Moral Hazard

Let's start off by saying that Facebook's new Libra coin (under current proposal) should not be called a stablecoin.

A stable coin is one that's pegged to a specific currency, or other asset, in order to reduce volatility and therefore the exchange rate remains similar to that of the asset it is pegged to. What Libra is proposing is actually a new currency with a floating exchange rate.

In fact, the Libra is set to act more like an asset-backed ETF, only with a small twist. Libra holders won't get the profits.

According to the Libra White paper, the Libra Association in Switzerland will be responsible for managing the assets that back the new currency and will receive all the yield from the incoming investments.

This structure creates a moral hazard for the association members who will be incentivized to seek the maximum yield at any cost.

Last Friday, I alluded to this concept on Twitter just to check the reaction. After seeing this article in the Wall Street Journal yesterday, it seems my fears have been confirmed. 

Let's hope that they reconsider this plan before launching the product.  

Traditional Markets

Ever since it became clear that the Fed and other central Banks are going along with calls from the market and calls from politicians to ease up on monetary policy, we've been in a bit of a different market.

This chart shows the market expectations for US interest rates by the end of the year. Take a look at the black line, which signals three cuts by the December meeting.

You'll notice a sharp rise at the beginning of June. It is a sudden shift but overall traders remain complacent and volatility remains subdued. That's not to say markets aren't trending, because they certainly are.

What are the trends?

Gold is going nuts, now at its highest levels since the crash in 2013.

The Dow Jones is happy and nearing its all-time highest levels.

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Please note: All data, figures & graphs are valid as of June 25th. All trading carries risk. Only risk capital you can afford to lose.

All you need to do is guess what the price of bitcoin ...

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