Technology Lawyer working on code and everything law. Founder : Blockchain Research
Global financial markets are tumbling again as market sell-off accelerates due to fears of lockdowns occurring again in parts of Europe. As the hopes of a faster economic recovery die down, the situation for small and medium enterprises and individuals is becoming bleaker day by day due to a fall in demand and no hopes for a fiscal stimulus from the government. With a dip in the business activity, individuals must hedge themselves against various financial and budgetary risks that are arising in the market today. I sat down with Jon Squires, CEO of Currency.com; a CIS regulated exchange for trading tokenized stocks, indices, commodities, and FX pairs with fiat or crypto to talk about global financial markets, technology, and how investors should hedge themselves against the market downside.
Ishan Pandey: Why is the sell-off in stocks, indices, and cryptocurrencies intensifying globally?
Jon Squires: The pandemic-driven recession is turning out to be a huge obstacle, much more significant than what financial analysts predicted. The global markets were rallying after a massive sell-off in February based on hopes of recovery and an increase in demand after lockdowns are lifted. But, what we see right now is that the demand in the consumer market has more or less decreased and in some sectors has completely collapsed. There are various reasons for this; for example, the increase in unemployment has created a demand shock in the consumer markets. Individuals who are getting jobs again are spending less and saving more. This is a global trend, as now people are living on the principles of minimalism, not because they want but because of pay cuts, decrease in demand, and increase in coronavirus cases are forcing individuals to protect themselves against an unpredictable future.
Fiscal and monetary stimulus-induced in the economy has had its results, but we are still not sure that such stimulus has actually propped up demand in the market. More fiscal stimulus is needed and we fear that the federal reserves have used most of their corrective measures simultaneously, leaving them with very few options right now. The central banks can’t print more money now or it is going to result in inflation at levels that we have not seen before. That’s why central banks must focus on fiscal stimulus and reforms wherever needed to stabilize the market. The best option for the government would be to put money directly in the hands of consumers and households.
The truth is that there is a massive gap between the “stock market” and the “real market.” Financial Institutions, Banks, Hedge Funds, Investment Banks, high net worth individuals and retail investors are disconnected from the ground reality living in a bubble. Most are working remotely from homes, expecting consumers to go out and delve into comfort shopping, and that is not happening in various sectors as predicted. This drop in retail demand in turn puts more small businesses into financial distress, leading to more redundancies.
Ishan Pandey: How can investors and individuals hedge themselves against the current uncertainties in the market?
Jon Squires: Right now, the aim of a private individual or a retail investor should be to save what he/she has and allocate capital in less risk and volatile markets. Gold is a good option, with bets on technology stocks as they have witnessed continued growth even during the pandemic. Investing right now is very important for individuals because if their money is kept parked in their savings account, they are losing anyway due to inflation. Retail inflation has increased by more than 3-6% globally, and this is a worrying trend for investors.
Gold, Silver, and Indices are the best bet right now. What we are seeing is that even the cryptocurrencies market is directly correlated to the global financial markets. I think this is due to the same reasons that the psychology of the market is changing.
Ishan Pandey: What assets, bonds, and capital market instruments should investors look at?
Jon Squires: Right now, the portfolio of investors should be focussed on creating diversified holdings with a focus on sectors such as technology, e-commerce, pharma, etc. These sectors are really doing well during the pandemic. Even tokenized bonds, shares, and tokenized assets are an excellent option for investors to hedge themselves against any risk. Currency.com offers tokenized equity and debt instruments to investors as a hedge with tight spreads and excellent liquidity. Currently, high volatility is going to exist in markets, which is an opportunity for investors to create portfolio holdings that can yield high returns in the future. As they say, billionaires are made at times of recession. There is a reason for this that during a recession, investors with cash are in an enviable position, and they can purchase assets, companies, and products at a price lower than the market price and even in various cases, at a price lower than the fair market price. This is where opportunities lie for investors, and that’s why the current market strategy should be to save what you have and invest conservatively.
Ishan Pandey: Can you explain what tokenized assets are and how they work in financial markets?
Jon Squires: Tokenization is a method of materializing the ownership in a financial instrument by creating a “token” executed on a distributed ledger technology ( DLT) database.
