Some stocks are literally tokens off the blockchain, and some tokens are literally stocks on the blockchain. They both represent a proportionate ownership in a project or company. So, what distinguishes new crypto traders from new stock traders?
According to the US Securities and Exchange Commission (SEC), an investment contract exists when money is invested in a common enterprise with a reasonable expectation of profits from the efforts of others. Some coins and tokens pass the Howey test and are classified as securities.
Cryptocurrencies like Bitcoin BTC that primarily serve the purpose of replacing fiat currencies are regarded as commodities. In 2017, then-SEC Chair, Jay Clayton warned cryptocurrency exchanges, said that many of their products were likely securities and thus required registration under federal securities laws.
It is a universally accepted principle that before committing funds to any market or asset, one must first study and understand it. What is not specified is the study approach, a comprehensive list of factors to consider, and where to obtain the information.
Stocks are traded in mature markets that have been in existence for more than 100 years, whereas crypto tokens are relatively new, having been in existence for just over ten years. There is a vast body of literature on stock trading and best practices that has stood the test of time, whereas the literature on the crypto industry is a chase after a rapidly changing environment full of innovation and growth.
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To get started in the stock market, new investors frequently read books, take an online course, study stocks at a tertiary institution, or work as apprentices. There is plenty of information to help with the dos and don’ts. Most beginner traders in cryptocurrency lack the proper structure for studying and understanding the blockchain world before investing. This results in a trial-and-error approach to learning in which many cryptography beginners make mistakes that novice stock traders do not frequently make.
I acknowledge that some institutions, authors, online creators, and exchanges have created blockchain-focused curricula to help newcomers understand the scope and nature of cryptocurrency projects before investing. However, every couple of weeks, a new innovation in the blockchain world emerges, rendering previous educational content outdated. This is a good type of problem to have, but it has some drawbacks.
Newcomers to the stock market will frequently study the sectors, break down the industries within the sectors, weigh the performance of such industries, and identify individual stocks with the best chance of outperforming their respective benchmark indices.
The crypto market is maturing, and various sectors and/or industries, such as privacy coins, DeFi (decentralized finance) tokens, exchange coins, NFT (non-fungible tokens), metaverse tokens, fan tokens, and stable coins, are rapidly distinguishing themselves. Before investing, new cryptocurrency traders should understand the scope and nature of these classifications.
The profitability of the company in which they are investing is an important consideration for new stock traders. It is common knowledge that inexperienced crypto traders do not view a centralized crypto project as a company and thus overlook its profitability. For example, what is Decentraland’s MANA profitability? How much value is created, and how is it distributed to token holders? I might have an answer for Decentraland, but I can’t say the same for the vast majority of other coins.
The process of creating a crypto token is similar to that of registering a business or company. Its initial value is equal to the founder’s total net assets invested. The company’s future value is determined by the results of its operations and additional capital injections. This means that when a cryptocurrency founder creates a token, they are creating ownership blocks that they can sell or distribute to the community. The value of the token project immediately after token launch is equal to the total value invested by the founder and new token owners.
If a token meets the Howey test, meaning it involves people investing money in the token project, there is a common enterprise, and there is a reasonable expectation of profits derived from the efforts of others, it qualifies as a security and should be registered under securities laws.
If, after the initial token offering, the token founders allocate themselves a significant share of the total tokens available without contributing value, the value per token to the new buyers will be lower than the amount they purchased, which is arguably fraud. However, if the founders can back up their allocation with work done or proprietary assets contributed to the project, it may not be considered fraud.
Tokens should be treated in the same way that a new investor or angel investor would want to know the company’s bottom line and earnings history before investing, in my opinion. It would be appropriate to investigate what the crypto project does to generate value, quantify it, and speculate on the project’s future growth.
This approach would assist new crypto traders in avoiding purchasing tokens designed to defraud them. Of course, there are other factors to consider, such as contract audits and founder experience and track record, but using the above-mentioned approach would help filter out many crypto projects that frequently defraud new investors.
I agree that not all registered firms make or intend to make profits. There are blockchain-based tokens whose purpose is not profit, just as there are charity organizations, non-governmental organizations, and religious organizations, among others.
Tokens are commonly divided into three types: utility tokens, asset or debt tokens, and payment tokens. Asset or debt tokens are frequently regarded as a stake in the same way that holding a share is. Utility tokens serve as a gateway to digital applications, services, and ecosystems. Payment tokens serve as currency. A token can be a utility token, an asset token, or even a payment token.
