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21st October 2021 > > Foreign remittance.

tl;dr

Cryptos are a boon for the world's poorest.


Market Snap







Market Wrap

The launch of the ProShares futures-based ETF has undoubtedly been successful.


Mr. Grumpy here – who wanted a physical ETF – has been proved wrong. Me being wrong doesn’t happen very often of course. We may never see it again.


Anyway, off the back of this success a new all-time high (ATH) was reached at $67k. The rally since the J.P. Morgan “Death Day” for BTC has been an impressive 134%.


The ProShares ETF is based on futures that have a fixed expiry, and therefore need to be settled at that date or rolled over.


For most commodities most of the time the futures contracts are priced higher than the spot price, and later contracts are priced higher than earlier contracts, to take account of storage costs and carry costs (the theoretical interest charged or foregone on the capital invested).


(If you want the maths - it is very simple and elegant - let me know, but I suspect most people don’t.)


This is known as contango and can be indicative of a market that is not in a stressful situation.


Regular reader Tracey has pointed out that copper futures are in backwardation.


In essence this means that futures contracts are priced more cheaply than spot, and later contracts are priced more cheaply than earlier one. This is nonsensical from a theoretical perspective but happens in real life due to supply squeezes and market constraints.


This does throw up arbitrage opportunities, but your stash must be larger than your theoretical leveraged notional (you cannot risk getting closed out), you must have patience, and costs increase every day the backwardation lasts.


Timing is all if you want to arb that kind of market situation.


BTC is already suffering from supply issues (that is why the price is going up) but it seems impossible to me that we would ever see backwardation in the BTC futures market.


The future supply of BTC is mathematically defined in the BTC code. The supply squeeze is mapped out for us. That supply squeeze cannot come as a surprise to anyone who has a smidgeon of consciousness.


Clearly storage costs are as about as close to zero for BTC as you can get, especially when compared to a commodity like gold. So, BTC’s contango would theoretically be minimal (anyone getting any interest on their bank account? Thought not).


But the BTC contango for the current future versus the subsequent one will not be small for one very simple reason.


All the investors in a futures-based ETF will have to be rolled every three months. This creates a very strong bid for the next contract, and a very strong offer for the current contract.


As this dynamic plays out, investors in this or any other futures-based ETF will lose not only the 0.95% in annual fees but also the roll cost between each quarterly contract.


I suspect this roll cost will turn out to be significant.


Perpetual futures funding rates have rocketed in the last 24 hours.


Perpetual futures do not suffer roll cost because they are perpetual.


They suffer funding rates instead.


Curious Cryptos’ Commentary – Foreign remittances

A recent theme of the CCC’s has been the topic of foreign remittances, and how cryptos and Central Bank Digital Currencies (CBDCs) can not only simplify and speed up the process, but crucially can reduce the costs of doing so dramatically.


Nigeria’s eNaira has this cost saving as a stated objective. El Salvador’s adoption of BTC as legal tender will achieve the same result.


I am pleased to report that the CCC’s influence spreads further than we thought. Some of the big boys have been taking note of the CCC’s comments on this topic.


Facebook has launched its Novi Wallet in a limited pilot program.


Head of the project, David Marcus, has said that its initial target audience will be the U.S. – Guatemala remittances corridor. Guatemala is in a similar situation as El Salvador with 56% of the population unbanked.


Over to you David:


“Money sent from family & friends abroad contributes more than 14% of GDP and 90% of those remittances come from the United States.”


Foreign remittances are a lifeline for some of the poorest people in Guatemala. They are about to receive a much greater share of the money sent to them than under the current flawed system of thieving middlemen preying on the poor and vulnerable.


This is patently obviously a good thing.

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