Crypto, fad or opportunity?
By Justin Pyvis – Delivered on 23 Nov 2021

Good morning! Australia's international border restrictions were eased further yesterday, with the country set to open up to fully vaccinated people on 28 different types of visas (mostly relating to skilled workers and students) from 1 December. The government reckons an estimated 200,000 migrants will take advantage of the change in December and January alone.

Australia's travel bubble was also expanded to include fully vaccinated Japanese and Korean citizens, who will be able to visit Australia quarantine-free provided they hold a valid tourist visa and present a negative PCR test taken within three days of departure.

But don't go booking that Chrissy holiday just yet – the bubble is one directional, with Japan still closed off to most non-resident foreigners and Korea prohibiting all non-essential travel.

Fully vaccinated population (aged 16+)

ACT
NSW
VIC
TAS
SA
QLD
NT
WA
Markets

Daily % change

AUD/USD

72.3

-0.7%

AUD/CNY

4.63

-0.2%

AU Yield (%)

1.88

+6.0%

US Yield (%)

1.63

+5.8%

ASX200

7,353

-0.6%

S&P500

4,722

+0.5%

Brent (bbl)

79.5

+1.3%

Gold (oz)

1,805

-2.3%

Iron ore (t)

94.6

+4.5%

Bitcoin

56,220

-4.3%

Ethereum

4,082

-4.4%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries. The S&P500 is a snapshot 30 minutes before close.

At the time of writing the US S&P500 had risen 0.50% following the nomination of Jerome Powell for a second term at the Fed and continued growth in US home sales, which rose 0.8% in October from a month prior, the second straight monthly increase.

Locally, the ASX200 dropped 0.59% with travel stocks faring particularly poorly (Flight Centre -7.1%, Qantas -4.0%), as renewed lockdowns in Europe dampened hopes of a return to normalcy.

Economy

Stimmy reversal: The Commonwealth Bank expects higher interest rates to trim 10% off Aussie house prices in 2023 after a moderation in 2022 due to "near term indicators of momentum coupled with the recent move higher in fixed rate mortgages".

Won't work: Hungary's government is attempting to keep a lid on inflation (currently 6.5% per annum) by imposing a three-month price cap on fuel prices. So instead of more expensive fuel, Hungarians will get fuel shortages.

No wonder consumer confidence fell to its lowest level since April, even as "Orban's government has showered the electorate with handouts [ahead of an election next year], including a $US2 billion income tax rebate for families and an extra month's worth of pensions".

Not just Hungary: Consumer confidence declined "markedly" in both the eurozone (-6.8) and EU (-8.2) in November, the first time confidence has dropped below its pre-pandemic levels since March as lockdowns loomed and restrictions were placed on unvaccinated citizens (the survey was conducted between 1-22 November).

Model this: Around 400 public servants in the NT refused to get vaccinated and will have their employment terminated. According to Chief Minister Michael Gunner, 100 of them are "front-line" workers and will be replaced, "but overall there will be a reduction in the public service of about 300 positions... [and] there are no impacts to service delivery expected from these people leaving their employment".

So the NT will save $A30 million a year on its wages bill with no decline in service delivery – is there really that much dead wood floating around the public sector?

Powell stays put: US President Joe Biden will nominate Jerome Powell for a second four-year term at the helm of the Federal Reserve, promoting challenger Lael Brainard to vice chair. The remaining handful of vacant spots on the board will be filled "beginning in early December". Bond yields shot up on the news, with Powell considered to be less 'dovish' than Brainard (but he's no hawk!).

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Feature
Crypto, fad or opportunity?

At yesterday's Australian Financial Review Super & Wealth Summit, Financial Services Minister Jane Hume said that "we need to acknowledge this [crypto] is not a fad... We should tread cautiously, but not fearfully".

Senator Hume's comments follow hot on the heels of the Reserve Bank of Australia (RBA), which last Thursday cautioned that the "current fervour for cryptocurrencies" is being "influenced by fads and a fear of missing out".

Stepping back: Crypto in Australia has an uncertain future, and not just because the RBA believes that "the arrival of new stablecoins and Central Bank Digital Currencies (CBDC)... [would mean] existing cryptocurrencies might then have only niche use cases, at best".

It's a largely unregulated space, with the Senate's recent Select Committee on Australia as a Technology and Financial Centre concluding that Australia would be able to "drive innovation and enhance our competitiveness... if we grasp the opportunity to update our regulatory frameworks".

Why this matters: Senator Hume warned that positions such as those held by the RBA risk making Australia the person who:

thought the iPhone would never take off because people would prefer to have their music and telephone on separate devices;
was still doing their financial models by hand in 2001, rather than using Excel;
in 1995 said the internet was just a place for geeks and criminals and would never become mainstream; and
argued that email was a passing fad.

Looking forward: It is possible, of course, that the RBA is correct and cryptos such as Bitcoin are merely a passing fad, to be eventually replaced by a range of boring CBDCs. In China that outcome is looking almost certain given the government has relegated all other cryptos to the black market.

But if it's wrong and manages to use its influence to stymie the effective regulation and development of decentralised finance in Australia, we could be leaving billions of proverbial bills on the sidewalk. In the meantime, the regulatory uncertainty means crypto innovators may increasingly look outside Australia for investment opportunities.

The Wrap Up
    🧐SA's deputy Premier Vickie Chapman stood down pending the outcome of an ombudsman's inquiry, after SA's Parliament passed a vote of no confidence against her last week.
    🗾Japanese baseball player Shohei Ohtani, recently named American League MVP, declined Japan's People's Honour Award because "he wants to concentrate to attain still greater heights".
    📝The International Institute for Democracy and Electoral Assistance warned that "More countries than ever [since 1975] are suffering from 'democratic erosion'," as checks on government and judicial independence decline along with media freedom and human rights.
    💉One Nation's vaccine mandate discrimination bill was voted down in the Senate 5-44 and as neither Pauline Hanson or Malcolm Roberts were in Canberra, the only votes were from five LNP senators who crossed the floor.
    🎾The head of the Women's Tennis Association said despite the release of a video showing Chinese tennis star Peng Shuai eating at a restaurant, "it remains unclear if she is free and able to make decisions and take actions on her own, without coercion or external interference".
    Rioting continued in the Netherlands on Sunday for the third day in a row, with protesters upset at the government's decision to remove the option for the non-recovered and unvaccinated to access facilities with a negative test result.
    🗳️Chile's election will head to a run-off next month between Jose Antonio Kast, a "far-right former congressman" (28.2%) and Gabriel Boric, head of "a broad alliance that includes Chile's Communist Party" (25.3%), as neither candidate was able to secure a majority.
    ✈️Air New Zealand cancelled around 1,000 flights between New Zealand and Australia in December, affecting 20,000 customers, because of a lack of "clarity from the New Zealand Government" about when its border restrictions will ease.
    🌋El Salvador's government will create a zero-carbon oceanside "Bitcoin City" powered by volcanic geothermal energy, providing land and infrastructure to attract investors. The city will be tax-free except for VAT (13%).
    ☠️Germany's Health Minister said "by the end of this winter... pretty much everyone in Germany will be vaccinated, cured or dead".
    ☢️Following the signing of the AUKUS submarine deal, China's President Xi Jinping said he "supports ASEAN's efforts to build a nuclear weapons-free zone".
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