“Down The Rabbit Hole” – The Eurodollar Market Is The Matrix Behind It All

Submitted by Michael Every of Rabobank

Summary

  • The Eurodollar system is a critical but often misunderstood driver of global financial markets: its importance cannot be understated.
  • Its origins are shrouded in mystery and intrigue; its operations are invisible to most; and yet it controls us in many ways. We will attempt to enlighten readers on what it is and what it means.
  • However, it is also a system under huge structural pressures – and as such we may be about to experience a profound paradigm shift with key implications for markets, economies, and geopolitics.
  • Recent Fed actions on swap lines and repo facilities only underline this fact rather than reducing its likelihood

What is The Matrix?

A new world-class golf course in an Asian country financed with a USD bank loan. A Mexican property developer buying a hotel in USD. A European pension company wanting to hold USD assets and swapping borrowed EUR to do so. An African retailer importing Chinese-made toys for sale, paying its invoice in USD.

All of these are small examples of the multi-faceted global Eurodollar market. Like The Matrix, it is all around us, and connects us. Also just like The Matrix, most are unaware of its existence even as it defines the parameters we operate within. As we shall explore in this special report, it is additionally a Matrix that encompasses an implicit power struggle that only those who grasp its true nature are cognizant of.

Moreover, at present this Matrix and its Architect face a huge, perhaps existential, challenge.

Yes, it has overcome similar crises before…but it might be that the Novel (or should we say ‘Neo’?) Coronavirus is The One.

So, here is the key question to start with: What is the Eurodollar system?

For Neo-phytes

The Eurodollar system is a critical but often misunderstood driver of global financial markets: its importance cannot be understated. While most market participants are aware of its presence to some degree, not many grasp the extent to which it impacts on markets, economies,…and geopolitics – indeed, the latter is particularly underestimated.

Yet before we go down that particular rabbit hole, let’s start with the basics. In its simplest form, a Eurodollar is an unsecured USD deposit held outside of the US. They are not under the US’ legal jurisdiction, nor are they subject to US rules and regulations.

To avoid any potential confusion, the term Eurodollar came into being long before the Euro currency, and the “euro” has nothing to do with Europe. In this context it is used in the same vein as Eurobonds, which are also not EUR denominated bonds, but rather debt issued in a different currency to the company of that issuing. For example, a Samurai bond–that is to say a bond issued in JPY by a nonJapanese issuer–is also a type of Eurobond.

As with Eurobonds, eurocurrencies can reflect many different underlying real currencies. In fact, one could talk about a Euroyen, for JPY, or even a Euroeuro, for EUR. Yet the Eurodollar dwarfs them: we shall show the scale shortly.

More(pheous) background

So how did the Eurodollar system come to be, and how has it grown into the behemoth it is today? Like all global systems, there are many conspiracy theories and fantastical claims that surround the birth of the Eurodollar market. While some of these stories may have a grain of truth, we will try and stick to the known facts.

A number of parallel events occurred in the late 1950s that led to the Eurodollar’s creation – and the likely suspects sound like the cast of a spy novel. The Eurodollar market began to emerge after WW2, when US Dollars held outside of the US began to increase as the US consumed more and more goods from overseas. Some also cite the role of the Marshall Plan, where the US transferred over USD12bn (USD132bn equivalent now) to Western Europe to help them rebuild and fight the appeal of Soviet communism.

Of course, these were just USD outside of the US and not Eurodollars. Where the plot thickens is that, increasingly, the foreign recipients of USD became concerned that the US might use its own currency as a power play. As the Cold War bit, Communist countries became particularly concerned about the safety of their USD held with US banks. After all, the US had used its financial power for geopolitical gains when in 1956, in response to the British invading Egypt during the Suez Crisis, it had threatened to intensify the pressure on GBP’s peg to USD under Bretton Woods: this had forced the British into a humiliating withdrawal and an acceptance that their status of Great Power was not compatible with their reduced economic and financial circumstances.

With rising fears that the US might freeze the Soviet Union’s USD holdings, action was taken: in 1957, the USSR moved their USD holdings to a bank in London, creating the first Eurodollar deposit and seeding our current UScentric global financial system – by a country opposed to the US in particular and capitalism in general.

There are also alternative origin stories. Some claim the first Eurodollar deposit was made during the Korean War with China moving USD to a Parisian bank.

Meanwhile, the Eurodollar market spawned a widely-known financial instrument, the London Inter Bank Offer Rate, or LIBOR. Indeed, LIBOR is an offshore USD interest rate which emerged in the 1960s as those that borrowed Eurodollars needed a reference rate for larger loans that might need to be syndicated. Unlike today, however, LIBOR was an average of offered lending rates, hence the name, and was not based on actual transactions as the first tier of the LIBOR submission waterfall is today.

Dozer and Tank

So how large is the Eurodollar market today? Like the Matrix – vast. As with the origins of the Eurodollar system, itself nothing is transparent. However, we have tried to estimate an indicative total using Bank for International Settlements (BIS) data for:

  • On-balance sheet USD liabilities held by non-US banks;
  • USD Credit commitments, guarantees extended, and derivatives contracts of non-US banks (C, G, D);
  • USD debt liabilities of non-US non-financial corporations;
  • Over-the-Counter (OTC) USD derivative claims of non-US non-financial corporations; and
  • Global goods imports in USD excluding those of the US and intra-Eurozone trade.

The results are as shown below as of end-2018: USD57 trillion, nearly three times the size of the US economy before it was hit by the COVID-19 virus. Even if this measure is not complete, it underlines the scale of the market.

It also shows its vast power in that this is an equally large structural global demand for USD.  Every import, bond, loan, credit guarantee, or derivate needs to be settled in USD.

Indeed, fractional reserve banking means that an initial Eurodollar can be multiplied up (e.g., Eurodollar 100m can be used as the base for a larger Eurodollar loan, and leverage increased further). Yet non-US entities are NOT able to conjure up USD on demand when needed because they don’t have a central bank behind them which can produce USD by fiat, which only the Federal Reserve can.

This power to create the USD that everyone else transacts and trades in is an essential point to grasp on the Eurodollar – which is ironically also why it was created in the first place!

Tri-ffi-nity

Given the colourful history, ubiquitous nature, and critical importance of the Eurodollar market, a second question then arises: Why don’t people know about The Matrix?

The answer is easy: because once one is aware of it, one immediately wishes to have taken the Blue Pill instead.

Consider what the logic of the Eurodollar system implies. Global financial markets and the global economy rely on the common standard of the USD for pricing, accounting, trading, and deal making. Imagine a world with a hundred different currencies – or even a dozen: it would be hugely problematic to manage, and would not allow anywhere near the level of integration we currently enjoy.

However, at root the Eurodollar system is based on using the national currency of just one country, the US, as the global reserve currency. This means the world is beholden to a currency that it cannot create as needed.

When a crisis hits, as at present, everyone in the Eurodollar system suddenly realizes they have no ability to create fiat USD and must rely on national USD FX reserves and/or Fed swap lines that allow them to swap local currency for USD for a period. This obviously grants the US enormous power and privilege.

The world is also beholden to US monetary policy cycles rather than local ones: higher US rates and/or a stronger USD are ruinous for countries that have few direct economic or financial links with the US. Yet the US Federal Reserve generally shows very little interest in global economic conditions – though that is starting to change, as we will show shortly.

A second problem is that the flow of USD from the US to the rest of the world needs to be sufficient to meet the inbuilt demand for trade and other transactions. Yet the US is a relatively smaller slice of the global economy with each passing year. Even so, it must keep USD flowing out or else a global Eurodollar liquidity crisis will inevitably occur.

That means that either the US must run large capital account deficits, lending to the rest of the world; or large current account deficits, spending instead.