When stock traders analyze a stock, they take into account the fundamental factors that may affect the stock’s demand and supply, such as market share, competition, consumer trends, and daily active user trends. Newbie crypto investors should take a similar approach, taking into account a token’s market share, competition, and changes in the number of daily active users.
To summarize, considering a token’s business model, financial health, profitability, and user growth rate may go a long way toward ensuring that newbie token investors do not fall for scam projects, as stock traders do.
Teacher, Police And Firefighter Pensions Are Being Secretly Looted By Wall Street
America’s severely underfunded public pensions are allocating ever-greater assets to the highest cost, highest risk, most secretive investments ever devised by Wall Street, such private equity, hedge funds, real estate, and commodities—all in a desperate search for higher net returns that, not surprisingly (given the outlandish fees and risks), fail to materialize. Transparency—public scrutiny and accountability—has been abandoned, as pensions agree to Wall Street secrecy schemes that eviscerate public records laws.
Our nation’s state and federal securities laws are premised upon full disclosure of all material risks and fees to investors: “Read the prospectus before you invest,” is the oft-cited warning by securities regulators. Nevertheless, teachers, police, firefighters and other government workers today are not allowed to see how their retirement savings are managed or, more likely, mismanaged by Wall Street.
For nearly a decade, the United States Securities and Exchange Commision has warned investors that malfeasance and bogus fees are commonplace in so-called “alternative” investments and, more recently, Chairman Gary Gensler has called for greater transparency to increase competition and lower fees.
Gensler has asked the agency’s staff to consider recommendations on ways to bring greater transparency to fee arrangements in private markets. “More competition and transparency could potentially bring greater efficiencies to this important part of the capital markets,” he said. “This could help lower the cost of capital for businesses raising money. This could raise the returns for the pensions and endowments behind the limited partner investors. This ultimately could help workers preparing for retirement and families paying for their college educations.”
Gensler has stated he would like to see a reduction in the fees these investments charge and has also commented on industry abuses such as ”side letters” which permit private funds to secretly give preferences to certain investors—preferences which harm public pensions.
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But that’s not good enough to protect public pension stakeholders.
No one—including the pensions themselves—seems to care that the government workers whose retirement security is at risk are being kept in the dark.
The SEC needs to do more—actually alert public pensioners as to those abuses the Commission knows full well are rampant, at a minumum. Advise them, Chairman Gensler, to demand to see and read prospectuses and other offering documents related to their hard-earned savings.
Does the SEC think it’s kosher for Wall Street to conspire with public pension officials to withhold this information from investors—any investors?
Since my 2013 forensic investigation of the Rhode Island state pension exposing gross mismanagement by then General Treasurer Gina Raimondo which I accurately predicted would cost workers dearly; my 2014 North Carolina state pension investigation exposing that $30 billion in assets had been moved into secretive, offshore accounts and, most recently, my investigation of the State Teachers Retirement System of Ohio, I have provided my expert findings to the SEC staff for their review. Each and every public pension forensic investigation I have undertaken has extensively discussed Wall Street secrecy schemes that enable looting. In my book, How To Steal A Lot Money—Legally, I quote disclosures from SEC filings that detail industry abuses.
Join me, Chairman Gensler, in giving government workers a clue, a glimpse, a peek, at the alternative investment abusive industry practices that are carefully guarded by Wall Street and being hidden from them.
Teachers, police and firefighters deserve a fighting chance to protect their retirement savings.
It Is Time To Buy Bonds
US 10-year note prices are likely to rise through August. The monthly histogram below shows that July and August have been the two strongest months for the note price.
Monthly Return- US 10-Year Notes
Blue: Average Percentage Change
Red: Probability of a rise on that day
Green: Expected Return (Product of the first 2)
These numbers are static in the sense that they change little over the years. This is only one cycle, the one-year cycle, whereas there are many cycles operative at any one time. In order to get a reading on such other rhythms, a scan is run to identify other profitable price cycles. The graph below reveals the most valuable cycles that are operative at any one time.
10-Year Note Monthly Cycle
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These cycles reinforce the seasonal tendency for notes to rise. Prices have risen in 60% to 65% of the time in these summer months. With the dynamic cycle also in ascent, the probabilities rise to about 65% to over 70%. There are similar and supportive developments in the Japanese and German fixed income markets.
The cycle projection must be confirmed by market activity. The daily graph reveals that price broke through a downtrend line.
