Dear Reader,
Every once in a while, I’ll read an article in a respected publication and just shake my head. It’s so preposterous that it makes me wonder what the editors were thinking allowing it to be published.
This time it was an article entitled “Let’s all please stop calling dollars ‘fiat money,’” which was published in the Financial Times a few days ago. The journalist went on to share how undergraduates were being improperly taught why money has value and how it’s created.
The argument, as it was stated, was that the Federal Reserve can’t just create dollars out of thin air because the Fed is actually buying something with those dollars that it just printed.
He went further to state that because these newly formed dollars sit on a balance sheet somewhere, they aren’t “fiat money” and should be called “credit money.”
It’s one of the silliest things I have ever read.
It implies that these newly printed dollars would be “fiat” if the Federal Reserve didn’t spend them, but since it did something with those dollars, it’s not fiat money. Obviously, monetary policy doesn’t work that way.
The dollar, as with all other fiat currencies, has value and utility by government decree. Plain and simple. The U.S. dollar became a true fiat currency in 1971, when the government decoupled the U.S. dollar from gold.
Since then, the U.S. dollar continues to carry value only because the government says so, and it is a useful medium of exchange. The moment this is no longer so, all hell will break loose.
And the Federal Reserve does “print” money out of thin air. It’s done with the flick of a finger on a computer. Digital dollars are born from a vacuum where nothing existed before.
The Fed uses those “magic” dollars to buy U.S. Treasury notes, and sometimes other assets, so that the government has even more money to spend.
Modern Monetary Theory (MMT) says that debts don’t matter. It says that we don’t need balanced budgets. We can basically print as much fiat currency as we want and things will be fine.
History feels differently.
All we have to do is look at the Weimar Republic (Germany) in 1923. Monthly inflation was running at 29,500%. That’s not a typo. That equated to prices doubling every 3.7 days.
Or how about Greece in 1944… Monthly inflation was running at 13,800% from October of the same year. Prices were doubling every 4.3 days.
Think this is all in the past? Big mistakes that we have learned from and will never be repeated again? Not at all.
In 2008, Zimbabwe experienced monthly inflation at 79,600,000,000%. Prices were doubling every 24.7 hours. It is hard to imagine what that must have been like. We can think about the cost of food doubling every single day. And that was just 13 years ago.
Egregious money printing always leads to bad outcomes. It is often referred to as the stealth tax. As dollars or euros or yen are devalued year after year, the value of our savings slowly deteriorates. Most of us aren’t even aware it’s happening.
And the positive impact of technology and automation in reducing the cost of some goods obfuscates this devaluation of our fiat money. It acts as an offset to the money printing, and governments know it.
But we see the inflation in hard asset prices like real estate or commodities that have true scarcity. And real estate, whether we are buying or renting, tends to be our largest monthly expense. That’s where it really hurts.
If any of us would like to understand the genesis of blockchain technology, or the philosophical motivations for building completely new stores of value and utility that can be transmitted freely without any government decree, this is it.
We the people are taking back our monetary system. And the highest-quality projects with the best technology and governance will be far more trustworthy than any central bank.
P.S. We’re still going to call it exactly what it is – fiat money.
We last checked in on payment technology company Circle after its record-shattering late-stage venture capital (VC) round last month. It raised $440 million, making it the largest VC round in history for a blockchain company.
As a reminder, Circle is one of the companies behind the U.S. Dollar Coin (USDC). With a circulating supply of $26.6 billion, USDC is the second-largest U.S. dollar stablecoin on the market today. It trails only Tether (USDT), which currently maintains a supply of $62.2 billion.
After Circle’s big raise last month, I went on record predicting that the company would go public before the year is out. And that prediction just came true.
Circle just announced that it’s going public via a reverse merger with a special purpose acquisition corporation (SPAC) called Concord Acquisition. This will be one of the largest and most significant initial public offerings (IPOs) to date in the blockchain industry.
What’s especially exciting here is that, thanks to its public filings, we can finally look under the hood and get a feel for Circle’s business. And the growth is impressive.
Circle said that USDC circulation has increased 3,400% this year alone. Much of that is driven by demand for low-cost transactions and settlements.
What’s more, Circle projects that USDC issuance will grow to $190 billion by 2023. That represents growth of 614% in just two years.
And this projection is a not-so-subtle suggestion that USDC is about to overtake Tether as the top stablecoin on the market.
That’s not surprising given the uncertainty around Tether and whether or not it actually has the reserves to back up all of the Tether issued to date. We talked earlier this year about how Tether has gotten into trouble over failing to maintain its ratio of one U.S. dollar to one USDT.
Few understand that if Tether has been too speculative with its reserves, and its trades turn against it, it would become a house of cards for the entire cryptocurrency industry – a true Achilles heel.
Circle knows this and is positioning itself as the buttoned-up, fully-backed U.S. dollar stablecoin.
The other big part of Circle’s focus is the treasury service and transaction business. This is geared toward enterprise customers who want to hold or transact in digital assets but can’t do so within their own treasury operations.
As for revenue, Circle expects to generate $115 million this year. On the surface, that makes the company’s IPO valuation of $4.5 billion look overvalued at 39 times sales.
