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“The meaning of life is to give life meaning” Viktor Frankl

Fundamental Value vs. Inflated Value: Step By Step Guide

Fundamental analysis is crucial when measuring the intrinsic or the actual value of an asset or security in the capital markets. At a time when securities appear to be trading at inflated values, fundamental analysis might as well be the ultimate solution out of the quagmire. Any would-be investors should have a clear understanding of the fundamental value and inflated value prior to making any investment decision.

What is Fundamental Value?

Fundamental value, also known as intrinsic value, is a measure of what an asset is truly worth. The measure comes about by analyzing various factors likely to affect price rather than relying on trading market price. The fundamental value differs significantly from the market price.

The fundamental analysis differs a great deal from technical analysis, which relies on historical market data such as price and volume to ascertain the current value. Fundamental analysis is often done from a macro to a micro perspective to identify the intrinsic value of an asset.

While there is no universal standard for calculating the fundamental value of an asset, financial analysts rely on fundamental and technical analysis to ascertain the intrinsic value. Fundamental analysis for determining the fundamental value of an asset entails studying anything that can affect an asset value right from macroeconomic factors to things such as management effectiveness.

When it comes to ascertaining the fundamental value of stocks or other securities, analysts analyze financial metrics such as revenues, earnings as well as return on equity and future growth prospects. All this data is available in financial statements and crucial for determining a company’s underlying value.

Fundamental Value Components

The factors that affect the fundamental value of an asset can be classified into two: quantitative and qualitative. The quantitative factors, in this case, refer to factors that can be measured or expressed in numerical value. The biggest source of quantitative data for fundamental analysis is financial statements.

Qualitative factors, on the other hand, are less tangible and often refer to the quality or character of an asset. Such factors include things such as key executives' competencies as well as brand recognition, patents, and proprietary technology.

The end goal of any fundamental analysis is to come up with a value that any investor can use to ascertain whether the market price is an inflated value or undervalued. Whenever the fundamental value of an asset is higher than the market price, then the underlying asset is deemed undervalued. Such securities are some of the best to buy as their market price tends to increase as investors come to terms with the fundamentals likely to drive prices in the future.

Conversely, whenever the fundamental value is lower than the market price, then security or asset is deemed inflated in value. In such cases, the underlying market price might fall on investors coming to terms with the fact that they are paying more than what the asset is truly worth.

What Is Inflated Value?

An inflated value is simply an underlying price that is not justifiable by underlying fundamentals. An inflated price is always higher than the fundamental value, which is what the asset is actually worth. Analysts and other experts expect the inflated price to drop more often. An asset with an inflated value would trade for more than its fundamental value.

Inflated price may be as a result of price manipulation, among other things. For instance, some institutional investors pump up the prices of underlying assets to inflated levels. By pumping up the price, they get an opportunity to sell the asset after some time to generate bumper profits on the price difference.

Likewise, inflated value in the market may be as a result of emotional trading or gut-driven decisions making in the capital markets. Therefore inflated value does not provide an actual representation of what an asset or security is actually worth.

Investors or buyers should avoid buying inflated stock as they come with lots of risks. Stocks with an inflated value many at times correct. The correction might be substantial, leading to a substantial loss in market value.

Inflated Value Use

Stocks with inflated value are ideal for short sellers looking to generate profits on the price correcting to align with underlying fundamentals. Short selling, in this case, allows investors to benefit from the stock price depreciating to a point where investors believe the underlying market price is in line with the fundamental value.

However, it is also possible for investors to buy inflated stocks due to brand superiority that justifies the over the top price. Superior management, as well as solid long term prospects, is some of the factors that can make one pay an inflated value for security in the stock market.

Finding and stock trading with an inflated value in the capital markets is not difficult. A number of metrics exist that make it possible to ascertain a stock that is not trading at its fundamental value. For instance, the price to earnings ratio is a commonly used metric for ascertaining overvalued stocks in the market.

In this case, an inflated stock would be one trading with a P/E that is 50 times the earnings. Short sellers often look for stocks trading with P/E ratios of more than 50 to short. Electric car maker Tesla was at one time deemed to be trading at an inflated value, given the amount of losses it was posting while the price did tank after some time it ballooned afterward after the company reported solid profits.

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Bottom Line

When it comes to investing in the capital markets, fundamental value and inflated value are some of the most important factors to consider. Fundamental value underscores the actual worth of an underlying asset as it takes into consideration both macro and external factors that affect the price.

Paying an inflated value, on the other hand, translates to overpaying in total disregard of the underlying factors that dictate price.

Buying or owning an asset whose price reflects a fundamental value is the way to go if an investor is to enjoy a high return on equity in the long run. It makes no sense to buy an asset with an inflated value as a correction would often come into play to ensure the price reflects underlying fundamentals.

Safe Havens For keeping Money Safe In Case The Market Tanks

The fear of a stock market crash is very rife at a time when most equities appear to be trading at record highs in total disregard of underlying fundamentals. Soaring macroeconomic uncertainties and geopolitical tensions exacerbated by the coronavirus scare has seen major indices retreat from record highs fueling fears of a stock market crash.