10-Year Notes Broke Through Resistance
Here is a helpful sentiment indicator that supports the bullish view. The cover page of this week’s Barron’s points to much higher rates. Applying contrary opinion, this suggests lower rates and higher note and bond prices. The first objective is 123.0.
Will There Be War Over Taiwan – The Next Spy Thriller
I usually go through a rhythm of reading one or two serious books, followed by a few works of fiction and with summer on the way I wanted to highlight a few of both. In that regard I have just finished Laurence Durrell’s ‘White Eagles in Serbia’, an old-fashioned espionage thriller where the hero Colonel Methuen is dropped behind enemy lines in post war Serbia (he speaks excellent Serbo-Croat) and becomes embroiled in a violent plot to overthrow Tito.
The book is a warm-up to reading Durrell’s ‘The Alexandria Quartet’, a work that nearly won him the Nobel Prize. Durrell was part of an interesting Anglo-Irish family, who largely considered themselves Indian – his brother Gerald, the naturalist and writer, touches on this in ‘My Family and Other Animals’.
Though I am not an expert on these matters, I found ‘White Eagles’ a more realistic account of espionage than much of what we see in the media today (Mick Herron’s ‘Slow Horses’ is good), and overall it is a tale of derring-do that is more in keeping with the work of the founding fathers of the genre – Eric Ambler, John Buchan, Erskine Childers and Ted Allebury for example.
It also made opportune reading given what seems to be an epidemic of espionage – with reports of the Chinese hacking group APT40 using graduates to infiltrate Western corporates and notably the admission by the head of Switzerland’s intelligence that Russian espionage is rife in that country (notably in Geneva – for which readers should consult Somerset Maugham’s ‘Ashenden’ as background material).
These and other trends – such as the outbreak of a heavy cyber battle last week (against Lithuania and Norway for instance) and the increasingly public ‘clandestine’ war between Israel and Iran (they have just sacked their spy chief) point to a world that is ever more contested and complex.
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One of the new trends in the space is cyber espionage – both in the sense of stealing state and industrial/corporate secrets, influencing actors (such as the manipulation of the 2016 US Presidential election) and outright acts of hostility such as the hacking of public databases and utilities (i.e. healthcare systems). Here, if readers are looking for some serious literature I can recommend two excellent books – Nicole Perlroth’s ‘This is how they tell me the world ends’ and ‘Secret World’ by Christopher Andrew.
I am personally more intrigued by the difference between a spy and a strategist. A spy’s work could well be described as the pursuit of information about someone who is acting with a specific intent, as well as a sense of their reaction function. There are plenty of examples – from Christine Joncourt (‘La Putain de la Republique’) to Richard Sorge (see Owen Matthews’ ‘An Impeccable Spy’).
In contrast a strategist may try to plot trends and the opportunities, spillovers and damage they may cause. The US National Intelligence department is good in this regard, becoming the first major intelligence agency to publish detailed warnings on the side effects of climate damage.
Spies and strategists might work together, but history is full of examples (LC Moyzisch’s ‘Operation Cicero’) where intelligence fails to make it through the strategic process or is simply ignored for political reasons (might the early warnings on the invasion of Ukraine be an example).
In the spirit of the Durrells and Flemings of the world, what issues might be of interest in terms of digging into unknown knowns and unknown unknowns. Here are a few ideas, most of which are Asia focused (we might see an uptick in Asia focused thrillers).
On the diplomatic front, an interesting recent development was the visit of Indonesian president Joko Widodo to Ukraine, and then Moscow. It was a rare visit to Ukraine by an Asian leader and potentially marks the emergence or at least aspiration of Indonesia (population 273 million) as an emerging world diplomatic player. What has intrigued me so far is that there has been little coordination by the populous emerging (largely Muslim) nations (Nigeria, Indonesia, Pakistan) in the face of high energy and food prices, and that potentially Widodo could play a unifying role here.
Then, still in Asia, but on a more deadly footing, if the Western commentariat is to be believed, China is preparing an assault on Taiwan, and looking to learn from Russia’s military errors in this regard. Other countries are reacting, and I suspect that there will be much intrigue around Taiwan’s ability to acquire sufficiently powerful ballistic missiles that could strike the coastal cities of China, and relatedly how long might it take Japan to produce nuclear missiles (my sources say they could very ambitiously do it in five months!).
So, whilst the espionage literature of the 20th century has tended to be focused on Geneva, Berlin and London in the 21st century we may find ourselves reading about ‘behind the lines’ exploits in Jakarta and Tanegashima.
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