Obviously, the US has been running the latter for many decades, and in many ways benefits from it. It pays for goods and services from the rest of the world in USD debt that it can just create. As such it can also run huge publicor private-sector deficits – arguably even with the multitrillion USD fiscal deficits we are about to see.

However, there is a cost involved for the US. Running a persistent current-account deficit implies a net outflow of industry, manufacturing and related jobs. The US has obviously experienced this for a generation, and it has led to both structural inequality and, more recently, a backlash of political populism wanting to Make America Great Again.

Indeed, if one understands the structure of the Eurodollar system one can see that it faces the Triffin Paradox. This was an argument first made by Robert Triffin in 1959 when he correctly predicted that any country forced to adopt the role of global reserve currency would also be forced to run ever-larger currency outflows to fuel foreign appetite – eventually leading to the breakdown of the system as the cost became too much to bear.

Moreover, there is another systemic weakness at play: realpolitik. Atrophying of industry undermines the supply chains needed for the defence sector, with critical national security implications. The US is already close to losing the ability to manufacture the wide range of products its powerful armed forces require on scale and at speed: yet without military supremacy the US cannot long maintain its multi-dimensional global power, which also stands behind the USD and the Eurodollar system.

This implies the US needs to adopt (military-) industrial policy and a more protectionist stance to maintain its physical power – but that could limit the flow of USD into the global economy via trade. Again, the Eurodollar system, like the early utopian version of the Matrix, seems to contain the seeds of its own destruction.

Indeed, look at the Eurodollar logically over the long term and there are only three ways such a system can ultimately resolve itself:

  1. The US walks away from the USD reserve currency burden, as Triffin said, or others lose faith in it to stand behind the deficits it needs to run to keep USD flowing appropriately;
  2. The US Federal Reserve takes over the global financial system little by little and/or in bursts; or
  3. The global financial system fragments as the US asserts primacy over parts of it, leaving the rest to make their own arrangements.

See the Eurodollar system like this, and it was always when and not if a systemic crisis occurs – which is why people prefer not focus on it all even when it matters so much. Yet arguably this underlying geopolitical dynamic is playing out during our present virus-prompted global financial instability.

Down the rabbit hole

But back to the rabbit hole that is our present situation. While the Eurodollar market is enormous one also needs to look at how many USD are circulating around the world outside the US that can service it if needed. In this regard we will look specifically at global USD FX reserves.

It’s true we could also include US cash holdings in the offshore private sector. Given that US banknotes cannot be tracked no firm data are available, but estimates range from 40% – 72% of total USD cash actually circulates outside the country. This potentially totals hundreds of billions of USD that de facto operate as Eurodollars. However, given it is an unknown total, and also largely sequestered in questionable cash-based activities, and hence are hopefully outside the banking system, we prefer to stick with centralbank FX reserves.

Looking at the ratio of Eurodollar liabilities to global USD FX reserve assets, the picture today is actually healthier than it was a few years ago.

Indeed, while the Eurodollar market size has remained relatively constant in recent years, largely as banks have been slow to expand their balance sheets, the level of global USD FX reserves has risen from USD1.9 trillion to over USD6.5 trillion. As such, the ratio of structural global USD demand to that of USD supply has actually declined from near 22 during the global financial crisis to around 9.

Yet the current market is clearly seeing major Eurodollar stresses – verging on panic.

Fundamentally, the Eurodollar system is always short USD, and any loss of confidence sees everyone scramble to access them at once – in effect causing an invisible international bank run. Indeed, the Eurodollar market only works when it is a constant case of “You-Roll-Over Dollar”.

Unfortunately, COVID-19 and its huge economic damage and uncertainty mean that global confidence has been smashed, and our Eurodollar Matrix risks buckling as a result.

The wild gyrations recently experienced in even major global FX crosses speak to that point, to say nothing of the swings seen in more volatile currencies such as AUD, and in EM bellwethers such as MXN and ZAR. FX basis swaps and LIBOR vs. Fed Funds (so offshore vs. onshore USD borrowing rates) say the same thing. Unsurprisingly, the IMF are seeing a wide range of countries turning to them for emergency USD loans.

The Fed has, of course, stepped up. It has reduced the cost of accessing existing USD swap lines–where USD are exchanged for other currencies for a period of time–for the Bank of Canada, Bank of England, European Central Bank, and Swiss National Bank; and another nine countries were given access to Fed swap lines with Australia, Brazil, South Korea, Mexico, Singapore, and Sweden all able to tap up to USD60bn, and USD30bn available to Denmark, Norway, and New Zealand. This alleviates some pressure for some markets – but is a drop in the ocean compared to the level of Eurodollar liabilities.

The Fed has also introduced a new FIMA repo facility. Essentially this allows any central bank, including emerging markets, to swap their US Treasury holdings for USD, which can then be made available to local financial institutions. To put it bluntly, this repo facility is like a swap line but with a country whose currency you don’t trust.

Allowing a country to swap its Treasuries for USD can alleviate some of the immediate stress on Eurodollars, but when the swap needs to be reversed the drain on reserves will still be there. Moreover, Eurodollar market participants will now not be able to see if FX reserves are declining in a potential crisis country. Ironically, that is likely to see less, not more, willingness to extend Eurodollar credit as a result.

You have two choices, Neo

Yet despite all the Fed’s actions so far, USD keeps going up vs. EM FX. Again, this is as clear an example as one could ask for of structural underlying Eurodollar demand.

Indeed, we arguably need to see even more steps taken by the Fed – and soon. To underline the scale of the crisis we currently face in the Eurodollar system, the BIS concluded at the end of a recent publication on the matter:

“…today’s crisis differs from the 2008 GFC, and requires policies that reach beyond the banking sector to final users. These businesses, particularly those enmeshed in global supply chains, are in constant need of working capital, much of it in dollars. Preserving the flow of payments along these chains is essential if we are to avoid further economic meltdown.

Channeling dollars to non-banks is not straightforward. Allowing non-banks to transact with the central bank is one option, but there are attendant difficulties, both in principle and in practice. Other options include policies that encourage banks to fill the void left by market based finance, for example funding for lending schemes that extend dollars to non-banks indirectly via banks.”

In other words, the BIS is making clear that somebody (i.e., the Fed) must ensure that Eurodollars are made available on massive scale, not just to foreign central banks, but right down global USD supply chains. As they note, there are many practical issues associated with doing that – and huge downsides if we do not do so. Yet they overlook that there are huge geopolitical problems linked to this step too.

Notably, if the Fed does so then we move rapidly towards logical end-game #2 of the three possible Eurodollar outcomes we have listed previously, where the Fed de facto takes over the global financial system. Yet if the Fed does not do so then we move towards end-game #3, a partial Eurodollar collapse.

Of course, the easy thing to assume is that the Fed will step up as it has always shown a belated willingness before, and a more proactive stance of late. Indeed, as the BIS shows in other research, the Fed stepped up not just during the Global Financial Crisis, but all the way back to the Eurodollar market of the 1960s, where swap lines were readily made available on large scale in order to try to reduce periodic volatility.

However, the scale of what we are talking about here is an entirely new dimension: potentially tens of trillions of USD, and not just to other central banks, or to banks, but to a panoply of real economy firms all around the Eurodollar universe.

As importantly, this assumes that the Fed, which is based in the US, wants to save all these foreign firms. Yet does the Fed want to help Chinese firms, for example? It may traditionally be focused narrowly on smoothly-functioning financial markets, but is that true of a White House that openly sees China as a “strategic rival”, which wishes to onshore industry from it, and which has more interest in having a politically-compliant, not independent Fed? Please think back to the origins of Eurodollars – or look at how the US squeezed its WW2 ally UK during the 1956 Suez Crisis, or how it is using the USD financial system vs. Iran today.

