Financial Freedom

Everything that brings closer the idea of financial freedom, sound money, decentralised banking and emerging alternatives to the outdated banking system and fiat currency.

Read below articles about bespoke monetary solutions and sustainable, ethical ways of saving and investing your capital.

Learn more about the best ways of securing your portfolio, libertarian and decentralised alternative financial solutions, future investing and beyond. Join the future of money with Kinesis.

What is inflation and how can I protect my investment?

What is inflation? Never far from the global debate, inflation is one of the main talking points for politicians, central bankers and everyday citizens at the moment. Let’s start with an overview of the subject: Inflation is defined by rising consumer prices within an economy that indicates the currency supply has been overly increased relative to the supply of goods and services. The result is a devaluation in the buying power of that currency over time. This can and does lead to severe ramifications for the people who are spending or holding that currency. This year comes as no exception, with Western economies recording inflation rates as high as 8.5% (in the US) and 10.1% (in the UK) as of July 2022. The figures quoted here illustrate inflation recorded through the CPI index - a ‘basket of goods and services’ that reflect the buying power of a currency and serves as a benchmark typically used to measure inflation within the economy. Let’s say you have £100 pounds in a UK savings account that pays a 1% interest rate over the course of a year. After one year, you would have £100 pounds in your account, but if the inflation rate is recorded at 10% that year, you would have lost a significant amount of buying power. In other words, your cash would now be worth £91 in real terms, adjusted for inflation. If this information was proposed as an investment option - one where you would certainly lose money - it’s unlikely that the vast majority would take up such an offer. As Kinesis director, Andrew Maguire said in the latest instalment of Live from the Vault: “the money that you hold in your bank account is an investment decision.” Fiat Currencies Explained Since the start of the millennium, the value of money has been steadily decreasing, in relation to the value of gold, in part due to the valuation of fiat money and credit creation. Relative to gold, for example, the value of the dollar has almost totally declined, with the currency having lost 98% of its buying power since 1971. Gold prices increasing alongside the recorded US CPI rate While this is a more recent example, it does reveal the mechanics of the fiat currency system; according to Dalio, ‘of the roughly 750 currencies that have existed since 1700, only about 20 per cent remain, and all of them have been devalued’. The British Pound, Chinese Renminbi, the US dollar as well as the majority of global currencies in circulation today, are known as ‘fiat’ currencies - government-issued money, not backed by a physical reserve commodity, such as gold or silver. They operate under the fractional reserve banking system, one that allows banks to increase the money supply (the amount of a certain currency in circulation) in the economy by creating new loans and awarding interest while meeting customer withdrawal requirements. So what does the future hold for today’s fiat currencies? What is the cost of inflation? While many have already witnessed the devastating effects of high inflation, there is still some debate among economists about whether there is such a thing as ‘good’ inflation. The Federal Open Market Committee (FOMC) judges that inflation at a level of 2%, in the long run, is the target for the US central banks' mandate to stimulate maximum employment and price stability within the economy. Yearly Recorded Inflation Rate Across Global Economies However, when there are high levels of inflation for a sustained period of time, this can have a negative impact that extends beyond the monetary and into the political sphere, fostering a general distrust for those with the job of maintaining economic stability. When the creation of money sufficiently hurts the actual and prospective returns of cash and debt-based assets, people are less likely to hold their capital in the assets denominated in that currency. Investors are more likely to choose traditional inflation hedges such as gold, precious metals-backed currencies (such as KAU and KAG), commodities, and inflation-indexed bonds, as a store for their capital. Coupled with low or negative interest rates, there is no longer enough compensation for the increased supply of money in the financial system, and if left unchecked, this eventually leads to a self-reinforcing decline in the value of money. A recent example of this was in 2018 when the inflation rate