Interstate Market News Scan: Moving to digital currencies benefit you if it reduces your tax on living …

Suppose your monthly cost for accessing the infrastructure of a political economy came up to $20?  Suppose you looked at nation-states more like trading posts versus some object of irrational affection to which you pledge love and devotion?  Shouldn’t a practical approach to living in a political economy involve a resident generating a higher return on their physical and intellectual efforts to make a living where that tax for living is severely reduced?

In some ways, nations compete in this manner.  While they may not want to dilute their populations and cultures with outsiders, they want to attract investment into their jurisdictions.  Lower taxes, a reliable legal framework, a stable political environment, and minimal roadblocks to getting capital out of a country help bolster the demand for a nation’s currency.  Given the US dollar’s world reserve status, you can argue that the US scores the highest, on average, on these factors.

There are cracks in the demand for the US dollar that currency merchants should remain mindful of.  America has been experiencing real wage stagnation for over four decades.  Masking that long term trend is the immediate concern that inflation may be getting out of control as the U.S. and the rest of the globe claw out of the pandemic.  But Covid-19 may have sped up the long-expected elimination of certain jobs and has raised the discussion about how the American political economy will adjust to this major shift.

Currency merchants should incorporate these shifts into the valuation of currencies as they continue to make markets.  Currency merchants should not take their eyes off of the growing importance of digital currencies going forward into a Covid-endemic world.  This Covid environment will spawn more value creation from residences and other remote locations.  I will not be surprised to see in the next twenty years a world where more material and goods production happens overseas and payments for that production is made via digital currencies.  A processing plant in Ghana, for example, can be seen accepting Amazon, Google, or Delta Air digital tokens in exchange for product.  Given the networks these commercial entities represent or manage, their tokens could be re-exchanged as payment by the processing plants for other goods and services or exchanged with their local banks for cedi.

Not too far-fetched is the idea that an individual or a business could move their entire commercial enterprise into an Amazon network; an Amazon political economy.  If you can rent a residence using Amazon coin; purchase energy using an Amazon coin; buy food using Amazon coin; and pay a monthly “tax” at a fraction of what you would pay a legacy nation-state, wouldn’t you?

Alton Drew

For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

Prices

Exchange rates of interest as of 6:44 pm EST

Currency pairExchange rate
AUD/USD*0.7334
EUR/USD*1.1866
GBP/USD*1.3895
USD/CAD*1.2473
USD/CHF*0.9054
USD/JPY*109.6700
USD/MXN*19.8540
USD/BTC+0.0000
USD/ETH+0.0004
Sources: *Reuters +OANDA

Rates reported by the Federal Reserve (Release Date 29 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.05%

1-year Treasury bill: 0.07%

Interbank Market News Scan: Is Jeff Bezos on the way to building a digital country?

27 July 2021

Links to follow

However, what fewer people are aware of is the way that the app world has transformed the forex industry. Forex trading apps have proliferated in recent years, and it’s easy to see why: these apps offer a chance to keep up to date with the latest events in the market, and make the taking of real-time trading decisions possible. https://techbullion.com/how-foreign-exchange-apps-are-changing-the-trading-industry/

Speculations about Amazon set to accept Bitcoin as a form of payment by the end of the year have been growing, following a job posting for a “Digital Currency and Blockchain Product Lead.” Bitcoin Prices Surge Thanks to Amazon Rumors (yahoo.com)

El Salvador is the first country to declare bitcoin legal tender. But the experiment raises big questions about what will happen next — for bitcoin and the country itself. El Salvador made bitcoin a legal currency. Now it gets interesting (cnbc.com)

Six things that happened in crypto this past week. Crypto news: bitcoin rally, Amazon digital currency expert, tether probe (cnbc.com)

The Takeaway: Is Jeff Bezos on the way to building a digital country?

There is some buzz about possible acceptance by Amazon of bitcoin as digital payment for its goods and services.  The speculation is in part a result of Amazon’s recruitment of a digital currency and blockchain product lead.  However, Amazon’s global delivery platform combined with its own digital token could take Amazon to heights higher than its New Shepard rocket.  Futures commission merchants and retail foreign exchange dealers (brokerages and brokers) should envision such a digital token as a significant future foreign exchange trade.

How soon this trade comes about depends on how quickly Amazon can design, test, and deploy a token.  I believe enough of a platform necessary for supporting a digital token is already in place.  Let us start with an important consumer item: food. 

A digital country will need a food distribution system to sustain it.  Amazon’s purchase of Whole Foods in 2017 gave the company at the time of the acquisition a retail footprint and distribution network valued at $14 billion.  With its goal of being “the Earth’s most customer-centric company”, encouraging farmers and other food processing vendors to use its digital tender creates currency agents that can trade that valuable token with other commercial entities. 