Equally, this assumes that all foreign governments and central banks will want to see the US and USD/Eurodollar cement their global financial primacy further. Yes, Fed support will help alleviate this current economic and brewing financial crisis – but the shift of real power afterwards would be a Rubicon that we have crossed.

Specifically, would China really be happy to see its hopes of CNY gaining a larger global role washed away in a flood of fresh, addictive Eurodollar liquidity, meaning that it is more deeply beholden to the US central bank? Again, please think back to the origins of Eurodollars, to Suez, and to how Iran is being treated – because Beijing will. China would be fully aware that a Fed bailout could easily come with political strings attached, if not immediately and directly, then eventually and indirectly. But they would be there all the same.

One cannot ignore or underplay this power struggle that lies within the heart of the Eurodollar Matrix.

I know you’re out there

So, considering those systemic pressures, let’s look at where Eurodollar pressures are building most now. We will use World Bank projections for short-term USD financing plus concomitant USD current-account deficit requirements vs. specifically USD FX reserves, not general FX reserves accounted in USD, as calculated by looking at national USD reserves and adjusting for the USD’s share of the total global FX reserves basket (57% in 2018, for example). In some cases this will bias national results up or down, but these are in any case only indicative.

How to read these data about where the Eurodollar stresses lie in Table 1? Firstly, in terms of scale, Eurodollar problems lie with China, the UK, Japan, Hong Kong, the Cayman Islands, Singapore, Canada, and South Korea, Germany and France. Total short-term USD demand in the economies listed is USD28 trillion – around 130% of USD GDP. The size of liabilities the Fed would potentially have to cover in China is enormous at over USD3.4 trillion – should that prove politically acceptable to either side.

Outside of China, and most so in the Cayman Islands and the UK, Eurodollar claims are largely in the financial sector and fall on banks and shadow banks such as insurance companies and pension funds. This is obviously a clearer line of attack/defence for the Fed. Yet it still makes these economies vulnerable to swings in Eurodollar confidence – and reliant on the Fed.

Second, most developed countries apart from Switzerland have opted to hold almost no USD reserves at all. Their approach is that they are also reserve currencies, long-standing US allies, and so assume the Fed will always be willing to treat them as such with swap lines when needed. That assumption may be correct – but it comes with a geopolitical power-hierarchy price tag. (Think yet again of how Eurodollars started and the 1956 Suez Crisis ended.)

Third, most developing countries still do not hold enough USD for periods of Eurodollar liquidity stress, despite the painful lessons learned in 1997-98 and 2008-09. The only exception is Saudi Arabia, whose currency is pegged to the USD, although Taiwan, and Russia hold USD close to what would be required in an emergency. Despite years of FX reserve accumulation, at the cost of domestic consumption and a huge US trade deficit, Indonesia, Mexico, Malaysia, and Turkey are all still vulnerable to Eurodollar funding pressures. In short, there is an argument to save yet more USD – which will increase Eurodollar demand further.

We all become Agent Smith?

In short, the extent of demand for USD outside of the US is clear – and so far the Fed is responding. It has continued to expand its balance sheet to provide liquidity to the markets, and it has never done so at this pace before (Figure 5). In fact, in just a month the Fed has expanded its balance sheet by nearly 50% of the previous expansion observed during all three rounds of QE implemented after the Global Financial Crisis. Essentially we have seen nearly five years of QE1-3 in five weeks! And yet it isn’t enough.

Moreover, things are getting worse, not better. The global economic impact of COVID-19 is only beginning but one thing is abundantly clear – global trade in goods and services is going to be hit very, very hard, and that US imports are going to tumble. This threatens one of the main USD liquidity channels into the Eurodollar system.

Table 2 above also underlines looming EM Eurodollar stress-points in terms of import cover, which will fall sharply as USD earnings collapse, and external debt service. The further to the left we see the latest point for import cover, and the further to the right we see it for external debt, the greater the potential problems ahead.

As such, the Fed is likely to find it needs to cover trillions more in Eurodollar liabilities (of what underlying quality?) coming due in the real global, not financial economy – which is exactly what the BIS are warning about. Yes, we are seeing such radical steps being taken by central banks in some Western countries, including in the US – but internationally too? Are we all to become ‘Agent Smith’?

If the Fed is to step up to this challenge and expand its balance sheet even further/faster, then the US economy will massively expand its external deficit to mirror it.

That is already happening. What was a USD1 trillion fiscal deficit before COVID-19, to the dismay of some, has expanded to USD3.2 trillion via a virus-fighting package: and when tax revenues collapse, it will be far larger. Add a further USD600bn phase three stimulus, and talk of a USD2 trillion phase four infrastructure program to try to jumpstart growth rather than just fight virus fires, and potentially we are talking about a fiscal deficit in the range of 20-25% of GDP. As we argued recently, that is a peak-WW2 level as this is also a world war of sorts.

On one hand, the Eurodollar market will happily snap up those trillions US Treasuries/USD – at least those they can access, because the Fed will be buying them too via QE. Indeed, for now bond yields are not rising and USD still is.

However, such fiscal action will prompt questions on how much the USD can be ‘debased’ before, like Agent Smith, it over-reaches and then implodes or explodes – the first of the logical endpoints for the Eurodollar system, if you recall. (Of course, other currencies are doing it too.)

Is Neo The One?

In conclusion, the origins of the Eurodollar Matrix are shrouded in mystery and intrigue – and yet are worth knowing. Its operations are invisible to most but control us in many ways – so are worth understanding. Moreover, it is a system under huge structural pressure – which we must now recognise.

It’s easy to ignore all these issues and just hope the Eurodollar Matrix remains the “You-Roll-Dollar” market – but can that be true indefinitely based just on one’s belief?

Is the Neo Coronavirus ‘The One’ that breaks it?

_______________________________________________________________

ORACLE: “Well now, ain’t this a surprise?”

ARCHITECT: “You’ve played a very dangerous game.”

ORACLE: “Change always is.”

ARCHITECT: “And how long do you think this peace is going to last?”

ORACLE: “As long as it can….What about the others?”

ARCHITECT: “What others?”

ORACLE: “The ones that want out.”

ARCHITECT: “Obviously they will be freed.”

End Game for The US Dollar — The Central Banks Losing Confidence in The Dollar .

Non-nativeenglish announement of Russian/Chinese alternative to US Dollar

 

China is largest oil importer

Attempt to price Oil in alternate currency

Displace: Brent-oil futures & North Sea

Qianhai, ICBC bank Qianhai Storage Center

 

Quantitative Easing & Cryptocurrency: Nuggets News presentation at GAIC 2019

Alex Saunders of Nuggets News shares his thoughts on what to expect from central banks on the road ahead from dropping rates, implementing quantitative easing and the applying modern monetary theory. Explaining why this is important to understand when investing in hedge assets like Gold and Bitcoin.

Alex Saunders is one of Australia’s leading blockchain educators and founder of Nuggets News.

Filmed at the Gold and Alternative Investments Conference 2019, Saturday, October 26, 2019.