In times of extended sell-off in the market or market crash, it is still possible to make money, let alone protect money at hand. Before rushing to close trades in case of a market crash, it is important to note that successful investors are created in times of uncertainty and crashes in the stock market.

The diversified nature of the capital market means there will always be opportunities even when it seems that the entire market is going down.

In the equity market, there are companies and businesses thrive and succeed in times of difficulties, consequently providing investors with lucrative investment opportunities.

In case of a market crash, here are some of the ways that you can keep your money safe, let alone grow an investment portfolio.

Invest in Healthcare Stocks

Healthcare stocks have proved from time to time to be highly effective in outperforming the overall market in times of uncertainties. If you are worried of losing money in times of a market crash, then healthcare companies with much-needed treatments as well as drugs would be ideal for shrugging off losses and protecting money.

Healthcare stocks tend to outperform the market on the fact that people will always buy drugs as well as pay for treatments even in times of great depression in the market. For this reason, pharmaceutical companies, as well as healthcare technology companies, operate as defensive stocks for riding out any market crash.

Resource Commodities

Resource commodities also tend to perform well when other sectors of the stock market are edging lower. Precious metals for starters act as a safe-haven for storing value and hedging against losses in other sectors.

Spot gold price tends to edge higher in times of market uncertainties, given its appeal as a safe haven. Similarly, gold stocks also tend to outperform given the increased price of gold that ends up making their mining operations lucrative.

For instance, in the aftermath of the coronavirus scare, gold prices rallied by more than 10%, allowing investors to generate a significant amount of profits on the yellow metal as well as related stocks in the market.

Betting on silver and gold is thus a sure way of keeping money safe and generating substantial returns in times of a market downturn. Conversely, precious metals will always act as a great form of insulation in times of global chaos as well as stock market downturns.

Military Machinery Component Technologies

Spending on military equipment and machinery tends to spike in times of soaring geopolitical tensions involving superpowers. Likewise, stocks of companies with ties to the industry tend to outperform the overall market as tensions soar.

While geopolitical tension many at times tend to trigger a sell-off in the broader stock market, companies involved in the development of military machinery tend to outperform. Likewise, this would be the best time to invest in these stocks to generate significant returns as the stock’s prices edge higher.

Similarly, political leaders rarely discuss reducing spending on military hardware and equipment even when the broader economy seems to be underperforming. The risk of losing votes always keeps politicians in check when it comes to spending on military equipment. That said military company stocks could provide an ideal avenue for generating some returns even when other market sectors are going down.

Fixed Income Treasuries

Fixed income safe havens such as government bonds and treasuries also do provide an ideal pathway for shrugging off the effects of a market downturn and generating significant returns. Treasuries provide a sure way of protecting investments and money, as they tend to evoke strong demand during times of uncertainties.

In times of macroeconomics uncertainties as well as geopolitical tensions, investors tend to pull out their cash from mutual funds and other liquid investments in favor Treasuries given their ability to outperform. Treasuries and bonds are relied upon as a safe haven as they do not carry any risk. Therefore, they are a sure way of protecting money and investments in case of a market crash.

Bonds are also considered a safe haven for protecting money in case of a market crash, given that most of them come with a fixed yield. The fact that sovereign bodies such as a government or local authority guarantee such investments means payouts or returns are usually guaranteed

Index-linked bonds are some of the best to invest money in when in fear of a market crash, as their yield tends to rise as inflation rises. The fact that inflation is usually central to market crashes all but affirms their ability to generate significant returns.

Cash

Your money might as well be safe staying in the bank, in times of a market crash. Using money as a safe haven at times works, given that it is not volatile compared to other traded securities in the market. In the past, cash was king for storing and growing wealth as interest rates hovered around the 5-6% range.

Higher interest rates made it possible to protect the real value of money against inflation. However, that is not the case anymore as most central banks have cut interest rates some into the negative territory. However, that has not stopped fund managers from leaving large sums of money in cash in banks as a way of staying clear of the effects of potential market crashes.

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Bottom Line

The options mentioned above provide investors with a pathway of protecting money in case of a market crash. However, it is important to note that the options would have varying degrees of success, depending on the market crash in play. For that reason, the best way to protect the value of money in case of a market crash is to invest in hard assets given the tangible value they come with.

Is Ripple’s ODL the Best Remedy for a Global Liquidity Crisis?

After the 2007/8 Great Recession, various central banks, led by the US Federal Reserve, launched a debt-buying spree to shore up their respective economies. Dubbed quantitative easing (QE), the program involves central banks printing money and buying assets (like bonds) from the market.

Interestingly, QE began as a makeshift solution to help the global economy back on its feet. This, however, is not the case because major central banks are still acquiring debt. Towards the end of 2019, the European Central Bank (ECB) resumed pumping money in the Eurozone. Interestingly, the ECB said the program would proceed “for as long as necessary.”

The Bank of Japan (BOJ) is another major central bank that has an inflated balance sheet due to QE. For the ECB and the BOJ, QE is no longer a temporary solution to liquidity problem. Instead, the banks are ready to pump money in their economies as part of the new monetary policy.

