Myth of Money: United Nations Shames Federal Reserve
Welcome to this week’s edition of Myth of Money, a weekly newsletter on the digital asset markets read by 12,000+ investors.
Disclaimer: The following is not intended as investment advice. Do your research.
In the fastest hike in interest rates since 1980, the Federal Reserve plans to increase interest rates for the fourth time this year. In each of the Fed’s meetings, they have announced an interest rate hike of 0.75%, bringing the effective interest rate range to 3%-3.5%. As a result, some economists fear the Federal Reserve (humbled after waiting too long to withdraw its support of a booming economy last year) is risking another blunder by potentially raising interest rates too much to combat high inflation.
Businesses, however, keep hiring at a brisk pace, with unemployment falling back to a half-century low of 3.5%. Yet for the Federal Reserve, the jobs figures highlight how little progress they’re making in their fight against inflation. And as the Fed continues to raise borrowing costs, the risk of recession also rises.
U.N. agency warns of recession linked to 'imprudent' monetary policy
Meanwhile, the effects of rising interest rates are felt more acutely around the world, as global currency fall against the dollar, but most borrowing remains denominated in USD.
As the global economy hinged on global recession, the United Nations has stepped in with a warning:
A United Nations agency warned on Monday of the risk of a monetary policy-induced global recession that would have especially serious consequences for developing countries and called for a new strategy.
"Excessive monetary tightening could usher in a period of stagnation and economic instability" for some countries, the United Nations Conference on Trade and Development (UNCTAD) said in a statement released alongside its annual report.
"Any belief that they (central banks) will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble," it said.
The report said that higher interest rates, including hikes by the U.S. Federal Reserve, would have a more severe impact on emerging economies, which already have high levels of private and public debt. The report, entitled "Development prospects in a fractured world", also warned of a potential debt crisis in the developing world.
"The current course of action is hurting vulnerable people everywhere, especially in developing countries. We must change course," UNCTAD Secretary-General Rebeca Grynspan told a press conference in Geneva.
Asked about solutions, she suggested there were other ways to bring inflation down, mentioning windfall taxes on corporations, better regulations to control commodity speculation and efforts to resolve supply-side bottlenecks.
Credit Suisse is rumored to be on brink of bankruptcy.
Credit Suisse ranks as one of the top 100 financial in the world with over $1.5 trillion in assets under management.
The rumor of their bankruptcy started when David Taylor, an ABC reporter, stated in a now-deleted tweet that the bank is “on the brink.” Without stating or calling names, the public sank their teeth into the statement and the rumors spun out of control.
In response, Credit Suisse executives have attempted to fan out the flames (unsuccessfully). CEO Ulrich Koerner is assuring investors that the bank keeps a “strong capital base and liquidity position”, with a near-$100 billion capital buffer and a healthy equity capital ratio of 13.5% as of June, in large part due to post-2008 Basel III regulations that mandate minimum capital reserve requirements for big banks.
The institution has recently cut thousands in headcount last month, causing its stock and bonds to plummet to a record low, while the cost of buying its credit default swaps (a financial derivative that acts as insurance against Credit Suisse defaulting on its debt) has soared by more than 100 basis points.
This Week By the Numbers 📈
Oil prices were the biggest mover this week as OPEC and its Russia-led allies agreed on Wednesday to slash output by 2 million barrels of oil a day. The move drew an immediate rebuke from the White House, which called the decision shortsighted and suggested that OPEC was actively supporting Russian President Vladimir Putin. It came less than three months after President Biden visited Saudi Arabia, the OPEC’s de facto leader, to repair relations between the world’s biggest oil consumer and its biggest crude-oil exporter during a period of rising inflation driven in part by high energy prices. (Source: WSJ)
Top Stories 🗞️
While metaverse platforms Decentraland and The Sandbox both have below 1,000 daily active users, they each have over $1 billion in valuation. So who's actually using the metaverse right now? According to data from DappRadar, the Ethereum-based virtual world Decentraland had 38 active users in the past 24 hours, while competitor The Sandbox boasted 522 active users in that same time. An active user, according to DappRadar, is defined as a unique wallet address’ interaction with the platform’s smart contract. For example, logging onto The Sandbox or Decentraland to make a purchase with SAND or MANA, each platform’s respective native utility token, is counted as an “active use.” This means that DappRadar’s compilation of daily active users doesn’t account for people who log in and mosey around a metaverse platform or drop in briefly for an event, such as a virtual fashion week.
