China`s new digital currency e-yuan is a big threat to the US dollar. E-yuan is expected to give China`s government vast new tools to monitor both its economy and its people. This is not only about the CCP`s ability to control China`s economy but also about their increasing global power, and it`s long running battle with the US dollar.
China has long said they are in war on Bitcoin. What some people don`t like is that Bitcoin is decentralized, but China`s digital currency is controlled by the CCP. In other words; the CCP can see everything you are doing with it.
Nearly 90% of foreign-exchange transactions involve dollars and more than 60% of all global central-bank reserves are held in dollar-denominated assets, and that gives the US tremendous power. But China doesn`t like that at all.
This is obviously a US security issue, but it doesn`t look like the Biden administration care much about right now. But they should, and that very fast if you ask me. The US often use sanctions on other countries, but now China can use their digital currency as a weapon on the US.
The communist China are pushing the IMF to the SDR (special drawing rights) issue. The currency value of the SDR is determined by summing the values in U.S dollars, based on market exchange rates, of a basket of major currencies.
The IMF`s SDR, the international reserve asset created in 1969 to prepare for a new dollar crisis, is undergoing a renaissance, with important worldwide repercussions. The announcement of by far the largest-ever increase in SDR allocations, which will greatly improve the liquidity of many developing nations, signals alignment between the US and China in a key area of global monetary power.
The US now agrees with using the IMF`s balance sheet to boost world liquidity. They are planning to more than triple SDR allocations by at least $500bn. This reflects a change in US policy to back measures strongly advocated last year by China as well as leading European and African countries.
Rich nations with large reserves will distribute part of their plentiful SDR stocks to poor countries.
The massive increase in SDR reserves, which can be converted into its five constituents; the dollar (42%), euro (31%), renminbi (11%), yen (8%) and sterling (8%) will indirectly boosts the Chiniese currency`s international reserve role, according to OMFIF (Official Monetary and Financial Institutions Forum).
In 2009, the United Nations suggested a new SDR-based global reserve system, feasible non-inflationary, and easily implemented, including in ways which mitigate the difficulties caused by asymmetric adjustment between surplus and deficit countries.
That same year, Zhou Xiaochuan, governor of the People`s Bank of China, proposed that the SDR could become the pivotal internationall reserve currency, disconnected from individual nations, as the light in the tunnel for the reform of the international monetary system.
Is this how they`re gonna reset the international monetary system?
Coinbase went public last week and insiders and early investors sold about $5 billion in shares on the first trading day. The stock price started at $250 and went straight up to about $400 before it went down again to about $330.
CEO Brian Armstrong sold 749,999 shares at a price ranging from $381 to $410. According to SEC filings released on Friday, Armstrong`s total gain was $291,8 million. That is telling us that he sold about 1,5% of his stake in Coinbase.
But he was not the only one to sell shares in the company. Director and venture capitalist Frederick Wilson sold 4,70 million shares for proceeds of $1,82 billion. Wilson is a holder of at least 10% of the shares of Coinbase and that is a market cap of $63,6 billion.
Another 10% owner of Coinbase shares is Union Square Partners, and they sold $4,70 million shares for proceeds of $1,82 billion. Wilson is a partner in Union Square Partners and he and his firm`s fund accounted for more than 2/3rds of the total $5 billion worth of shares sold when Coinbase went public.
Marc Andreessen, who is a software engineer, venture capitalist and Coinbase director, is a holder of more than 10% of the exchange`s shares. He and his company Andreessen Horowitz sold a total of 1,18 million shares for $449,2 million, according to SEC.
As I pointed out in my recent article about the DPO (direct listing) last week, there is a huge difference between IPO and DPO. In this case; a direct listing is a liquidity event while an IPO is a capital-raising event.
This is why Armstrong and his team sold shares when they went public, and this is the whole point of their direct listing. The fact is that Coinbase doesn`t need money, so they are offering the public existing shares. That`s why we see where the shares is coming from.