in Venezuela hit over 1,000,000% a month, causing the economy to collapse and many to leave the country. The real cost of inflation is felt throughout the economy. It has the potential to further cement the divide between people in higher and lower socio-economies brackets, increase unemployment, and stunt the nation’s growth of business and trade. What does inflation mean for cryptocurrency? Alongside the discussion around inflation, some advocates have argued that cryptocurrencies such as Bitcoin can stand in as an inflation-hedge, in place of precious metals or other commodities. Advocates of Bitcoin (BTC) have argued that it is the asset’s scarcity - which is determined by its fixed and limited supply of 21 million - that protects holders of the cryptocurrency during times of rising inflation. This differs greatly from fiat currencies, which can be printed and created by central banks at any point - devaluing the currency as the supply increases. However, the question of whether unbacked cryptocurrencies offer sufficient protection against inflation is yet to be proven. The price of cryptocurrencies is typically volatile, with major tokens that have large market-caps such as Bitcoin and Ethereum prone to 5-10% swings. This volatility often results in their mixed performance against fiat. Since inflation has run rampant, the value of the cryptocurrency market has plummeted to an estimated $1 trillion, with Bitcoin losing half of its value since January this year. Bitcoin is now trading at around $19,300 at the time of writing. With many viewing the ‘crypto boom’ as a surefire way to protect from inflation, it seems that it is still worth considering tried and tested methods before taking the leap on every new token or coin that appears on the market. How to protect yourself against inflation? So you might be wondering, how can you protect yourself from an inflation rate that’s consistently rising on a monthly basis? With US inflation already reaching a 40-year high, and UK inflation projected to hit 22% next year if soaring gas prices fail to come down, the challenge of finding a store hold that can preserve the value of wealth becomes as important as it has ever been. Investors typically allocate a portion of their capital to a store hold that traditionally holds its value over time - particularly during periods of prolonged inflation. Gold has been one of the most reliable and durable assets to do so, being immutable, scarce and universally accepted as ‘valuable’ throughout history. Since the US uncoupled gold from the dollar in the early 70s, the precious metal has seen a gradual increase in its price trajectory. As well as offering a track record for storing value, gold’s performance during times of high inflation has presented a return of 15% per annum on average, when inflation has been higher than 3% (reported the World Gold Council). However, it’s not just retail investors who are stocking up on precious metals, governments and central banks worldwide are making sure to keep their coffers full, with global gold reserves at their highest level in almost 30 years. Zimbabwe returns to gold currency In response to inflation threatening to descale the stability of the Zimbabwe dollar, President Emmerson Mnangagwa has taken recent action to introduce gold coins as legal tender in the country. With 22-carat one-ounce gold coins tied to the international price of gold, the resulting stability of the economy may yet prove the latest example of the benefits of returning to currency backed by the unalterable supply of precious metals. Another real-world example paving the way for the global integration of gold currency is Kinesis. Overcoming the pitfalls of the current fiat-based model, Kinesis offers people a way to take greater control over their money with precious metals. Following the launch of a partnership with Indonesia’s national commodity and futures exchange, the Jakarta Futures Exchange (JFX), broker members are offered immediate exposure to the physical precious metals trading space through the JFX GOLD X product. When contemplating the success of the Indonesian integration, the boundless potential of Kinesis’ public-private partnership model is endless. The national integration not only represents a groundbreaking development for Indonesia but forges a clear, proven and actionable path for the other governments of the world to follow. To combat the ongoing problem of high inflation, Kinesis reduces the barriers to entry for those looking to build their wealth in gold and silver by letting account holders start earning from the moment they buy Kinesis native currencies. Users are rewarded when they store, spend or trade their metal with a yield paid out in gold and silver every month. Interested to learn more about Kinesis gold? Learn More This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.

