Water Futures, Stablecoins and Filecoin Miners #29
Market Meditations | October 19, 2020
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Today’s Meditations:
Water Futures
Stablecoin Supply Has Surged Past $20 Billion, Driven by Derivatives Market
Filecoin Miners Go on Strike One Day After Mainnet Launch, Prompting Early Reward Release
Coinbase Received Nearly 2,000 Customer Data Requests From Governments in the First Half of 2020
The IMF Predicts That The World Economy Will Suffer From ‘Long Covid’
Better To Get it Right Than to be First with CBDC, Says US Fed Chair
Alibaba to Pay $3.6bn to Take Control of Chinese Supermarket Chain Sun Art
Unlearning.
Crypto News
Oct 19. OWL: Staking and mainnet
Oct 19-22. DC Fintech Week
Oct 20. Zcoin (XZC): Lelantus Testnet
Oct 22. Wanchain (WAN): Mars Hard Fork
OCt 26-30. Blockchain Revolution Global
Global News
Oct 19. China GDP, Fed Chairman Powell Takes Part in IMF Panel on Cross-Border Payments, ECB President Lagarde Speaks, ECB President Lagarde Gives Opening Remarks
Oct 21. UK CPI, Core CPI and ECB President Lagarde & Lane participate in ECB Listens Event
Oct 22. BoE Governor Bailey Speaks at Conference
Oct 23. GfK Consumer Confidence (UK) and US Presidential Debate in Nashville
Water Futures Meet Cool Reception
Clear the floor and make way for the latest addition to the commodities market… water futures.
Water futures are about to hit financial markets for the first time, the Financial Times reports, with the launch of contracts tied to prices in California. But academics and investors fear the derivatives will offer a poor hedge for water users and may end up distorting prices for the vital resource.
Developers CME Group and Nasdaq say the contracts will help farmers, municipalities and other big water users to hedge their water costs as the world warms up and droughts become more common. Senior US regulators have welcomed the contracts as a risk-management tool.
But critics say the contracts may prove difficult to trade, given the highly localised nature of water pricing and regulation. Some are also uneasy with such a basic resource becoming a speculative financial-market asset, fearing that trading, which would not be restricted to industrial users, could distort water prices for everyone.
“The one asset class that I don’t want to see open to potential manipulation or upward price pressure via financial markets is the one resource that all of humanity needs for its survival,” said Simon Puleston Jones, former head of Europe at the Futures Industry Association, a US trade body. “We need to think now about the potential direct and indirect negative consequences of treating water as an asset rather than a resource.”
Under the plans announced last month and now pending regulatory approval, futures prices will be derived from the Nasdaq Veles California Water index, tracking the spot price based on trading in water rights – entitlements to delivery water from natural sources – in the state’s five largest water markets. They will be financially settled, meaning traders never take physical delivery and cannot forward-buy or stockpile water. This is in contrast to trading oil, where there is physical delivery. Many exit oil contracts before expiry or as we have seen in 2020, when prices are extremely low, they can stockpile their supply and distort demand going forward.
The topic of water futures fundamentally comes down to how far you are prepared to go when it comes to trading. Should we trade anything that sees volatility and price fluctuations? Or are there some things that we morally and ethically should not trade. Are there some resources that we should not commoditise, or is everything up for grabs? The challenges of Covid-19 and climate change mean that these are serious questions and trade offs that individuals, corporations and governments will need to consider.
Stablecoin Supply Has Surged Past $20 Billion, Driven by Derivatives Market. According to data compiled by The Block Research, total outstanding stablecoin supply has crossed $20 billion. Tether and USDC remain the two most popular stablecoins and are responsible for most of the growth this year. In total, the market has grown from $5 billion at the beginning of the year to around $20.2 billion today. Tether remains the biggest by far and comprises approximately 79% of the market. The decentralized finance (DeFi) ecosystem is the main driver of this year’s exponential growth, allowing traders and other participants to earn high yields on their stablecoin holdings. Read more.
Filecoin Miners Go on Strike One Day After Mainnet Launch, Prompting Early Reward Release. Not an ideal start for the decentralized storage network Filecoin, after miners went on a strike just one day after the highly anticipated launch last week. Some of the biggest miners turned off their machines to protest against the project’s unfair economic model requiring miners to own a significant amount of FIL tokens to start mining operations. The goal was to use the collateral to ensure that miners deliver their services according to the user’s contracts but it seems to create situations where miners don’t own enough FIL to begin with. Given the high valuation at Filecoin’s launch last week, buying extra FIL tokens off the market would increase the miner’s risk tremendously after already being heavily invested in hardware and other necessities to operate. In response to miner’s concerns, Filecoin has decided to release 25% token rewards in advance once a miner builds a block on the blockchain. “The revision could enable 80% of our mining capacity,” Xiaoming Zhan, CEO at IPSFMain said. Read more.