Spending cryptocurrency may become a lot easier. FTX, one of the world’s largest crypto exchanges, has partnered with payments giant Visa to roll out debit cards in 40 countries worldwide. The move would allow FTX users to pay for goods and services using debit cards that boast “zero fees.” Plus, card ownership is free, according to the company website. Sam Bankman-Fried, the most influential person in crypto according to Cointelegraph’s Top 100 in 2022, has long touted his desire to unveil an FTX debit card. His company’s decision to partner with legacy payment rails — as opposed to crypto payment rails such as the Lightning Network — aligns with his views that the future of Bitcoin as a payments network is not viable.
BNB Chain, the blockchain of crypto exchange Binance, was paused on Oct. 6 due to an exploit on its cross-chain bridge, with attackers making off with an estimated $100 million worth of cryptocurrency. The official Twitter account of the BNB Chain first announced the temporary pause due to “irregular activity” on the blockchain but soon after added that it was due to a possible exploit. Binance updated that the blockchain was “under maintenance,” suspending all deposits and withdrawals. Rumors had earlier swirled on Twitter that the network had undergone a significant hack. On-chain analytics showed alleged attackers exploiting roughly two million BNB, the chain’s native token, a value of nearly $600 million.
According o the latest data from DefiLlama, the overall circulation of stablecoins has decreased by approximately $38 billion since early May. There are still $148.7 billion left in circulation, with the majority comprising Tether USDT, USD Coin USD, Binance USD, DAI, and the Frax stablecoin (FRAX). Meanwhile, the yields on stablecoin borrowing and lending on decentralized protocols (Defi) such as Aave have fallen sharply. Back in May, the annual variable percentage rates (APR) on Binance USD, USD Coin, and DAI loans stood around 3.5%. Their APRs have since fallen to about 1.5%. Meanwhile, their utilization rates, or the percentage of stablecoins taken out as loans versus total supplied, have also fallen to around 30% to 40%, whereas the optimal levels for the protocols are about 80%.
Colorado is accepting crypto as payment for any taxes owed to the state as of Sept. 1. It was the result of a promise made earlier in the year by Colorado Governor Jared Polis, who has proven his commitment to establishing the state as pro-cryptocurrency. Colorado isn’t the only U.S. state trying to incentivize cryptocurrency investment within its borders, as legislatures in Arizona, Wyoming, and Utah have all previously introduced bills to accept tax payments in the form of digital currencies in varying degrees. There is much to gain economically for states who embrace blockchain technology and the crypto sector. Savvy governments are beginning to pitch their locale as the next center of the crypto economy, hoping to attract new businesses and intelligent, young, wealthy constituents involved with crypto. Taxpayers should be warned, however, of the tax consequences of making payments with crypto, as making such a payment is a taxable event that has the potential to further increase the amount of taxes one has to pay.
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Quick shout out to one of my favorite portfolio companies, MARA, building a new blockchain ecosystem for Africa. The MARA Wallet is launching this Fall with over 2 Million sign-ups and growing!
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Thank you for reading this week’s edition of the Myth of Money.🚀
Until next week,
By Tatiana Koffman
Hi there and thanks for reading. If you stumble upon my newsletter, you will notice that I write about money, economics, and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital, and Cryptocurrencies. I believe in empowerment closing the financial education gap and creating equal opportunity for the next generation. I have invested in 20+ companies and funds. Check out my portfolio here.
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