Crypto-democracy

The price of computational capacity for deciphering the SHA-256 cryptographic function reached unprecedented levels. The total market capitalization of cryptocurrencies is almost USD 1.5 trillion. Why are investors ready to buy non-productive assets with no apparent marginal utility at a price that could be considered by a prudent person as being horrendous? Bitcoin&Co represents much more than an alternative to the traditional financial system. Bitcoin is the spearhead of a silent revolution within modern social systems. It brings not only an alternative to the traditional economy, but also to democracy as we know it today.

Governments, central banks and financial institutions had until recently the exclusive monopoly on the creation, distribution and regulation of monetary value. All individuals and businesses operating in a developing economy need to share the value of their labour with the “Troika” encompassing the above-mentioned entities.  

Cryptocurrencies disrupted, to a certain extent the monopole held by central banks and financial institutions, but had less impact on governments’ role in regulating the real economy. The technology behind cryptocurrency can add a new direction to what we call today democracy. Investors involved in this revolution need to make their voices heard in the key decisions of society. One can bypass traditional banks and fiat currencies, but will still pay for the consequences of hastened decisions taken by the government.

Therefore the next disruption in the cryptocurrency space will come from the technology that will allow the democratization of decision making. Similar approaches are in place in countries like Switzerland whereas referendums are held for each key aspect impacting communities.

What if crypto-democracy allows currency holders to vote upon the need for quantitative easing or public debt issuance?

The difference between a democracy and a dictatorship is that in a democracy you vote first and take orders later; in a dictatorship, you don't have to waste your time voting. Charles Bukowski, German–American poet, novelist, and writer

Market overview

S&P 500, the leading equity index entered a bear market. The third wave of the pandemic will hinder and delay the economic recovery. The pace of vaccinations is relatively slow and the circulating variants are not guaranteeing their efficacy. 2021 risks to be a reloaded version of 2020 and under this scenario the equation risks to be more complex. Quantitative easing may not suffice to keep the markets into positive territory and a change in direction could be catastrophic not only for investors but also for the real economy.

In 2008 central banks bailed investments banks. Who can bail central banks now?

Commodities:

Goldman Sachs Commodity Index

Goldman Sachs Commodity Index (GSCI), the leading benchmark for investment in the commodity markets exhibited a constant positive drift since November 2020. The GSCI followed a similar path to other financial markets. But, why is the price of commodities increasing when the global demand stalled over the past months?

When price increases with no excess demand, inflation comes into the equation. Liquidity injected by central banks to support the equity market arrived in the commodities markets and could trigger an inflationary period. It is a dangerous situation and market watchdogs risk to lose all control of financial markets. Regulating retail inventors trading on RobinHood should not be the main goal of watchdogs, but adjusting the liquidity injection across different asset classes.

Focus:

Gamestop

The number of persons writing about Gamestop is most likely higher than the number of Gamestop clients.  The first bubble that opposed individual investors to ''Wall Street'' tycoons had simple and yet counterintuitive mechanisms. Last week a second bubble occurred, when Gamestop’s share gained 100% in only one trading session. This second episode has a more complex story. The ex-CEO stepped down and a cofounder reinforced its presence in the company. There are no objective reasons to explain such a price jump. Seemingly the retail investors that generated the first bubble reactivated their positions animated probably by some shady speculation.  One thing is sure: retail inventors have more power in the market that it is believed.

Pick of the Week:

Upwork

Upwork is one of the pioneer platforms helping freelancers based worldwide to find and  conclude contracts. At its peak, Upwork had over 14 million users and had a total turnover of USD 1 billion. Upwork’s business model had largely anticipated problems raised by the coronavirus crisis. Remote work is not only a change in the way companies operate but also a shift in their hiring strategy. Upwork came with a turnkey solution when the market needed it the most. The Santa Clara based company filed for an initial public offering in October 2018. Investors showed strong support to Upwork’s share amid the second wave of the pandemic. The return to traditional office-based work seems more and more like a distant dream. Therefore, platforms facilitating access to a globalized and highly qualified workforce are the new trend.

Market outlook

In a bearish context the Dow Jones ended the week below 31,000 and there are reasons to believe that the contraction will continue over the next weeks. Bitcoin felt abruptly finishing the week barely above the 46,000 mark. The technical corrections could lead to a rebound over the next week and the main cryptocurrency could revisit the 50,000 USD level.

The Gold ounce is currently oversold, and the current bearish trend in the leading equity markets could bring a positive direction in the next quarter.

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