 

how we’re going guys that’s working so
00:01
hands up who owns gold and hands up who
00:06
owns Bitcoin it’s bit more even than I
00:09
thought so yeah I’m definitely a big fan
00:11
of both and today I’m going to try and
00:13
give you a rundown of bitcoins history
00:15
and how it’s been affected by monetary
00:17
policy where I think that is going as we
00:20
head into the future and Bitcoin is very
00:23
hard to understand so I’m going to tie
00:25
together all these concepts as best I
00:27
can for you in under half an hour and
00:29
just a bit of an intro I run Nuggets
00:32
news I’ve been in cryptocurrency since
00:34
2012 I was actually a pharmacist by
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trade and I’ll talk about how my story
00:40
came about so these days where
00:43
Australia’s leading provider of free and
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premium education with a focus on
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Bitcoin other cryptocurrencies as well
00:50
as the importance of gold and protecting
00:53
your wealth a bit of well-rounded
00:55
financial education so Bitcoin often
01:00
gets called you know digital gold
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internet money and I think these terms
01:03
maybe oversimplify it and don’t do it
01:06
justice so I’m going to talk about all
01:07
the different things that it is bringing
01:09
together and why it is so important so
01:12
another focus of my talk today is you
01:13
know what have we learned from the GFC
01:15
it’s ten years on now and Bitcoin
01:18
actually came about from the GFC my
01:23
journey begins around that time when I’d
01:25
been studying pharmacy but investing it
01:27
always been my passion and when the GFC
01:30
unfolded like a lot of you I’m sure you
01:32
want to know what happened and there’s
01:33
some fantastic documentaries out there
01:35
and you learn about how you know the
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banks effectively caused all this
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trouble and then got bailed out and
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satoshi the creator of Bitcoin embedded
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this message about the the bailouts for
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the banks in the Genesis block of
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Bitcoin so it’s very much one of the
01:51
messages that he was trying to portray
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about bitcoins mission going forward so
01:56
since the the GFC I guess the message
01:59
from central banks and their
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relationship with government has always
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been around you know trust us
02:04
we’ve got these levers of printing money
02:06
and interest rates and we can steer the
02:08
economy and they really ramped up their
02:11
production of of money as most
02:13
in this room probably know to encourage
02:15
banks to lend out and get the economy
02:17
going that I’m gonna talk about how that
02:19
hasn’t really unfolded and what we saw
02:21
around this time was people becoming
02:25
aware of these issues and push back
02:27
against what was happening so Occupy
02:29
Wall Street was pretty prominent at the
02:31
time he kind of died down a little bit
02:33
but this was when Bitcoin was starting
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to get a little bit of traction now like
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a lot of people when you learn about
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what he’s going on in the monetary
02:40
system you know I’m preaching to the
02:42
converted here at a gold conference and
02:44
I know personally I wanted to go out and
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buy some some gold and silver and one of
02:48
the first bars I bought it wasn’t a
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common I commonly made bar and I was
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sort of thinking you know how I know
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that this is legit so I guess that’s
02:54
probably one of the the aspects of
02:57
Bitcoin and auditing and even gold that
02:59
I believe blockchain can help Gold’s
03:01
case as well but I’m very much an
03:02
advocate of gold and silver and I still
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own those today another thing that a lot
03:08
of gold bugs will tell you is the price
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manipulation so depending on what degree
03:12
you believe in that I certainly I can
03:14
understand the case for you know these
03:16
futures markets and ETFs and
03:18
rehypothecation and what what is the
03:20
real gold underlying that and it’s
03:23
something that I hope doesn’t creep into
03:24
the Bitcoin world too much because we
03:27
don’t want that money that once exposure
03:29
to that asset being pushed into these
03:31
things that aren’t backed by real
03:32
Bitcoin or by real gold so you see a lot
03:37
of these different slides around
03:39
bitcoins properties and you know it’s
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it’s all looking pretty good according
03:43
to that but I’m certainly not here to
03:45
tell you that Bitcoin is a replacement
03:46
for gold at all there’s some things that
03:48
it does are better and some things that
03:50
it doesn’t do better that track record
03:52
and the history of gold obviously is
03:53
very hard to compete with but it’s all
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the properties of Bitcoin that give it’s
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you know good credence to be a good
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money the future money the next
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evolution of money so for the first time
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ever we had a way so I guess stick it to
04:09
central banks and governments and say
04:10
well you know if you’re going to try and
04:12
manipulate gold and ETFs and I know most
04:15
people instrument robably fans of
04:16
holding the real thing for the first
04:17
time ever we’ve got a way to hold your
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assets outside the system and become
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your own bank and this was a famous
04:24
photo that you probably saw with someone
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to buy Bitcoin behind janet yellen air
04:29
so what is Bitcoin what are the
04:32
properties that make it a good money
04:34
well the first things you learn is about
04:36
this finite supplier and how the
04:38
inflation rate halves every four years
04:40
so you can see there on the curve we’re
04:43
at a very important point well in May
04:45
next year we step down from 4% inflation
04:47
to 2% and then again four years later
04:50
down to 1% and at that time Bitcoin
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becomes more scarce than that inflation
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that all central banks are targeting of
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two and three percent the new production
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of gold is about one or two percent so
05:01
Bitcoin will become you know more scarce
05:03
in terms of the new coins created and
05:05
that’s very attractive in a world where
05:07
money printing is running right another
05:10
thing that you’ll love about Bitcoin
05:12
once you learn about is this
05:13
decentralized nature so what does that
05:15
mean well anyone can download the
05:17
Bitcoin blockchain running on their
05:19
computer help support the network you
05:21
can download a wallet and you become
05:23
part of the network you can send Bitcoin
05:25
to anyone else there’s no one company
05:27
that can be targeted or shut down
05:29
there’s there’s nodes computers all over
05:31
the world that run this network and it’s
05:33
literally impossible to stop unless you
05:35
plan on showing down the entire Internet
05:38
so around 2013 we saw the Cypress
05:42
bailing so heads up who knows the story
05:44
there so this is the first time that
05:47
we’d seen governments and banks say well
05:49
we’re not we’re not going to bail the
05:50
banks out and give them money you’re
05:51
gonna have to bail your customers in to
05:53
shore up your reserves and they got what
05:56
they call a haircut where the customers
05:57
lost a percentage of all money in their
05:59
accounts and we saw a lot of protests at
06:01
the time the ATMs shut the bank shut in
06:04
Cyprus and Bitcoin ran from a hundred
06:06
dollars to over a thousand dollars as
06:08
people in Cyprus saw that as the best
06:10
way to protect their wealth and have
06:12
access to their money so this was the
06:14
first I guess bubble and Bitcoin does
06:16
follow these these cycles these mini
06:18
bubbles where we have a very scarce
06:20
asset it’s thinly traded so when
06:22
everyone tries to borrow we get these
06:23
big run ups in price and that leads to
06:25
euphoria and speculation and then we
06:27
have these these crashes and like
06:29
anything it overshoots to the downside
06:31
and we have panic so I’ve been through
06:32
seven of these cycles now since 2012 and
06:35
you know every time people who say whoo
06:38
bitcoins dead he’d ends up going up a
06:39
thousand
06:40
sent the following year throughout this
06:43
time and despite this volatility if you
06:45
look at all the network stats for
06:46
Bitcoin and we can pull a lot of data
06:48
from that because the blockchain is
06:50
transparent and anyone can see what’s
06:51
going on the growth in the network was
06:54
very constant so bitcoins price
06:56
unfortunately isn’t just going to
06:58
steadily increase and you know REITs
07:01
these large market caps in the trillions
07:03
where I believe it’s going we’re going
07:04
to have those cycles despite the actual
07:07
growth underlying it being very very
07:09
consistent so most of you’ve probably
07:12
seen this slide about the u.s. debt
07:14
clock it’s probably going up a few
07:15
billion since I took this screenshot
07:17
