Business leaders need to speak up against Trump trade policy

Corporate America is failing to make the case for the international economic order

Andrew Edgecliffe-Johnson 

A year ago this month, America’s chairs and chief executive officers scrambled to leave Donald Trump’s business councils after his equivocal response to a deadly rally by white supremacists in Charlottesville. Now, though, some have decided it is safe again to be seen with the US president.

Mr Trump last week credited Indra Nooyi, PepsiCo’s outgoing CEO, with giving him the idea of having the Securities and Exchange Commission reconsider its requirement that companies report earnings quarterly. Other CEOs have shared beef tenderloin and lobster tail with the president at his Bedminster golf club in recent weeks.

They will have had much to catch up on: it has been an eventful year in the relationship between corporate America and a commander-in-chief who touts his pro-business credentials.

If they were looking to butter-up their host, the CEOs might have praised the tax reform package he signed in December, which cut the corporate rate from 35 per cent to 21 per cent and funded a record-breaking round of share option-boosting buybacks. They might equally have hailed his administration’s rollback of financial and environmental regulations.

But the year since Charlottesville has also been marked by CEOs diverging from the president on a number of occasions. On subjects as diverse and polarising as climate change, marriage equality, guns, race and immigration big business has found its voice, defining what Aaron Chatterji of Duke University’s Fuqua School of Business calls a new age of CEO activism.

But no subject has concerned business more this year than Mr Trump’s protectionist trade policy, and on this executives have remained curiously muted. The Bedminster dinner was a friendly one, according to one attendee quoted by Politico, but featured a presidential “rant” about China taking advantage of the US in trade that must have given many around the table indigestion. The US-led international economic order has worked out well for America’s multinationals, and upending the global trading system that underpins it threatens their cost bases and supply chains. You might think this is one subject businesses would find it easy to speak up about. Apparently not.

Analysts pushing executives to spell out how tariffs will hit their numbers have been greeted with reassuring forecasts about the next quarter and weak — if any — defences of free markets. Mary Barra told them blandly that at General Motors “we generally are free traders”, Apple’s Tim Cook made a brief argument that the world needed both the US and China to do well, and GE’s John Flannery hedged that while his company was built for free trade “that is obviously a subject of debate and discussion”.

The full fallout from Mr Trump’s tariff threats has yet to show up in most companies’ figures, and how many of them take effect remains up for negotiation. Yet CEOs seem torn between wanting to warn of the dangers of a trade war and not daring to frighten investors about what one might do to their stock.

“They’re very worried and quite articulate about the danger in private, but it is frustrating that they are remarkably unwilling to go on the record,” says Simon Johnson, a professor at the MIT Sloan School of Management. It is short-sighted, he says, but “who wants to stick their head up above the parapet if it hasn’t hit their numbers yet?”

When customers and staff are as divided as voters, any time a business speaks up it is taking a risk. According to a recent Morning Consult survey, 60 per cent of Americans want companies to stay out of political and cultural debates.

Prof Chatterji argues that the rise of populism, coupled with the loss of trust in big business since the financial crisis, makes it “thornier” for CEOs to stand up for capitalism. They are soft-pedalling their core economic beliefs because those beliefs “are not very popular right now”, he says.

CEOs cannot escape blame for that. While they were becoming social activists, they forgot to make the case for the rules-based global economic order that allowed their companies to thrive. Anger about rising executive pay has also undermined their ability to win over the shop floor. But that is where they should be making the argument, not in Bedminster.

Some business leaders have given up hope of changing Mr Trump’s mind on trade and hope Congress will act to soften the blow. But Congressional Republicans are largely standing with the president, and many of their Democratic rivals share his protectionist views.

Away from Capitol Hill, Mr Trump’s voters firmly back his stance and polling shows stronger support among Democrats for socialism than capitalism. Business risks losing the argument with both parties’ voters: until they can see the benefit in the system business hopes to defend, it will remain vulnerable.

This is not about CEOs siding against a particular president or party: it is about them making the case for the principles that will determine their companies’ success in the longer term — and reflecting on how business allowed support for them to become so fragile.

The Network Effect: Here's Why Bitcoin Is Going Much Higher

Victor Dergunov


- Bitcoin looks like it's building a base around the $6K level, and prices are not likely to go much lower from here.

- Market participants are preoccupied with the approval of Bitcoin ETFs, but longer term Bitcoin is likely going much higher regardless.

- How much was Facebook worth when it only had 28 million users? How much was the internet worth in 1995 when 0.4% of the population was online?

- There are fewer than 28 million blockchain wallets right now, but how much will Bitcoin be worth when 280 million or 2.8 billion people start using cryptocurrencies?

- The network effect is an extremely powerful dynamic that could lead to substantially higher market share for the cryptocurrency complex and much higher prices for Bitcoin.

The Network Effect: Why Bitcoin Is Going Much Higher
Bitcoin (BTC-USD) (COIN) has been in a bear market for about eight months now. Ever since the price peaked at nearly $20,000 in December Bitcoin has been in a downward spiral, and has dropped by roughly 70% from peak to trough.
Bitcoin: 1-Year Chart

Nevertheless, Bitcoin is showing signs of stabilization, and has successfully defended the $6K level on four separate occasions. The cryptocurrency is seemingly building a base around the $6,000 level, and its price is unlikely to go much lower from here. In addition, Bitcoin’s network effect coupled with other elements should drive its price significantly higher over the long term.

