks to double down on risky bets in various equity, debt and derivative markets.
Markets have responded well to this influx of capital aided by the global accumulation of debt by central banks. The current bull market has lasted for over seven years, with all three major US stock indices topping all-time highs in 2016. The question is how will central banks normalize monetary policy and begin to raise interest rates? As noted by prominent economists, extended periods of zero (or negative) interest rates could have adverse consequences for the global economy.
In 2009, as central banks took these unprecedented steps to spur economic growth, Bitcoin was anonymously released with the aim of revolutionizing digital value transfer and restructuring the global financial system. The Bitcoin protocol introduced the idea of distributed ledgers, i.e blockchains, an innovative technology that is now being applied in various industries such as record management and distributed computing. Neha Narula's TED Talk, 'The Future of Money' does a exemplary job explaining this disruptive concept.
Over the last few years, other peer-to-peer platforms have been created, building upon and tweaking the attributes of Bitcoin's underlying technology. The Ethereum Virtual Machine (EVM) was released into production, allowing for the formation of decentralized autonomous organizations (DAOs) and the development of decentralized applications (dapps). The ethereum platform aims to become the backbone of the Internet of Things (IoT) economy, which will allow inanimate objects to conduct autonomous transactions via micro-payments.
Per coinmarketcap.com, less than $15 billion is currently invested in peer-to-peer platforms and supporting projects. Within this diverse industry, multiple disruptive technologies have come to market offering innovative services at significantly reduced costs. With close to $70 trillion invested on global stock exchanges, even the slightest reallocation of capital into this space will materially increase market values.
Please take a moment to explore the information provided throughout this site and utilize the links as a jumping off point in your research. Feel free to contact us to discuss the purchase of distributed digital property or ask any questions you may have.
First of all, I would like to congratulate you on having the foresight and technological ability to secure an investment in Digix DAO during the hours-long crowd sale. Thanks to the successful ICO procedures facilitated by the Digix Global team, there are high levels of interest in DGD tokens leading up to the platform's launch. On April 28th, the actions of DGD token holders will begin to reflect in the overall value of the DAO. With that in mind, I ask you to consider the long-term value of the DAO when assessing profit-taking opportunities in the coming months.
In the infant days of this corporate governance experiment, it will be tempting to sell large portions of your investment at 10x, 20x, and perhaps even 30x valuations, but remember these transactions will be forever known by other members of the DAO community. For the first time in the history of venture capitalism, ownership data is public knowledge and available for audit on a blockchain.
Imagine organizing future ventures such as the p2p lending platforms, decentralized exchanges, or virtual nations mentioned in the most recent Progress Update. Founders could potentially devise DGD reputation systems which consider the token age of DGD in a wallet, as well as the quantity. Such a system may become necessary, as a top 50 ICO investor could dump his/her DGD tokens at a substantial gain yet hold the Proposal Badges to influence the community in the future. In other words, there may one day be additional value in holding ICO tokens over DGD tokens purchased in the secondary market.
As DigixDAO builds the industry standard in digital gold platforms, the DAO community must continuously focus on productive efforts to enhance the architecture of the global DGX market and maximize daily DGX transaction volumes, all to the benefit of DGD holders. As DGX gains widespread popularity and traction, DGD tokens could one day become the most attractive asset to own in the global financial system.
On April 28th, remember to keep thinking long term.
By now, most individuals who follow the cryptocurrency industry have heard of ethereum. With a market capitalization that has risen over 500% in 2016, the ethereum platform is now more valuable than Ripple and Litecoin combined.
So what is driving this meteoric rise in value? Is this another speculative bubble forming in a 'hot' altcoin? What sets ethereum's protocol apart from other cryptocurrencies entering the cryptofinance space? These are questions I will attempt to answer for you today.
To me, two technical attributes differentiate the ethereum protocol from other cryptocurrencies in existence today. The creators of ethereum went beyond the idea of cryptocurrencies as a digital store of value and created a 'Turing complete' platform that supports smart contracts on a blockchain.
I know, I know... "Turing complete smart contracts on a blockchain" sounds bleeding-edge enough to throw your money at, but what does it really mean? Well after some research, I found that in a 'Turing complete' programming language a developer can create an algorithm to solve any system of rules, states and transitions and lock those rules / conditions into the distributed, trust-less blockchain. Therefore, ethereum essentially allows the creator of a smart contract to define any environment, solve any problem, and govern any community in a completely decentralized and trust-less manner.