The US Fed is in denial, but QE is not a secret

The ECB and the BOJ seem at peace with the challenges at hand because they are acknowledging it. On the contrary, the US Fed is on another level in an effort to play down fears of a liquidity crisis. Last year, the US Fed pumped $60 billion into the economy. As a result, stock prices are rising due to increased risk appetite in the market. Also, unsurprisingly, the Fed’s balance sheet is back to the levels it was during the QE period in early 2010s.

But, guess what, Jerome Powell, the Fed Chair, believes this is not economic stimulation. According to his comments, as quoted by Reuters, Powell said that none of the $60 billion asset purchases should be seen as QE. Nonetheless, Powell seemed to reference QE in an appearance before the Senate Banking Committee on Feb 12, 2020. In case of a recession, Powell said, the Fed would deploy QE as one of the remedies.

Interestingly, Powell brought up the issue of buying government bonds as remedy because the other alternative is almost used up. In a liquidity crisis, central banks usually cut interest rates to increase the flow of money. However, the benchmark rate, as set by the Fed, stands at between 1.5% and 1.75%. With a Fed that historically cut the funds rate by as much as 5% to combat recession, there is clearly no alternative but QE in case such a challenge presented itself today.

A cyber-attack could make the bad situation worse

Clearly, central banks do not have another way out of the perpetual liquidity crisis that grew out of the last Great Recession. It seems QE will continue to be the only remedy even though no one has any idea how to turn off the tap. As such, one wonders what would happen if a cyber-attack on a major financial institution spawns a huge financial instability.

Early February, Christine Lagarde, the head of the ECB, said that such an attack would leave the financial sector devastated. Citing a report by the European Systemic Risk Board (ESRB), Lagarde said cyber-attacks could cost the global financial sector up to $654 billion. Certainly, such a cost would mark the beginning of a record-breaking liquidity crisis. Although such an attack remains a threat today, the likelihood of it taking place is not far-fetched.

Perfect problem for Ripple to solve

The problem of liquidity is slowly getting out of hand for central bankers worldwide. Interestingly, Jerome Powell might have the conviction that QE will solve the liquidity crisis, but experts disagree. Particularly, the Fed has the markets hooked on QE to the point of blocking any attempts for the market to course correct. As such, experts fear that the market would be set up for a major crash if QE stops.

Fortuitously, not all is gloom. Ripple Labs Inc., through the RippleNet platform, is offering the best solution to liquidity problems. Particularly, Ripple acknowledges that traditional payment mechanisms are culpable for the unceasing liquidity problem. Specifically, cross-border payments require pre-funded accounts for them to complete. This process is costly, and it means that businesses and individuals have to tie up cash to settle transactions.

That is why Ripple is offering On-Demand Liquidity (ODL) as part of the global payments network dubbed RippleNet. Notably, ODL utilizes the Ripple blockchain platform to achieve instant transactions cheaply. ODL uses XRP, the native token for Ripple blockchain, as the “real-time liquidity bridge” between parties in a transaction.

In traditional cross-border transactions, parties have to keep changing currencies before settling the transactions. However, ODL reduces the hassle by converting fiat currency from the sender into XRP. The XRP is then sent from a digital asset exchange in the sender’s country to another digital asset exchange in the recipient’s country. Then, the recipient converts the XRP back to fiat currency. Interestingly, this process takes as little as three seconds to complete, and it cuts transaction costs by up to 60%.

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It is now possible to avoid the liquidity crisis contagion

So far, it is apparent that QE is not a remedy for liquidity crisis. This is because it does not address the root cause of such a problem. Usually, liquidity problems arise from the inability to convert assets into cash easily. However, only banks face this problem because they invest in a range of assets, where some of them are illiquid. Further, the need to pre-fund accounts before settling cross-border transactions compounds the problem of liquidity.

On the contrary, ODL does away with the issue of pre-funding accounts completely. This means that the speed of converting one currency into another is fast. Interestingly, MoneyGram is in partnership with Ripple with the aim of utilizing the ODL solution. This is the clearest signal yet that ODL is the answer to many problems in the financial sector, including liquidity problems.

In addition, ODL will enable countries to stem liquidity crisis contagion. Usually, the problems of liquidity spread like a virus because of the intertwined nature of global currencies. However, ODL breaks the link between currencies.

Crypto Validation: Proof of Stake vs. Proof of Work vs. Distributed Ledger

Blockchain is the underlying technology that powers cryptocurrencies. At the heart of the revolutionary technology is a distributed ledger, which is essentially a record of all transactions carried on a given blockchain network.

Distributed Ledger

Transactions recorded in a distributed ledger are never stored in a central location. Instead, the records are stored across a network of computers scattered all over the world. Likewise, digital ledgers operate as an immutable database, which are harder to attack or change, given the sharing that takes place in a blockchain network.

Being a database of transactions, a digital ledger is consensually shared’ and synchronized across multiple sites, thus allowing transactions to have public witnesses. All changes made on a digital ledger must be reflected and copied to all participants in a blockchain .

All cryptocurrencies come with a consensus mechanism that details and verifies all information before any addition is done on a distributed ledger. The consensus mechanism ensures the next block, being added in a blockchain, contains the most current transactions on a network. Such a mechanism also prevents double-spending as well as the addition of invalid data in a block.