yesterday and it’s these are the reasons
07:20
why bitcoin is so important because of
07:23
that finite nature that low inflation
07:25
rate that I spoke about there’s also an
07:27
Australian debt clock if you want to
07:29
google that and you can see how quickly
07:31
these liabilities and promises the
07:34
government is saying they’re gonna pay
07:35
us all are unfolding so I’ll put my
07:38
pharmacists hat back on
07:40
and once data like to tell people is
07:41
that for the first time in history
07:42
there’s more adult diapers than baby
07:44
diapers we’ve got a generation of baby
07:47
boomers every day 10,000 baby boomers
07:49
retire in the US and they’ve been
07:51
promised these pensions and this
07:52
Medicare and as you saw in the previous
07:54
slide that’s hundreds of trillions of
07:56
dollars the US and other countries are
07:58
promising at a time when they’re running
08:00
huge deficits there’s no way that this
08:02
can be funded and every dollar of debt
08:04
represents something that needs to be
08:06
paid out in the future so we know that
08:08
the money supply is going to have to
08:09
increase into the hundreds of trillions
08:10
of dollars and that is going to be very
08:13
inflationary in all countries around the
08:15
world at the same time we’ve got a
08:18
generation of young people such as
08:20
myself that have grown up with the
08:21
internet and devices and every time a
08:23
new technology comes along the adoption
08:26
rate speeds up so smart phones and
08:28
Facebook took over the world you know in
08:30
a number of years only a couple of years
08:32
compared to previous technologies and
08:34
communication things spread like
08:36
wildfire these days and when I see those
08:39
charts of the Bitcoin and people saying
08:40
it’s dead it’s a bubble all of those
08:42
little bumps on the road when you zoom
08:44
out just another adoption curve in my
08:46
mind and we’re gonna head to a 80 or 90
08:48
percent penetration and that doesn’t
08:50
mean the Bitcoin becomes a world
08:51
currency or anything like that it just
08:53
means that
08:54
every person he’s going to use it to
08:55
some degree whether it’s just on
08:56
holidays you know to some degree I
08:59
believe Bitcoin is going to be used by
09:00
lots of different people in different
09:02
capacities now when people tell me that
09:05
no one spends Bitcoin no one uses it a
09:07
little company in Australia called
09:08
living room with Satoshi you have
09:10
allowed you to pay any bill in Australia
09:12
since 2014 pay your credit card off pay
09:15
someone else to their bank account pay
09:17
your dentist over be pay you can pay any
09:19
bill in Australia for five years so
09:20
people are using this every day and we
09:23
have more and more merchants that are
09:25
accepting Bitcoin directly so there’s
09:27
websites and and cards where I can use
09:29
to pay for things with my Bitcoin do my
09:31
shopping every week but now we go a step
09:33
further where the merchants and cafes we
09:36
rolled out Brisbane Airport last year
09:37
every shop there now accepts Bitcoin so
09:39
the merchants are now accepting it
09:41
directly as well as those other
09:42
intermediary services now some people
09:45
say that Bitcoin isn’t the best method
09:47
of payment it can get a bit expensive in
09:48
the networks a bit slow and that’s why
09:50
we’re working on things like the
09:51
Lightning Network as you see here so
09:53
that’s a layer that sits on top of the
09:55
Bitcoin network it’s not perfect like
09:57
the internet in the early days we’re
09:59
ironing out all the bugs and we’re
10:00
making this thing work better and better
10:01
over time but as long as you can find a
10:04
route to another person just like we
10:06
used with the internet you know it finds
10:08
a route to that website you want to use
10:09
you don’t even have to know what’s going
10:11
on your computer on the back end this is
10:12
what’s happening in the world of Bitcoin
10:14
and payments now those cycles that I
10:17
spoke about this chart huge is just
10:19
showing you the market cap of Bitcoin as
10:20
it as it grows compared to the realized
10:22
market cap so what that means is we can
10:25
look at the last time a Bitcoin moved
10:26
you know in a wallet when someone bought
10:28
it and if they bought it a hundred
10:30
dollars and then the price runs up to
10:31
$1,000 we can see that the actual market
10:34
cap is now a long way away from what
10:36
they last realized the price of their
10:37
Bitcoin app so people take profits when
10:40
that moves too far away and it reverts
10:42
back to the mean and we bottomed out
10:44
again last year in 2019 at around three
10:46
thousand dollars and the little orange
10:48
line you can see at the top there is is
10:50
that realize market cap so it basically
10:52
means where everyone’s had a chance to
10:54
sell now if they want to take profits
10:55
and whatnot and so the actual true value
10:57
that’s been realized at the Bitcoin
10:59
network is at all-time highs and
11:00
consistently increasing now people say
11:03
Bitcoin it’s not a good story value it’s
11:05
too volatile well it
11:07
we’re in a bear market we’ve been in a
11:08
bear market for almost two years and
11:10
it’s still been profitable for 90
11:11
percent of bitcoins life to buy Bitcoin
11:13
you’re still in profit and I believe
11:15
we’re gonna pass those all-time highs in
11:17
the next 12 or 24 months and that will
11:19
go back to a hundred percent of the time
11:21
becomes been a good store of value now a
11:23
lot of people to the Gold’s of a good
11:25
story value if you bought it over $1,900
11:27
and then it falls to a thousand well you
11:29
bought silver at fifteen and falls to
11:30
fifteen dollars but those same arguments
11:32
we can use for Bitcoin zoom-out look at
11:34
the longer-term chart over time it’s
11:36
consistently been a better story value
11:38
than every currency on the planet so
11:41
what happens when you’ve got an asset
11:42
that’s the best performing asset and
11:43
then planet every year buy one for ten
11:45
years or there’s a lot of copycats come
11:47
out and other coins so one of the
11:49
arguments often hears about Bitcoin
11:50
Forks someone can copy the network hands
11:53
up who’s heard of Bitcoin cash it’s a
11:55
it’s a fork of the Bitcoin network so a
11:58
community can say well we think Bitcoin
12:00
will be better if we have this feature
12:01
and they can split away and it’s up to
12:03
you then to convince everyone why your
12:05
coin is better so there’s over a hundred
12:07
Forks 99.9% of them are crap they have
12:10
zero value but it’s allowed people to
12:13
try and experiment with something
12:14
different now they pretty much extends
12:16
for all cryptocurrencies there’s over
12:18
ten thousand out there today the term
12:20
cryptocurrency probably doesn’t do it
12:21
justice because most of them aren’t
12:23
trying to be currencies these days
12:24
there’s just a lot of projects and
12:26
businesses in the real world that are
12:28
using a blockchain technology so we need
12:30
to start referring to these things as
12:31
digital assets they’re not trying to be
12:33
currencies and I think that confuses a
12:35
lot of people so Bitcoin cash has been
12:37
the most successful hard fork and that’s
12:39
only captured around two or three
12:40
percent of the network so Bitcoin
12:42
continues to get stronger and stronger
12:44
we call it anti fragile throw out any
12:46
attack he won on it or any copycat coin
12:48
and it continues to gain market share
12:50
and any feature that actually works
12:52
really well Bitcoin can update and
12:55
absorb that feature so now we see
12:59
everyone wanting to get into this space
13:00
the payment space banks have had it
13:02
pretty good for a fair while now so
13:04
Apple pay launch email card
13:05
recently Facebook came out with the
13:07
Libra cryptocurrency
13:09
now all these coming up with payment
13:12
coins stable coins JPMorgan have
13:15
launched their own coin so it’s very
13:16
different to what Bitcoin are trying to
13:18
do it’s not finite they can
13:20
as many of those stable coins as they
13:22
want and that’s just absorbing value and
13:25
it’s pegged to fiat currency that has
13:27
all the issues that I’ve been talking
13:28
about it’s no good being pegged to
13:29
something that’s going to be inflated
13:31
away over time and we’ve already seen
13:33
big regulatory pushback MasterCard Visa
13:36
PayPal they’ve all pulled out of this
13:38
labor project and Mark Zuckerberg was in
13:40
front of Congress getting and grilling
13:42
again yesterday one of the things that
13:44
actually said in that Congress hearing
13:46
was we can’t call the CEO of Bitcoin in
13:49
here they’re actually admitting that
13:51
there’s nothing they can really do about
13:52
it because it is truly decentralized so
13:55
for ten years now you know the big banks
13:57
have seen these huge profits the execs
13:59
get these huge bonuses and yet here we
14:01
are at the moment last night the Fed
14:03
prints another hundred billion dollars
14:05
and lend it out to banks because they
14:06
they’re crying poor we haven’t got
14:08
enough money to show up our books that
14:09
have been paying themselves these
14:10
enormous bonuses no one’s gone to jail
14:13
nothing’s been fixed since the GFC and
14:15
this is at a time when asset prices are
14:18
at record highs so the sp500 property
14:21
prices bonds you name it this has been
14:23
one of the periods of you know enormous
14:27
growth and your banks are still crying
14:28
for you know help us out print us some
14:31
more money now now people aren’t buying
14:34
this anymore
14:34
and it’s very very clear even the
14:36
Federal Reserve in their notes are
14:38
admitting that what they did didn’t work
14:40
it ended up with asset inflation and
14:42
it’s caused inequality so the top one
14:44
percent you know they’ve gained enormous
14:46
wealth the bottom 90% you know we see
14:48
this in Australia as well there’s no
14:49
wage growth it’s just getting harder and
14:51
harder for that average person to afford
14:53
to live and they report inflation at two
14:55
or three percent but if you look at a
14:57
lot of the work that’s been done by you
14:58
know alternate economist it’s far closer
15:01
to 7 or 9 percent when you see your pack
15:03
of the Tim Tams getting smaller
15:04
your bottle of coke getting smaller and