The technological innovations available via the ethereum protocol have given rise to a new and innovative online business model coined the 'decentralized application' or Dapp for short. By paying ether to the network of ethereum miners, developers can record Turing complete smart contracts onto the ethereum blockchain. Then anyone can anonymously execute the developer's smart contract by paying the developer a small amount of ether. Complicated I know... but try to conceptualize a self-sustaining, profitable, and potentially artificially-intelligent Dapp existing in perpetuity on the ethereum blockchain.
For instance, imagine the Uber of today, but running autonomously on a distributed network where rules are determined by community consensus. Instead of a room full of eggheads centrally determining the multipliers on Uber rates out of a swanky office in San Francisco, the community of users (drivers and passengers) could determine rates based on supply and demand algorithms written into ethereum smart contracts. Users are then empowered with knowledge of the rules they are playing by, and can trust that their commands will be executed without interference, not a given in today's market economy.
This economic concept of the decentralized application can be applied to any industry that is realizing efficiencies through the internet today. Imagine developing a Dapp capable of independently performing a service / selling a good, governing its community of customers, and collecting payment. All of this without the possibility of ever being shut down. Crazy right?
Enough conceptualizing for now. To evidence the amazing solutions already being developed on the ethereum platform, I've provided a list of my favorite use cases below for your convenience. These Dapps are all currently in development on the ethereum network. I will likely speak on these platforms in greater depth at another date... so consider this your sneak peak.
The immediate launch of these disruptive decentralized applications via the ethereum protocol hints at the likely explosion of coming innovation. The more I research and learn, I truly believe that as the ethereum protocol is continually utilized to develop disruptive and autonomous Dapps, the world will begin to pay close attention to this revolutionary platform. This technology has the potential to empower entrepreneurial citizens across the globe and help society realize economic and social efficiencies never before imagined, similar to the opportunities presented by the internet in 1995.
In November 2008, the unknown 'Satoshi Nakamoto' mysteriously released a paper titled 'Bitcoin: A Peer-to-Peer Electronic Cash System' via a cryptology mailing list. Also known as the Bitcoin White Paper, this nine and a half page document provided detailed analysis of a peer-to-peer electronic cash system created to combat the Internet's reliance on "financial institutions serving as trusted third parties to process electronic payments."
We do not believe the timing of events to be coincidental. This well-thought "purely peer-to-peer" network cut out the middle man for a reason. As major Wall St. banks began to collapse, Satoshi Nakamoto identified the "inherent weaknesses of the trust based model" and created a currency free from world government manipulations. Nakamoto aimed to put currency back in the hands of the people and restore faith in global commerce.
Bitcoin is unlike any other currency ever invented in that, the future supply can be determined with certainty. As you can see from the chart below, the logarithmic algorithm regulating the mining of bitcoin has a mathematical limit of 21 million. There will never be 21,000,001 bitcoins in existence. This means that once all bitcoins have been mined, there will be no inflation of the currency EVER AGAIN FOR ALL OF HISTORY. A truly amazing characteristic.
If bitcoins can't be "printed" like fiat government-backed currency, how are they released into circulation? To put it simply, they are "mined" by ultra-powerful server networks as they solve complicated computing problems. As of this writing, 15,075,575 bitcoins have been mined, which is roughly 75% of the eventual outstanding circulation.
Bitcoins have a built-in, predetermined rate of inflation. Currently, the currency is inflating at a rate of 25 BTC for every block added to the Bitcoin 'blockchain', as that is the current reward to miners for attaching a new block. As you can see from the chart below, we've been at a 25 BTC / Block inflation rate since November 2012, the last time the rate halved.
After bitcoin 15,750,000 is mined something interesting happens. The inflation rate drops from 25 to 12 BTC / Block and continues to halve after smaller and smaller increases in bitcoin circulation. Essentially, we are beginning to reach the plateau of the supply curve, a fact that will become more apparent after 15.75 million BTC mined.
With a truly finite supply, the question is, how strong will demand be in the future? Is speculative investment driving bitcoin exchange activity or are citizens of the world putting their trust in the currency? Can society make the transition from fiat cash and plastic cards to personal, encrypted wallets? We believe there will be significant insight gained from analyzing the price reaction to the 12 BTC / Block reward. Stay tuned for further discussion.
The Coinage Act of 1965 eliminated silver from the composition of U.S quarters and dimes and reduced the amount of silver in the half dollar to 40%. Until that point, half dollars, quarters, and dimes were all 90% silver. When the U.S Mint decreed that U.S. coins would be comprised of less valuable metals, they effectually lowered the real value of future coins printed by the Mint. Pre-1965 dimes and quarters quickly disappeared from circulation as citizens stockpiled the now historic coins for their metal value. This caused a coin shortage in years to follow, Gresham's law at work once again.