Tokens created by Currency.com make it possible for investors to participate in top global price volatility. Tokenized assets are tokens that equate to a single underlying asset (e.g., share of Amazon, Adobe, Netflix, cash, oil, gold, etc.). When the price of the actual commodity increases, so does the tokenized instrument. When the price of the actual asset decreases, the tokenized security matches it exactly. As such, investing in tokenized assets gives the same potential for benefit as conventional assets.
For example, a Netflix.cx token indicates the success of a NFLX share on the Nasdaq. Users of tokenized asset exchanges use their cryptocurrency holdings to acquire Netflix.cx and transfer it as though they were buying Netflix’s own equity. Ofcourse, the trades are carried out with strength, transparency, and high velocity with tight spread and volume.
A tokenized security is a blockchain-powered commercial, financial commodity that satisfies all the regulatory criteria of the nation in which it is regulated. The great option here is that tokenized assets allow you to exchange and benefit from the underlying market price of conventional assets with your crypto holdings. You don’t need to trade them for fiat anymore.
Robust and irreversible blockchain technologies underpin the tokenized properties. Making a trade would send you a token that travels according to the price of the underlying instrument. Essentially, they allow investors to take advantage of market-wide price action without converting the crypto portfolio into a fiat.
Ishan Pandey: What are your views on the US dollar? Is the dollar more powerful now as the reserve currency of the world?
Jon Squires: It is a difficult question to answer right now as we are still in a pandemic. The winner would be chosen only after the dust settles but nevertheless, what we are seeing is that from an institutional point of view, there is less incentive to hold dollars now. For example, central banks in Europe, Japan, and South-Asian Countries used to hold dollars to provide them with a very secure, risk-free, and medium yielding source as compared to the interest rates in Europe and Japan. But right now, as the interest rates in the US have decreased to the levels similar to that of Europe and Japan, there is much less incentive for banks and governments to park their money in dollars. This is a problem which the dollar is facing couple that with the problem that the Federal Reserve is printing a lot of money, which is creating excess supply in the market. But on the other hand, there is no other market instrument that government institutions and banks can rely on. China is coming up with its digital currency, but that is just too risky for European banks, Syndicates, and Japanese financial institutions to even consider. Due to the absence of alternatives, the dollar is still going to be the king.
Ishan Pandey: Do you think that Yuan/Renminbi would be able to overtake the dollar as the currency of the world?
Jon Squires: The Republic of China is giving a tough fight to the US, but the problem is that they are basing a lot of their strategy on digitizing Yuan on the blockchain. To be a top global reserve currency and to maintain your position, these actions won’t be enough. Maintaining hegemony globally is all about economics, foreign relations, and soft power. This type of politics is something which the Chinese government doesn't prioritise with the major Western financial centres. With stressed relations at borders at all fronts, be it Japan, India, and even Russia, it is highly unlikely Yuan would overtake the dollar. Why would Vietnam hold their reserves in Yuan when China is creating problems at their border? This is what the Chinese government is missing at the moment - building economic partnerships with influential markets. It lost a major opportunity with its actions in Hong Kong.
Further, the recent gold scam committed by Kingold, where fake bullion worth 20 billion yuan was pledged, and later it turned out to be gilded copper, has only cemented the beliefs of various institutional investors that dealing with China comes with various critical risks. The gold had been inspected not only by the lenders and insurers involved but also by state organisations like the Hubei provincial assay office and gem certification center of China in Wuhan.
Ishan Pandey: What trends, opportunities, and challenges do you see in 2020-2021?
Jon Squires: Agri-tech is going to be a trend that we are watching. Agricultural practices have long been plagued by redundancy and they are due a complete overhaul. With locust attacks in Africa, the Middle East, and in South Asia, we can see a global food shortage pending due to which modernizing agriculture at an accelerated pace is going to become very important. No one is talking about this because right now, the world is facing multiple problems all at the same time due to which some issues are being brushed under the carpet.
Financial markets are also seeing an overhaul with the introduction of tokenized instruments, which provides investors with better avenues to park and invest their wealth all at one venue. More companies are using unique and sophisticated tools in their business operations, and this trend is going to be continued.
The purpose of this article is to remove informational asymmetry existing today in our digital markets by performing due diligence by asking the right questions and equipping readers with better opinions to make informed decisions. The material does not constitute any investment, financial, or legal advice. Please do your research before investing in any digital assets or tokens, etc. The writer does not have any vested interest in the company. Interviewer - Ishan Pandey