In addition to food distribution, lying at the heart of the Amazon economy are the transactions conducted on its network.  Merchants of all stripes trade on Amazon’s network.  Amazon’s attempts at facilitating trade by creating an online space for vendors who would otherwise be frozen out of a traditional brick and mortar business due to costs are generating revenues for the company and enhancing its brand as merchant centric.  Like farmers and food processors, merchants who choose to use an Amazon token become currency merchants for the company by turning around and trading the tokens into consumer, other retailer, and wholesale markets.

Lastly, pushing up Amazon’s value further will be its data and information services game.  Amazon’s cloud services and its electronic devices such as Kindle and Alexa collect data and make that data available for sale.  Allowing consumers, governments, and commercial enterprises to purchase Amazon data products and output with its tender will only help increase a digital token’s value.

It is tempting to say that there is a way to go before Amazon comes up with a digital token of their own to rival bitcoin or other cryptocurrencies, but with technology, “long way off” is around the corner.

For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

— Alton Drew

Rates reported by the Federal Reserve (Release Date 26 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.05%

1-year Treasury bill: 0.07%

Prices

Exchange rates of interest as of 1:39 am EST

Currency pairExchange rate
AUD/USD*0.7381
EUR/USD*1.1802
GBP/USD*1.3826
USD/CAD*1.2543
USD/CHF*0.9162
USD/JPY*110.1800
USD/MXN*20.0290
Source: *Reuters

Individual brands becoming their own “crypto-banks” not a far off possibility …

Data from OANDA, a brokerage, sees the dollar, euro, and pound values of Bitcoin continued their climb this week. The BTC/USD pair increased by 6.4% from 45,657.60 USD on 1 March 2021 (10:30 am EST) to today’s 48,609.70 USD. The BTC/GBP pair jumped 6.6% over the same period, from 32,761.20 GBP to 34,919.20 GBP. The BTC/EUR pair was not to be outdone with a 6.7% increase from 37,809.80 EUR to 40,353.90 EUR.

The Ethereum trade saw higher increases percentage wise. The ETH/USD came in today at 1,532.36 USD, up 7.3% from 1 March. The ETH/GBP and ETH/EUR were up 7.4% and 7.6%, respectively, over the same period.

Volatility will remain an issue for some time as the business media reports cryptocurrency as prominently a speculative play even as mainstream investment bank willingness to facilitate trade in cryptocurrency increases. What will quiet volatile moves in cryptocurrency prices is if more consumers see crypto as part of the mainstream payment system.

A recent article in Vogue sheds some light on that possibility. The article addresses up front the taint that crypto has to shake; that it is a medium for money laundering, drug trafficking, and tax evasion. But the article also points out that activity such as online gaming and the issuance of nonfungible tokens (NFT) are driving Bitcoin resurgence.

A NFT is published on an Ethereum blockchain ledger, is certifiably singular, and prevents replication by others.

The article points out that fashion is making inroads into the metaverse, the virtual world where participants interact via avatars, and following the trend where physical assets e.g., collectibles, are represented in digital form.

The takeaway that got me excited was the finding among individuals interviewed in the article that platforms and individuals are moving toward issuing their own currencies. “Cryptocurrencies are like air miles in that they can only be used within the infrastructure of specific companies, ” notes the author, Kati Chitrakorn. Firms are taking the opportunity to launch their own currencies where their inventory is limited and they provide their fans with short windows on certain purchases.

“Imagine only being able to purchase a must-have product via the brand’s coin or getting access only if you hold a certain amount of these coins”, says Mahesh Vellanki of Rally, a blockchain platform. “Brands and creators might prefer to use their own tokens to build their own economies and interact with fans on their terms.”

Another takeaway from the article is a third way for the consumer to obtain Bitcoin or other cryptocurrencies. We are familiar with the mining aspect, where as part of validating a transaction a mathematical problem is solved by a “miner” who receives Bitcoin as compensation. We are seeing a lot of buying as the second option. The third option often overlooked in mainstream media is obtaining a loyalty token on certain platforms.

In the short term I see where operating within the current jurisdictional environment places a severe limit on these platforms to grow and their currencies maximized. Large platforms such as Amazon and Facebook already start with a huge advantage as non nation-state platforms were goods and services are exchanged. For the individual sovereign, their wealth generated by their ability to leverage their brand to issue currency is limited by the taxing authority they reside under.

Question is, can the individual, as a physical asset, digitize into an alternative space and create their own jurisdiction?