Latifa Alkhanjary
Latifa Alkhanjary

08/09/2022

Does Ethical Investing Really Work?

It’s a loaded question, but it’s worth asking: how effective is ethical investing in tackling environmental and social concerns? Ethical investing can be thought of as industry-speak for the concept of “putting your money where your mouth is”. As we might use public transport, reduce water consumption or choose to take fewer flights, investors want to be sure that ethical investing has a significant real-world impact before embarking on the task of reevaluating their entire portfolio. This article will take an empirical standpoint, asking the question: does ethical investing really work? What is ethical investing? Ethical investing is a strategy in which an investor chooses to invest in companies that meet a certain moral standard. Every time you direct capital towards certain companies or industries, even certain everyday products, you are indirectly casting a vote with your capital. This is why ethical investing is typically centralised in areas like clean energy, sustainable products, and socially positive services. It’s a growing movement, with proponents claiming that ethical investing can also produce positive economic performance. In other words, it seems that you can do good, and make money. Ethical, sustainable & socially responsible investing There are multiple terms generally used for this type of ethics-based investing: sustainable investing, impact investing, socially responsible investing, and ESG investing. These terms generally refer to the same principle of investing your money in companies and industries for positive change. Where they differ is in the approach that investors take to reach that goal. Some portfolios may only include positive-impact investments, while others may exclude overtly negative-impact funds like firearms and tobacco. Most ethical investing uses Environmental, Social, and Governance (ESG) investing factors to judge specific investments: environmental, social, and corporate governance; a high ESG score represents a company’s long-term exposure to environmental, social, and governance risks. For example, if you want to focus on social justice, you may look for investments with a high ESG score in the social category. For a strong environmental focus, you may include companies with a high score in the environmental category. Sustainable Investing Sustainable investing is another branch of ethics-based investing. It is the practice of investing in companies that seek to combat environmental harm and climate change while promoting corporate responsibility. Socially responsible investing (SRI), for example, is a strategy that aims to promote social change and provide financial returns. This approach to business, however, has received criticism in the past through the argument that businesses should not have a social conscience. Developing on Friedman’s stance, some analysts believe that social responsibility undermines the point of business: profit over all else. So, it is important to ask the question: Is it possible to make money investing ethically? The ESG market is fairly new, but growing rapidly. In just the first three months of 2020, more than 70 new ethical funds were launched. In that time, around £27bn was invested into ethical funds while £133bn was withdrawn from other European funds. Now, there are over 2,500 ethical funds on the market.  This growth is spurred not only by public interest but also by the positive performance of ethical funds. The traditional thought that ethical investing is good for the soul but not beneficial for the wallet, has been overturned by the recent performance of ethical funds. 66% of sustainable funds finished 2019 with returns in the top half of Morningstar categories, outperforming many traditional funds and boosting confidence in this type of investing. In the first quarter of 2020, when the COVID-19 pandemic first struck and caused a downturn in the market, 24 out of 26 ESG index funds outperformed comparable conventional funds. This evidence suggests that ethical funds may offer lower levels of risk, even in such volatile markets, making them even more attractive. In addition to this, there is an increasing belief in the longevity of companies with high ESG scores. What’s more, companies thinking about their social and environmental impact may be less prone to scandal or corruption, which can result in a longer lifespan and material reward. After the tumultuous events of 2020, more public attention is certainly on the topic of social responsibility. As younger generations become more prominent and involved in their own investment decisions, companies with a strong social base may reap the benefits. Issues in ethical investing With its popularity comes some confusion and obstacles in ethical investing. Some issues within the ethical investment space are: Industry label confusion A survey by Which? News revealed that the ESG investing industry uses labels that most investors don’t truly understand. You already know the definitions of ethical, sustainable, and socially responsible investing and how much they overlap. Here are even more labels frequenting the