Category: investment

The fuss about trade disputes
What does a small-scale farm-holding, two presidents, some tech companies, and their respective local currencies all have in common?

The answer might be obvious if you have been paying attention to the so-called trade war between China and the US in the news lately.
But why is it of concern and what are the far-reaching implications for the rest of the world?

Active involvement in international trade is a vital sign of your country’s financial health and boosts its Gross Domestic Product (GDP).

GDP measures the value of all goods and services produced in a country. From raw materials (input costs) to value-added (assembly and skilled labour costs) to come up with final goods or services.

And though “domestic” implies that this refers to your country’s internal economy, the contributions can be extended from a services perspective.

This occurs when your country places emphasis on or relies on income from Foreign Direct Investment (FDI) to help boost its economy via its GNP. GNP is a similar measurement but slightly different from GDP as it incorporates.

Importance of trade

Fact is, all our goods and services come from unit price or costs that arise from the initial extraction of raw materials.

These then undergo production leading to the product or service of intrinsic value for both local and international (via exports) consumption.

An ideal situation for your country is to export more than it imports to maintain a positive balance of trade. So basically more money flowing in than out.

The trade surplus is then plowed into your economy via the fiscal budget. It can supplement a shortage of funds raised from domestic taxes.
The opposite, which isn’t always a bad thing, (trade deficit) would have to be managed and nursed like any other loan.

The US has often criticized Germany for exporting a lot (cars, trains, and machinery) but not importing much. This is deemed not being ‘fair’ in trade practice. But trade itself arises from market forces, priorities, and consumer demand.

We all love a BMW, Audi, and Mercedes Benz. So these German-made products will always be in demand compared to US car makes.
Who you chose to trade with gives rise to favourable balance of trade if you are engaged in a trade agreement or a trading bloc.

Why this is also a big deal

The demand for your country’s goods and services will directly impact the strength of its local currency. More trade means more of your currency is required to pay for goods and so its value goes up.

A strong local currency leads to stronger purchasing power for its citizens and residents. Comes in handy when you plan things like holidays, purchase goods online, invest or just send cash abroad as gifts.

So, you can see why a strong Dollar or Euro is always favoured and why sometimes drastic measures are taken to keep it that way.

“A higher demand for your country’s products has a direct positive impact on its currency and exchange rate”

A quick glimpse of the world in terms of the input costs for goods and services gives it a competitive edge when it comes to trade.
- US – intellectual property, services, weaponry.
- Germany – steel and engineering machinery giving rise to high performing automobiles.
- Many African countries – mineral resources such as oil, tobacco cocoa, and precious stones.
- Israel – military intelligence.
- South America – agricultural produce.
- India – IT and customer services.
- China – agriculture, building/(manual) labour, and of late technology.
The beef with China

The technology that China (no.2 on the list) offers the rest of the world is the subject of hot debate. The alleged theft of US intellectual property for tech gadgets and software by China.

This is one of several unfair trade practises and motives for why the US recently decided to start imposing heavier (punitive) tax-like increases on multiple goods imported by China.

These extra costs, referred to in trade terms as import tariffs, have a spill-over effect on the costs of production.

China then reciprocated by hitting the US with tariffs (on agricultural produce) causing the trade war that drives each country to protect its own economy.

The higher input costs naturally, lead to the price of your product going up and reducing its competitive advantage and demand. Higher input costs can also affect your local labour force for the worse too.

Factories, multinational corporations, and industries such as farms (both commercial and subsistence) will have to cut the cost of labour. In worse cases which we have seen, workers are laid-off in a heartbeat to stop or prevent accounting losses.

These factors would have hopefully been taken into consideration by the respective leaders before pulling the tariff triggers. Acting with emotions rather than looking at the far-reaching implications is irresponsible.

Have the talks of the trade war impacted productivity and the global trade economy? So far it’s just the stock markets (securities and commodities) reacting. Only time will tell.
22 April 2018
Nurture State Treasures

There are many schools of thought on how to manage natural resources. The idea that a non-renewable resource “gifted” by nature to a country is something that should be considered a once-off benefit shows how forward-thinking that nation is.

If your country happens to have a wealth of a mineral resource, should the current generation use it for their benefit alone or should future generations of the country also benefit?

This also raises prognosis into an important distinction is between wealth and income.

Defining wealth

A non-renewable resource is a good that can only be consumed once such as oil and gas.
They are distinct from renewable resources such as forests and fisheries in such a way that, if managed properly can give you a sustainable stream of income for all time.

Some non-renewable resources can, of course, be recycled, and most metals and some fossil fuels fall into this category.

A goldmine, for example, should be viewed as a source of wealth (and not just income and profits for the company mining the yellow stuff).
And while this sounds normative, no single generation has the mandate to spend that wealth in their lifetime.

The wealth must instead be preserved for future generations and only the income from that wealth be used by the current generation.

A shining example

Norway* (if not now one of a few) is the only country in the world that consistently applies the principle of intergenerational fairness.
The revenue that Norway contracts from oil and gas has since 1990 been collected in a fund that currently stands at over $1 trillion. This number is growing every second!

The wealth is converted into money and the value preserved. This (sovereign) fund is maintained for future generations, and only the interest earned from this wealth is used for the current generation.