The Bitcoin bear market will likely conclude relatively soon, which makes this a good time to add to positions in Bitcoin as well as in other systemically important digital coins.
Bitcoin Fails, Once Again
For now, the Bitcoin bear market continues as the cryptocurrency failed to break out in late July. This is not unusual though, as we’ve seen prolonged declines in Bitcoin before. The current rout closely resembles the early to mid-stages of Bitcoin’s prior bear market that lasted around a year and a half, and saw prices drop by approximately 80% from peak to trough before the recovery began.

Bitcoin: Seven-Year Chart (logarithmic)

If we go back further we see that Bitcoin had a similar percentage drop in the 2013 bear market, where its price fell by roughly 75% from peak to trough. So, as we observe the history of Bitcoin’s bear markets we see that on average Bitcoin deflates by about 70-80% from peak to trough in such periods.
This leaves us with essentially three levels to look at for a possible bottom in Bitcoin’s price. The first is the 70% retracement from the roughly $19,500 top in December, which already brought Bitcoin down to the $5,850 level. The next point is a 75% decline, which would bring prices down to about the $5,000, and what appears to be a worst-case scenario, an 80% decline which would bring Bitcoin all the way down to $4,000. The $4-5K area also represents the next level of solid support from a technical perspective.
So, the good news is that Bitcoin already has hit the first area of significant support, the 70% retracement, the $5.85K level. Therefore, it's possible that Bitcoin is forming a sustainable long-term bottom around the $6K level right now, and may not see new lows from here. However, almost anything is possible in the world of Bitcoin, so it's also possible that some future news or developments cause the digital asset to drift slightly lower.
Looking at all the available variables I give it about a 50% probability that the Bitcoin bottom is in, about a 30% probability that Bitcoin retraces back down to the $5K level, a 15% likelihood that Bitcoin goes all the way down to test the $4K level, and about a 5% possibility that Bitcoin could go lower than $4K.

Why Bitcoin is Not Likely to Fall Much Further
While it’s good practice to prepare for all types of possible outcomes when you are dealing with a relatively new, unprecedented, and somewhat unpredictable phenomenon like Bitcoin, there are several key reasons why Bitcoin is not likely to fall much further from here.
The first factor is the mining costs. There are many factors that give Bitcoin its value - its potential as a digital global currency, its store of value attributes, its limited supply, its worldwide multibillion-dollar infrastructure, as well as numerous other elements. However, one of the key factors that makes Bitcoin valuable is that it's quite expensive to mine.
The cost of mining Bitcoin varies greatly by country, from an incredibly low $531 in Venezuela to an astronomically high $26,170 in South Korea. However, most of the countries where Bitcoin is widely mined like Russia, Iceland, the U.S., and other nations typically have mining costs in the $4,500-5,000 area. This infers that Bitcoin likely has a mining cost of around $4,800 on average.

Moreover, the cost of mining Bitcoin will likely only increase with time, because as fewer Bitcoin’s are left to mine, they become increasingly more difficult to derive. The current global energy usage required to mine Bitcoin is estimated to equate to the amount of power used by a modest sized country like the Czech Republic with a population of about 10 million people.

However, eventually the mining requirements are estimated to approach roughly 16 times that.

This implies that eventually we could be looking at an average mining cost of about $76,000 per Bitcoin.

The $4,800 approximate mining cost per Bitcoin, or breakeven cost, also coincides closely with the 75% retracement level, and prices are not likely to fall below this point. The primary reason is because at around this level many Bitcoin miners will be forced to suspend operations, which would constrain supply. A disruption in the supply of newly minted Bitcoins would likely produce an imbalance in the supply demand dynamic, which would likely cause the price of Bitcoin to rise. Also, approaching a breakeven cost in any commodity, not just Bitcoin historically signals that a bottom is likely near.

So, What Caused the Recent Wave of Selling?
Bitcoin was making a solid run at the $8.5K key resistance level in late July, until the SEC rejected the Winklevoss twins Bitcoin ETF, again. Their idea was shot down in a 3-1 vote by the commission, and Bitcoin’s price began to roll over immediately. In the following two-week period Bitcoin shed nearly 30% of its value, before bouncing off the $6K support in recent days.
Bitcoin: Six-Month Chart (logarithmic)

The SEC cited concerns regarding fraudulent activity, and manipulation, due to the vast majority of Bitcoin activity taking place in unregulated offshore markets. The SEC noted that more than 75% of all the volume in Bitcoin occurs outside the U.S. and about 95% of the volume occurs on non-U.S. exchanges. In addition, the bid-ask spreads vary widely across exchanges, and Bitcoin futures volume is relatively small, just about 2.5% of silver.
Another event that exacerbated the recent selloff was the SEC’s verdict to postpone a decision about approving another Bitcoin ETF, this time brought forth by VanEck and SolidX. VanEck is a formidably asset management firm with nearly $50 billion under management, and runs some of the most popular ETFs in the world, including popular gold mining ETFs (GDX), (GDXJ), oil services ETF (OIH), and many more. All together the company manages more than 50 ETFs and it wants to get into the Bitcoin business. Its proposed ETF would be backed by actual Bitcoin rather than futures.
It’s one thing for the Winklevoss twins to try and push through a Bitcoin ETF, but it’s another thing for a prominent New York-based asset management house to request ETF hearings. Furthermore, VanEck and the Winklevoss brothers are just the beginning, as there are other applications for Bitcoin ETFs, and it's likely only a matter of time until they start getting approved.
In fact, there are a total of 10 proposed Bitcoin ETFs being looked over by the SEC in the next two months alone, including ETF proposals from industry heavyweights like ProShares, Direxion, and others. The decision for the VanEck proposal has been pushed out to September 30, so mark this day on your colander because it's going to be a big day for Bitcoin one way or the other.