industry: Currently, there is no regulation on using these labels, so they can vary by a fund manager and allow for a wealth of approaches. By its very nature, ethical investing is subjective, so labels and funds vary by each investor. For example, take the automobile industry. You could argue that this is a negative-impact industry since most cars run on fossil fuels and contribute to pollution. However, some companies, like Tesla, are famous for their electric vehicles and thus could be considered ethical investments. Take Audi, which manufactures both electric and gas-powered cars. You could argue that Audi should be included in a light green investing portfolio for its electric vehicles or excluded from a traditional ethical portfolio for its gas-powered cars. Unreliable data The vagueness of data also makes for difficulty in truly understanding the market’s performance, since these interchanging labels and standards can lead to varying research. Furthermore, companies’ activities cannot always be proven, and often, it may take months or even years for ethical or sustainable behaviour to be proven. While it is well-known that industries like clean energy are growing and carry great importance, they are still relatively young. Their fullest potential is yet to be realised and it is therefore difficult to estimate their future performance accurately. Greenwashing A common issue in ESG investing is companies 'greenwashing’: misrepresenting an investment to appear more sustainable than it is. Think of eggs labelled “farm fresh”, gas companies called “environmentally-conscious”, and so on, when those claims are exaggerated or cannot be strictly proven. As the market realised that the public was becoming increasingly socially conscious, the “green” label suddenly appeared on everything. Critics have called sustainable investing a marketing ploy or scam for this exact reason, noting that companies are merely trying to capitalise on the trend. Greenwashing can cause companies to be incorrectly included in ESG funds and contribute to the problem of unreliable industry data. However, some believe that any commitment toward sustainability is better than nothing. Ultimately, it’s up to the investor to decide whether this is the case. Some might agree and choose to reward the oil company that at least proposes a 20-year goal to become environmentally conscious over the companies that make no such promises. Others might claim that that isn’t enough and only invest in companies with viable actions and products. In-depth research is the key to reducing the harmful effects of greenwashing; often, with a bit of digging, investors can make more informed decisions about whether their investments truly fit their ethical standards. Many parties have also called for more explicit guidelines and standardisation around ESG scoring and investing, such as the Biden Administration and The Climate Group. Positives of ethical investing The growing trend of ethical investing has already begun to show its potential as more companies make sustainability commitments or enact new protocols to uphold social values. By engaging in ethical investing, you can access the benefits listed below: Returns on investment As we’ve explored, there is data to back the claims that ethical funds can yield returns. Particularly since the beginning of 2020, some funds demonstrate their ability to withstand market volatility and perform well against their traditional peers. The number of ethical funds available to invest in has grown, as has the value of the industry, and some ethical indices have grown faster than the FTSE 100 over the last decade. UK sustainable index outperforming FTSE 100 Growing popularity Powered mainly by the ethical lapses revealed in the COVID-19 pandemic and the growing economic power of the next generation, the popularity of ESG investing is growing. As a more significant portion of the public becomes interested in supporting companies with social and sustainable benefits, pressure on investment managers and corporations builds. This also paves the way for more formal guidance on ethical investing, such as calls for standardised ESG scoring, government involvement in regulating claims, and more independent research around ethical claims being conducted. Building the future In some circumstances, impact investing can be quite powerful with enough people and capital behind it. However, there is still scepticism that unless this is the case, ethical investing may be more of a symbolic act rather than a world-changing one. In-depth reports have highlighted that access to capital is a much bigger deal in smaller markets with fewer investors and perhaps smaller companies. In these environments, investors may have more power to influence change. Still, we cannot assume that ethical investing is automatically worthwhile or promise that every fund will bring record-breaking returns. Even in traditional investing, the direction of the future is not guaranteed. While not every impact investment is likely to yield dramatic results, many analysts are optimistic that, if done right, it can be powerful. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.

