Last month, Washington took a big step toward mainstreaming cryptocurrencies.
President Biden signed an executive order directing government agencies to set up a framework for regulating cryptocurrencies.
As colleague and world-renowned crypto investing expert Teeka Tiwari has been showing his readers, regulatory clarity is good for the crypto industry. Teeka…
Regulation needs to be in place for crypto to go from a niche asset to mass adoption. It would allow more regulated money from financial institutions to enter the crypto market, amplifying crypto’s boom.
But there’s also a troubling side to the executive order…
It directs government agencies to explore a digital-only U.S. dollar – what the White House calls a central bank digital currency, or CBDC.
This is something I (Chris Lowe) have been sounding the alarm on for years.
Washington wants to establish a new type of money system. Instead of bills and coins in a physical wallet, the Fed will issue the new U.S. dollar via a wallet app on your smartphone.
Legacy Research cofounder Doug Casey has a simpler name for this new currency – FedCoin.
As he put it in these pages in March 2019…
The government will undoubtedly come out with FedCoin – or whatever they’ll call it – its own cryptocurrency. At that point cash will be an anachronism; everything will be done electronically. Every transaction you make will be trackable… to the penny. The government will be capable of blocking your transactions at the push of a button.
And Doug is right. If we’re all using FedCoin… without the option to transact in physical cash… the feds will have the power to monitor, track, and analyze every transaction we make.
It’s worrying one of Teeka’s readers about whether the government will try to get rid of bitcoin (BTC) to make way for its creation…
Reader question: It’s clear the U.S. is moving toward a CBDC. Can bitcoin and a FedCoin coexist? Will the U.S. allow bitcoin to exist?
– Jack S.
Teeka’s response: That’s a great question. I don’t know that a CBDC is a foregone conclusion in the U.S. It opens a can of worms in terms of privacy. It would also make the Fed the bank of every American. And the Fed isn’t designed to deal with retail customers.
The government will probably come out with a regulatory framework for U.S.-dollar stablecoins. These are cryptos whose values are pegged to the value of the dollar. This would allow commercial banks to issue them.
Bitcoin and U.S.-dollar stablecoins already coexist very well. A lot of people don’t understand that bitcoin doesn’t compete with the U.S. dollar. It competes with traditional stores of value such as gold.
Bitcoin would need a much higher market value to replace the dollar as the currency we use for day-to-day transactions. And the Lightning Network – a layer on top of bitcoin that speeds up transactions – would have to be more developed and widespread than it is now to handle those transactions.
So I don’t see bitcoin and stablecoins competing. They may a decade from now. But if we got something equivalent to FedCoin tomorrow, I don’t see it negatively affecting bitcoin, because they’re different types of assets.
Will the government allow bitcoin and a FedCoin to coexist?
To start, it’s not possible for governments to shut down bitcoin. It’s too global. But from conversations I’ve had with politically connected folks in the U.S., it doesn’t appear that the government even wants to kill bitcoin… or overregulate it.
Politicians are finally recognizing this is an enormous source of potential tax revenue. So they want the U.S. to be where folks do business in these assets, under some sort of regulatory framework.
If there’s one thing our politicians are good at, it’s identifying and incentivizing the growth of tax revenue projects. They did it brilliantly with the internet. I hope they’ll be able to extend that brilliance into crypto.
That’s not the only concern about the money system your fellow readers have. Another wonders if the U.S. dollar can remain the world’s reserve currency for long.
For a response, we turned to the newest addition to the Legacy Research team, Nomi Prins.
She used to work for Wall Street firms including Goldman Sachs (GS), Bear Stearns, and Lehman Brothers.
Now her mission is to help ordinary investors navigate the distorted markets central banks have created through stimulus programs over the years.
And in that process, she’s written two books about central banking and the influence it has over markets – All the President’s Bankers and Collusion: How Central Bankers Rigged the World.
Not many analysts are so well-qualified to shine a light on the global money system…
Reader question: The future of the dollar as the world reserve currency seems to be increasingly uncertain.
How do you think this will impact the values of the U.S. dollar and bitcoin?
Thanks for your many insights and background information.
– Barbara L.
Nomi’s response: Thank you for your thoughtful question, Barbara.
There’s no easy way to answer a question about the U.S. dollar’s future as the world’s reserve currency.
In 1944, the Bretton Woods system pegged the U.S. dollar to gold at a fixed exchange rate. And it pegged foreign currencies to the U.S. dollar. That propelled the dollar’s supremacy.