In an IPO we see new shares being offered by the company to raise money that goes to the treasury. Coinbase doesn`t gain any proceeds with this DPO, but more holders are coming in and that will give the company the opportunity to raise more money in the future. If they need.
Coinbase went public a few days ago and that helped crytocurrencies like Bitcoin and Etherium. But the biggest winner this week was a little dog. A cryptocurrency called Dogecoin. That coin has gone up 400% in a week. Not bad for a little dog, eh?
Fortune wrote about the «Coinbase Effect» which is a new phenomenon in the world of cryptocurrency. The idea is that the price of cryptocurrencies that are going to be listed for sale on a dominant crypto exchange such as Coinbase, begin to rise in the days after the news becomes public.
According to Barron`s, the effect of getting a cryptocurrency listed on the exchange plays a big role in what cryptocurrencies gain acceptance and which ones may get left behind. One of those who seems to survive is Dogecoin, but some people are worried it`s already a bubble. Time will show.
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Wednesday will be a historic day. Coinbase will make stock market history as the first company specializing in cryptocurrencies to launch an initial public offering. Well, it`s not a traditional IPO but a direct listing called DPO.
This can probably be the most important IPO/DPO of 2021, and the most interesting thing about this IPO/DPO is the difference between the traditional centralized market and the decentralized cryptocurrency market.
I wrote about Bitcoin 8 years ago and the price at that time was $100 – $200, and it has been a wild ride since then. The Coinbase IPO comes at a time were Bitcoin is trading at an all-time high around $63,000.
A lot of people are very sceptical about the cryptocurrency market, but this IPO/DPO can reduce this scepticizm and make more people to invest in this market which is a great alternative currency in the future.
The company is founded in 2012 but have a valuation of around $100 billion. They have 56 million users in over 100 countries, and last week, Coinbase reported a revenue of $1,8 billion for the first quarter of 2021. In 2020 they reported revenue of $1,14 billion. Up 139% from 2019.
There is great oportunities, but Coinbase also comes with its own set of risks.
The company said in its prospectus that its revenue is «substantially dependent on the prices of crypto assets and volume of transactions conduted on our platform» and that 56% of its revenue comes from Bitcoin and Etherium transactions.
Coinbase warns that if cryptocurrency prices, demand or volume declines, its business would be severely affected. While the company has established security protocols, it also noted that there is always potential for cyber attacks or security breaches.
«We have experienced from time to time, and may experience in the future, breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities, or other irregularities,» Coinbase wrote in its prospectus.
«Unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to our system and facilities, as well as those of our customers, partners, and third-party service providers.»
In addition, Coinbase cites «significant regulatory uncertainty» as one of its major business concerns, noting that regulators around the globe have increased their scrutiny of digital currencies.
A valuation of $100 billion will make Coinbase the biggest financial exchange in the world. Its operating margin of around 55% is far from that of Wall Street banks last year.
Coinbase generated 0,46% on each dollar it traded in cryptocurrrencies for customers. Last year, ICE and Nasdaq made an average of 0,01% on each dollar of securities traded. As you can see, this is big business for Coinbase, but for how long will it last?
They`re not alone in the crytocurrecy market, and sooner or later, I believe that competitors like Binance, Gemini, Kraken or Bitstamp to name a few, will follow Coinbase and push the fees down.
The operating margins for the largest investment banks is about 23%. If Coinbase drops to that level, with a revenue growth at a strong 21%, the company will be worth $18,9 billion, according to Fortune. Keep in mind that 21% revenue growth is what Nasdaq achieved in its rapid growth phase.
Keep in mind that the Coinbase IPO media is talking about is not an IPO. It is a DPO, which is a direct listing and I don`t know why media mistakenly describe it as an IPO. The difference is that IPO shares get allocated at a pre-established price. Direct listing shares do not.
In an IPO, investment bankers set the share price as high as they think the market will pay for the shares. In an DPO, there is no pre-set price dedicated by a group of investment bankers. IPO raise new capital, but direct listings do not.
