The Wolf Den #602 - Seigniorage
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In This Issue:
Seigniorage
Legacy Markets
New Tool To Prevent Crypto Hacks
Aptos Launches, Dumps
The IRS Accounts For NFTs
The Truth About Institutional Crypto Adoption | Matthew Trudeau, Chief Operating Officer At ErisX
My Recommended Platforms And Tools
Seigniorage
If you ask an economist to name the three main functions of fiat currencies, they will likely list the obvious core attributes - a store of value, medium of exchange, and medium of account.
What if I told you there was a significant fourth function, kept secret throughout history?
There is. It’s called seigniorage.
Seigniorage can be defined as the difference between the market value of a currency and its intrinsic value. More specifically, it is the profit made by a government by issuing currency, especially the difference between the face value of coins and their production costs.
If a $10 bill costs $5 to make, then there is a $5 seigniorage.
In ancient civilizations, the market value of currencies was generally equivalent to their intrinsic value. Grain and livestock are examples of currencies with zero seigniorage. In these societies, governments played almost no role in monetary policy. Economies weren't efficient. But, in theory, they were fair.
As society progressed and governments strengthened, the difference between the market value and intrinsic value of currencies began to widen, resulting in what economists refer to as a “phantom value.” This phantom value rose rapidly. All currency seigniorage skyrocketed 0% to 100%.
The temptation to make a profit by printing more money is generally too strong to avoid for central bankers and governments.
This trend is of no benefit to the people, but rather is value captured by a select few.
Bitcoin fixes this.
Fiat currency seigniorage is deeply entrenched into centralized systems, leaving little hope for the longevity of any fiat currency. You don't need to look far to see examples, as the pound, yen, euro and others continue their epic collapse in the face of global economic turmoil.
When was the last time the people voted on monetary policy. Have we ever have had a say in the creation, dispersion, and value of the currency? Governments recognize the power of high seigniorage and use it to their advantage. Unfortunately for them, that power is dwindling.
Bitcoin also has high seigniorage, but it decentralizes the profit and returns the power to the people. The absence of a centralized authority means that seigniorage is distributed, providing an incentive to the millions of miners around the world.
If you choose to plug in and participate, then you can share in the seigniorage.
Bitcoin provides decentralized security and global accessibility, unlike any other currency in the world.
It is easy to understand why the United States abandoned the gold standard to recapture seigniorage, but this era is coming to an end. The eventual adoption of Bitcoin will shift the global monetary network back towards a digital gold standard, creating an economic democracy that benefits everyone equally.
For the first time, seigniorage will benefit the masses.
Legacy Markets
"European stocks slipped and US equity futures gave up gains as worries about scorching inflation and a looming recession countered a strong start to the earnings season. The pound fell after UK inflation rose faster than economists expected."
"The euro zone’s first-ever brush with double-digit inflation was revised away by a fraction in a fuller sample of data for September that still revealed rampant price pressures bearing down on the region. The annual rate of increase, which remains a record in the history of the single currency, is now measured at 9.9% instead of 10%, Eurostat said in a statement on Wednesday in Luxembourg."
Key events this week:
Euro area CPI, Wednesday
EIA crude oil inventory report, Wednesday
US MBA mortgage applications, building permits, housing starts, Fed Beige Book, Wednesday
Fed’s Neel Kashkari, Charles Evans, James Bullard speak, Wednesday
US existing home sales, initial jobless claims, Conference Board leading index, Thursday
Euro area consumer confidence, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.4% as of 9:37 a.m. London time
Futures on the S&P 500 fell 0.2%
Futures on the Nasdaq 100 were little changed
Futures on the Dow Jones Industrial Average fell 0.2%
The MSCI Asia Pacific Index fell 0.8%
The MSCI Emerging Markets Index fell 1.2%
Currencies
The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.4% to $0.9823
The Japanese yen fell 0.1% to 149.41 per dollar
The offshore yuan fell 0.3% to 7.2456 per dollar
The British pound fell 0.5% to $1.1263
Cryptocurrencies
Bitcoin fell 1% to $19,177.57
Ether fell 1.3% to $1,297.23
Bonds
The yield on 10-year Treasuries advanced six basis points to 4.07%
Germany’s 10-year yield advanced eight basis points to 2.36%
Britain’s 10-year yield advanced seven basis points to 4.02%
Commodities
Brent crude fell 0.6% to $89.52 a barrel
Spot gold fell 0.7% to $1,639.93 an ounce
New Tool To Prevent Crypto Hacks
There is a new Chrome plug-in designed specifically to protect everyday crypto users, as well as those who are deep in Web3 and DeFi. Dubbed TrustCheck, the tool detects scam sites, phishing sites, dangerous signing requests, and drainer transactions. Once installed, it runs silently in the background, only alerting users when it detects dangerous activity.
I have never used the tool (it was just recently released) and would do your own research to make sure it is right for you.
This is a step in the right direction to protect consumers from the hackers and scammers that run rampant in our industry.
Aptos Launches, Dumps
Aptos has officially listed on Binance and FTX - despite a broken discord, unstable launch, and unknown tokenomics.
Welcome to crypto.
Little is known about the token. What we do know is that it is largely VC backed and is supposed to be a “layer 1 killer.”
Prior to the release of the tokenomics, speculators warned that 90% of the token supply belonged to VCs.
That was FUD. The real number is closer to 13.5%, which is considered normal in the crypto world. However, 50% of the supply is designated for the community. It is extremely unclear what that means, and how those tokens will be distributed.
If you do feel compelled to buy this token, do so with EXTREME caution. There are enough challenges for a new coin in a bull market - buying outright in a bear market carries added risk.
Most similar coins have had huge pumps at launch and then trended towards zero.
The IRS Accounts For NFTs
The IRS has updated their annual income tax instructions. The taxable category “virtual currency” has been replaced with "digital assets" to broaden the IRS definition of what is taxable in our sector. Basically, this leaves room for NFTs to be taxed. If you own NFTs and thought they could easily be hidden from the IRS, think again. The IRS might not be early, but they generally catch up and collect back taxes.
Pay your taxes - the IRS is smarter than you think.
The Truth About Institutional Crypto Adoption | Matthew Trudeau, Chief Operating Officer At ErisX
More and more banks and other financial institutions enter the crypto space. Matt Trudeau, COO at ErisX, a company that provides crypto derivatives to institutional investors, talks about the institutional demand for cryptocurrencies and the potential drivers of crypto adoption, and takes a look at the crypto market from the regulatory perspective.
In this episode with Matt, we discussed:
Who is Matt Trudeau
Cboe and crypto
TradFi vs Crypto from regulatory perspective
Demand from institutions
Bear market
Driving mass adoption
Regulation issues
What will bring Bitcoin to the masses
Managing risk
Tokenization
Crypto market is not mature yet
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.
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