In this way, all future generations will benefit from the ‘lucky situation’ of the country.

The Government Pension Fund Global is saving for future generations in Norway. One day the oil will run out, but the return on the fund will continue to benefit the Norwegian population – Norges Bank (The managers of the public fund)

In intergenerational economic terms, this is the only correct way of using the non-renewable assets of the country. It is encouraging that other countries are looking to the Norwegian model.

Other ways of re-investing

A different school of thought is that some of the wealth can be invested to create future growth that will provide better sustainable income for the country.

Many Middle Eastern countries are prime examples. They invest the revenue in construction projects to create a platform for economic prosperity.

This is seen in the vast projects in the UAE cities of Dubai and Abu-Dhabi. They aim to produce sustainable income for the region when the oil runs out.

It is an interesting illustration of Say’s law – in which supply creates its own demand.

Will the investment in infrastructure enable these countries to sustain their level of wealth for all future generations or will they 200 years from now be vast cities in the desert. A legacy to a time where opulence and abundance purveyed?

Read more about sustainabilty and human irrational behaviour here.

In most developing countries, like most of Africa, there is no consideration for future generations. The wealth of non-renewable resources such as gold, platinum, and diamonds are used in today’s budgets. This is with little thought that this wealth could one day not be there and should not be spent now.

The wealth inherited from previous generations is used to finance an unsustainable level of consumption.

Conclusion

The main lesson to take from this is that a non-renewable resource can only be used once. It is a precious endowment that is bestowed upon the country by luck or good fortune and it is therefore selfish to use it on the current population.

It is not income, but wealth. This distinction is alien to most but is very important. Wealth is something that should be preserved.

The three basic options facing a country are: spending it, preserving it, or you can simply invest it in future sustainable growth.

The choice is ours.

*Revised and originally written by a Norwegian economist working for a Sovereign Fund company that has since moved to the Private Equity sector.

3 April 2018
Nine Reasons Why Globalization Can’t Be Permanent

We spoke about globalization in an earlier post on some general terms – citing that it has taken a different shape or evolved. This article below however, delves deeper and highlights on nine reasons why this evolution will be forced to happen.

It is so well written, it covers all salient points and asks all the right questions – such as what we have pondered on the validity of GDP as a measure of success. The Intelligence Quotient (IQ) has of late been questioned as the main determinant of intelligence in the advent of Emotional Intelligence (EQ) and soon Artificial Intelligence (AI). Likewise, we must question the accuracy in the way the success (or disguised failures) of a nation is presented, and what we are told is required for this success to materialize.

We especially loved this analogy of the current world situation and if anything is to be taken from this article, this is it:

Again kudos to the author Gail Tverberg for this in-depth piece (featured on her website on 31 Jan 2018). In it, Gail touches on issues such as a population growth, a growing wage-disparity, heavy energy consumption, and the demand for cheaper alternative energy:

Read about the 9 reasons here: https://wp.me/p3dRG-b4w

Also read more on how Globalization has evolved here

Hope you enjoy it as much as we did, and that it has the same effect it had – getting one to think outside the box and look at the big picture.

31 March 2018
Piggybacking on company success

After having several conversations which clearly highlight the fact that the business of share trading and its intricacies still create a dark cloud to many, and an unnecessary element of sophistication at that, it is only fair to (in true debunqed.com fashion) take a step back, delve in and break it down by discussing not just the way to trade – but the whole point of it. It can seem like something only smart people engage in. This is, however, not the case.

The first thing to understand is that shares (referred to in the US as stocks) entitle the holder to have part ownership in a company. So, if you own a share in, Amazon, Deutsche Bank, Coca-Cola, Manchester United or a Cryptocurrency company like Ripple – you OWN a part of the company. You are basically co-owning with other stakeholders of the company with the hopes that the people who run it will increase the monetary value of your shareholding by making the company a success.

Now your share/ownership will determine what level of control (decision-making powers) you have when it comes to the company’s operations. Naturally, owning just 10 or even 1000 shares of Amazon (which cost around a hefty $1400 each today), still does not entitle the owner to have a say in how it is run. The majority shareholder – which would probably be the company owner (chairman/founder) or its board of directors, depending on how the company is structured, will still have the overall say.

To gain a majority shareholding and therefore full control of a company, the minimum number of shares one would need would be 51% of the total issued…good luck obtaining that many!

But let’s take a further step back and unravel why shares are issued in the first place. A company has a value and within that context will always keep tags on the capitalistic market and carefully monitors its value to brace for a potential takeover or a consideration to sell.

So, to get listed on a stock exchange a company will decide how much of its equity to publically issue as shares and might even use it to raise more capital to help grow the business.

This form of equity will be backed against its total assets (and its debts) on its balance sheet. So hypothetically, a company with 100 Euros worth of assets and liabilities has 100 Euros worth of (owners) equity – which basically enables one to determine its worth at a given point in time.

The easiest way to remember this is through this basic accountant’s formula:

Total Owners Equity (OE) = Assets (A) + liabilities (L).

The shares are accounted for in the OE and are issued in denominations based on various factors to provide an indication of the relative strength (or weakness), or potential growth of the company. The (snapshot) total value of the company is thus determined by its share price plus number issued and referred to as its market capitalization. There are several other measures and tools to evaluate the general health of a company.