The DPO will not fill Coinbase`s pockets with cash, but it will make it more easy for them to raise capital going forward. A DPO is a liquidity event. An IPO is a capital-raising event. That`s the difference.
Therefore; an IPO is less volatile than an DPO, because large institutions and other shareholders are typically locked up in the first 6-12 months. A DPO doesn`t have that kind of lockup and can dump the shares the same day they go public.
We didn`t see unexpected volatility in Spotify and Slack when they went public in their DPO, but Palantir`s shares slumped the day the lockup expired.
Coinbase shareholders will probably wait and see how trading is going before submitting their offers, and that can affect the nubmer of shares being traded and could exacerbate price swings. But that`s exactly how it is in the crypto space right now.
Coinbase has registered 114,850,769 shares eligible for sale, but nobody knows how many shares will change hands on Wednesday. It is a direct listing and the market sets the initial price. Not a group of investment bankers in an IPO. That`s exactly how it is in the crypto space. Open and transparent.
Wednesday will be a historic day and this week will be a good week for the crypto market. Let the crypto party begin.
A once in a generation investment. That`s what president Biden called his $2 billion program of infrastructure spending. Biden said it will create millions of jobs while giving roads, utilities and American industry a badly needed upgrade.
But somebody have to pay for it, but who? «We the people» of course. The corporations. And there is one simple way to do that: TAX. Minimum wages are rising. So are the taxes, and what is that suppose to mean? It means the inflation is coming.
«I`m proposing a plan for the nation that rewards work. Not just rewares wealth. It builds a fair economy that gives everybody a chance to succeed. And it`s going to create the strongest, most resilient innovative economy in the world,» Biden said in a speech a few days ago.
The Biden administration plans on modernizing 32,000 kim of highway, 500,000 charging points for electric autos, and bringing back key industries such as chip production back to the U.S. Chips are still mostly produced in Asia. (Bringing back chip industries sounds like a Trump strategy).
The project is expected to take eight years to complete, and some of the funding will come from a corporate tax hike from 21 to 28 percent. Biden`s supporters say the program will create millions of well.paid jobs, and stregthen America`s ability to compete with China.
2 trillion dollars is a lot of money and there is no doubt that this program will boost the semiconductor industry, but also the EV industry.
Biden said he is not worried about the U.S economy at all. At the same time, Janet Yellen makes a push for global minimum corporate tax. She doesn`t want a race to the bottom, and warns of dangers to the American economy if U.S acts alone in raising corporate tax rates.
When Obama hiked corporate taxes, businesses fled. One of the largest corporations in the world; Apple, ended up in Irland thanks to a great offshore plan, but Trump were bringing the company back to the U.S.
It speaks for itself. The more money corporations pay in tax, the less competetive they are on the world stage.
The time we are living in today, is similar to the 30`s, and Biden`s infrastructure plan is often comparead to Franklin D. Roosevelt`s «New deal».
The New Deal was a series of programs, public work projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the United States between 1933 and 1939.
The programs focused on what historians refer to as the «3 Rs»; relief for the unemployed and poor, recovery of the economy back to normal levels, and reform of the financial system to prevent a repeat depression ( the stock market crached in 1929).
The first deal (1933 – 1934) dealt with the pressing banking crisis through the Emergency Banking Act and the 1933 Banking Act. The Federal Emergency Relief Administration provided $500 million ($9,88 billion today) for relieft operations by states and cities, while the short-lived CWA gave locals money to operate Make-work projects in 1933 – 1934.
The Securities Act of 1933 was enacted to prevent a repeated stock market crash.
The second New Deal in 1935 – 1936 included the National Labor Relations Act to protect labor organizing, the Works Progress Administration relief program (which made the federal government the largest employer in the nation), the the Social Security Act and new programs to aid tenant farmers and migrant workers.
The final major items of New Deal legislation were the creation of the United States Housing Authority and the FSA, which both occurred in 1937, and the Fair Labor Standards Act of 1938, which set maximum hours and minimum wages for most categories of workers.
Keep in mind that all this happened a few years before the World War II occurred.
