David Gracey

David Gracey

Head of Foreign Exchange and Fixed Income Trading

Currency Comment - Crypto Blues

·        Thank goodness for crypto currencies, otherwise there would be nothing NEW to write about!!

·        All other asset classes are a big yawn at the moment. Central Banks are keeping a lid on short-term rates, even as inflation is moving up, which means that each day is more of the same as yesterday.

·        As far as the ZAR is concerned, it's steady as she goes, with exporters remaining the dominant force in the market.

·        But, on the Crypto front it's rather manic and super interesting. Every day there are new factors as regulators try to come to terms with how this asset class should be governed. And we have varying reactions across the globe.

·        Some local Governments (state and municipal) accept payment in some of the major currencies. Others (Africa and Asia) are trying to ban its use.

·        Some major corporates and payment houses now accept Crypto payments, and there are yet others maintaining a steadfast resistance.

·        Even Banks that were completely opposed to the idea of crypto just a few years ago, now have trading operations.

·        And so Crypto prices remain extremely volatile. For many, far too volatile.

·        And then of course there are many unanswered questions as far as Crypto is concerned. Elon Musk – he of the recent bullish acceptance of Bitcoin as payment for Tesla services, has now decided that perhaps Crypto mining is actually not great for the environment, which flies in the face of his green company principles. And so Tesla has now suspended accepting BTC payment.

·        After reaching highs of +60 000 usd per Btc, the price has fallen by over 30% to trade at below 40 000 USD at the time of writing.

·        So what do we make of all of this? How are we to understand the implications for the long term? How does one decide (or not) to get involved in this massively volatile asset class?

·        As I have said before – education is the key. There is enough material out there to gain a fairly decent understanding of the implications of Crypto.

·        My view is fairly simple.

o   I am a believer in the idea of Crypto. Not all Crypto, but some.

o   In my opinion there are far too many currencies out there. Any kid with an Ipad and a rudimentary understanding of block chain can start a currency. It’s kind of like the days of dotcom mania. At that time anything with a .com behind its name, that listed on some US exchange was bought up, without any discerning understanding of the value proposition. At the time I’m sure I could have listed a company called www.exmotherinlaws.com, and I could have retired. I feel this market is like that. There is a coin for anything and everything, and it’s hard to figure out who the winners and losers are going to be.

o   Today we have the so-called FAANG stocks – the outright survivors of the DOTCOM era.  I think the same will happen in Crypto.

o   My other reason for being a believer is what is happening broadly in FIAT. In fact it’s been happening for decades/centuries. And that is the debasement of FIAT value through inflationary money supply. Governments ALWAYS have an incentive to increase the money supply when things get a little rough. Economics 101 teaches us more supply = less value. As an example, just look at the relevant stimulus packages that the US Government passed in the last 15 years.

o    When the subprime market blew up in 2007/2008 the US Government spent an enormous 800 billion USD in trying to arrest the carnage. At the time there was a proper social outcry about the amount spent. There were even new social movements created in protest. You will recall that “Occupy wall street” was a real thing.

o   What do you think they did last year? How much Debt was created in trying to arrest the fallout from the covid panic.?

o   You can go and research for yourself, but I’ll give you a clue ….it’s not 800 billion USD.

o   I could go on and on…..but I’m going to stop here.

·        To be sure, this is not a commentary on the price of Bitcoin or Crypto…..I cannot tell you whether a Bitcoin, or Etherium or any other coin should be worth 1 USD or 1 Million USD. This is however a commentary on the value of the concept, and in this, I believe there is immense value.

·        I just find it interesting that Crypto psychology is intimately linked to the current price action. When the price is going up, everyone wonders why they didn’t get into this sure thing. And when the price is falling the naysayers come out to play.

·        Crypto will remain volatile, precisely because it's (in my opinion) a monetary revolution. Revolutions generally are bloody and messy.

·        We are still in the infancy phase of Crypto …. There are still many conclusions to draw and questions to be answered.

·        Your best defense is education.