What happened to the composition of the U.S nickel? It remains the same, 75% copper / 25% nickel. Comprised of common industrial metals, the U.S nickel has a measurable underlying raw metal value that fluctuates with the market prices of nickel and copper. We believe current political and market trends make the U.S nickel an interesting investment consideration for all U.S. citizens.
In February 2011, with high commodity prices, the raw metal in a nickel was worth 7.38 cents, 148% of its value. This meant the U.S. Mint was losing money on the production of each nickel, even before considering overhead costs. The U.S Mint quickly became aware of this situation and began considering solutions to ensure the underlying value of the U.S nickel remained below 5 cents. See this 2012 report released on their analysis of possible alternatives.
With the current extended bear market in commodities, the raw metal in a nickel is now worth 2.77 cents. This has taken pressure off of the U.S Mint, however if the prices of copper and nickel were to rise, the rising underlying value of the U.S nickel will likely quicken the U.S. Mint's efforts to change the composition of the coin.
We believe that similar to pre-1965 dimes and quarters, U.S. nickels would drain from circulation if the composition was altered to a less valuable alloy. An investor who holds stores of U.S. nickels may someday see the underlying value of these coins skyrocket as they gain intrinsic value years down the road, similar to pre-1965 dimes and quarters today. In addition U.S nickels provide indirect exposure to both the copper and nickel markets, as it is currently illegal to smelt legal U.S tender.
To follow up on our recent "Paper Markets in Metals" article, we at TFL Holdings decided to take a look at the forces shaping supply and demand in the silver market. We believe there to be a disconnect between the physical silver market and the market for silver future contracts on COMEX. As you will see below, growth of the global silver supply is constrained with evidence that demand for physical silver is increasing, yet prices remain relatively static.
Silver is a rare geological deposit with many industrial applications. Unlike gold, the majority of silver produced each year is consumed by industry. Based on the supply and demand data provided below, there was a net physical deficit of 253.7 million ounces of silver during the years 2005-2014, not including inventory changes. In 2015, the price of silver continued to fall. Most estimates place the all-in cost of producing an ounce of silver well-above the current market value, forcing a further slide in production as mining operations shut down. This downward pressure on supply has been compounded by similar decreases in the prices of other metal ores mined concurrently with silver. See "Something Broke in the U.S. Silver Market" for a full analysis of the supply issues at hand.
Beyond changes to supply and demand in the physical market, recent developments in the silver futures market may also serve as a catalyst for price shocks going forward. As you can see from the chart below, registered silver is leaving the COMEX at an alarming rate. How is this trend playing out in recent weeks? COMEX registered silver plunged 10%, or roughly 3.5 million ounces, on January 4th, 2016, reflecting year end movements. This could be interpreted as Gresham's Law taking effect, as physical silver (good money) is chased out of the highly-leveraged futures market (bad money).
The point here, is that even though there is accelerating demand for physical silver with a probable supply crunch in coming years, the market price isn't rising. We believe this is due to large short positions held by institutional commodities traders in the futures market.
The same institutional traders who are grossly short silver may have recently woken up to the underlying shift in market sentiment and are quietly taking delivery of as much physical silver as possible at these artificially low prices. Knowing the futures market will seize on the slightest increase in deliveries, they are then removing this silver from registered inventories and therefore, potential delivery on their short bets. If the market crashes up, and their shorts need to be covered, they can then shrug their shoulders and say they don't have the silver to deliver, settling their losses in cash. Sound like thievery? This is within the rules. Pay attention to all the new COMEX disclaimers popping up in 2015..
I would like to take a second today to discuss a developing trend in metals future markets that I find very disturbing. I will use Gold Futures (GLD) as an example, but this situation presents itself in silver, platinum and palladium markets to differing degrees of severity.
A "future contract" is defined as a financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. In today's market, there is a growing disparity between the amount of gold being traded via these future contracts and the physical store of gold backing the transactions.
Of the 415,220 gold futures contracts open on COMEX as of year end, 279,966 are set to expire in February (almost 70% of the total). This represents transactions for 27,996,600 troy ounces of gold settling in one month alone. Obviously this number is dynamic, meaning that as the February exercise date draws near, the vast majority of these contracts will be closed. This is due to traders utilizing gold futures as a hedge against various market risks with no intention of ever receiving physical gold.
