Tuesdays With Teeka: The World’s Hidden Currency Crisis

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Posted: Nov 27, 2018 12:01 AM
Tuesdays With Teeka: The World’s Hidden Currency Crisis

Most people have probably heard a little something about what’s going on in Venezuela. The inflation rate there is nearing 1,000,000%. Stores are empty, and people are starving. Millions of Venezuelans are fleeing their country to survive.

But that’s not the only currency crisis going on.

The Argentine peso has lost 51% of its value so far this year. And the currency continues to fall.

Argentina is relying on a $50 billion bailout loan from the International Monetary Fund. Why anyone would give Argentina money is beyond me. The country has gone bankrupt seven times in the past 200 years… But that’s something for another day.

The Turkish lira is also down—42% so far this year.

Even the Russian ruble has started to crumble… It’s down 17% compared to the dollar.

In the currency markets, a 5% annual move is huge. And all these moves are more than three times greater than that. It’s devastating these emerging market currencies.

A major problem is debt.

Many of these countries borrowed vast sums of money. Emerging market debt has tripled since 2007, and now stands at $63 trillion. That’s bad enough… But to make matters worse, many of these loans must be paid back in U.S. dollars. As the dollar rises, their currencies get weaker… So the loans get more expensive to service.

Emerging markets need to pay back or refinance $1.5 trillion in debt over the next 18 months. And guess what? They don’t have the money.

So you have countries issuing debt they can’t service… and printing too much money to try and cover this debt. Nothing kills a currency faster than that.

This absolutely destroys their economies.

I just got back from Russia a couple weeks ago. While I was there, I asked people what they were doing about the falling ruble. And you wouldn’t believe what they told me… They said they just stopped saving!

Saving was pointless… So they’d go and spend all their money as soon as they earned it.

Russians are really worried about the ruble. Historically, the ruble gains strength when the price of oil goes up. Over the past two years, oil has soared 55%. But the ruble has dropped 40% in value since February.

It leads people to believe there’s something bigger going on behind the scenes..

But there are a couple of ways to save.

You can buy real estate. Property tends to do well in a currency crisis. But the thing is, banks aren’t lending money. Why would a bank lend you money when they know the payback will be in devalued currency? They won’t.

So you can’t get loans to buy real estate.

You can try buying gold or silver coins… but you can’t spend those. That creates a real problem when it comes to paying your bills.

Anyone who knows me probably knows where I’m going next…

The only thing some of these people can do to maintain purchasing power and pay their bills is turn to bitcoin.

And this is the one thing most Americans don’t understand. We have a relatively stable currency here. So we don’t see the need for bitcoin.

I’ve always said bitcoin is a great speculation for Americans, but it’s not designed for everyday use. Most of us aren’t going to be paying for our daily coffee with bitcoin anytime soon.

But bitcoin becomes valuable elsewhere as a medium of exchange.

Between August 1 and August 12, bitcoin trading volume in Turkey exploded 350% while the lira crashed. It’s up more than 150% in Venezuela since the beginning of the year… and it’s nearly doubled in Argentina since March.

When emerging markets have currency crises, their citizens turn to bitcoin.

Why not U.S. dollars? Well, It’s not that easy to get U.S. dollars in some places…

First, most countries only allow you to transact in their own national currencies. And that’s what most people use. So using physical dollars is out.

Another option would be credit cards. But there’s a couple problems with using them, too.

Some countries restrict the use of credit cards. In others, the interest rates are so high that it’s prohibitive for consumers to use them. Also, the average emerging market consumer doesn’t have a strong credit history.

Assuming people could get a credit card, my experience is local merchants in emerging markets don’t like to take them because of the high fees.

That really only leaves us with cryptocurrencies as a viable solution.

That’s why whenever there’s a currency crisis, bitcoin usage goes up. You can’t put capital controls on bitcoin. That’s why it’s so heavily used in Venezuela right now. 

Now, like I said, this will only happen in countries with a currency crisis. Even then, it happens slowly. It’s not like everyone just wakes up one day and starts using bitcoin.

You see, Bitcoin has a scaling problem. When a lot of people use the bitcoin network, it slows down transactions, and fees go up. It’s like a toll road with a lot of traffic. Tolls go up when traffic increases.

But like I told you back in May, bitcoin will soon have a solution to this problem.

It’s called the Lightning Network.

The transactions on the Lightning Network will happen instantaneously… and the fees will be so miniscule, you won’t even notice them—less than a millionth of a penny per transaction.

Right now, it’s in beta testing. Developers are working out all the bugs. But in six to 12 months, it’ll be ready to roll out for everyone to use.

Then, for the first time ever, we will have a fully scalable and cheap global bitcoin payment network.

This will open a whole new world for payment applications. All of a sudden, instead of taking 10 minutes and at least $1 in fees to send a transaction… you’ll be able to do micro-transactions that will settle instantly for a cost that is essentially free.

Remember when long-distance telephone calls used to cost 15 cents per minute? Then the telecom companies deregulated… and long distance became free. And what happened? Telecom usage exploded. There was enormous value creation in the telecom space.

For us, it will push the price of bitcoin higher as more people use it.

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At the age of 18, Teeka Tiwari began his career on Wall Street.  He quickly became one of the youngest vice presidents in the history of Shearson Lehman Brothers, and would go on to manage a hedge fund.  In 2013, Teeka joined The Palm Beach Research Group.   Some have even started calling him “The Oracle” of cryptos.  Teeka has been a regular contributor to the FOX Business Network and has appeared on FOX News Channel, CNBC, and ABC’s Nightline.  He is also an Official Cryptocurrency Expert to Townhall Media.

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