Does Bitcoin Even Need an ETF?
The appeal of a true Bitcoin ETF has been around for some time. There's the Bitcoin Investment Trust (OTCQX:GBTC) by Grayscale, the only current Bitcoin ETF type product in the U.S. However, GBTC trades on the OTC market and does not trade on a major exchange.

In addition, GBTC trades at a significant premium to Bitcoin, sometimes by as much as 100%.

GBTC: One-Year Chart

We see that a premium of roughly 33% is being paid right now to own GBTC, and the premium was as high as roughly 100% in late December. Also, we can see that the price does not track Bitcoin all that well. GBTC is now substantially lower than where it was at the February bottom, whereas Bitcoin is above the price.
The introduction of “real” ETFs should propel Bitcoin further into the mainstream, and should allow for substantially more Bitcoin exposure to institutional and retail investors. This will likely improve Bitcoin’s overall popularity, and should result in significantly higher prices.

Nevertheless, Bitcoin's success does not rely on its ETFs being approved, instead it will simply help the digital asset gain wider acceptance faster, but the digital asset should continue to do well regardless.

The Network Effect
Independent of Bitcoin ETFs and futures contracts the raw commodity continues to gather momentum as more and more blockchain wallets are being created. It's also important to reinforce the fact that at the heart of Bitcoin is blockchain, and the market that takes place on the countless exchanges worldwide dealing in the raw commodity, not the futures, or the ETF market. These are more secondary elements beneficial to propelling Bitcoin into the mainstream, but Bitcoin should do just fine in the long term, independent of these factors.
There are currently about 27.86 million blockchain wallets in the world, these are essentially spots on a network (various networks to be exact) that can trade, store value, and make purchases with Bitcoin and other digital assets. In about one week this number should rise to 28 million. This is just seven weeks after the number of Blockchain wallets crossed 26 million on July 7. This shows a clear acceleration in the wallet creation trend, as it took more than 12 weeks to get from 24 million to 26 million wallets. And the prior period which brought the number of blockchain wallets from 22 million to 24 million also took about 12 weeks.
Number of Blockchain Wallets Around the World

To see such robust creation as we’ve witnessed in the past two months we must look back to the hyper growth era of late last year. So, essentially we are beginning to see signs of increased interest and reacceleration in the participation on the cryptocurrency network once again.
To get a glimpse into how early in the Bitcoin cycle the world is in right now, let’s try to put the 28 million number into some perspective. The current world population is about 7.6 billion, and roughly 55% of the world’s population currently enjoy internet access. This puts the number of people currently using the internet at about 4.2 billion. It's also important to note that the world’s population is perpetually expanding along with the percentage of internet users. So we can expect continual growth to resume for now.
28 million blockchain wallets represent only 0.66%, or just two-thirds of 1% of the world’s populous on the internet. If we use the overall population of the world, only about 0.37% of the earth’s inhabitants have a blockchain wallet right now. This number is likely substantially lower if you factor in numerous different cryptocurrency wallets per some users.
My estimates are that only about 0.5% of Internet users, and roughly 0.25% of the world’s population, have blockchain accounts. This is essentially the same as saying that Bitcoin and all other digital assets combined have achieved a penetration rate of fewer than 0.5% so far.
Let’s look at this from a social networking standpoint. How much was Facebook (FB) worth when it had 28 million users on its network? A few hundred million? Maybe a billion dollars?

And how much is Facebook worth now? $500 billion.
Why stop at Facebook, let’s look at the internet in general, because a comparison of one revolutionary technology warrants a comparison to another similar phenomenon. How much was the internet worth in 1995 when it had only 16 million users, or roughly 0.4% of the world’s population online?
Remember, things were primitive back then, just some pictures, rudimentary functions, and limited information. No Google (GOOG) (GOOGL), Netflix (NFLX), or Amazon (AMZN). So, perhaps the internet was valued at $50 billion, or $100 billion, or $500 billion maybe. Now we have multiple companies worth more than $500 billion, the internet is effectively invaluable, worth 10s of trillions of dollars, and most people can’t imagine life without it.
It’s the same thing with digital assets, Bitcoin was worth very little initially. It was worth about 6 cents when it first began trading in 2010. This was when only a few people knew about it and began trading Bitcoin back and forth. This is like a point when a few people began using Facebook at Harvard, or when a handful of people began sending emails to each other decades ago. These technologies also were relatively “worthless” at their inception points. But then more people begin using it, and the price moves up from 6 cents to $6, to $60, to $600, and now that there are roughly 28 million blockchain wallets and millions of people using, trading, and storing value in Bitcoin it is worth around $6,000. So, the million-dollar question is how much will Bitcoin be worth when 280 million are using it, and then 2.8 billion begin to use it?

