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Cryptocurrencies Are a Bubble and Will Never Become Real Currencies

Cryptocurrencies Are a Bubble and Will Never Become Real Currencies
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Monday, 09 April 2018 08:08 AM Current | Bio | Archive

On Friday, Fed Chair Powell used his inaugural speech before the Economic Club of Chicago to highlight the strength of the United States economic recovery and told a questioner that a potential trade war would have no immediate effect on the Fed’s plans to continue gradually raising interest rates this year.

Fed Chair Powell said: “The discussion about tariffs is at a relatively early stage, and we talked about this at the Federal Open Market Committee (FOMC) meeting a couple of weeks ago now, and people really don’t see yet any implications in the near term for the outlook, because we don’t know the extent to which the tariffs will actually come into effect and, if so, how big will that effect be and what will the timing of it be.”

Over in China, President Xi Jinping will give on Tuesday the most anticipated speech of his already historic presidency. During an address to a Chinese government-hosted economic forum on Hainan island, Xi’s challenge will be to outline bold new economic reforms and measures to open markets without appearing to bend to US pressure on trade.

On Sunday, President Trump tweeted: “China will take down its Trade Barriers because it is the right thing to do … A deal will be made on [trade].”

On April 5 President Trump threatened “$100 billion in additional tariffs” on Chinese exports to the U.S. Just a day earlier the Trump administration had outlined its plans to assess punitive tariffs on $50bn worth of Chinese exports, to which Beijing responded in kind. Mr. Trump dismissed China’s counter-tariffs, which officials in Beijing described as proportionate and legal, as “unfair retaliation” that will “harm our farmers and manufacturers”.

So, I don’t think it’s not an overstatement to say that the Sino-U.S. trade dispute enters an important week.

Besides all that, the U.S. administration has been following the standard pattern over the weekend whereby President Trump does something and then officials hit the television talk shows to reduce the impact of the President’s initial announcement.

Markets are becoming used to this pattern. 

Treasury Secretary Mnuchin suggested that China’s trade taxes would not have much of an impact on the U.S. economy, in the event that they were actually implemented. Mr. Mnuchin also said a trade war with China remained possible, “but I don’t expect it at all.” And he dismissed concerns about the rattled stock markets and agricultural sector.

On Sunday, a Chinese government researcher told the 2018 Boao economic forum that takes place at the Boao island in the Hainan Province that China was unlikely to sell off its holdings of U.S. Treasury bonds on a large scale as a tactic in its trade dispute with the United States.

China held around $1.17 trillion of Treasuries as of the end of January, making it the largest of America’s foreign creditors and the No. 2 overall owner of U.S. government bonds after the Federal Reserve.

It is hard to know if this is an attempt to downplay the capital flow weapon, which would be a little unusual as a negotiating tactic, or whether this is a reminder that China can sell Treasury bonds or whether this is just another official comment.

Sometimes, interpreting the signals of the Chinese administration seems almost as difficult as interpreting the signals of the U.S. administration.

Geopolitical concerns may also be a focus today.

The United States has announced on Friday financial sanctions against specific Russians and Russian entities. This is an escalation from the diplomatic procedures that followed the chemical attack in the UK and to the extent this is financial, this is more of a focus for financial markets.

Meanwhile, the Pentagon has denied the United States has launched any missile attacks on Syria. The escalation of the Syrian situation may have some regional implications.

Potentially more positive news is that North Korea has signaled its willingness to discuss de-nuclearization.

However, financial markets do not generally react to events like those in Syria and North Korea.

Finally, in the fancy bubble of cryptocurrencies, the U.S. regulator, the Securities and Exchange Commission (SEC) has noted the two founders of a cryptocurrency firm called ‘Centra’ that was endorsed by champion boxer Floyd Mayweather have been charged with carrying out a fraudulent initial coin offering (ICO).

Investors could do well keeping in mind that cryptocurrencies are a bubble and will never be currencies.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Investors could do well keeping in mind that cryptocurrencies are a bubble and will never be currencies.
cryptocurrencies, bubble, real, currencies, investors
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2018-08-09
Monday, 09 April 2018 08:08 AM
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