A number of mechanisms have come into being to serve the same core purpose of regulating the addition of data in a distributed ledger. The consensus mechanisms differ on methodology, with the primary difference being on the way they delegate and reward upon the verification of transactions.

The most popular consensus mechanism deployed by cryptocurrencies are Proof of Work and Proof of Stake.

Proof of Work

Proof of Work consensus mechanism existed long before crypto assets came into being. The consensus mechanism serves the role of deterring cyber-attacks from occurring. It has proved to be effective in averting denial of service attacks that tend to exhaust computer resources by sending multiple fake requests.

The consensus mechanism came into being as a way of achieving agreement on any blockchain network. In this case, a number of nodes, which are essentially computers, must confirm transactions before any data is added in a block to produce new blocks on the chain.

The consensus mechanism is based on an advanced form of mathematics called cryptography. At the heart of proof of work mechanisms, are miners that compete against each other using powerful computers to solve complex computational puzzles. Once a miner comes up with a solution to a new block, the same is broadcast to the network. Miners in the network must verify the solution before it is added into the block and consequently into a blockchain.

The miners, in this case, act as nodes in a blockchain and are responsible for adding new blocks into a blockchain. Therefore, it is impossible to add a new block into a blockchain without all the other nodes coming into a consensus agreement.

Conversely, proof of work helps protect blockchain networks against attacks or one person being in control of a distributed ledger. A successful attack can only occur when one node has sufficient computational power and a lot of time to do the calculations and verify the transactions on its own.

While Proof of Work helps ensure the integrity of a network as no one person or node is ever in control, it also comes with its fair share of challenges. For starters, mining, which is at the center of the mechanism, requires expensive computer hardware that consumes a large amount of power.

Proof of Stake

Proof of stake is an alternative process for verifying transactions in a blockchain network. The concept is growing in popularity as an alternative to proof of work. Proof of stake differs from proof of work in that users don’t have to validate transactions by performing computational work to add new blocks.

In proof of stake, algorithms use a pseudo-random election process to select a node in a blockchain to validate the next block. The creator or validator of the next block is chosen randomly depending on their wealth, which is defined by the number of cryptocurrency unit they own. It is for this reason that blocks are said to be forged or ‘minted’ and not mined. The nodes that approve new blocks are often referred to as forgers.

For any node to approve a transaction, then a forger must put their own coins at stake. The holdings are, in this case, placed in a sort of escrow account. Should a node validate a fraudulent transaction, then the owner stands to lose the holdings held in the escrow as well as the right to participate as a forger in the future.

Cryptocurrencies that rely on proof of stake for consensus start by selling pre-mined coins at the start. The digital units are created at launch, and rather than using the units as a reward, forgers that approve transaction fees reward new blocks.

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What Is Bitcoin Halvening And What Does It Mean For XRP

Bitcoin is a finite cryptocurrency, which means there is a predetermined amount of BTC coins that will ever be in circulation, 21 million to be specific. The limited supply is one of the reasons why it is referred to as digital gold. Currently, there are about 18 million BTC coins in supply. Consequently, miners are only left with 15% BTC coins to mine.

However, it does not mean that Bitcoin is about to reach its full supply. Bitcoin halvening is a process that continues to make it challenging to add more coins into circulation. Just as it is difficult to find new gold deposits, so does Bitcoin halvening makes it challenging to mine new BTC coins.

Understanding Bitcoin Halvening

Bitcoin rewards people for keeping the blockchain running and secure. Miners are at the heart of keeping the blockchain secure, as they run software that executes the search for solutions to complex puzzles. Any successful solution to a given puzzle, results in the creation of a new block that is added in the blockchain. In addition to the creation of a new block, the miner behind the correct solution gets to walk away with a reward in the form of Bitcoin.

Currently, the reward for each successful solution, to a puzzle, stands at 12.5BTC. Assuming the price of BTC is $10,000, it means a miner stands to earn as much as $120,500 on each correct solution. The BTC reward on offer is one of the reasons why people are investing huge sums of money in powerful computers to solve the complex BTC blockchain puzzles.

The addition of more machines in the Bitcoin mining business has created a wave of challenges. As more machines enter the business so does the game become harder, forcing machines to take more time and incur huge costs to come up with correct solutions.

In addition to mining difficulty, with the entry of more machines into the BTC mining business, the reward that miners get to walk away with tends to halve. The last halvening occurred in 2016 from 25BTC to 12.5BTC. The reward is now poised to halve to 6.25BTC in May.

Bitcoin halvening is, therefore, an event that results in the halving of the reward for mining new blocks. Whenever such an event occurs, miners end up receiving 50% fewer Bitcoin for verifying transactions. The event occurs roughly after four years upon the addition of 210,000 blocks into the blockchain. The halvening process will continue until the maximum supply of 21 million coins is generated.

Bitcoin Halvening Impact

Bitcoin halvening has many at times resulted in a spike in Bitcoin’s overall price. A rise in Bitcoin price essentially means miners get to walk away with more money for their small haul of the flagship cryptocurrency. How does this happen?

In traditional monetary systems, the issuance of new units of a currency tends to devalue the value of the underlying currency. Similarly, the addition of new Bitcoin coins results in an oversupply of coins in the market, consequently resulting in a drop in price.