The economic downturn of 1937 – 1938 and the bitter split between the American Federation of Labor and Congress of Industrial Organizations labor unions led to major Republican gains in Congress in 1938.
Conservative Republicans and Democratas in Congress joined the informal conservative coalition. By 1942 – 1943, they shut down relief programs such as the WPA and the CCC and blocked major liberal proposals.
Nonetheless, Roosevelt turned his attention to the war effort and won reelection in 1940 – 1944. Furthermore, the Supreme Court declared the NRA and the first version of the Agricultural Adjustment Act unconstitutional, but the AAA was rewritten and then upheld.
Republican president Dwight.D. Eisenhower (1953 – 1961) left the New Deal largely intact, even expanding it in some areas. In the 1960`s, Lydon B. Johnson`s Great Society used the New Deal as inpiration for a dramatic expansion of liberal programs, which Republican Richard Nixon generally retained.
However, after 1974 the call for deregulation of the economy gained bipartisan support. The New Deal regulation of banking (Glass-Steagall Act) lasted until it was suspended in the 1990`s.
From 1929 to 1933 manufacturing output decreased by one third, which economist Milton Friedman called the Great Contraction. Prices fell by 20%, causing deflation that made repaying debts much harder.
Unemployment in the United States increased from 4% to 25%. additionally, one-third of all employed persons were downgraded to working part-time on much smaller paychecks. In the aggregate, almost 50% of the nation`s work-power was going unused.
Before the New Deal, deposits at banks were not insured. When thousands of banks closed, depositors lost their savings as at that time there was no national safety net, no public unemployment insurance and no Social Security.
The depression had devastated the nation. As Roosevelt took the oath of office at noon on March 4, 1933, all state governors had authorized bank holidays or restricted withdrawals. Many Americans had little or no access to their bank accounts.
Farm income had fallen by over 50% since 1929 (stock market crash). An estimated 844,000 non-farm mortgages had been foreclosed between 1930 – 1933, out of five million in all. Political and business leaders feared revolution and anarchy.
In 1935, Roosevelt called for a tax program called the Wealth Tax Act (Revenue Act of 1935) to redistribute wealth. The bill imposed an income tax of 79% on incomes over $5 million. It raised the bitterness of the rich who called Roosevelt «a traitor to his class» and the wealthy tax act a «soak the rich tax».
The Roosevelt administration was under assault during Roosevelt`s second term,which presided over a new dip in the Great Depression in the fall of 1937 that continued through most of 1938. Production and profits declined sharply.
Unemployment jumped from 14,3% in May of 1937 to 19% in June 1938. The downturn was perhaps due to nothing more than the familiar rhythms of the business cycle, but until 1937 Roosevelt had claimed responsibility for the excellent economic performance.
That backfired in the recession and the heated political atmosphere of 1937.
Keynes did not think that the New Deal under Roosevelt ended the Great Depression: «It is, it seems, politically impossible for a capitalistic democracy to organize expenditure on the scale necessary to make the grand experiments which would prove my case, except in war conditions.»
Worldwide, the Great Depression had the most profound impact in Germany and the United States. In both countries the pressure to reform and the perception of the economic crisis were strikingly similar.
When Hitler came to power he was faced with exactly the same task that faced Roosevelt, overcoming mass unemployment and the global Depression. The political responses to the crisis were essensially different; while American democracy remained strong, Germany replaced democracy with fascism, a Nazi dictatorship.
The initial perception of the New Deal was mixed. On the one hand, the eyes of the world were upon the United States because many American and European democrats saw in Roosevelt`s reform program a positive counterweight to the seductive powers of the two great alternative systems, communism and fascism.
As the historian Isaiah Berlin wrote in 1955: «The only light in the darkness was the administration of Mr. Roosevelt and the New Deal in the United States».
By contrast, enemies of the New Deal sometimes called it «fascist», but they meant very different things. Communists denounced the New Deal in 1933 and 1934 as fascist in the sence that it was under the control of big business. They deopped that line of thought when Stalin switched to the «Popular Front» plan of cooperation with liberals.