Rising shares, though always good will not always necessarily mean the company is great value for money as share prices can also be under- or overvalued. Shares for large companies are naturally offered in millions and via an initial public offering (IPO) from as little as one cent or more (depending on its valuation upon listing on the market) and rise to what was quoted for Amazon earlier – which along with the price of certain commodities are one of the highest per share currently available in the open market.

The open market of local bourse is where shares can be bought and sold at specific times depending on side of the world it is located – just like in a traditional marketplace.

Obtaining shares may come with an additional cost (brokerage fees, commission, interest payments in cases of leverage buying etc.) depending on the terms and conditions of the market but more specifically, on the company or broker offering access to the shares.

A good company share will also offer its holders in return an annual dividend – which is basically a share of the company’s profits over and above the share price. So, it is a good idea to include dividend-yielding shares in your trading portfolio if you can afford them.

Once you purchase your stake in the company, you will naturally, even if you don’t have a controlling say in how the company is operated, take a keen interest in the company’s activities as everything it does within its operations or outside ops for that matter will have an impact on its valuation, and therefore, the price of the share you own.

Naturally, investors follow the age-long rule of common sense and buy when the price is low. If you missed the IPO and dip in, the price is always a good time to even top-up for the long and eventual rise.

“Unless a company goes belly-up, a share-stock price that is going down is actually going up – in the long run.”

But the price as we know does not always go up and one must be prepared to weather such storms by not continuously focusing on the shares once you have done your due-diligence and purchased for the long haul. Playing blissful ignorance is the best advice you will get as one can become emotionally attached to the performance of the shares and have it affect your mood.

There are also a lot of trading tools to help prevent a total meltdown if the company folds-up due to external factors such as fraudulent scandals or government intervention – so keeping tags now and then is still required. The recent events and scandal faced by Facebook saw it lose a significant amount (billions of dollars within weeks) in it the value of its share price.

Read more about investing here.

There are also ways to “have ones’ bread buttered both ways” and this is where the concept of short-selling comes in. So, while we all would bet on a company’s stock to go up – there are groups of investors who bet the other way with the hopes that the price will rather drop.

This seemingly dubious form of trading is perfectly legit and comes, naturally, with a higher level of risk – that is if the price increases in favour of all ‘normal’ long-term investors – the short starts to lose money and will even have to fork out more for the amount borrowed to make the short-sell in the first place – not for the inexperienced and ill-informed!

So, you “buy” or rather borrow (with leverage) the future value of the share/stock price usually at its apparent peak (or bubble bursting price level) and hope that it will drop for you to profit from the bet by as much as it continues to drop. Earlier in the year, one such investor dubbed “50 Cent” bagged 200-million-dollars in a major shorting maneuver.

Shorting a stock is a complex, risky but highly lucrative method of balancing out a portfolio. A seasoned trader will, therefore, have several positions including some “buy” and “sell” positions on their shares for long and short terms with the various mechanisms set in place to execute their trades based on those positions.

One wouldn’t just short a stock if one didn’t know something about what was to come or what factors were to lead to a sharp and large drop in the share price. But getting this right is often an exercise that straddles a fine line between being well-informed and intuitive and blatant insider trading.

So, in summary, shareholding happens naturally when you acquire a stake in a business through ownership of its intellectual capital, founding rights, or status as a funder or initial investor to help start the business.

So why do companies issue out shares to the public again you might still ask… think of share listing as a way for a company to hold itself publicly accountable and thus is the ultimate branding weaponry in its arsenal and quest to exponentially increase its profits.

24 March 2018
How countries operate

At times, we can all become frustrated by political agendas, misfortunes, and perceived lack of planning by various governments around the world. As a result, not quite often see the bigger picture – or the economics of how countries work.

Naturally, the political fracases provide fuel for media companies who in turn bombard us with their 24-hour news cycles. But we need to understand that politicians are only temporary custodians of the country and its economy. Each economic model is built on the same premise that started many hundreds of years ago – that of bartering.

Two pillars of government

There are two main mandates or rather tasks that a ruling party is assigned by the electorate when it comes to governing. These are: controlling the country’s fiscal and monetary policy.

Fiscal policy is the internal running of the country and basically deals with tax and how it is allocated. The fiscal budget is then awarded to the various sectors of any economy.

These include education, transport, healthcare, finance, trade and industry, defense, agriculture, and many other building blocks of your country.
How the government prioritizes the spending on each of these sectors will determine its policy priorities.

It will also be a signal of its wider political intentions. And this not only to voters but also to its neighbouring countries in regard to international trade and security.

A nation concerned with information and its human capital will prioritize education in its budget. There are however other approaches to budgetary allocation such as funding trade and industrial activities.
This leads to job creation that will, in turn, drive a need for tradesmen and women to diversify and obtain the new skills required.

This also provides an incentive for state-run schools, privately funded schools, and institutions to develop new skill sets. Doing both is ideal – as governments must foster innovation by promoting and funding higher learning institutions where top talent can be nurtured and developed.

Fiscal policy forms the larger mandate as this budget is derived from the collective taxation of income, capital gains, trading and customs, sin taxes, corporate, and simple public services.
That way allocation of the fiscal budget to finance will pave the way for monetary policy to function.