A reduction in Bitcoin reward often causes many miners to shut down their operations, given the lack of desirable incentive to continue mining. Bitcoin miners fall off as a way of avoiding hefty mining costs at the expense of a lower reward.

At a reward of 12.5BTC, there is usually a new supply of 1,800 coins a day, given the higher number of miners in the business. The $14 million worth of new supply is most of the time absorbed by buyers.

Bitcoin halvening is poised to cut, in half, to $7 million the value of new supply in the market. Consequently, the halving of new supply, while demand remains constant should have a positive impact on driving the price of BTC higher.

Conversely, Bitcoin halvening results in the reduction of the rate at which new Bitcoin coins come in supply, given the reduction in miners. Likewise, a reduction in supply as demand remains higher often results in a spike in Bitcoin price.

While Bitcoin halvening has often resulted in a spike in Bitcoin price, there is also a possibility of the same not happening with the upcoming Bitcoin halvening in May. Should the price of Bitcoin fail to edge higher, from current levels, then there is a possibility of more miners withering away.

The withering of miners is the last thing that Bitcoin blockchain needs. A further reduction in miners would certainly result in the reduction of time in which blocks are added into the blockchain. Slow block times would end up making Bitcoin less useful at a time when people are pushing for fast transactions to compete against Ripple blockchain

Bitcoin Halvening History

Following the 2012 Bitcoin halvening, Bitcoin price rallied by more than 8,000% in the years that followed. Consequently, following the 2016 halvening, Bitcoin price rallied by 2,000% leading to it clocking record highs of $20,000 in 2017.

Fast forward, observers are warning that things could be a little bit different with the upcoming halvening. The fact that the flagship cryptocurrency has become more mainstream means it might be immune to such events. Currently, there are fears that the impact of the halvening process is already priced. What this means is that the upcoming event might not have a substantial impact on the overall price

The Bitcoin options market, which is often used to signal potential price movements, is yet to show increased price volatility. Low volatility could as well indicate that the impact of the Hal veining process is already priced in.

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Why We Need Cryptocurrency Regulation: A Guide

Regulators around the world are maintaining a keen eye on the burgeoning cryptocurrency industry, as more people get involved with digital currencies. Authorities are not only looking at Ripple, Bitcoin and Ethereum, given their popularity but other developments in the industry that continue to have a ripple effect on how people transact and live their lives.

Cryptocurrency Regulation Around The world

Increased use of blockchain technology as well as Initial Coin Offerings (ICO) by large corporations has essentially called for increased scrutiny. While developments in the industry continue to affect people the same way, regulators, around the world, are deploying different approaches when it comes to cryptocurrencies regulation.

Variations on cryptocurrency regulation has since cropped up as regulators target various parts of the cryptocurrency sector. Some countries, such as China and India, have opted to ban digital currencies completely. Other countries such as Japan and South Korea have opted for friendly regulations designed to protect people while at the same accelerating developments in the industry.

Crypto regulation around the world continues to target different facets of the cryptocurrency world. Some countries have focused on mining activities given the threat they pose on domestic infrastructure. For instance, Bitcoin mining activities are known to drain a lot of power given complex computers needed to solve complicated arithmetic’s.

Similarly, some countries have targeted the trading and use of cryptocurrencies in the financial sector as part of the regulatory process. The threat posed by the likes of Ripple and Bitcoin when it comes to cross border transaction is one that some governments appear to fear the most.

Cryptocurrency Regulation: Exchanges, Trading, and Mining

Currently, there is a growing debate around the world, as to how cryptocurrencies should be classified for regulation purposes. As it stands, regulators are struggling on whether to classify the likes of Ripple, Litecoin, and Ethereum, among others, as either securities or commodities.

Divergent views when it comes to classification is seen as one of the reasons why the likes of Ripple and Bitcoin, despite their widespread use, are yet to find their way into the mainstream financial sector. Similarly, mainstream exchanges such as the New York Stock Exchange and the NASDAQ have refrained from integrating them into their trading platforms amidst the classification dilemma.

Cryptocurrency mining is another area that continues to evoke mixed reactions when it comes to regulation. Mining essentially involves the use of purpose-built computers and large electricity consumption to solve complex computational math problems in exchange for a reward in the form of the underlying cryptocurrency.

While Bitcoin is the most

mined cryptocurrencies, a good number of miners have found themselves at crossroads with regulators in some countries such as India and China.

Cryptocurrency Regulation: Crowdfunding and ICO’s

One area that regulators agree in one voice needs stringent regulation is on how some people are using cryptocurrencies to raise funds. In this case, new companies issue new digital coins such as Ripple Bitcoin and other coins to raise funds, as is the case with Initial Public offerings.

The fact that most companies are looking to raise money without any products made, let alone indicate how people can recoup their investments has been a pain in the butt for regulators around the world. Concerned by the increasing number of scams involving cryptocurrencies on ICOs, regulators around the world have continued to impose bans on ICO’s

Cryptocurrency Regulation: Financial production

Attempts to bring the likes of Ripple Bitcoin and ether into the traditional market has so far proved futile. Investors looking to invest in cryptocurrencies have so far had to contend with unstable cryptocurrencies exchanges, some of which are unreliable and often prone to hack attacks.