Due to the use of gold futures as derivatives by traders, a historic average of around 1% of all open contracts are physically delivered. To meet these deliveries, COMEX holds both "registered" and "eligible" physical gold stock. Eligible gold is any physical gold held at one of the COMEX-approved warehouses (HSCB Bank, Brinks Inc., Scotia Mocatta Depository). This gold is eligible for the settlement of gold future contracts, however it isn't set aside for that purpose. In other words, stores of 'eligible' gold may be intended for a purpose completely unrelated to settlement of future contracts open on the exchange. It is highly unlikely that 100% of eligible gold would be available for settlement in a crisis. Registered gold at COMEX is eligible gold that has been specifically delivered onto the exchange for settlement. See the below graph.
As you can see, levels of "registered" gold in COMEX vaults have been diving ever since Germany made its first gold repatriation request in 2013. As of 12/31/15 there are only 275,915 troy ounces of registered gold on hand at COMEX. Backed by 6,137,571 ounces of "eligible" gold at member banks, this totals roughly 6.5 million troy ounces of gold available for delivery in the best case scenario. However since eligible gold can still be utilized as collateral for other debt, it's highly unlikely it will be available for settlement in a crisis.
Under current conditions, gold futures are utilized by traders as a hedge against market risk. They do not anticipate delivery on these contracts and close them before the exercise date.
There is currently 1 ounce of "registered" gold on hand for every 150 ounces traded via open future contracts. Even if only 1% of the currently open February contracts deliver, the delivery would be equal to the entire registered reserve at COMEX. I am not saying that delivery on gold futures will default in February, but the chance of deliveries on gold future contracts exceeding the amount of "registered" gold reserves in any one month is increasing.
If conditions ever warrant a change of sentiment with regards to the delivery of physical metal, this market is sure to see a "run on the bank" scenario as parties default on delivery under their contracts.
If you are an individual investor interested in owning gold, make sure to acquire physical coin and bullion, not a piece of paper.
With the Dow Jones Industrial Average (DJIA) and S&P 500 (GSPC) consistently topping record highs during the last year, its hard not to wonder how long the stock market can remain in an uptrend. As an individual hesitant to put my minimal spare funds into equities, I found a cost-efficient way to produce valuable assets online.
After first becoming interested in owning a piece of the internet, I learned that for a small fee ($2.99-$12.99), I could register a domain name through an accredited registrar for a specified number of years. In addition, I would have the option to renew the registration before it went to open auction at the end of the term. I immediately recognized the potential of such a low-cost investment. Instead of buying one share of Google stock (GOOG), I could register over 100 domain names, each with the potential to display content, share information, and provide services.
Contrary to popular belief, the internet is not one large, synonymous platform. Beyond the explosive growth of the web during the dot-com boom, the Internet Company for Assigned Names and Numbers (ICANN) has continued to enhance competition, innovation, and consumer choice in the Domain Name System. The growth of country-code and generic top-level domains has fueled the domain registration market and increased the complexity of the internet.
Since 1985, ICANN has assigned two-letter, ccTLDs to countries, sovereign states, and dependent territories, to be developed with limited restriction on their usage. Some countries have elected to restrict registration of domain names to citizens of the country. Others have taken a free market approach and appointed the administration of their TLDs to private industry. Under the administrator, .CO Internet S.A.S, domain registration on Columbia's .co ccTLD is now universally granted and has found popularity among small businesses. Through the registration of ccTLD names, it is possible to reach any geographic, cultural, or linguistic audience worldwide.
The majority of internet users are familiar with the generic top-level domains (gTLDs) .com, .edu, .org, and .net. However, in June 2011, ICANN's Board of Directors authorized the launch of a new gTLD program meant to "encourage global participation in the technical management of the internet". 1930 total applications were accepted with a possibility for over 1300 new TLDs in the near future. Included in the plan was the implementation of internationalized domain name top-level domains (IDN ccTLDs). IDNs are a type of ccTLD which consist of language-native characters and utilize non-latin roots such as Arabic or Chinese. New IDN ccTLDs expand the linguistic base of the internet and are sure to generate future web activity in areas where English is not common. gTLDs give the internet a new flexibility, allowing for websites to organize by culture, language, interest or industry. As generic top-level domains expand the domain registration market, there is an opportunity to participate in the organization of new top-level domains and their connection to the current internet infrastructure.
The diversity of the internet allows an investor to build a web portfolio with exposure to a combination of cultures, industries, and demographics. As the world's population continues to increase the demand for online services, entertainment, and information, I encourage investment in the supply of online content through the registration of domain names.
Tyler Logsdon is a CPA and Registered Securities Representative located in Newport Beach, California. He is actively employed in the blockchain industry.
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