15:06
the price stays the same there’s ways
15:08
that they hide inflation from us so as I
15:12
said this period should be very
15:13
prosperous for banks they’ve got it very
15:15
good they get to create that money and
15:17
you know they should be really booming
15:19
but yet we see Deutsche Bank in these
15:21
European banks are on their knees we saw
15:23
a study come out this week that half the
15:25
world’s banks wouldn’t survive a
15:26
downturn now with markets at record
15:29
highs and we know that this is one of
15:31
the longest periods of expansion in
15:33
history
15:34
every day a recession is drawing near
15:36
it’s just a natural part of the business
15:37
cycle so they’re admitting that when
15:39
that hits half our banks aren’t going to
15:41
survive so at the moment they’re giving
15:42
them a hundred billion dollars a day I
15:44
very much think that the new QE
15:46
quantitative easing is going to be to
15:47
the tune of trillions of dollars to have
15:50
to say the bank’s now because they don’t
15:52
have those reserves and they’re so weak
15:54
we’re hoping to see them take measures
15:56
to force people to keep their money in
15:57
them and in the legislation we’re seeing
15:59
Balian laws being written in in
16:01
countries like Australia just like we
16:03
saw in Cyprus so this week ANZ
16:05
updated their terms where they can
16:06
freeze your account they can stop you
16:08
getting money out and they can close
16:10
your account altogether if it would mean
16:11
that they would suffer financial loss
16:13
we’re also seeing the the cash war in
16:17
Australia at the moment they’re trying
16:18
to ban those $10,000 payments they’re
16:20
already talking about dropping that to
16:21
five or two thousand dollars and where
16:23
this is all heading is negative interest
16:25
rates in all these countries around the
16:26
world that abandon cash the IMF wrote a
16:28
paper that said look negative interest
16:31
rates don’t work if cash exists because
16:33
people can pull money out and if we we
16:34
want to enforce negative interest rates
16:36
we need to keep people in banks so we
16:37
need to ban cash so whether it’s you
16:40
know banks or the well bond market this
16:42
is a virus that’s spreading and I think
16:44
people are asleep at the wheel because
16:46
we’ve had it pretty good in Australia
16:47
and and in the US but as soon as those
16:50
rates go negative in our country and in
16:52
the US it’s a big big wake-up call to
16:54
everyone that what what is going on
16:57
interest rates for the past 20-30 years
16:58
have been trending down people thought
17:00
they couldn’t go past zero and yet
17:02
they’re you know negative one percent or
17:03
greater in some of these countries now
17:05
that should be traditionally seen as
17:07
strong in Europe so the amount of
17:09
negative yielding debt in the world it
17:11
recently passed seventeen trillion
17:12
dollars you know how how easy is it to
17:15
park some money in gold or Bitcoin or
17:17
something that doesn’t have a negative
17:19
yield people are rushing into negative
yielding bonds because they think that
central banks are going to print money
out of thin air and buy those bonds off
them so everyone’s on the one side of
17:28
the boat and that what worries me with
17:29
this this bond bubble now at the same
17:32
time everyone’s playing happy faces here
17:34
where there’s never been greater
17:36
mistrust of banks and policymakers so
17:39
Commissioner Haynes said that trust has
17:41
been lost to all the corporations and
17:43
institutions and banks in Australia and
17:45
I very much agree
17:48
now for the first time ever we’re seeing
17:49
widespread civil unrest people say oh
17:52
you know it’s it’s just Argentina or
17:54
then it’s just Venezuela then it’s just
17:56
symbolic
17:57
this week it’s Chile Hong Kong you know
17:59
it’s coming to a city near you where
18:01
people and governments are saying well
18:03
what we gonna do here let’s just raise
18:05
taxes and people are saying no we’re not
18:07
going to stand for that anymore and and
18:09
everywhere Bitcoin is becoming part of
18:11
this social movement now at the same
18:13
time we’re seeing central bankers Mark
Carney from the Bank of England
literally saying that you know it isn’t
fair that the US dollar has this world
reserve currency they get way too much
an advantage here so this isn’t Russia
18:25
and China throwing this anymore this is
18:26
their best friend saying that you’ve had
18:28
it too good for too long now the u.s.
18:30
being a world reserve currency means
18:32
that all these other regional currencies
18:34
have their debt denominated in u.s.
18:35
dollars and as their currencies fall and
18:37
u.s. dollar gets stronger they owe more
18:39
and more money back in terms of their
18:41
local currency so when seeing the US
18:43
dollar strengthened at a time when he’s
18:45
really hurting everyone else and so
18:47
there’s questions around how long it can
18:49
remain the reserve currency and make
18:51
mark carney they’re calling for a new
reserve currency a digital currency to
replace the dollar we’re also seeing
calls for the u.s. we know that china
are launching their own cryptocurrency
19:02
we’ve seen venezuela launch theirs so
19:05
whether or not the US does it you know I
19:07
don’t really care it’s gonna be a case
19:09
of you know trust us again this is a new
19:11
currency the only difference is they’re
19:13
going to be able to monitor literally
19:14
everything you do on a blockchain versus
19:17
what they do already with the banks and
19:18
they’re going to print those hundreds of
19:20
trillions of dollars of digital US
19:22
dollars it’s nothing like Bitcoin that
19:24
has a set amount and Bitcoin just
19:26
becomes more and more scarce relative to
19:29
all these other currencies that banks
19:31
and governments and the Facebook’s of
19:33
the world want to create so at this time
19:36
when all our currencies are going
19:38
digital everyone uses their online
19:39
banking less people use cash everyone
19:42
does the pay past these days so money is
19:44
already digital but people still think
19:46
about it as as notes or people don’t
19:48
realize it’s not backbite by gold
19:50
anymore so we’re seeing penetrations of
19:53
smart phones you know 90 percent or
19:55
greater even in emerging markets even if
19:57
they don’t have a smartphone they’ve got
19:59
a basic phone these days and you don’t
20:00
need a good
20:01
their connection to the Bitcoin payments
20:02
you need a very basic mobile connection
20:04
is all you all you need to be able to
20:06
participate in this network and become
20:08
your own bank
20:09
so throughout these Asian countries you
20:11
know Hong Kong was another recent
20:12
example where they’ve had issues with
20:14
the ATMs and whatnot these people are
20:16
extremely familiar with digital payments
20:18
and scanning and shops with their QR
20:20
codes and Bitcoin is just the next step
20:22
in that evolution of money so the
20:25
greatest opportunity in lies in these
20:27
emerging market economies where there’s
20:29
billions of people so too often people
20:31
say are the government will never let
20:32
Bitcoin overtake you know things in
20:34
Australia or the u.s. it doesn’t matter
20:36
Bitcoin has already been used widely in
20:38
Venezuela and all these other countries
20:39
where there’s billions more people than
20:42
in Australia the u.s. all these these
20:44
Western countries that are unbanked so
20:46
just like they didn’t get phone lines
20:47
and they started using mobile phones
20:49
they’re not going to get banks they’re
20:51
just going to start using digital
20:52
currencies on their phones so the value
20:55
of the Bitcoin network comes from the
20:57
number of connections and that’s why we
20:58
see just like Facebook grow that any
21:00
good technology it grows exponentially
21:02
and the value comes from the number of
21:04
connections in the network that’s known
21:06
as Metcalfe’s law so as more and more
21:08
people use Bitcoin it means more people
21:10
can send it to each other you know my
21:12
business that I started we’ve got a
21:13
number of services from say nine dollars
21:16
a month to $50 a month our customers are
21:18
all over the globe how someone in Russia
21:20
meant to send me nine dollars a month
21:21
for my newsletter it’s not possible
21:23
without Bitcoin and digital currency so
21:25
my business and hundreds of others are
21:27
examples of what’s possible we’ve crypto
21:29
currencies without the banking system so
21:33
this is a screenshot of a blockchain
21:35
Explorer so just like you can search
21:37
something in Google with on the Bitcoin
21:39
blockchain you can search for
21:40
transactions now this is a good and bad
21:42
thing if you know anyone’s address you
21:44
can send anyone else on the network
21:46
money there’s no no I can sense of that
21:48
transaction or freeze your account and
21:49
in terms of crime just last week this
21:53
helped regulators catch the bad guys
21:55
this is their best friend they could
21:57
follow the bitcoins where they’ve paid
21:58
them to when they cash them out and they
22:01
catch these crooks so to say that
22:02
bitcoins bad because you get to use for
22:04
crime you know that it’s just simply not
22:06
true it’s a regulators best friend now
22:09
one of the big debates we are going to
22:11
have is once Bitcoin starts to implement
22:13
more privacy so it’s important for be
22:15
this is not to be able to see every
22:16
transaction that they do so whether the
22:18
privacy upgrades come on the main
22:20
Bitcoin chain or second layers that’s
22:23
going to be a big debate as we move
22:24
forward about giving Bitcoin more
22:26
privacy at the same time we’re going to
22:29
get rid of those long strings of letters
22:30
and numbers that you just saw that are
22:32
confusing you’re going to be able to
22:33
send your cryptocurrency to Nuggets news
22:36
Bitcoin or Alex Saunders crypto so human
22:39
readable names and addresses just like
22:41
you do in your phonebook click of a
22:42
button send money to anyone in the world
22:44
another argument often hear is that
22:46
bitcoins wasteful bitcoin uses you know
22:49
more energy than a small country these
22:51
days but what they won’t tell you in the
22:52
mainstream is that the vast majority of
22:54
that is spare capacity at reactors that
22:57
