Crypto Takeover -Is this the end of the FX market?
I have been working in the field of FX for 10 years now and I hate to admit it but this could be the end of an era. In this article, I will explain why.
Trading currencies has been a passion of mine and I would be the last person to endorse digital currencies as I feel like they are backed by thin air.
Let's have a look at what's going on in traditional economics at the moment.
QE! QE! QE! Central banks around the world act like fiat currencies are meaningless anyway. The Fed is about to cut rates again, the ECB is about to kick off another round of QE and looser monetary policy looks to be all the rage.
This is messy in my opinion and a failed experiment which didn't work the last time and is likely to be the demise of the current financial system. Debt is written in the world's reserve currency (USD). If the Fed can add to the supply at will and cut interest rates just to remain competitive what's to stop this from happening again and again until it becomes worthless. There are some very complicated holes in this argument I know but since the gold standard was ditched fiat currencies have been heading for devaluation wars. The fact that a central bank can buy company debt is immoral and in the case of the SNB and BOJ actually purchase stocks is mad. Draghi is always talking about price stability and inflation but this has not worked for the young. I look at Italy as an example of Mario Draghi's home nation. Youth unemployment is high and the only way many of the next generations can get on the housing ladder is an inheritance.
QE also led to the biggest wealth divide in generations and while share buybacks continue, the poor struggle with inflated asset prices and the increased cost of living. Pensions and savings rates are at rock bottom leaving the aforementioned generation with a massive black hole at retirement age. However, they seem to be too interested with Instagram and Love Island to take notice. The stock markets have been artificially pumped to the hilt with printed money and the algo-generation have never seen a crash. I am all for automation but it remains to be seen how computer-based systems deal with a stock market meltdown.
We are also coming to an end to multiple cycles. The average length of a currency cycle is 93 years and we are coming up to that moment and if any person on earth can lead to a demise of an empire its Donald Trump. The Kondratiev, Kitchin and Kuznets Cycle all seem to be converging to this point also, which points to a worrying sign.
Lastly, one of the biggest tech firms in the world with millions of potential clients has now proposed a new coin. Of course, I am talking about Facebook's Libra. The younger generations are obsessed with their phones. Facebook owns WhatsApp, Instagram and their own Facebook brands and this makes up for a massive userbase and cross-user payments could be much easier than using your bank.
This still leaves us with a big question. What will they be backed by? What will happen if we get a hack or they get lost?
I think people might not care. Look at what happens with our data breaches. Facebook has had the whole Cambridge Analytica scandal. Did anyone stop using Facebook? No! It just seems to be another part of life now and as long as the lost money gets refunded, which Facebook can afford, I don't think people will really care. Convenience is king!
This will not happen overnight, you cant expect stock exchanges and traditional finance houses to accept crypto as payments. Having said that what's to stop people from transferring money to each other in digital currencies and then exchanging for USD for those purchases for slightly longer. Nothing. The whole argument about money laundering and illegal financing is a farce. People have been using assets like diamonds and paintings for years, they even send each other physical currencies so cryptos are no different.