International trade is the key to generating further income as a government cannot rely on an internally driven economy to sustain wealth. The same applies to business so an agreed trade policy would need to accommodate all aspects of the country’s economy.

National specialization

Every thriving nation has been built on either skilfully utilizing internal resources or have created global demand for a service or industry.
The UK has strong financial and corporate offerings plus its geo-positioning (GMT) allows it to be a central commercial trading point for the world.
Germany has always had a rich source of steel enabling the production of cars, rail brands, and manufacturing.

In addition, it continues to be a market leader in developing technologies to complement those industries thus allowing the country to thrive as a major European power.

The Nordic countries are rich in mineral resources of which they have converted the revenues into national trust funds. These are used to aid its citizens; many of whom develop skills in trade, innovation, and finance (and now Fintech).

Though Japan is geographically smaller and is made up of two islands it continues to prosper by becoming a global leader. This comes from its exports of tech innovation, artificial intelligence (robotics), and fishing stocks.
It even ‘exports’ financial aid (loans) to other countries due to its strong and disciplined monetary policy.

The US has invested heavily in services, human capital, and innovation – to large extent immigration has played a major role in these areas of growth.

The emerging economies

Russia is mineral-rich and has outsourced its intelligence gathering skills, military technology, and training for years.

China continues to grow and subsidizes its agriculture and manufacturing industries fully utilizing the abundance of manual labour at its disposal.

China even exports this labour thus gaining influence and soft power enabling Chinese goods and services to be exported more freely to other economies.

The ability to offer the global economy a form of expertise or goods/service can attribute hugely to each country’s economic wealth. Israel – military and intelligence; Brazil agriculture and tourism not to mention countries in the Far East – oil and fossil fuels.

Most African countries obtain their sources of income (though not as much as they should) from natural minerals, agriculture, and tourism.

Ghana has gold and cocoa; Nigeria – oil; South Africa – gold and many mineral resources; Kenya and Tanzania – tourism. Even a poor country like Zambia has survived because of its coal and coffee reserves.

Any country without resources or the ability to offer goods and services would have to be more subsistence-like. This usually means having to rely on aid or import goods and services.

That, however, comes at a price and leads to the country functioning with an unsustainable debt burden.

Application of policies

Interesting food for thought by Dr. Jagdish Bhagwati, a famous Indian-born economist in the US:

Americans spend, save little. Also US imports more than it exports.

Has an annual trade deficit of over $400 billion. Yet, the American economy is considered strong and trusted to get stronger.

The Japanese on a contrary, save a lot. They do not spend much. Also, Japan exports far more than it imports, has an annual trade surplus of over 100 billion. Yet Japanese economy is considered weak, even collapsing.

Modern economists complain that Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government exerted itself, reduced the savings rates, even charged the savers. Even then the Japanese did not spend (habits don’t change, even with taxes, do they?). Their traditional postal savings alone is over $1.2 trillion.

Thus, savings, far from being the strength of Japan, has become its pain.

International trade

This then gives way to various trading blocs, which over time have been built, broken, or renegotiated when it was not suiting either of the participants.

The strength of a country’s currency is primarily determined by supply and demand for its sovereign currency. This demand can only be fostered by trade.

The more the demand for a countries commodity the greater the demand for its currency. This is the medium we use to compensate for transactions. In terms of a country’s monetary policy, it is more of a singular relationship between a government and its banks.

The banking system

Banking is the system to which you can place your disposable income (gross income after-tax) in a digital repository. The central (reserve) bank regulates the money supply into the economy ensuring that locally, inflation does not corrode the value of its currency. The central bank controls how much it lends to local banks and at which payable interest rate.

The central bank is independent of the government. They have their policies shaped by fiscal influences and are under obligation to impact the strength of the economy through its interest rates and exchange rates.
So, the central bank sets the mandate by which banks offer security interest, loans, and building deposits to help you benefit from their hard-earned cash.

Banks, however, have a wide range of consumer charges so transacting doesn’t offer much protection against inflation. In some cases, banks offer you zero interest on savings deposited!

You can therefore understand the frustration of citizens who would like to see increased corporate taxes, especially for banks. This especially as they reward executives with excessive remuneration packages even in a failing economy.

Financial governance and regulations

The new wave of Cryptocurrency aims to shake-up these long-standing benefits banks have enjoyed. Benefits such as the bailouts from taxpayers’ money from risk-taking behaviour that nearly brought the global economy to its knees.

Banks behave like a petulant child knowing well that their ‘parents’ will only mildly reprimand them. This ultimately enables the continuation of behaviour with as they get away with only a slap on the wrist.

Governments tolerate bank’s excessive salary packages and risk-taking because they play a strategic role in the stability and growth of an economy.

This is just the tip of the iceberg and paints a big picture of how a country is managed – or indeed can be mismanaged.

24 February 2018
Conjecture buying

Before throwing our coins out of the pot or making second guesses about a big crash one must understand how the price of altcoins works.

The price of some altcoins on the trading market has a lot less to do with its intrinsic value. It is actually what individuals, and most traders (who seek only profit), believe it to be worth.

So, what is the reason behind the recent downward price spiral? Not much conspiracy to “ruin the cryptocurrency” other than an expected price correction coupled with some external factors.