Latifa Alkhanjary
Latifa Alkhanjary

15/02/2022

This is how to invest and still be ethical about it

Simply put, ethical investing is the practice of applying your core values and principles to your investment decisions. Many people think that if they invest ethically, they must suffer when it comes to their expected returns, but that is not necessarily the case. In the US alone, ethical investing has become a $17.1 trillion dollar industry, with over 800 investment companies involved. As many investors have developed a greater awareness of the wider impact that their investment decisions can have, ethical investing has taken precedence as a matter of social responsibility. With the first socially responsible mutual fund, Pax World, launching in 1971, companies are now under pressure to respond to investors' demand for more ethical and responsible practices across all levels of business. However, this is not just a crucial subject for active investors, but for any individual who holds money in the bank. Due to the nature of the fractional reserve banking system, the majority of cash left in the bank is pooled and loaned out to individuals or businesses. These loans could inadvertently be funding activities that the client is not aware of or ones that adversely affect the wider environment - such as heavily polluting industries. What is ethical investing? Ethical - also termed responsible - investing, is a value-based approach to investment, that considers the guiding principles of companies and industries, besides the potential profit to be gained. The act of ESG investing (focusing on environmental, social, and governance issues) is just one category of ethical investment which enables a commitment to financial decisions that stand for change. Another way that ethical investment can be envisioned is through impact investment, as outlined below: Positive impact investing: where investors choose industries and companies that align with their values, one example being investment into the production of green energy. Negative impact investing: where investors avoid industries and companies whose values do not align with their own, and decide to omit them from their portfolio. Types of ethical investing When people are investing ethically, the guidelines they follow can be social, moral, political, and/or environmental. In particular, religious values can often play a significant role when investors decide if they should invest or not. For example, Sharia law discourages investment in tobacco and alcoholic substances, or any investment mechanism that is debt-based. This means that Islamic investors must seek out Sharia-compliant companies, such as Kinesis, in order to engage in this form of responsible investing. With public-private partnership projects positioned to support the full integration of the Kinesis system into the Indonesian national postal service, financial inclusion is provided for through the system's usage-based yield model on gold, which serves Indonesian nationals with the stable value of gold. In recent years, the environmental crisis is becoming one of growing concern, hence why environmental or green investing is finding its way into investors’ ethical agendas. Ethical investing in this field is centred around a commitment to sustainability and questioning whether a product is environmentally harmful, such as through the manufacturing processes involved, before investing. Profitability of ethical investing People often still believe that if they invest ethically, they need to compromise on performance and returns, but this is not always the case. However, the narrative that choosing from a more restricted investment pool of responsible funds might lessen the potential for financial returns, is still a concern for some investors. Despite this, evidence shows that performance-wise, responsible funds can match and even out-perform mainstream, traditional funds. For instance, Morningstar UK Sustainability Index performed better than FTSE 100 and FTSE All-Share in the last few years. To further aid investors in making decisions about ethical investing, companies are awarded an ESG score, which helps determine the company’s projected long-term exposure to environmental, social, and governance risks. A company’s ESG score also extends to how the company treats its employees internally, in order to establish if best practices are being met in this area. Lately, tech companies have taken the lead in ethical investing, with Microsoft earning a remarkably high ESG score of 76.3. Advantages and disadvantages One of the most significant advantages of ethical investing is that it helps investors benefit emotionally and financially when a company shares their values. It follows through with the concept that individuals should not have to sacrifice their principles when directing their cash flow. What’s more, ethical investment can also provide the means for long-term, sustainable growth. A further advantage of ethical investing is that when others consider ethical investment as important to them, it can encourage other businesses to improve their practices to attract funding. This further stimulates market competition in the name of ethical investment, as companies begin driving their efforts towards the same missions. This can simultaneously discourage investors from buying shares in companies that are not following the same ethical or responsible principles. As for the downsides of ethical investment, one issue that plagues this field, as well as businesses branded as sustainable, is the act of “greenwashing”. There is ample wiggle room in the realm of ethical investment since the terms "sustainability" or "eco-friendly" can be highly subjective. Companies can latch onto investor sentiment to do good, rather than ensuring they follow through with claims of sustainability in the long term. For instance, companies that claim to be eco-friendly may simply consider the end result of a product, without evaluating the process through which it was developed or created. Overall, since personal principles are dynamic and constantly evolving, a commitment to frequent reevaluation of your portfolio is needed, as well as a strong awareness of your own ethical principles. Future of Ethical Investing In the near-long-term future, ethical investment looks as though it's here to stay, with consumers now putting more focus on issues of personal and corporate responsibility in the investment landscape. Companies attempting to be more sustainable can indicate that they are gearing towards long-term positive impact and planning, providing greater certainty about the longevity of an investor's chosen investment vehicle. In the past, the main focus for investors was on eliminating specific companies and industries like arms or alcohol, in negative impact investing. However, today there is a focus on the transition towards better systems or investment strategies that impact the world more positively, as well as developing more awareness about monetary flows, and the resulting effects they have. While ethical investment is often looked upon with cynicism, the underlying directive of moving towards fairer, more ethical systems of business can be impactful when done correctly. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.