So, Why Use Bitcoin at All, You Ask?
Fair question, but the simplest and shortest answer is because it's the future. Bitcoin, Bitcoin Cash (BCH-USD), Litecoin (LTC-USD), Ripple (XRP-USD), and other blockchain-based systemically important coins are examples of a new, optimal system and technology. The “old system/technology” in this case is the current parasitic and highly inefficient fiat monetary system.

If I want to send $10,000 to someone, or to myself in another country, I need to be physically present at my bank, to fill out paper work, confirm my identity, and jump through various other hoops just to gain access to my own money. This is highly inconvenient, and sometimes impossible, as I recently learned trying to process a wire transfer while traveling overseas.
Also, a deposit, transfer, or a withdrawal of just $10,000 or more could sound off alarm bells at the Fed, the IRS, or your banking institution. This could result in an audit, your account being frozen, or suspended, or in a series of other unpleasant consequences due to the presence of redundant, predatory third parties. It's also important to mention that in today’s world $10K is not an incredibly large sum of money, so just imagine what kind of hassle you would need to put up with to transfer, deposit, or withdraw $100,000, $1 million, or more.
In addition, you are going to have to pay all types of transfer, transaction, and foreign exchange charges. And, you will likely have to wait quite a bit of time for the transaction to get approved, processed, and made available to you in the form of money. It will likely take several days for the money to arrive to another country’s bank account, and a Western Union, or a comparable service transaction could take even longer.
Most people have restrictive access to their own money, must pay extensive fees on a constant basis, and are continuously confronted with perpetual devaluation phenomenon known as inflation. This is all due to the nature of the “old system/technology” (current fiat monetary order). The current fiat based monetary system very much resembles a control grid, where the primary third parties, the government, central banks, and commercial banks act largely as redundant patristic forces, always monitoring, controlling, and heavily taxing every financial move that you make.
With Bitcoin and blockchain (the new technology), you get to completely bypass the overwhelming majority of these unpleasant issues. Bitcoin and other systemically important coins are decentralized, meaning that the parasitic and predatory third parties are essentially removed from the equation all together.
I can send Bitcoin, Litecoin, Bitcoin Cash, Ethereum (ETH-USD), etc., from any geographic location, to anywhere in the world, in minutes, with very little cost, and absolutely no hassle. A recent Bitcoin transaction from an exchange to a cold wallet cost about $6. But Bitcoin is expensive relative to other prominent currencies. Similar transactions in Litecoin and Bitcoin Cash cost a fraction of the $6 cost and are delivered within minutes. Transaction costs vary, depending on various factors, but in general they are far cheaper, faster, and are much more convenient than trying to send money from one bank to another, especially if it's done internationally.
In addition, you are not limited with regard to how much you can send. You can just as easily send $1 worth of Bitcoin, or $1,000,000. Bitcoin, can’t get inflated away by a central banking system as there are a set number of Bitcoins that can ever be mined, only 21 million. Whereas the continuously expanding money supply in the fiat monetary system creates perpetual inflation, which leads to the constant devaluation of a fiat money.
With digital assets, you essentially have complete control over your own currency and store of value assets. Bitcoin has no risk of disappearing or being stolen if you know how to store it properly (cold wallet works best). There's no central authoritarian figure looking over your shoulder dictating how much you can send, or with whom you can conduct commerce with. And you remain immune from the heavy taxing conducted by commercial banking institutions for letting you use your own money.

Clearly Bitcoin represents a superior system, and as a rule of thumb it's only a matter of time until a superior technology takes over the market share of an existing inferior system or a technology.

This is Going to Be a Big, Big Market
Currently, the fiat monetary system dominates the medium of exchange and store of value markets. It's important to mention right away that fundamentally fiat-based assets are extremely poor as transactional vehicles and as store of value assets. They are unfavorable medium of exchange vehicles due to the permanent predatory third-party involvement, and they are very poor stores of value instruments due to the perpetual inflation, and devaluation of fiat currencies.
Nevertheless, the market share they command is vast. Just the physical notes alone equate to roughly $7.6 trillion, the broad money supply is roughly worth $90.4 trillion, and the global debt (store of value) market is worth a staggering $215 trillion. Also, investable gold is worth approximately $3.5 trillion. So, what's Bitcoin worth? About $110 billion, and all digital assets combined right now command a market cap of just $210 billion.
Let’s put these numbers into some perspective. If we combine the value of the global fiat money supply $90.4 trillion, investible gold $3.5 trillion, and global debt $215 trillion, we arrive at a staggering figure of about $309 trillion. This is the global fiat and gold medium of exchange and store of value market that Bitcoin and other digital assets will be effectively competing for market share in over the next several decades.
Despite its superior attributes, and seemingly limitless potential the cryptocurrency complex is currently worth fewer than 0.068% of the worldwide fiat and gold dominated store of value and medium of exchange market. That’s fewer than 7 tenths of 1 tenth of 1%. If digital assets rise to just 1% of the market share of the current fiat and gold dominated medium of exchange and store of value market the cryptocurrency complex will be valued at approximately $3.09 trillion.

Bitcoin currently has a dominance rate of about 53% in the cryptocurrency complex, meaning that Bitcoin is worth more than 50% of all cryptocurrencies combined. But as the combined value of digital assets increases Bitcoin’s dominance typically declines. If the value of digital assets in general increases to about $1 trillion we will likely see Bitcoin’s dominance rate drop to 33% like it did during the last cycle. If the value of digital assets increases to 1% of its applicable market share, $3.09 trillion we can expect Bitcoin’s dominance to drop to around 20% or 25%. This would imply a market cap of roughly $620-770 billion for Bitcoin, and a likely price of roughly $37,000-45,500 per Bitcoin.