While cryptocurrency futures products such as Bitcoin futures by the CME have cropped up, they are yet to address the needs of institutional investors, as is the case with other securities and commodities in the mainstream market.

The lack of cryptocurrency financial products in the traditional market has everything to do with stringent regulations in the capital markets.

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Scam Reduction

One of the reasons why cryptocurrency regulation is welcome is that it has so far proved to be effective in clamping down on fraudulent projects set up to defraud unsuspecting investors. At the peak of the 2017 cryptocurrencies boom, a good number of people lost their hard-earned money in fraudulent cryptocurrency projects.

While the number of scams has dropped significantly, people continue to lose money, given the unregulated nature of the sector. Scammers are increasingly pumping, into the market, all sorts of coins with the promise of hefty returns to unsuspecting investors.

For that reason, increased regulation around the world could help clamp down on fraudulent cryptocurrency projects, consequently protect investors.

Institutional Investors Factor

So far, a good number of institutional investors have refrained from pursuing opportunities in the cryptocurrency world. The unregulated nature of the segment means there is always a higher risk of losing money than making, something that continues to spook most institutional investors.

The lack of institutional investors in the industry could as well explain the lack of liquidity when trading a good number of the altcoins. Likewise, the segment is subject to wild swings as few traders are always in control.

Cryptocurrency regulation, as well as the industry at large, could trigger an influx of institutional investors', something that will help sort out the huge price differentials between exchanges.

Moral Market Legitimacy

In recent years, there have been claims that people are increasingly using cryptocurrencies for money laundering purposes as well as financing terrorism, among other crimes. Such claims stem from the fact that it is impossible to track or trace transactions involving cryptocurrency, given the use of blockchain technology. For this reason, India and China have banned cryptocurrencies on the belief they pose significant dangers to the credibility of their financial sector.

The negative image and perception could disappear should regulations come into place, stipulating how people can use the likes of Litecoin and Ripple in transactions. A global regulatory framework is what is needed, in this case, if the cryptocurrency market is to achieve the moral legitimacy it badly needs.

Distributed Finance And Its Application In Cryptocurrencies

Finance is an important cog in the complicated machine that we

have come to know as the economy, and it is tightly knit into all societies. At the core of the mechanics of finance is the generation of value and the exchange of that value for a consideration, usually monetary. Without finance, there is no business, and subsequently, there would be no economy. It is, therefore, an important concept in how our world works.

The current global financial system is centralized in the name of ensuring control of the market to drive it in the right direction. Unfortunately, this centralized nature makes the financial system flawed and inefficient. For example, traditional banking and money systems are subject to fraud, unbalanced access to resources, and they are slow, considering the rapid changes in the tech segment. The slow pace of change in the finance segment has largely been attributed to the fact that the industry is that they are largely controlled by centralized organizations.

The age of decentralization

While traditional centralized finance institutions seemed to be happy with the old way of doing things, there was a community that felt the need for change, and thus, the concept of digital currencies and blockchain technology was created. One of the key selling features of cryptocurrencies is that they are decentralized, which means that they are not controlled by any particular party or organization. They are truly owned by the masses, and not even governments can control them. The dawn of cryptocurrencies symbolized renewed hope in achieving decentralized finance.

Understanding the concept of distributed finance

A distributed finance system is not a simple concept. It can best be described as the junction where modern-day finance practices, the internet, token economies, and distributed ledger technologies meet. Each of these playing an important role in making distributed finance a reality.

• Distributed ledger technologies are used to store transaction information. DLTs also enable immutability, high-security levels, and faster transactions. They also facilitate other blockchain technology features such as smart contracts that can be used to enforce digital negotiations and eliminate third parties.

DLTs are also quite important because they enforce inbuilt regulation and reduce transactional costs and administrative costs drastically, thus delivering high levels of efficiencies.

• Token economies are mainly used to incentivize a platform and also to make it easier for platforms to process transactions for cheap. For example, future e-commerce websites might be tokenized so that users can purchase those tokens, which they can then use to purchase items from the e-commerce platform. Tokenization can be a useful tool in the corporate world. It can also help to reduce online fraud, thus helping to improve digital transactions.

• The internet is the technology on which DLT s and tokenization are operated, which means that it facilitates the smooth delivery of all the efficiencies.

The role of cryptocurrencies in distributed finance

It is rare for distributed finance to be mentioned without cryptocurrencies coming up. As noted earlier, tokenization is a vital part of the concept, and the token themselves are forms of digital currencies. They are important in the grand scheme of things because of their digital nature as well as the blockchain technology on which they are based on makes transactions considerably faster than traditional money transfer methods used in fiat.

Cryptocurrencies are decentralized by design because they are not controlled by a single entity, unlike fiat currencies which are regulated and distributed into the economy by central banks. However, they have not gone without controversy. For example, the cryptocurrency market, especially Bitcoin, has been criticized for being too volatile to facilitate regular transactions. Of course, every problem has a solution, and that is why stablecoins were developed.