would already be gone waste or renewable
22:59
energy so pick coin is the fastest
23:01
growing renewable energy industry on the
23:03
planet people are actually going out and
23:05
and building renewable energy plants
23:07
because they can start to mine Bitcoin
23:09
and pay it off you know this is uses
23:11
expanding our renewable footprint at a
23:13
time when governments are being slow to
23:15
act now part of bitcoins one of the
23:19
features that keeps it so secure it’s
23:21
the most secure computer network on
23:23
earth so when you hear about hacks there
23:25
are people that left their password in
23:27
there in their email account well they
23:28
left their you know being logged in at
23:30
work Bitcoin network has never been
23:32
hacked because it is so secure all these
23:34
computers all 10,000 that I showed you
23:36
at the start on that world map they’re
23:38
all securing the network so unless you
23:40
can hack every one of those at once you
23:42
can’t hack the Bitcoin blockchain so
23:44
this feature of how much energy it uses
23:46
secures it if governments tried to
23:48
attack it with every supercomputer and
23:50
on earth it wouldn’t even put a dent in
23:53
Bitcoin there’s so many more computers
23:54
globally that are securing the network
23:57
all that money that has been invested by
23:59
those miners to buy those computers that
24:02
is all very important in terms of the
24:04
infrastructure of the Bitcoin network so
24:06
if I said to you I was here yesterday
24:08
for the panel discussion I think
24:11
yesterday I said what would it be worth
24:12
if Microsoft or Apple came out and said
24:15
hey guys we build a network that can’t
24:17
be hacked it’s got no down time that
24:19
would be worth hundreds of billions of
24:21
dollars so that is what the Bitcoin
24:22
network is it’s not just this payment
24:24
system or this store of value it’s the
24:26
most secure computer network in the
24:28
world and that
24:29
while we see someone like Microsoft say
24:31
geez this is better than anything we’ve
24:32
got let’s just our building our products
24:34
on top of the Bitcoin blockchain so
24:37
these household names like Microsoft
24:38
Vanek or one of the biggest providers in
24:40
the world of investment ETFs these are
24:43
the household names now that people are
24:45
realizing that oh this isn’t about this
24:47
isn’t a bubble they’re telling their
24:48
clients the investment case for Bitcoin
24:50
now a lot of people are tech savvy they
24:53
can’t figure out the hardware wallets
24:55
which is like a little USB stick where
24:57
you store your bitcoins yourself and has
24:58
your password on the device so it can’t
25:00
be hacked but not everyone wants to do
25:02
that you know we’ve done education
25:04
around all that sort of stuff if you’re
25:05
interested but some people they don’t
25:06
want to hold their own shares they just
25:08
want someone else to do it for him so
25:09
we’ve seen reputable companies like
25:11
Lloyds of London and bit go they’re
25:14
offering insurance and custody and
25:16
that’s why we’ve seen influx of high net
25:18
worth clients over the past 12 months
25:20
and in Australia our biggest growing
25:22
demographic is baby boomers so we did
25:24
one on one education we have a premium
25:27
community we’re but the number of over
25:29
65 now and they they’ve been through
25:31
cycles and crashes they see the
25:33
importance of gold and they’re starting
25:34
to understand the importance of Bitcoin
25:37
at the same time we’ve seen the futures
25:39
market take off as I said for I’m not a
25:41
big fan of that maybe it makes me quite
25:43
a bit more legitimate but I don’t like
25:44
those type of assets that are backed by
25:46
real Bitcoin but we’ve seen things like
25:48
option markets and even decentralized
25:50
option markets so it’s not one company
25:52
now anyone can create a market and a
25:55
theorem it’s the world’s second largest
25:57
cryptocurrency I’m also very bullish on
25:59
because the world of decentralized
26:01
finance is just exploding so instead of
26:03
paying $20 to calm sector trade shares
26:05
you’re gonna pay one cent and you’re
26:07
gonna buy them off someone else that’s a
26:08
shareholder and what blockchain does is
26:10
cut out the middleman of all these
26:12
services that are you know rent-seeking
26:14
and just taking their little clip each
26:15
time and it makes everything
26:17
peer-to-peer so tying this all together
26:21
we’ve seen the Federal Reserve start to
26:23
create billions of dollars each night to
26:25
help these banks and the old trustus you
26:27
know everything will be fine we’re gonna
26:28
normalize everything I think that’s why
26:30
we’ve seen gold correct over the past
26:32
few years as people thought oh it’s all
26:34
gonna go back to normal 3% growth 5% in
26:36
a bonding my retirement account
26:38
I don’t need gold or Bitcoin and now
26:40
that story is not being bought anymore
26:41
it’s qe4
26:43
you know they can’t stop printing this
26:44
money in the debt based system that 200
26:47
trillion dollar figure that I’ve spoken
26:48
about we have to continue to grow and
26:50
create debt if we’re going to pay all
26:52
these people so once again we’re seeing
26:54
a lot of tension whether it’s between
26:56
you know the US Fed who don’t want to
26:58
drop rates and Donald Trump saying let’s
26:59
get rates to zero or negative everything
27:01
will be growing even more for the first
27:03
time throughout history we’re seeing
27:04
real tension between governments and
27:06
central banks who are saying trust us
27:09
we’ll fix everything without two levers
27:11
and now they’re saying I think we’re out
27:13
of tools here government it’s up to you
27:15
you need to spend more we’ve done all we
27:16
can do pass the buck
27:17
so who’s going to be left holding the
27:19
back here we know governments are no
27:21
good at running those economies and it’s
27:22
up to them to try an ear trick or the
27:24
central bankers to try something even
27:26
more crazy and I think actually people’s
27:28
QE where they enough to hand out money
27:30
to people because it’s not going to be
27:32
politically acceptable to put money and
27:33
give it to the banks and then we run a
27:35
danger of inflation but people aren’t
27:37
going to let it fly printing money and
27:38
giving it to the banks so you guys know
27:40
the story every fiat currency throughout
27:42
history has been eroded away over time
27:44
this is just last year in terms of
27:46
inflation in in ten countries there for
27:48
example and with more and more people
27:50
that Tim Draper’s of the world
27:51
respectable investors Jack Dorsey the
27:54
founder of Twitter saying that there’s
27:56
you know we’re in this Internet age just
27:58
like the internet opened up the way we
27:59
transfer information across the world
28:01
everyone said oh you can’t do that the
28:03
bad guys were taught for each other
28:04
Bitcoin allows anyone to transfer value
28:06
to each other and then a theorem again
28:08
further expands what we can do
28:10
peer-to-peer so there’s going to be some
28:13
sort of world currency on the internet
28:15
and Bitcoin has the track record so the
28:17
biggest opportunity that I see is these
28:20
currencies there’s over 200 currencies
28:22
globally the top five that are the world
28:24
reserve currencies of the world sure
28:26
that they’re fairly strong and whether
28:28
the US you know you loses its purchasing
28:30
power with all that debt that’s another
28:32
story but who on earth is going to hold
28:34
these hundred Southeast Asian currencies
28:36
and when the government’s are saying
28:38
trust us with the currency wars heating
28:40
up it’s a race to debase their
28:41
currencies as economies weakened they
28:43
all try to get the value of their dollar
28:45
down to help their exports it’s
28:46
literally a race to the bottom and we’ve
28:48
seen Donald Trump tweet about this
28:49
so these currencies have all got market
28:51
caps in the hundreds of billions or
28:53
trillions of dollars with that little
28:54
blip down the bottom there called
28:56
Bitcoin when
28:57
in a country with a smartphone can
28:58
choose to park their wealth in something
29:00
that’s fixed and scarce
29:01
or Park their wealth in this this
29:03
currency that they’ve seen Harper
29:04
inflate away constantly throughout
29:06
history I think the choice is pretty
29:07
clear so we’re seeing this in Argentine
29:10
record volumes Chile you know the list
29:13
is very long the number of people that
29:15
are now choosing Bitcoin instead of
29:16
something else
29:17
so the having next May is very important
29:19
as I spoke about and then again four
29:21
years later and where to Bitcoin derives
29:24
its a lot of its value from similar to
29:25
gold on this chart which you see the
29:27
yellow block up the top right corner is
29:29
the scarcity of gold that is something
29:31
that makes it valuable
29:32
now if gold goes to $5,000 an ounce
29:35
maybe people are going to mine it maybe
29:36
the inflation of gold goes to three or
29:38
four percent silver we see there as well
29:40
gets a lot of its value because of its
29:42
scarcity but Bitcoin as we see it
29:45
trending up that chart over time as it
29:47
becomes more and more scarce it
29:49
increases in value and bitcoin is going
29:52
to surpass gold in terms of what we call
29:53
stock to flow the amount of new supply
29:55
coming into circulation compared to
29:57
what’s already exists and I think the
29:59
bitcoins going to surpass the market cap
30:01
of gold within five years so tying it
30:04
all together when you look at everything
30:06
else told you today it’s a payment
30:07
system the smartest minds in the world
30:10
are working on the cutting edges of
30:11
technology it’s a store of value it’s a
30:14
medium of exchange it’s the world’s most
30:15
secure computing network what’s all that
30:17
worth in a world where we’ve got a
30:19
hundred billion dollar market cap
30:20
compared to the hundreds of trillions of
30:23
dollars that exists in currency markets
30:24
stock markets these technology companies
30:28
I think it’s an absolute no-brainer to
30:30
park a little bit of your wealth in
30:32
Bitcoin and if you want any more
30:33
information on anything we do come and
30:35
see me or head to Nuggets news.com
30:37
today.you thank you
30:39
[Applause]
30:45
[Music]