Cryptocurrency Dominance Rates

So, this is at just 1% of the applicable market share, what happens at 5%? Well, at about 5% penetration of the applicable market share the cryptocurrency complex becomes worth about $15.45 trillion. In this case, we can potentially expect Bitcoin’s dominance to be around 10% - 20% of the entire complex’s, implying a valuation of $1.5 - $3 trillion for Bitcoin alone, and a price of about $88,600 -$177,000 per Bitcoin.
Also, an important factor to consider is that other prominent, very efficient, and systemically important coins such as Litecoin, Bitcoin Cash, and others will likely increase in dominance as Bitcoin’s level of supremacy declines over time. For instance, Bitcoin Cash currently trades at around $530, is worth about $9 billion, and has a dominance rate of approximately 4.3%. If it’s dominance rate increases to about 6% while the overall cryptocurrency complex captures 5% of its applicable market ($15.45 trillion), Bitcoin Cash alone would be worth roughly $927 billion. This would result in an increase of about 100 times from current levels to a price of roughly $55,000 per Bitcoin Cash token.

Litecoin currently trades at $55, is valued at approximately $3.2 billion, and has a dominance rate of just 1.5%. If its dominance increases to 3%, at a 5% penetration rate of applicable market share for the cryptocurrency complex Litecoin’s market cap would be roughly $500 billion, and each Litecoin would be valued at about roughly $8,600, an increase of over 15,000% from current levels.
The network effect could enable cryptocurrencies to achieve a substantially higher penetration rate in its applicable market. It's even conceivable that in the next 15-20 years digital assets carve out a market share of 25% or higher of the $309 trillion medium of exchange and store of value market. This would put the cryptocurrency complex’s value at roughly $77 trillion. And if Bitcoin maintains a dominance rate of 10%-20% its market cap alone would be between $7.7 trillion and $15.4 trillion. This implies a price of roughly $455,000-910,000 per Bitcoin is possible if the cryptocurrency complex begins to capture substantial segments of the medium of exchange and store of value markets 10, 15, or 20 years down the line.

Prominent Coins and the Future Economy
Certain cryptocurrencies are a lot like giant industry leaders such as Alphabet, Apple (AAPL), Microsoft, Amazon and others taking over substantial segments of the economy. Various coins are likely to dominate in a similar way. For instance, Ethereum (ETH-USD) can be used in smart contracts, Ripple is designed to connect payment systems together, and will likely dominate in the banking settlement infrastructure sphere. Monero, (XMR-USD) and several other coins are completely untraceable and are likely to be implemented in grey areas of the economy.
Essentially, certain coins are designed to fill a particular niche in the marketplace, they typically achieve their objectives far more efficiently than current methods using the fiat monetary system, and are therefore likely to build, acquire, and sustain substantial market share over time, much like very dominant corporations do in their respective segments of the economy.

Some of the biggest winners could turn out to be extremely efficient transactional currencies such as Litecoin, Bitcoin Cash, and others. As these instruments, could evolve into mainstream medium of exchange vehicles over time. The network effect plays an extremely powerful role in this dynamic, and as more and more people switch from fiat to crypto the value of such coins is likely to rise substantially over time. And of course, there's Bitcoin, the likeliest candidate to retain a leading position in the store of value segment, and can also evolve into a mainstream transactional vehicle due to the significant improvements provided by the Lightning Network.

Threats to Bitcoin
It would not be objective to only talk about the seemingly limitless possibilities surrounding Bitcoin without mentioning some obvious threats that face the cryptocurrency industry. First, there's the possibility of draconian government regulation or limitation. Right now, Bitcoin is still relatively small and does not pose a significant threat to the current status quo. But with time, Bitcoin could begin to challenge the government and central bank monetary monopolies. This could open Bitcoin up to stringent regulation and possible all out bans in some countries.
However, while this scenario is possible it's not likely, because Bitcoin is continuously becoming more legitimized all over the world. In addition, companies like Microsoft, Overstock (OSTK), Shopify (SHOP), PayPal (PYPL), and even Subway are accepting Bitcoin now. Therefore, it's likely only a matter of time before Bitcoin and other altcoins become widely accepted all over the world.
Banning or restricting Bitcoin will likely become next to impossible in the future as such action would probably cause enormous backlash from the population. Not to mention that there are no legitimate reasons to outlaw or constrict Bitcoin in the first place. Other, less prominent threats include security breaches, scams, extensive energy usage, and other factors largely relative to a loosely regulated industry. While such threats do exist, they are likely to impact Bitcoin’s price predominantly on a short-term basis, but should not remain overly relevant in the long term.
The Bottom Line
These are still the very early stages of a multi decade long cycle, and the transition from the present fiat dominated monetary financial order to a world where decentralized digital assets play a much greater role will be a very gradual process. Moreover, due to the dominant role governments play in our world, cryptocurrencies may never dominate the entire medium of exchange and store of value segment.
Instead, digital assets will likely continue to play a more prominent role in certain segments of the world economy. As more and more people adopt blockchain technology, and begin using various cryptocurrencies on a mass, global scale, the network effect could drive prices much higher from current levels over time. Moreover, as digital assets begin to play a more prominent role in the global financial system they should begin to achieve a substantially higher penetration rate in the applicable markets.
Likely only about 0.25% of the world’s population currently trade, own or use digital assets, which is an incredibly low penetration rate. As the network effect accelerates the number of users on cryptocurrency networks could increase exponentially, which should lead to substantially higher prices in Bitcoin as well as in other systemically important digital assets.
Ultimately as the cryptocurrency complex carves out significant segments of the current fiat and gold dominated global medium of exchange and store of value market, digital assets like Bitcoin, Bitcoin Cash, Litecoin, and many others could grow in value substantially an are likely to be worth many times what they are now several years down the line.