Latifa Alkhanjary
Latifa Alkhanjary

03/02/2022

How is FinTech shaping the Remittance Industry?

In a globalised world, money is rapidly becoming borderless. Heightened migration and commercial expansion on an international level have triggered a stark increase in remittance payments being sent, globally. Reports show that the bulk of remittance payments are being directed at developing countries by migrant workers. These payments ranked higher in their contribution to the recipient country’s economy than foreign aid. In 2018, The World Bank reported that remittance sent to low and middle-income countries reached a record high of $529 billion. Although the Covid-19 pandemic initially triggered a dip in remittance payments being made, trends show that they are, once again, on the rise. While the reliance on remittance is not the all-purpose built solution for emerging economies, remitted payments have drastically increased the GDP of these countries. What is a Remittance? When money is sent to another party, this is referred to as a remittance or a remittance payment. Now that currency can be transacted, transferred, or sent via email, the term foreign remittance is more often invoked to describe the process of sending money to someone who resides in another county. When transacting money, we expect that a fraction of that sum will be lost to the central banks or the institutions we are transferring money to. However, the fees incurred from remittance payments are notoriously high, as many will have noticed when trying to take out money from an ATM abroad. The World Bank reported that in 2021, an average cost of 6.38% was deducted from a sum of money sent as a remittance. Hence, banks and Money Transfer Operators (MTOs) make a significant profit on the exchange rate used to convert one currency to another. Whether you are a company owner or a migrant worker, fair remittance payments are crucial; not only will that increase the recipient’s fiscal spending power, but it will often serve as an emergency response fund for individuals experiencing a natural disaster or political conflict. Fair remittance means that money can flow directly from the remitter to the recipient family member or friends, as opposed to foreign aid, which may never reach the parties in need of it. Types of Remittance When discussing remittance, there are two types to be aware of: Inward Remittance: when funds are sent domestically, from one person to another within the same country.Outward Remittance: when funds are sent to a bank account in another country. Right now, outward remittance is skewed towards exploitative rates. This means that individuals sending money from their host country to the recipient’s face a transaction fee, a loss of value due to the exchange rate, and a fee relative to the speed of the transfer. This can take anywhere from under an hour to more than six days. Remittance as Industry Competitors in the remittance industry that can offer high-speed transfers and limits, favourable rates and no hidden fees are starting to have an edge over the renowned market-dominant, Western Union. Notably, the impact of blockchain on the remittance industry is also having a major impact. Digital currencies like Dash, Cardano, and of course, Bitcoin, can be sent abroad for a fraction of the cost and time that traditional outlets offer. In fact, blockchain enables these transactions to happen in a peer-to-peer manner, such that intermediaries are no longer involved nor needed. The great diaspora remitting payments to their countries of origin are likely fulfilling families or individuals in developing countries who are considered to be underbanked. Moreover, remittance payments can function as an alternative financial solution for often the poorest segments of society. Underbanked, Underserved In 2017, 1.7 billion people were classifiable as ‘unbanked’ in emerging economies. This means that these individuals lack access to banking infrastructure, a mobile phone or the required government-issued ID to open a bank account. A lack of financial inclusivity is no good for the underbanked individual nor the country’s economic system as a whole. Those who remain under or unbanked, tend to develop a general distrust of banking systems and further, a lack of participation in the country’s economy. The Importance of Remittance Remittance payments are, for many developing nations, a significant contributor to the economy. A staple report demonstrated that remittances equate to over 10% of the GDP of developing economies over the course of a year. These payments are highly important, not just for the country’s internal economic growth, but for global economic development as a whole. In certain cases, remittance payments that flow directly to citizens in developing countries can function as business start-up capital. This enables the injection of funds into business infrastructure that will eventually act as a catalyst for employment opportunities, innovation, and stirred competition. The result of start-up capital is plain to see, from the tech giants dominating Silicon Valley to the dramatic impact of Alibaba on Hangzhou, the domino effect of enterprise transforms the operation of cities. Remitted payments can therefore provide financial leverage for start-ups, paving the way for financial success. Looking Ahead Understanding the importance of remittance payments, mega-corporations should take care to manage the extent they are capitalising on an individual’s hard-earned cash. Coincidentally, the recent partnership of Monzo and Wise is indicative of fintech start-ups seeking to benefit from the explosive capital opportunity presented by the remittance industry. Thankfully, there is a much safer, efficient and transparent alternative to this. System participants are able to send fiat currencies or digital cryptocurrency assets via the Kinesis Monetary system for an extremely low fee, with the transaction executed in seconds. What’s more, the ecosystem offers users the option to purchase physical gold and silver currencies, KAU and KAG, which are backed 1:1 by the respective precious metals. In turbulent times of high-level inflation and economic instability, money parked in precious metals is becoming increasingly more appealing for those in emerging markets. As for the remittance industry as a whole, the diversification of providers can be a positive aspect for individuals. More competition means that companies will have no choice but to do better in regard to their services, rates, and product offerings. It may be this rivalry that leads, eventually, to fair remittance policies for all.

Latifa Alkhanjary
Latifa Alkhanjary

04/11/2021

Bitcoin versus Gold: Is Bitcoin the New Gold?