Punters including ‘corner shop’ setups inflated the price with rampant price speculation. Speculation based on nothing more than historic (and a short history) rise of the price of the coin from only a few cents to almost $65 000 each (adjusted to 2021 all-time-high price).

The idea of creating an invention that performs a certain function quite soundly and then limiting its supply displays the financial clout of its creator/s.

That way, the natural laws of supply and demand would drive up the price of Bitcoin, as it became rarer though needed. It is already becoming harder to attain (through mining) and as it encroaches its supposed 21-million-unit limit.

“The fact that people keep talking today that bitcoin is below 10,000, it’s a disaster, or bitcoin is above 10,000 and that’s crazy. I think the fact that bitcoin is still alive, and attracting so much attention, is the fact that we’re talking about bitcoin in Davos with a Nobel Prize winner, a central bank governor, and a seasoned investor. I think that’s a powerful tool.” – Jennifer Zhu Scott (Radian Partners principal) – 2018.

External influencers of price

But there are external factors that come into play that affected its speculative price. Factors such as the rise of other altcoins after the split in its technology.

Bear in mind that the blockchain code is open to anyone smart enough to develop and run a product on it.
So, there is also some kind of a substitution effect as newer altcoins become more specific in purpose and faster in executing transactions.

This results in people switching from Bitcoin to the likes of Ethereum-run newcomers like DigixDAO.
These new coins are doing well (if the rising price is an indicator) and climbing while others lose both intrinsic a speculative value.

External factors including market sentiments do in fact play a huge role in determining the demand for the product or service. In the case of Bitcoin, the closing down of some Exchanges in Asia as well as talks of heavier regulation. Such was mentioned at the World Economic Forum in Davos 2018.

Global leaders pledging to take tougher measures to regulate cryptocurrencies raises cause for concern for people with significant amounts invested.

So, the usage by criminals, for instance, has created a much-expected reluctance by governments and financial institutions to accept its legitimacy.
There is also a constant and sometimes subliminal shift in thinking, as trading involves a lot of psychological and emotional play on buying behavior.

Buyer behaviour

One such example is the impulse people have when purchasing items that are supposedly on ‘special’ or at a low price.
A 75% discount on a pair of shoes only tells you that the seller has marked it up so high that they could still make a profit when they knock it down by that much!

You only notices the price (before and after) the discount. This is without realising that it cost the buyer a fraction of both to produce, package it and get it shipped to the store.

The true value of ‘the shoe’ lies in the materials (quality) used to produce it for it to last long or give it its level of comfort (its true purpose). That and its appearance of course.

The “brand name and image” in this case can thus be compared to the speculative aspect of a commodity.
So, a pair of pumps would sell (at a higher than normal price) if the likes of Beyoncé or Gal Gadot are seen wearing them.
The same goes for sportspeople and the whole multi-million dollar/euro endorsement deals they carry. Their endorsement of a product thus ‘legitimizes’ it.

When global leaders, banks, and financial institutions raise concerns about cryptocurrency – it does the very opposite. This sets off-market panic and the selling-off we are currently observing.

The future of Crypto

So, what will happen from here on? Provided it is not outright outlawed. This is, however, proving to be difficult as even the South Korean government have now softened their tough stance on the Crypto Exchanges.
This is after they discovered what a tax ‘gold mine’ Crypto exchanges can be. This is then when the speculative buying will begin again.

Investors who couldn’t purchase Bitcoins at levels above $20 000 will now be seeking an opportunity to enter the market.

Especially if it dips below the $30000 mark (it is currently $34 000). This with the hope to make some decent profit even if it just pushes back to $50 000.
Some will hold on and speculate on a return to previous highs – and so the bullish and bearish cycle continues.

Authorities including the delegates at the Davos talks were in agreement, however, that they will want it at affordable prices. At a level that stays relatively stable, they may even start to consider it as ‘global legal tender’.

But that will be a long time, especially if traders continue to buy it speculatively to make profits.
Those awaiting a total crash of Bitcoin, altcoins, or the blockchain, however, would have to hold their breaths.

The technology is indeed a game-changer and has already been widely adopted. It will only change form to be partially or fully regulated.

The core functions of blockchain-based currency will remain its main contribution to the evolution of banking and ‘money’ transfers.

3 February 2018
Forex on steroids!

With all the negative and positive commotion surrounding the Crypto market – it still begs the question, for those still curious. What does it take to engage in the trading of Cryptocurrency?

And by trading, we are not referring to the price speculation in a portfolio as one would with the price of a company’s shares or even CFDs.

We are rather referring to trading it as a commodity against other ‘Cryptos’ in a properly regulated online market setting. Similar to how a Foreign Exchange (Forex) market operates.

As with trading traditional fiat currencies, the price is purely determined by good old supply and demand for the currency and monitored by the availability versus volume traded.

It is therefore just a medium between traders where they can set limit orders to buy/sell Bitcoins for a certain price.

So, in the true approach of Debunqed, we will decipher crypto-exchange trading by looking at what you need to do to get into it, and what you stand to gain.

Here are the quick steps:

The first step would be to open a secure Crypto wallet to physically purchase (own) some altcoins. Bitcoin, Ethereum, and Litecoin are the main coins offered by Crypto wallet providers.