ECB Determines Eurozone Still Needs ‘Significant’ Stimulus

Minutes from the European Central Bank’s last meeting underscore a widening gulf with the Federal Reserve

By Brian Blackstone

ECB President Mario Draghi
ECB President Mario Draghi Photo: Alex Kraus/Bloomberg News

The eurozone economy still needs “significant” stimulus from monetary policy to ensure inflation continues to climb, according to the minutes of the European Central Bank’s last meeting in late July.

The ECB’s comments underscore a widening gulf with the Federal Reserve, which in its own meeting minutes released Wednesday signaled plans to raise interest rates further in September from the current range of 1.75% to 2%. 
“Overall, the uncertainties around the inflation outlook still called for caution and it was widely felt that monetary policy had to remain patient, prudent and persistent,” the ECB’s minutes said.
The euro traded at $1.158 at around midday Thursday, down 0.2% from Wednesday. The euro has lost ground against the dollar this year, likely due to higher U.S. interest rates compared with the eurozone.

U.S. economic growth has outpaced that of the eurozone in recent months, and the unemployment rate is much lower than in Europe. Annual U.S. consumer-price inflation was 2.9% in July, versus 2.1% in the eurozone. Both banks target inflation rates of around 2% over the medium term.

The ECB said in June that it expects to phase out its bond-purchasing program by the end of 2018, although it has signaled that its policy rates—which include a minus-0.4% deposit rate—will remain unchanged at least through next summer, a message it reiterated in July.

This cautious approach was highlighted Thursday by the head of Germany’s central bank,Jens Weidmann,who is considered one of the ECB’s most conservative members when it comes to fighting inflation.

“The normalization process will probably take place only gradually over the next few years. exactly why it has been so important to actually get the ball rolling without undue delay,” he said at an event in Berlin.

ECB officials were happy with how financial markets were absorbing their communication on monetary policy, particularly the pledge to keep rates unchanged at least through the summer of 2019.

“This formulation was considered to have struck an appropriate balance between being sufficiently precise to provide effective forward guidance and maintaining a suitable degree of flexibility,” according to the minutes.

Although officials saw the risks to the European economy as generally balanced, they appeared concerned about the toll that trade tensions could have on the global economy, both directly through the costs of tariffs and indirectly by hurting confidence. 

“Concerns were also expressed about the implications for emerging market economies and the recent depreciation of their currencies,” the minutes stated.

 Yet Another Unfunded Liability: Too Many People In Hurricane Alley 

One of the big recent changes in American life is the ongoing mass-migration from the middle of the country to the coasts, especially in the Southeast and Gulf States. South Florida and the Carolinas, along with Houston and surrounding Texas counties, have gained millions of new residents seeking to trade snow and monotony for sun and water. Coastal state governments have by-and-large encouraged this immigration and the resulting construction, paving, and deforestation, because new residents pay taxes and developers contribute to political campaigns.

This is turning out to be a huge, perhaps insanely expensive mistake, similar in a lot of ways to out-of-control public pensions: A short-term benefit that produces long-term costs – i.e., an unfunded liability – which accumulates more-or-less secretly until something happens to turn an accounting issue into a cash flow nightmare.

Consider Houston. Over the past few decades hundreds of thousands of people have moved in, and developers have accommodated them by paving over much of the land that used to absorb floodwaters during storms. When hurricane Harvey hit in 2017, the city found itself underwater for days, with damages totaling $125 billion. Much of this was covered by tax payers via federal flood insurance.

Now fast forward to today’s North and South Carolina, also very popular destinations for Americans from colder climes, and the scene of rapid construction of homes, hotels and stores within a few miles of the ocean. In the following article, the New York Times lays out the downside of this kind of short-sighted public policy.

Why the Carolinas Have Become More Vulnerable to Hurricanes
Twenty-nine years ago this month, Hurricane Hugo barreled ashore just north of Charleston, S.C., a category 4 storm with maximum winds estimated at 140 miles an hour and the highest storm tide ever recorded on the East Coast. 
Here is where people lived in the region in 1990. Hugo was the nation’s costliest hurricane ever at the time, with damages of about $7 billion.