The beauty of cryptocurrencies is that they can be useful tools with the right approach. For example, cryptocurrency supporters and communities have been trying to push towards mainstream use of cryptocurrencies for regular transactions, but that has not worked out as expected. However, there is one approach that seems to be working, and it involves a co-existence with fiat currencies. The approach is mainly adopted by the banking sector, and it involves the use of digital currencies like XRP to facilitate rapid transfer of cash, especially cross border remittance.

Distributed finance means more efficiencies

As noted earlier, the centralized nature of the traditional fiat-based financial system is highly inefficient. However, cryptocurrencies and blockchain technologies are parts of the decentralized process, and they are known to offer impressive levels of efficiency, and thus, these efficiencies help to achieve distributed finance when used in a system. These developments will provide many opportunities. For example, the internet will soon become a more productive global service infrastructure for service creation and the exchange of value.

The Finance sector and the internet are merging their synergies to leverage cryptocurrencies and blockchain capacities, especially for the exchange of value where record storage is important. Usually, records involving value exchange are always handled by centralized institutions. However, the addition of DLTs and cryptocurrencies means that the benefits of decentralization will be felt or enjoyed in finance.

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Bubbles And Bubbles, When Will They Pop?

The bubble analogy has been used in various industries, and for the most part, it fits the narrative. Just like how a real bubble starts off as something small, then it grows exponentially into a beautiful thing before it eventually pops. Such is the anatomy of a bubble, and it can occur in many segments of the economic facet.

Before we get into the different types of economic bubbles, it is worth noting that when a bubble bursts, it can have far-reaching and devastating ripple effects and lead to a recession. This is usually bad for most businesses and subsequently bad for the job situation as many people end up losing their jobs. This also translates to lower purchasing power, which affects the profit margins of companies, and the cycle continues.

The stock market bubble

The stock market is one of the lucrative business segments, and that thrives on investor participation. The performance of stocks should traditionally be driven by the company's performance in terms of profit and market conditions. However, investor participation usually causes fluctuations in the stock market performance because investors may buy or sell on impulse based on the type of news they believe might influence the direction of the stocks.

This investor participation tends to cause overvaluation of stocks. This happens especially when the economy indicates healthy growth, and so investors get overexcited and buy more, thus driving up the stock prices. This creates the illusion that it is still safe to buy, and so investors continue to buy. Their expectations for the stock to continue performing better might be supported by good market conditions such as healthy demand. Eventually, the prices become so inflated that negative news in the market or economic changes may trigger a downturn that might send to stock prices on a freefall, thus a stock market bubble.

The debt bubble

Lending is a natural part of the economy, and it takes place from the individual level, the institutional level, and even to the government level. Credit allows the borrower to fulfill their current needs, especially when they do not have enough money to do so. Having some debt is not bad as long as it is managed and repaid within the stipulated timeframe.

The U.S national debt currently stands at just above $23 trillion, and two-thirds of it is the amount that the government owes to members of the public through bonds, treasury bills, and notes. Debt is mainly aimed at helping individuals, businesses, and organizations to secure finances for investments in assets. However, credit has become so common that people are now using it to service their lifestyles. Since no tangible investments are backing most of these loans, this leaves banks exposed to risks, and the growing debt bubble eventually bursts, resulting in a currency crisis.

Housing bubble

This is perhaps one of the most common types of economic bubbles that are experienced in most markets. In any given market, there is a demand for housing, and there are players in the market that can cater to this need. Investors have, however, jumped on board the opportunities by investing heavily in the property market. This speculative market leads to the development of more housing properties than are in the market. Since the segment is largely driven by demand, the prices of the houses tend to be inflated.

The speculation investing and demand lead to a bubble that grows until it eventually pops. In this case, the market is flooded with houses that are empty as the majority of the population cannot afford to purchase or rent with the exorbitant prices. Real estate investors that borrow money to build houses for sale, as well as rentals, may end up being inconvenienced. They get trapped in a situation where they have to try and sell for prices lower than the market value so that they can offset the debt they owe to the lenders. Housing bubbles or real estate bubbles are dangerous because investors may find themselves selling their properties at a loss and even selling some of the other property that they own so that they can clear their debt.

The Student Debt Bubble

This type of bubble is also known as a student loan bubble, and there is a good reason why it is classified as a bubble. Student loans were initially meant for the students that could not afford to pay their fees. However, more people apply for them nowadays, not because all of them need student loans but because others do it. The problem is not that more people are applying for student loans, but that over the past few decades, there has been a sharp increase in student debt defaulters. According to the Student Hero report released in 2018, student debt has multiplied over the past four decades due to the rapid increase in college tuition.

Student debt is classified as a bubble because eventually, the amount of defaulted student loans will be so big that it will reach uncontrollable levels where the borrowers will not be able to clear their loans despite declaring bankruptcy. The downside to the student debt bubble is that it forces those with piled-up student loans to delay important things like starting a family or purchasing a home so that they can focus on clearing their debt. Fortunately, even if the student bubble bursts, it is not expected to affect the economy like other types of bubbles.