They hold the most value and can thus be broken down into smaller denominations (Altcoins). The same way the dollar is used as the main exchange for other fiat currencies. This example helps to put things into perspective.

Make sure you do your research into which wallet you will use. Obviously, if you are mining a certain Cryptocurrency you would naturally purchase them directly from that software provider of the Altcoin.

Using Ripple mining as an example, the platform is supplied by RippleNet and naturally, it follows that the Ripple company mines all the volume and controls its supply.
Getting the digital currency into a wallet can be a quick exercise.

It can take as quickly as between 5 – 20 minutes via a peer-to-peer Bitcoin marketplace connecting buyers with sellers like at Paxful.

Make sure you deal with reputable sellers. This wallet provider rates suppliers based on how reliable they are so only deal with sellers of the highest ratings.

The actual purchase (mostly conducted via online chat) can be made via a Credit/Debit Card, online banking or convenient money transfer facilities like (Europe-based) N26 Bank, Skrill or PayPal.

You can even purchase and send gift cards from Amazon for instance, to the seller (to the value of the currency being purchased) for the seller to release the Altcoins.

Security and storage

The actual coins are stored as an alpha-numeric key code – with the currency value in the wallet once acquired.

This after the wallet-broker takes a small fee for the transaction. This code/key needs to be kept secure – backed up online and offline (highly recommended). This is possible on special flash-drive (Crypto wallet) like the Trezor or a Ledger Nano. The device would hold the deposit key if you were transferring it to another wallet or to an exchange to trade.

Time to go shopping!

Finding a good exchange

The next step would be then to source a robust and user-friendly platform to trade your newly acquired currency on.

The best cryptocurrency exchanges would allow you to swap fiat currency such as dollar/euro for the digital currency directly. Naturally, you can trade one digital currency for another as well.

There are quite a few to choose from so it is good to read the reviews. You should then select one based on the number of deposit/withdrawal methods, the fee structure level, number of countries served, availability of security tools and features.
The last aspect is a huge determining factor: exchanges can be prone to hacking, or loss from outages. Lastly, their margins and exchange trading functions are good to observe too.

For serious and equally secure trading, you will likely need to use an exchange like Binance that requires the user to verify their ID before being opening an account. Make sure you have all your documents ready and up to date!

Trading

When it comes to the actual trading, let’s take a scenario where two people want to sell an altcoin but not for the market price. One sets a limit order for lower and the other for a slightly higher price. So, the best price to purchase Bitcoins, in this case, would be the median of the two prices.

If the buyer wants to purchase more than one altcoin, they will continually take the lowest price available. By doing this, the “price” of the altcoin will increase as the lower-price sell orders are no longer available.

You will then, as with Forex, purchase pairs of where you think your digital currency will be stronger against another e.g. BTC (Bitcoin) vs XRP (Ripple).
This combo would look like this on the exchange: BTC/ XRP – 0.00011960. What this means is that one Ripple coin is worth that much Bitcoin for instance.

The little details

This type of trading, like commodities or forex, requires constant attention and the monitoring of prices. But there are tools that can also help you set prices and have the trades auto-execute.

So, a platform which provides such tools conveniently allows you the time to do other important things. Like paying attention to your spouse, formal job or family and friends. That would be ideal.
If you have the cash, time, expertise and financial clout, it is even possible to run your own Crypto Exchange!

This is another benefit of a decentralized currency system that will allow you to earn some cash by charging for the usage of your robust platform.
Well, this may be until the fiscal authorities’ crackdown on all of the platforms with restrictive legislation.

Finally, like many platforms that provide opportunities to purchase something, the software must be stable and be cost-effective to use.

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21 January 2018
A digital force awakens

When it comes to providing means of storing, sending, and receiving money, banks and their affiliated institutions, have enjoyed a monopoly for centuries.

They (especially central banks which allegedly are owned powerful families) have the authority to influence countries and their governments. We will not go into the level of control as this paves the way for conspiracy theories which though not proven – are not farfetched.

So, it’s only expected that when some new and unknown entity threatens their prosperity, they start to react.

Blockchain frenzy

How banks are responding is evident by how they are fervently building their own blockchains. This, however, defeats the purpose of a having decentralized system.

Bitcoin and cryptocurrencies get their appeal not just because they are very secure. But because unlike fiat money, they are not heavily regulated and can be mathematically restricted.

The 21 million unit limit on Bitcoin by default places it closer to the status of gold (which is also not infinite). But what happens when all are mined in 2041?
Bitcoin’s current ‘value’ of over $30 000 (adjusted), could move up again, according to the traditional laws of supply and demand as it becomes rare.

To unlock more value the creators will split it again. The first major splits (forks) gave rise to Litecoin and Bitcoin Cash. Both cryptocurrencies are racing to newer heights daily.

How banks operate

Now back to the banks – they make money from our deposits and these deposits are backed up by our reserve banks.
Reserve banks lend retail banks money which they essentially just print. The banks must ‘turn it’ and pay it back with interest (repo rate).

So, technically we ‘empower’ banks by depositing our money so they can invest the funds in all sorts of mechanisms. Such mechanisms include the credit and loans to you, your businesses, equities, and property.