Carolinas population 1990 unfunded liability
Over the next three decades, an estimated 610,000 homes were added within 50 miles of the coastline, according to my research. 
Carolinas population 2018 unfunded liability
Most will be affected by Hurricane Florence, the monster storm that is advancing on the coast, with landfall expected Friday morning. 
We often hear that climate change is influencing the frequency and strength of tropical storms, heat waves and wildfires, and this is certainly true, though it is too early to say what influence the warming temperatures may be having on Hurricane Florence. That answer must await a post-mortem by climate scientists. But it is also true that rapid coastal development is amplifying the impact of weather and climate events like Hurricane Hugo and those expected with Hurricane Florence over the next few days. 
In fact, according to research by me and colleagues, the root cause of the country’s escalating number of weather- and climate-related disasters is not necessarily a rise in the frequency or intensity of these events but the increasing exposure and vulnerability of populations that lie in their path. 
That may seem obvious, though perhaps not for the people who have moved to places that are likely to end up disaster areas someday. That fact has either escaped their notice or seems to be of little consequence to them. 

This process of population and development growth that influences disaster frequency and magnitude is known as “expanding the bull’s-eye effect.” It isn’t just the population increase that is important in raising the disaster potential but also how the population and built environment are distributed across a landscape. As the targets — people, homes and businesses — become more numerous and spread, so does the likelihood that it will be hit by a tornado or hurricane or wildfire. And that expanding pattern determines the severity of the disaster. 
Since 1940, development within 50 miles of the Carolina coastline has increased an estimated 2,180 percent, or by 1.3 million homes. And as I mentioned, nearly half of this development has taken place since Hurricane Hugo, and many of these homes were added in high-risk areas like floodplains. 
There seems to be something of a “disaster amnesia” going on with respect to our land development practices after a calamity. 
More than a decade ago, 10 leading climate experts felt compelled to issue a statement saying the debate then about whether global warming was intensifying hurricanes was a distraction from “the main hurricane problem facing the United States.” The problem, they said, was the continued “lemming-like march to the sea” in the form of unabated coastal development in vulnerable places. “These demographic trends,” they said, “are setting us up for rapidly increasing human and economic losses from hurricane disasters.” 
We know much more about how the warming climate is influencing tropical storms. And in many places along the nation’s coastlines, the lemmings are still marching toward the sea. 
Nearly 30 percent of the American population lives along a coast, and an even larger percentage resides in flood-prone regions. The Census Bureau recently reported that the Atlantic and Gulf Coast regions have continued to grow despite costly and damaging hurricanes, with their combined populations rising to 59.6 million people in 2016 from 51.9 million in 2000. 
It is not a matter of whether a disaster will strike, but when for individuals living in many of these regions. 
And when disaster knocks at the door, the bill is left to taxpayers who subsidize the National Flood Insurance Program. That money is often used to rebuild homes in the same high-risk locations. Unfortunately, given current insurance programs, rates that don’t reflect the true risk of insured entities in hazard-prone regions and the lack of incentives to persuade people not to live in these areas, the system we have is unsustainable. 
We need to be smarter about where we are developing and how we’re doing it, building in resilience in any new construction in areas prone to weather and climate extremes.  
People who choose to live in high-risk areas should bear the cost when disaster strikes. Of course, we should be helping people hit by storms like Hurricane Florence. But I’d rather see those dollars directed to hazard mitigation, and making existing and future development better able to withstand a disaster before one hits.
Just because we can live somewhere doesn’t mean we should. After all, as the saying goes, “The definition of insanity is doing the same thing over and over again, but expecting different results.”

Among the many crucial quotes from the above article: “In fact, according to research by me and colleagues, the root cause of the country’s escalating number of weather- and climate-related disasters is not necessarily a rise in the frequency or intensity of these events but the increasing exposure and vulnerability of populations that lie in their path.”

In other words, you don’t need climate change to make the policy of encouraging people to move to hurricane alley a bad idea. There have always been – and always will be — monster storms, so a continuation of historically normal weather guarantees the occasional Cat-5 direct hit on the Eastern Seaboard. The more people we put there, the higher the cost of cleaning up afterward.

And since we haven’t had a direct hit in quite a while, all those extra people and buildings that have been added recently will raise the cost beyond anything seen in the past. In this sense, Hurricane Florence is a taste of things to come, but just a taste. The main course is the inevitable “big one” that hits Miami one of these days, after which we’ll finally be able calculate this latest unfunded liability.

The Fallout From a Currency Crunch

Checking the pulse of our annual predictions, every two weeks.

By GPF Staff

Back in December, we identified the lira’s vulnerability but failed to see the full extent of how it would affect U.S.-Turkey relations. The degradation of that relationship has a host of global implications, including China’s subsequent courtship of the government in Ankara, the growing concern in Europe over potential exposure to the currency crisis and the migration it might portend, and uncertainty over next steps in Syria. Relations are not past a breaking point, but how the U.S. and Turkey work to patch things up will be a key question for the rest of the year.

On to the tracker.

Jacob L. Shapiro, director of analysis


From the Forecast: Russia is primarily interested in limiting an increasingly strong and independent Turkey, especially in the Balkans and the Caucasus.”
Update: This forecast had a strong start. It may seem like eons ago, but in January, there was notable dissension in the ranks of the so-called “Astana Trio” of Turkey, Russia and Iran, which had agreed to carve Syria up into different zones of responsibility and to ensure cease-fires in some parts of them. Except that Iran broke the agreement, and Russia did nothing about it. Angered by the transgression and the Russian inaction, Turkey summoned envoys from both countries to express its displeasure. It also looked to be close to reaching an understanding with the United States on how to deal with Afrin.