And although that system collapsed in 1971, the U.S. dollar is still the world’s primary reserve currency. Figures from the Fed show that about 60% of the world’s foreign currency reserves are in U.S. dollars.
Now, the U.S. has too much debt and too little overall economic growth. That should spell a decline of the U.S. economy and its currency.
That’s what happened with Britain. In the 19th century and the first half of the 20th century, its currency, the pound sterling, was the world’s primary reserve currency.
But Britain almost bankrupted itself trying to pay for World War I and World War II. And the U.S. dollar took over as primary reserve currency.
Since then, countries have turned to the currencies of other superpowers (notably China) and trading blocs (notably the European Union) for their reserves.
And since the financial crisis of 2008, Russia and China have been working to establish a closer trading and financial relationship outside of the dollar-centric system.
China’s ongoing drive to conduct trade and commerce outside of the U.S. dollar was behind its successful push to have its currency, the yuan, become a part of the International Monetary Fund (IMF)’s special drawing rights. It’s a reserve asset the IMF issues that’s backed by a basket of prominent national currencies. And in 2016, the yuan took a place alongside the U.S. dollar, the euro, the British pound, and the Japanese yen as part of this.
China is an economic superpower that imports a lot of oil. So it’s no surprise that Beijing wants to buy oil in yuan. Or that the Saudi Arabian government is considering yuan-based payments.
But other nations have their own problems. China, for instance, is a well-known currency manipulator. So I don’t see it taking over for the U.S. anytime soon.
That’s why I believe the U.S. dollar will keep its strength compared to other currencies.
As for bitcoin, it has the most momentum of all the cryptos. Its use and acceptance are growing globally.
This will give bitcoin serious upside over the long run… albeit with a lot of volatility along the way.
To wrap up this week, we’ll hear from Legacy’s tech investing expert, Jeff Brown.
Last month, he unveiled a project he’d been secretly working on for the past five years. It combines the most powerful trend in computing with the most explosive market on Earth.
At its heart is a type of artificial intelligence called a neural net that learns how to trade. Jeff calls his neural net the Perceptron because it spots patterns in markets humans can’t see.
And this Jeff reader was skeptical at first…
Reader question: I am eager to see the results of the Perceptron. It almost seems too good to be true. Time will tell.
I want to make sure the use of the Perceptron is completely legal. This appears to give your readers an unfair advantage with possible insider information.
I’m sure you would not offer anything that is questionable. Do I have any issues to be concerned about? Thanks.
– Joseph C.
Jeff’s response: Hi, Joseph. Thanks for writing in.
That’s an interesting question and not one I’ve gotten before. It made me chuckle, which I appreciate.
My longtime subscribers know that one of the reasons I work so hard is precisely to give them an “unfair advantage” over Wall Street.
Market insiders have had the upper hand over everyday investors for decades. I’m doing everything I can to stack the deck in favor of my subscribers… and help make sure the fast money doesn’t exploit them.
To answer your question, there’s nothing illegal about using powerful software to design a neural network, even though it’s effectively making us smarter investors and traders.
Hedge funds and institutional funds have been doing this for decades.
Please note that the Perceptron doesn’t use any kind of insider information. That would be problematic. And it’s something I would never do.
In essence, the Perceptron works with massive amounts of data that no human, or team of humans, could process unassisted.
Right now, it focuses on the crypto market. And it crunches four gigabytes of data from the crypto world every day. That’s roughly the same amount of data in eight hours of video.
As it runs, it “learns” and improves its strategy for beating the market. Here’s a simple description of how that works…
As the neural network trains on a set of data, it compares inputs and optimal outputs. And it recognizes which connections consistently produce more desirable results.
When the network finds these strong connections, it assigns a higher weight to them. In contrast, it assigns lower weights to connections that produce less desirable results.
As more data is available, the network will incorporate it and update those weights as conditions change.
There’s nothing illegal about this. These data points come from publicly available information.
So let me reassure any readers with concerns. Our Perceptron gives us an “unfair” advantage. But there’s nothing illegal about it. It just makes us smarter and helps us grow our wealth.
We just issued our first sell alert for a 21% profit in 23 days. And we’ll have many more profit alerts to come.
If you’re interested in harnessing the power of the Perceptron for your own crypto portfolio, go right here.
That’s all for this week.
If you have a burning question for any of the Legacy experts, write us at feedback@legacyresearch.com.
Have a great weekend.
Regards,
Chris Lowe
April 22, 2022