In recent years, this has been a frequent question for investors. Oftentimes, Bitcoin and gold are pinned against each other, as journalists observe the rally in Bitcoin’s market value, speculating on the future of the two assets. It seems strange to compare gold and Bitcoin when they are in fact two very different financial instruments. As it will be explored further, despite the many similarities that they share, these are far outweighed by their significant differences. On the whole, when observing the potential face-offs between the two in today’s technological environment, the outcome is favourable for precious metals. What is Bitcoin (BTC)? In 2009, Bitcoin was created as an electronic currency which, unlike conventional currencies, came on to the financial market as a decentralised option, eradicating the need for a bank or financial institution to act as an intermediary. Instead, transactions are recorded in a public database, which is then distributed on the Bitcoin blockchain network. The network enables the anonymous, peer-to-peer exchange of virtual coins (or fractions of them), as transactions that cannot be manipulated, duplicated or destroyed. These transactions are broadcast to several computers which act as ‘nodes’ on the global Bitcoin network, to verify the records as accurate. To date, Bitcoin has never been hacked or compromised, because to do so would be extremely difficult, if not impossible. This can be attributed to vast amounts of energy supply needed to power the Bitcoin network, such that one Bitcoin transaction uses nearly the same amount of electricity as a British household in two months. For certain institutions like central banks or governments, the possibility of taking full control of cryptocurrency transfers and transactions is well out of reach. Gold and Bitcoin: What are the differences? Tangibility Gold is a tangible, raw material with even its derivative contracts linked to an underlying value of physical gold that follows the same price valuation trend. Unlike precious metals, virtual or digital currencies have no intrinsic value, rather, they are mechanisms for exchange. For a large proportion of the globe, the value of digital currencies comes from their ability to act as a utility, that can be transferred, transacted and exchanged peer-to-peer. History Gold, as we know it, has been used as a material since antiquity, with its unique properties that have enabled its survival through bloody wars - and even tempestuous market conditions. The other competitor, Bitcoin (and virtual currencies) has been present in human history for just over a decade, leaving much still to be understood about the full extent of their impact on money as we know it today. During this time, Bitcoin has experienced everything from major price growth and subsequent declines, to hacking scandals on compromised crypto wallets. With a backdrop of high volatility and triumphant advertisement from crucial figures like Elon Musk, the future of cryptocurrencies continues to divide and spark opinion. Demand On the whole, the global demand for gold has been relatively stable over time, within even significant variations in the range of 5-10%. Underpinning that stability is the fact that demand comes from different sectors, such as industry and jewellery, in addition to central banks and investors. The relationship between these two sectors is often inversely correlated, such that during an economic crisis, demand from the jewellery and industrial sectors will tend to fall while increasing from the investment sector. In times of economic expansion, the scenario will likely be reversed. The same cannot be said to apply to the cryptocurrency market, which is still in its infancy. Prone to volatility, the value of Bitcoin, as with other cryptocurrencies, moves in extreme cycles that resemble sharp spikes and dips. Market capitalisation Despite its multiple rallies, Bitcoin’s market capitalisation has never come close to that of gold. Speaking of which, it has been estimated by the World Gold Council that gold’s market cap sits at around $10-11 trillion. This figure is around 8 times more than the market capitalisation of Bitcoin and around 5 times more than the entire cryptocurrencies sector. Moreover, even if Bitcoin has a key role to play, the total value of cryptocurrencies is divided between more than 10,000 different e-currencies. This offers a fragmented picture of the cryptocurrency world, making it more difficult to make a comprehensive assessment of the sector. Furthermore, certain cryptocurrencies may cease to exist in the future. It is gold that remains ever-present in the world, even if it is lost, stolen or hard to recover - at the depths of a sunken ship, for example. This too could happen to Bitcoin. At the same time, large quantities of gold are held by individuals as family treasures, with jewels stored privately across the five continents. The World Gold Council has estimated that this gold tucked away amounts to around 90,000 tonnes, effectively reducing its availability on the market by 45%. The similarities between Gold and Bitcoin Finite Supply One possible common feature of gold and Bitcoin though is that supply seems to be finite. The total number of Bitcoins that can be "mined" is equal to 21,000,000 units, which should be mined completely by 2140. About 50% had been mined by 2014, and 75% by 2017. The pace then declined progressively, with energy costs making the activity increasingly uneconomical - regardless of Bitcoin’s market price. Gold’s current global supply is also limited, with known reserves estimated by the World Gold Council at 57,000 tonnes. However, there are two limitations. First, the quantity is finite, secondly, some of that gold is practically impossible to extract, or at least it is not economical to do so at the current market price. For example, consider the gold that is buried under mountains or located underwater in the middle of the oceans. Price Comparison Some similarities have been found analysing the gold rush of 2002-2011 with Bitcoin rallies. From a technical viewpoint, the gold prices jumped from around $250 to a peak of $1,920 in the span of a decade. Bitcoin’s explosion was much quicker and corrections were also much sharper. All this is telling of the crypto market that is just getting started, with significantly higher volatility. In a few words, the possibility of reaching higher returns could be greater. However, as many investors may have already experienced first-hand, the possibility of facing sharp declines or sometimes collapse can be detrimental to a portfolio. Needless to say, Bitcoin is not yet gold and will probably never become like the precious metal. Gold is still widely accepted as the preferred safe haven for investors. Carlo Alberto De Casa is Market Analyst for Kinesis Money. He also writes as a technical analyst for the Italian newspaper La Stampa. Carlo Alberto provides regular commentary for UK outlets including the BBC, Telegraph, the Independent Bloomberg & Reuters. He is also a commentator for CNBC Italy. He worked for Bloomberg as their Equity Research Fundamental Analyst before joining brokerage ActivTrades in 2011 to specialize in currency markets and commodities. In 2014 he published a book on gold and the gold market, followed by a new updated edition in 2018. This report is not an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance.