By March, the Turkey-Russia relationship was back on track. The Astana group managed to let bygones be bygones and continued to meet to coordinate operations on the ground related to Syria’s future. Turkey even decided to purchase S-400 missiles from Russia, much to the chagrin of the United States. All the while, Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan continued to say nice things about each other in public and to talk to each other on the phone, with some reports even going so far as suggesting a “secret alliance” over the Syrian war.

The crucible of this seemingly rosy relationship may be Idlib, a strategically located province in Syria and the last remaining rebel stronghold. Outside of the Kurdish-held territories in the north, Idlib is the only place anti-Assad forces still have the upper hand. And they have the upper hand partly because Turkey has supported and funded them, and the Turkish military is deployed to support them. Russia, meanwhile, continues to support the Assad regime – which Turkey views as an enemy. As recently as July 15, Turkey warned Russia that any attempt by the Assad government to recapture Idlib might well jeopardize Turkey-Russia relations.

Russia is justifying its position by saying it must deal with the al-Qaida linked groups in Idlib that are attacking Assad’s positions. This may open up room for a compromise between Moscow and Ankara on the Idlib problem, considering Turkey has problems with some jihadist rebel groups there too. Still, this hardly reflects a Russia that is interested in limiting Turkish strength. If anything, Russia is treating Turkey like an equal in Syria, perhaps paving the way for a long-term Turkish presence in Syria if it means Turkey-Russia relations remain strong. The counterargument is that Russia wants Turkey more involved in Syria. The more attention Turkey pays to the Middle East, the less attention it can spare for the Balkans and the Caucasus. The jury is still out.

Meanwhile, U.S. foreign policy is driving Turkey away from Washington, which Erdogan has blamed for his country’s currency woes. It has levied sanctions against Turkish officials and threatened to issue tariffs on Turkish goods. In fact, the first thing Erdogan did after the U.S. issued the threat was to call Putin to discuss economic cooperation. In the past two weeks, high-level Russia-Turkey meetings have been convened to discuss a new four-way summit on Syria’s future. Russia also recently abolished visa requirements for Turks to enter the country.

This may well be temporary. After all, the United States and Turkey have a volatile relationship, to the say the least, but so do Turkey and Russia. They have some common interests, but there are many more areas on which they disagree. The most important aspect of all this is that Russia-Turkey relations are improving because one of the interests the two sides have in common – trouble with the United States – is pushing the two sides closer together in spite of the areas in which they disagree. If U.S. pressure keeps up, Russia and Turkey may conclude that two weaker powers working together suits both their purposes better than zero-sum competition. In the long term, Russia still needs to find a way to neutralize Turkey as it expands into areas that Russia considers its sphere of influence. Until then, this forecast is in a downward trend.



From the Forecast: “The continent [South America] as a whole will remain stable relative to other regions of the world.”

Update: South America’s abiding geographic feature is its isolation, which tends to insulate it from major events in the rest of the world. Aside from drug cultivation, commodities and the never-ending disaster that is Venezuela, South America has not much factored into global affairs lately, nor have geopolitical dynamics among South American nations created much in the way of serious risks. That seems to be the case for the rest of the year. We note that though our forecast is mostly on track for now, several recent events cut against it. And if it continues, it could push the forecast off track completely.

The chief culprit is Argentina, where the peso continues to nosedive. Much has been made of the collapse of the Turkish lira, including by us, but far less has been made of the decline in value of the Argentine peso, which like the lira is down more than 60 percent this year. But unlike the lira, it is still depreciating despite central government intervention. Strictly speaking, this isn’t unheard of in Argentina; it undergoes these kinds of currency fluctuations fairly regularly, and we have made the case that Argentina’s recent moves, including an ambitious reform program and a pre-emptive IMF loan, should be seen as prudent planning, not impending doom.

Still, Argentina now faces some big problems. A major drought has disrupted the agriculture sector and hurt the economy. Earlier this month, President Mauricio Macri said inflation might reach 30 percent again by the end of the year. The government has said it will renege on a promise to reduce soymeal and soyoil export taxes for want of more government revenue – a move that is sure to anger farmers. Argentina even imposed a two-day embargo on these exports to prevent farmers from selling before new tax measures came into effect.

Argentina may be the main culprit, but it isn’t the only one. Perhaps more concerning for South America is the recent weakness in commodity markets. Coffee, sugar and copper are just some of the commodities South American economies depend on, commodities whose prices have dipped in recent weeks. Brazil has currency woes of its own to deal with; the real is down 20 percent on the dollar for the year, currently hovering at a two-year low. Chile’s currency is down almost 10 percent on the dollar, and the country’s $184 billion in external debt compared to its paltry $37 billion worth of official reserves has us worried about potential shocks there.

This is to say nothing of the continued degradation of Venezuela, which is starting to spill over into Ecuador and Peru, where new entry requirements have been put in place to try to stem the flow of Venezuelan refugees. Meanwhile, Brazilian military forces already stationed at the border had to intervene at a Venezuelan refugee camp in Brazil to protect it from attack by a local mob.

Overall, there’s not enough evidence to say this forecast is off track. After all, economic uncertainty is a fixture in Argentine politics, commodities prices are inherently mercurial, and the vulnerabilities of countries like Brazil and Chile may not lead to outright calamity. Venezuela continues to survive, even as it appears, time and again, to bottom out. Even together, these events have failed to push our original assessment into negative territory. But at the rate things are going, they very well could.