Then, they also invest in high-risk investment vehicles like currency trading, derivatives (futures). They are essentially the biggest regulated and legal Ponzi-schemes. They also make a significant amount of the daily fees they charge you.

A quick example

Let’s quickly put things into context. A bank with over a million customers transacting daily. Let’s say they charge you a 10 cent (conservative figure) transaction fee for depositing, withdrawing from another bank, or an intra-bank transfer.

They then make 0.10c x 1 000 000 = 100 000 units of the currency on the day. This equates to 1,2 million Euros, Dollars, Rands, or Yen annually. And that is just off your transactional fees!

Then they also charge you monthly service/maintenance fees. Those are to cover the convenience of you having an account and, for services like online banking.

This is what cryptocurrencies can potentially wipe away from banks we all go the digital currencies route. Granted, how you acquire and transfer Cryptocurrencies are not as straightforward as receiving paper money – yet.

That, coupled with the stigma around ‘Cryptos’, means there is still a barrier to entry for the ‘open-source’ monetary system.

Banks will try and bring about their own blockchains to address security concerns around making transactions. For them, however, it would still be business as usual when it comes to the charges.

Birth of Fintech

Some newer financial institutions, however, are already progressing in the favour of you and me – one such is the European based N26 Bank.

We often end up paying for things all month without even having to go to an ATM. It works as a traditional bank would, however, allows the (smart) card to be used as a credit card (backed by Mastercard) would.

This allows you to quickly purchase goods online, book events, flights ticket, and accommodation. Basically, all things you still can’t do with your debit card.

In countries like Sweden and Estonia, card and digital systems have been a thing for a long time now.

Some of these Fintechs are adopting or partnering with Cryptos companies to deliver their services. One such as the relationship the one between a German bank and the crypto Ripple.

Click image to purchase Ripple here

It would be interesting to see what governments and financial institutions do to ‘protect’ their payment systems. Likewise, it will be equally fascinating to observe how they adapt in general to the new digital era upon us.

25 November 2017
Sustainability – the greatest farce?

We exist not to exist. Now, what does that really mean? Well, in simple terms, it means we are born to die. As grim as this unwanted reality sounds, it is the basis of why people do what they do and behave the way they do.

Some live to enjoy that short moment and blissfully hope it doesn’t come sooner than later. Others strive and prepare for that day with the hope they make an impact and leave a lasting impression.

That lasting impression, in turn, can be for good or bad reasons – often confused by the individual.

Martyrs and suicide committers, for example, tend to feel that their unpleasant actions are doing a great cause to society.

Though their loved ones would beg to differ, it is the individual who decides whether that impact they leave behind is a good or terrible one.

The irrational human mind

One thing one learned in earlier days as undergraduates studying economics was that as individuals, we are mostly self-consumed and irrational.

Some refer to it as being emotional – but all irrational traits to what ideal? After all, that is what separates us from machines and robots!

Living for the present is an inherent human attribute that is hard to change or condition.

We have so quickly moved on to adopt artificial intelligence without mastering our own level of intellect and compassion.

We are certainly not advocating for a utopian state where everyone gets to the level of Albert Einstein. Emotional intelligence, however, unlike the more numerically rigid intelligence quotient, is inherent but can be honed or learned if one is willing.

Difficulty implementing

The problem with its adoption is that it takes effort. This is something not everyone is enthusiastic about – like math, chemistry, or gym class in high school.

One must ponder why significantly less than 10 percent of the world owns all the riches. Meanwhile, we currently still must deal with world hunger, disease, and abject poverty.

We must revisit the above notion of emotional intelligence. This is because one of its inherent traits is compassion – something most of those individuals don’t have or consciously try to avoid. Though this should be one of the obvious attributes that separate us from so-called beasts. Animals only have instincts to help with their decision-making processes. We, on the other hand, still struggle to use them.

Sociopaths, psychopaths, dictators, and oppressors are, therefore, not far from beasts. They lack the compassion that would even amaze the most ruthless animal predator if they had the consciousness to see what was going on in our world. These people also lack what we basically have mythologically termed – a soul.

A greater role to play

This piece is however not to criticize or state the obvious about such people but to try to explain why they behave as they do.
Psychologists and sociologists alike perhaps need to revisit their curricula and amend them to focus more on this very important but often ignored concept.

This should be added in both subject areas but must begin the analysis from the grassroots level – from childhood.
The stigma of seeing a psychologist (clinical, child, or industrial) would first need to be eradicated somehow for this to happen.

These professions play a much larger role in shaping the world that we live in. A lot more than they may realize.

It is when we learn to be compassionate and more emotionally conscious, that the concept of sustainability, conservation of any resource for future generations becomes a reality.

11 November 2017
The not-so mysterious world of cryptocurrency

Warren Buffett once referred to financial derivatives as “weapons of mass destruction” . He warned that they are detrimental to the global economy and financial markets.

Cryptos have a way of creating something supposedly of intrinsic value out of nothing. This is as dangerous as propaganda that leads to conflict or promotes struggle.

They are backed up by a cloud of non-regulatory policies by states who themselves, still traditional monetary policy measures.

And this is despite their full understanding of the instruments of financial wizardry.

In economics, the term creative destruction, however, has a paradoxically positive meaning. It is perfectly suited to the new form of “crypto”- currency (Bitcoin) that is not as mystic as it seems.