Carlo Alberto De Casa
Carlo Alberto De Casa

27/10/2021

Tether vs. KAU: The Difference Between Fiat Stablecoins and Gold Stablecoins

Find out what Tether's recent audit investigation means for its future and how Tether fares against Kinesis native gold-backed currency: KAU. What is Tether? Tether (USDT) made its stance on the crypto scene when its trading started in 2015. It quickly established itself as a fiat-backed alternative to standard cryptocurrencies like Bitcoin or Litecoin, which experience extreme market volatility. As the name suggests, Tether is a cryptocurrency that is 1:1 allocated - or tethered - to the equivalent amount in traditional fiat currency, specifically the US dollar (USD). Today, it ranks 5th among the leading world cryptocurrencies, according to its coin market capitalization, certainly making it one to watch. How does Tether stay at $1 dollar? Since one Tether coin is pegged 1:1 to the US dollar, it is not surprising that its valuation should rest comfortably at a pricing of $1 for a coin. This single fact can be attributed to Tether’s success, as a cryptocurrency with a proposition to ensure the collateralized, fully allocated value of each coin. Since fiat currency has traditionally operated with fractional reserve banking and is managed by central banking institutions, Tether exists as an alternative that claims to have a pegged, stable value to every single coin. This provides the basis for a more stable option to holding fiat currency in a traditional bank account, where only a proportion of fiat is held in its physical form (cash reserves). A Dip in the Market Despite Tether’s reputation as a stablecoin, its price has dipped below the value of $1 a number of times in recent years. Tether sparked controversy in 2019, causing an alarming debate about the integrity of the cryptocurrency when an investigation into Tether’s trading platform revealed that it was not fully backed by the dollar. In fact, the landmark investigation by New York Attorney General, Letitia James, found that Tether was in fact only 74% backed by the dollar at the time. A few months before in November 2018, Tether Ltd. published an audit report of their cash reserve at Deltec Bank & Trust Ltd. but at least $700 million was removed from Tether’s account the following day. Without user awareness, it was revealed that this sum was moved from Tether’s account to Bitifinex’s - one of their affiliated companies. Trust in Stablecoin Since the scandalous revelations about Tether unfolded, users continued to trade the cryptocurrency, as evidenced by its trade volume which has almost doubled since late 2018. However, when scandals like this one are publicised, general trust for crypto, especially a currency that claimed to be a stablecoin, can be severely dented. After Tether published the report on their dubiously audited cash reserves, Tether denied further commentary on the investigation but conceded to pay an $18 million fine as settlement, promising to provide quarterly audits of their reserves for the next two years. To avoid future penalisation, Tether clarified their claim of being 100% backed, making the following addition on their website: “Every Tether token is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”).” Tether’s reserves, revealed as being diversified across unnamed third parties and affiliates, was a public response from the company that left participants questioning the security of it as a digital asset. One damning report even suggests that Tether’s cash reserves only back the USDT tokens by 2.9% as opposed to the 100% backing initially promised by the company. Clearly, this presents a problem for customers who want to exchange their USDT tokens for physical US dollars, as the company does not provide any guarantee of physical redemption. In contrast, when Kinesis users redeem the value of the Kinesis gold-backed KAU, they receive its equivalent value, since KAU is always backed 1:1 with physical gold bullion. With biannual audits published twice a year, Kinesis seeks to provide a fair and transparent monetary system for all users on the platform. Find our most recent audit here. A Question of Value With fiat, crypto or alternative forms of currencies, it is clear that money cannot just be a medium of exchange but must also function as a store of value.Hence, the instability of Tether as a supposedly stablecoin will continue as long as the dollar is not linked to a stable asset or commodity backing its value, such as precious metals. Market analysts have shown that gold and the dollar oftentimes have an inverse relationship, so while the dollar has depreciated, gold has appreciated in value over time. The dollar has historically depreciated in value, in line with inflation, since its value was separated from gold after the fall of the Bretton Woods Agreement in 1971.However, gold has appreciated in value almost 50 times over since this date, making it the asset of enduring value. By modelling a system on the steady and stable value of gold, Kinesis offers a true alternative to the ills of the byzantine banking system. In comparison to Tether, Kinesis KAU and KAG currencies enable users to generate a recurring passive monthly yield simply for holding the gold and silver in their Kinesis accounts or wallets. In today’s low or even negative-yielding environment, the need for gold-backed stablecoins is clear, in addition to a currency that ensures protection against inflation, which fiat currencies do not. Find out more about the Kinesis Money yield system here.

Latifa Alkhanjary
Latifa Alkhanjary

22/09/2021