Why Are Elizabeth Warren and Donald Trump Trying to Weaken the Dollar?

A strong dollar makes America strong. Any campaign to devalue it is likely to backfire.

Elizabeth Warren’s “economic patriotism” differs in style and content from Donald Trump’s economic nationalism, but they have found common cause in vows to weaken the dollar. That is a strangely self-defeating agenda for patriots or nationalists of any political fashion.

Mr. Trump and Ms. Warren argue that China and other emerging rivals weaken their currencies to promote exports and gain jobs, so why shouldn’t America follow a similar policy? Here’s why: Because America is not an emerging country. It’s an unrivaled financial superpower, a position built in large part on hard-won trust in the dollar, which is an enduring source of American power and prosperity.

When the dollar strengthens and weakens in response to buying and selling in the global currency markets, foreign countries don’t protest. Occasionally they have cooperated with the United States to stabilize the dollar. But nothing will destroy trust in American financial leadership, and the benefits that go with it, more surely than for the United States government to start unilaterally manipulating the dollar for its own competitive advantage.

If Vietnam or South Korea manipulate their currencies in a bid to improve their exports, a few of their trade partners may retaliate; if the financial superpower plays the same game, the whole world will respondbecause the dollar is the international standard. A record high 60 percent of countries now measure, or “anchor,” the value of their own currencies against the dollar. Any campaign to devalue the world’s anchor could set off a destructive wave of competitive devaluations.

After World War I, when America challenged Britain as the leading global empire, the dollar began gaining on sterling as the currency that most central banks preferred to hold in reserve. Reserve currency status had long been a perk of imperial might — and an economic elixir. By generating a steady flow of customers who want to hold the currency, often in the form of government bonds, it allows the privileged country to borrow cheaply abroad and fund a lifestyle well beyond its means.

Other countries watched the United States assume this role with dismay. In the 1960s, Valéry Giscard d’Estaing, then finance minister and later president of France, called the dollar’s powerful status America’s “exorbitant privilege.” And for nearly a century now this privilege has helped to keep United States interest rates low, making it possible for Americans to buy cars and homes and, in recent decades, run large government deficits that they could not otherwise afford.