A brief history

Money is a concept that probably also met up with resilience when it was first supposedly introduced by the Chinese. They started carrying folding money during the Tang Dynasty (A.D. 618-907).

The instability generated by uncontrolled usage and denomination, however, soon led to rapid inflation. This prompted the Chinese to drop it, only for it to be taken up again later when it got stabilized by the adoption and use by the West.

They developed paper money as an offshoot of the invention of block printing. Block printing is like stamping.

Ironically that very same term ‘block’ is the foundation behind the Bitcoin – which is generated using blockchains (digital public ledger).

We won’t get into the mechanics of Bitcoins. We will, however, attempt to increase awareness on why and how this new payment method could cause positive ripples in the financial global system.

What is Bitcoin?

As per Wikipedia, and as simple as it can get in terms of a description: Bitcoin is a cryptocurrency and a digital payment system.

It was supposedly invented by an unknown programmer, or a group of programmers, under the alias Satoshi Nakamoto in 2009.

Though the anonymity creates an element of distrust about the agenda of its creators, it is surprisingly more transparent than derivatives.

Cryptocurrency uses a system of cryptography (encryption) to control the creation of digital ‘coins’ and to verify millions of transactions.

These transactions include are a basic movement of funds between two digital wallets and get submitted to a public ledger and await confirmation through encryption.

This video is a great and simple way for you to understand the above because it is best understood when explained as a larger picture. Check out this useful and basic video on Bitcoins.

That is quite a feat worth acknowledging because 11 years of existence is nothing compared to gold’s multiple century reigns.

Now 2009 was not long ago considering the Bitcoin is now ‘worth’ well over $20 000 each (updated to 2021 levels).

For centuries, gold has been our standard of trade or backing of all types of currency until it was ‘uncoupled’ by Nixon in 1971.

The future of trade and commerce is in the digital sphere – are you in the know?

Potential currency?

For something to become the standard measure or mode of trade it, however, needs to be stable. So, while the technology behind Bitcoin (the Blockchain) is relatively sound, its actual price needs to find its firm nesting.

Established currencies trade on markets via exchange rates with relatively minuscule increments of change in price and value. In comparison, Bitcoin can jump in value by $1000 within (minutes or seconds) – prompting skepticism about its stability.

Google Engineer Ray Kurzweil, who is revered as a “prophet” for his mysterious predictions, such inconsistency undermines the cryptocurrency’s value as a currency.

The aim is nevertheless to relieve our dependency on money or more so, the iron grip and often abusive control that some banking institutions have over consumers.

You could even argue that the recent surge in its price is being fuelled by agents of the traditional banking industry. They naturally feel threatened by the fact that they may not fully understand it and its inherent potential. So they (cash-flush) could inflate it for an inevitable ‘burst’.

But the currency though very volatile in its movement has remained buoyant. It has now held for well above $10 000 for sustained periods since its inception. Gold is now approx. $1,900.

Bitcoins provide more guarantee than financial derivatives especially because of their open-source approach to its existence and use.

Complexity

The tricky part is simply getting to grips with the vastly abundant information about it and how you could even generate it.

It is still a great backup ‘of a backup’. We rely on technology and more specifically the Internet for transactions and the associated traffic for our daily lives.

A simultaneous crash of a few major servers, however, could send it all tumbling back into the digital abyss. But as with money and other forms of currencies, only time will tell.

Bitcoin will just have to further prove its resilience and stability in the long run.

Getting attention

It is certainly not a ‘fly by night’ thing because it has sparked the interests of both public and private institutions globally. China even made a bold move to block the Bitcoin market from trading within its borders at some stage.

China is notorious for blocking things that stem from the ‘West’ only to later introduce it under their own control to protect their financial sector.

So, we can be rest assured that the creator is not Chinese! Sweden has allegedly passed legislature to make it an accepted form of currency.

Currently, banks and governments are frantically creating their own sets of blockchains to ensure they are not caught off-guard.

Read more about the implications of Cryptocurrency on the financial sector.

Bitcoin also gets its collective strength (intrinsic value) from its limited quantity in circulation (19 million out of a finite 21 million).

Spillover effects

Bitcoin has also paved the way for others such as Ethereum, (mostly used for smart contracts and by developers) which is also seeing good growth.
Then there is Litecoin, which was formed as part of a controversial yet civil split from the originators of Bitcoin to use ‘variant technologies’.

All these platforms (companies) now use the blockchain to create all types of cryptocurrencies to capitalize on the spoils of this digital revolution.

There are also several institutions that are offering late-comers a chance to benefit from the spoils of using and investing in digital currency.

Naturally, all these schemes with their investment packages would require a ‘buy-in’ and marketing to attract more takers.

Such Crypto ‘companies’ are likened to a pyramid scheme and subject to many investigations by fiscal and criminal authorities.
But that is how Bitcoin, its promoters, and the market were initially treated.

Interested? Check out the following useful links to their official websites to help you get started.

You can learn more about them, about mining them, or simply buy some Bitcoin here.

RISK WARNING: YOUR CAPITAL MIGHT BE AT RISK WHEN INVESTING IN CRYPTOCURRENCIES.

7 November 2017

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