Coinbase Received Nearly 2,000 Customer Data Requests From Governments in the First Half of 2020. Coinbase has started to publish transparency reports that detail information about requests from government law enforcement agencies. The report comes a month after the exchange was called out by a digital rights organization for failing to publish this information. In the first half of 2020, the exchange received a total of 1,914 requests, 1,113 of which were from U.S. agencies alone. The report stated that “As a financial institution with a duty to detect and prevent prohibited activity on its platform, we respect the legitimate interests of government authorities in pursuing bad actors who abuse others and our platform. Yet we will not hesitate to push back where appropriate, even when it is inconvenient or costly to do so.” Read more
The IMF Predicts That The World Economy Will Suffer From ‘Long Covid’.The IMF’s latest forecasts, released on October 13th, spell out just how long the economic harm from Covid-19 will last. America’s GDP will return to its 2019 level only in 2022; Italy’s, in 2025. The fund reckons that in many places output will stay well below its pre-pandemic trend, as labour and capital are only slowly reallocated from shrinking industries towards thriving ones. Last October the fund expected India’s economy to grow by more than 40% by 2024; now it expects half that. This despite recent news of economic recovery in Asia. In Asia, there has been some evidence that the stringent lockdown measures have reduced Covid-19 cases and the economies are seeing some recovery (such as in Australia). There has been talk of opening travel corridors with other countries in Asia. So while the road ahead is long, there are some positives around the world. Read more.
Better To Get it Right Than to be First with CBDC, Says US Fed Chair. The United States will not be issuing a digital dollar until the Federal Reserve resolves all questions around a potential central bank digital currency (CBDC), according to the Fed’s chairman, Jerome Powell. The somewhat disappointing conclusion comes after some excitement around whether the Fed would begin to think outside the box when it comes to running the economy. A lot of the current tools and strategies used find their roots in Keynes and the likes (really dated stuff). Powell went on to say that he is not worried about other countries having a first mover advantage when it comes to issuing CBDCs. Speaking at a Monday panel on cross-border payments hosted by the IMF, Powell said: “We have not made a decision to issue a CBDC, and we think there’s a great deal of work yet to be done. […] In fact, I actually do think that CBDC is one of those issues where it’s more important for the United States to get it right than it is to be first.” Powell elaborated that “getting it right” means that the U.S. is not only looking at the potential benefits of a CBDC but also the potential risks — particularly given the fact that the U.S. dollar is the world’s reserve currency. Read more.
Alibaba to Pay $3.6bn to Take Control of Chinese Supermarket Chain Sun Art. Alibaba is spending $3.6bn to buy a controlling stake in one of China’s top supermarket operators as it doubles down on grocery delivery, a key growth engine for the ecommerce group during the pandemic. The investment in Sun Art Retail Group will raise Alibaba’s 36.2 per cent stake to 72 per cent. Alibaba also will make a general cash offer of as much as HK$17bn (US$2.2bn) to the grocery chain’s other shareholders. Shares in Hong Kong-listed Sun Art surged 19 per cent on Monday while Alibaba climbed 1 per cent in Hong Kong. Alibaba is purchasing the shares from France’s Auchan Retail International. Sun Art is China’s second-largest grocery chain, with more than 480 stores across the country. The two companies have already partnered on grocery delivery, with Alibaba’s blue-clad couriers ferrying everything from toilet paper to frozen dumplings from Sun Art’s outlets to shoppers in as little as one hour. Read more.
Unlearning
Accumulating knowledge through reading and studying can tremendously benefit your life. The problem is that as we evolve as a species or a society, some of our beliefs and knowledge which we’ve spent a considerable amount of time on become outdated or simply untrue. Many of the paradigms we were once taught in school or later in life have or will become incomplete or ineffective. Unlearning stuff is hard but necessary if you want to consistently improve the skill you’re trying to get better at. Instead of always believing you’re right and know stuff better than your peers, be your own skeptic and regularly remind yourself to look for ways to ‘upgrade’ your opinions, habits or beliefs.
In a recent podcast episode with Tim Ferriss, Naval expands on the importance of unlearning bad habits and starting over. “The hard parts are not the learning, it is the unlearning. It’s not the climbing up the mountain. It’s the going back down to the bottom of the mountain and starting over. It’s the beginner’s mind that every great artist, or every great business person. has, which is: you have to be willing to start from scratch. You have to be willing to hit reset and go back to zero.”
Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.