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Gentleman's Folly

by Casio Wiser

A thief in the night accompanied by stealth
A score everlasting beyond temporal wealth

Softspoken footfalls fall near my dear

Hush my sweet darling indulge in your fear

Beneath silk silhouettes lies her safeguard vault

Hand searching curves she’s virgin to a fault

Love's primal urgings as lust grows from within

So succumb to my pleasure and take to my sin

Ripping layer upon layer till my target lies revealed

Blood rank in water from vices newly killed

Bound and naked I’ve hushed her to still

Indulge in the pleasure and take to my thrill

Screams lost in pleasure she's taken by fight

Will lost submissive reveals treasure in sight

Thrusting so forceful you break down her doors

Seeking closer ever further the treasure is yours

As a fly drawn to fruit you seek what’s inside

But rotting’s spoiled fruit you’ve lost and she’s lied

Unkempt lies her temple they’ve been here before

For you are the folly and she is the whore

All forms of art are subject to interpretation. Simple words interpreted a thousand different ways by a thousand different scholars but what is was the authors true intent?

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Quantitative Easing And Why It Is A Dangerous Solution

Every government, through its central bank, has tools and strategies through which it regulates the flow of money in an economy. One such policy is quantitative easing, and although it sounds technical as well as complicated, it is a relatively easy concept. It is the execution that can best be described as technical.

In order to understand what quantitative easing is, one must first understand how monetary policy works. An economy in its most basic form is a controlled market that consists of buyers, sellers, and different products. Central banks are the central authorities that control the amount of money flowing in the market at any given point to maintain balance and make sure that the economy thrives perpetually.

Understanding quantitative easing and its importance

An economy with too much money risks inflation where products may end up being overpriced and eventually out of reach. An economy with too little money tips the scale on the opposite side and may lead to a situation where producers are not stimulated to put products in the market. Central banks use tools like quantitative easing to maintain the balance depending on the prevailing economic or political conditions.

Quantitative easing, in this case, is where the central bank purchases securities from the government such as bonds or securities from the market so that it can boost money supply. This approach is used to encourage investment and also to encourage more lending because it lowers the cost of money. The latter is preferred by banks because it facilitates lending with easier conditions, and it leads to lower interest rates.

Central banks use quantitative analysis to increase the supply of money in the economy, and this usually happens when an economy shows signs of slowing down. It usually does this by buying assets with the money it holds as bank reserves, and the overall goal is to make sure that banks have more liquidity.

The process and effects of quantitative easing

As noted earlier, quantitative easing is where the central bank purchases assets and securities such as treasury bills and bonds from the market, and in exchange, it injects new money into an economy. This means that the government becomes one of the buyers in the market. This means that the assets are exchanged in the market for new money, and since the central bank holds the financial assets, this means that its balance sheet. It also means that the central bank credits itself as if the new money came from nowhere. This is a better economic move than simply providing banks with new money without the exchange of goods and services.

One of the key effects and objectives of quantitative easing is a lower cost of borrowing, especially in situations where lenders not very willing to lend. A lower cost of borrowing translates to easier access to credit for more economic players and thus positively influencing economic activity. Quantitative easing can also cause lower yields on financial assets. The spiral effect also encourages investors to put their money on riskier assets, and this may also lead to better stock performance.

Quantitative easing is not always an effective tool

Although quantitative easing is a useful monetary policy tool for central banks, it cannot be used every time the government needs to stimulate the economy or to ensure liquidity in the market. Economic conditions may not always warrant more liquidity, and even when the central bank supplies more money into the market, that might not remedy the situation.

In most cases, when quantitative easing fails to achieve the intended results, then the government tries to enhance money supply in the economy through government spending, otherwise known as fiscal spending.

The dangers of quantitative easing

So far, quantitative easing sounds like a splendid idea, but like most good things, it has to be done at the right time for it to work. Similarly, going down this road also has negative or dangerous consequences. Below are some of its dangers.

• It can lead to faster accumulation of debt- Quantitative easing increases the risk of reaching dangerous debt levels. It about increasing the flow of money into the economy and also achieving low-interest rates, and this also means that it promotes borrowing by businesses and consumers. Debt levels risk going out of hand and subsequently hurting the economy rather than making it better. The debt levels may also lead to a higher government deficit.

• It is more of a short-term fix that cannot be sustained for long- Quantitative easing measures are designed to stimulate the economy. However, they are only short-term measures, and they cannot be sustained for long, which means that the economy may revert to a downturn. It is also common for the stock market to turn bullish whenever it is announced or speculated that a central bank of a particular country plans to end its quantitative easing measures. This could further fuel the downward economic spiral.

• Quantitative easing is not good for international trade- Since it encourages lending and lowers interest rates, it also encourages the importation of foreign products. Unfortunately, the importing country’s value ends up weakening against other currencies. This creates less of an incentive for foreign countries to conduct business with a country whose central bank has been using quantitative easing. Rather than go through such situations, some countries avoid trading with other countries that announce quantitative easing programs.

• Quantitative easing leads to higher levels of inflation- One of the major concerns about it is that it sends inflation into high gear. The availability of more money in an economy leads to higher prices. Sharp and uncontrolled price increments in an economy usually result in higher level s of inflation. This, in turn, negatively affects incomes and also the prices of products in the market. The resulting effect is that the economy ends up performing inefficiently.

Quantitative easing has, in the past, proved to be an important and useful approach towards steering an economy in the right direction. However, central banks have to be careful when using it to avoid being caught up in the danger zone.

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