However, Circle’s projected revenue growth tells a different story.
Circle expects revenue to grow to $407 million next year. And it expects revenue to hit $886 million by fiscal year 2023. That’s nearly 8x growth in just two years.
And that puts Circle’s forward enterprise value-to-sales (EV/sales) at 5. That represents a great value for such a fast-growing company.
So this is absolutely an IPO to watch. Circle could make a strong investment target once it’s publicly traded.
And in the meantime, the financial technology (fintech) industry is seeing extraordinary opportunities as our financial systems adapt to new developments like blockchain technology…
If you’d like to learn more, you can go here for the details about my current top recommendation in the space.
The tech world has been talking about flying cars for decades. And many prototypes have come and gone over the years. The problem is, nothing I’ve seen before has ever been very practical. Nobody could figure out how to crack the code.
Until now. Check this out:
Klein Vision’s Flying Car
Source: Engadget
This is footage from a recent 35-minute inter-city flight in Slovakia. This car can reach an altitude of over 8,000 feet. And it can carry two passengers weighing up to about 440 pounds (about 200 kilograms).
Yet it looks like a sports car. It runs on a 160 horsepower BMW engine that takes normal gasoline. And it can reach speeds of 172 kilometers per hour.
And get this – the wings and the tail fold in when the car is on the ground. That enables it to function as an actual car as well. That includes parking in normal parking spots.
So this is by far the most promising flying car prototype I’ve ever seen. It has already completed 142 successful flights and landings.
And the story behind the car is just as impressive.
The inventor is a professor named Stefan Klein. And he’s been working on his flying car design for more than 30 years now. This is the third prototype, and Klein finally believes it is ready for prime time.
I admire Klein’s perseverance here. How many people have the fortitude to work on such a challenging project for three decades until they finally get it right?
Klein is developing the car through a Slovakian company called Klein Vision. I doubt he has the resources to take the product to market himself.
But I’m very curious to see if he gets a larger aerospace or automotive company to come in and fund the commercialization.
It looks promising, but there is a downside. The “driver” of the flying car also needs to have a license to fly a plane.
The real competition for this kind of inter-city or regional travel will be the electric vertical takeoff and landing (eVTOL) aircraft. These are much easier to fly, and they’re already being designed to be fully autonomous. This is where we’ll see more interesting investment opportunities.
We’ll wrap up today with the latest from the online brokerage Robinhood.
We talked a lot about Robinhood earlier this year as it was stoking the GameStop trading controversy and generally fueling the pumping and dumping of “meme” stocks.
Then, suddenly changing its tune, Robinhood began restricting accounts, preventing purchases, and, in some cases, forcibly selling stocks on behalf of its customers.
In short, it ran out of liquidity and wasn’t financially sound enough to handle all of its customers’ trading volume.
Naturally, this led to a wave of negative reviews. In fact, nearly 100,000 one-star reviews came in for Robinhood within hours on the Google Play app store. And guess what happened?
They were systematically removed. Google purged the negative reviews, leaving Robinhood with a 4-star rating.
Why would Google do this? Well, the fact that Google’s private equity arm GV invested in Robinhood’s Series D round may have something to do with it.
And as a result of its misbehavior, Robinhood just paid a $70 million fine to the Financial Industry Regulatory Authority (FINRA). This was to settle allegations that Robinhood misled and harmed its customers.
Given all this controversy, we’d think that Robinhood would be keeping quiet and working to improve its business right now. Not so…
Robinhood just filed for an IPO. And it’s going to be a big one. Shares recently traded at a $55 billion valuation in the secondary market.
And looking at the public filings more than confirms Robinhood’s dark secret.
The company advertises “free” trades, but it routes most of its customers’ orders through hedge funds for execution. This is referred to as selling order flow. Robinhood gets paid to route its customers’ orders through certain funds. That’s something I warned readers about last year.
This allows the hedge funds to “front-run” every trade on Robinhood. That means they buy the shares first at a lower price and then sell them to Robinhood customers at a higher price – and vice versa for sell orders.
Robinhood’s filings reveal that 81% of all its revenues come from this practice, which clearly takes advantage of its customers.
That said, people don’t seem to care that much. Robinhood still has a strong customer base. And it’s done a great job of “gamifying” stock trading. That fueled all the rampant speculation earlier this year.
And Robinhood is doing something with its IPO that I’ve never seen before. The company is setting aside 35% of its shares for its customers. Normally, the vast majority of a company’s shares are allocated to the investment banks, which then shop them around to institutional clients.
By doing this, Robinhood can directly market its IPO to retail investors on its own platform. And that could potentially fuel another speculative mania like the one we saw with GameStop earlier this year. Could Robinhood itself become the next meme stock?
No doubt Robinhood will benefit if it does attract GameStop levels of attention… But regular investors will get burned in the long run if the stock runs up to unreasonable levels.
So this will be another exciting IPO to watch… But for different reasons. I can’t say yet whether or not this will be a good investment. We need to first understand the valuation of the company and whether or not that valuation makes any sense.
I suspect that it won’t, but that doesn’t mean it can’t go even higher on pure speculation. I’ll be following the IPO process closely and enjoying the fireworks. What could possibly go wrong?
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
