When compared to fiat currencies, cryptocurrencies are not backed by central governments as a legal tender. Central governments state that their currency has a particular value, and the parties in a transaction trust the stated value. Most countries operate using a fiat currency system, with monetary reserves and central banks controlling their supply of money, indirectly controlling inflation. While both entities are supported by quite similar characteristics, there are some essential differences between the two.
Cryptocurrencies are purely digital in nature, and most on the other hand, have a fixed supply, therefore ensuring that the devaluation of a cryptocurrency due do inflation is non-existent. There is no middleman when it comes to transacting in cryptocurrencies, and they are fairly easy to acquire and easy. Being volatile in nature and limited in supply, the value of cryptocurrencies change frequently, making it an enticing investment opportunity to venture into for seasoned traders and amateurs alike. What exactly determines the value of cryptocurrencies though?
What are the biggest determinants of cryptocurrency prices?
As does the very basics of economics dictate, for an entity with a fixed supply possibility, and a fluctuating demand, if a cryptocurrency has a high surge in token supply at a time, but little demand for the same from users and traders, its value will drop. Similarly, if the supply of a cryptocurrency is less, but its demand is high, the value of the coin will rise.
A scarcity of supply will only end up driving up prices when the demand for that particular entity increases. This is one of the main reasons which saw the price of bitcoin soar. Bitcoin has a fixed cap of 21 million tokens, which when compared to other tokens is quite low, while its demand has soared exponentially over the years. To put it into perspective, on the 22nd of May, 2010, two Papa John’s pizzas sold for 10,000 bitcoins! As of the 30th of September, 2019, the price of bitcoin stands at $7,813.
Speculation, social media and media have a great impact on the price of cryptocurrencies as well. New developments in a particular cryptocurrency technology, a fork and an increase in popularity, all in turn may lead in the increases in value of a cryptocurrency. If a token receives negative publicity, its demand is likely to reduce, which in turn will lead to a dip in its price. If the same token were to receive good media coverage and high profile support, the price is all but certain to increase over time. To put it into perspective, cryptocurrency prices are heavily influenced by hype and emotion.
According to bitcoin CaptainAltcoin’s lending systems article, other factors that may end up having a big bearing on the eventual price of a cryptocurrency at any point of time are the usefulness of a token with respect to its utility and the underlying blockchain technology used, with respect to its usefulness in solving real-world problems. The mining difficulty of proof-of-work (PoW) tokens too could have a bearing in dictating its value. The higher the difficulty in mining, the harder it is to increase the supply of a token. This could eventually lead to upward pressure on its price when the demand for the coin is high.
Why do cryptocurrency prices fluctuate so often?
To put it into perspective, the cryptocurrency market is relatively new when compared to other trading institutions. Limited liquidity exists with respect to the cryptocurrency market when compared to other established markets. To put it into perspective, the value of all the money in the world is upwards of $90 trillion, while the cryptocurrency market cap is at $250 billion.
According to wallstrategies.com on a daily basis, cryptocurrency trading values hover at about $14 billion, while forex trades account for about $5 trillion. A major investment, or sale in the cryptocurrency world would lead to shockwaves, disrupting the market and maybe even causing it to crash, while the same would be but a mere ripple to other established trading institutions. Cryptocurrencies are sold and traded on exchanges, accounting for a single point of failure. If an exchange is hacked into and a large sum of money stolen, it can have a devastating effect on the tokens stolen, and lead to serious credibility issues. All these factors combine into fluctuating cryptocurrency prices, sometimes leading to huge surges in prices, while at other times leading to immense price dips.
Conclusion on what determines the value of cryptocurrencies
New possibilities, several options and a thin market with respect to depth makes it easy to fluctuate the price of an entity, thereby leading to its volatility. Nevertheless, the volatility of cryptocurrencies makes for interesting investing possibilities and the opportunity to earn quick money if you know what you are doing. The future holds great promise for the cryptocurrency world, with several established institutions opting for blockchain technology. Once touted a bubble waiting to burst, cryptocurrencies have taken the world by storm, and is hear for the long run.
About the Author:
Michael is an experienced financial trader using Forex, Commodities and Cryptocurrencies. In addition to trading, he runs businesses, trains traders and develops trading technology products. His other passions are boxing and traveling.
The EUR/USD currency pair has been declining. The trading instrument has updated local lows. The demand for safe assets has grown amid fears of a renewed trade war between Washington and Beijing. The ECB forecasts that Eurozone GDP in 2020 will fall by 5.5%. The single currency has a potential for further decline. At the moment, the local support and resistance levels are 1.0885 and 1.0925, respectively. We expect economic releases from the US. Positions should be opened from key levels.
The Economic News Feed for 05.05.2020
At 17:00 (GMT+3:00), the ISM non-manufacturing PMI will be published.
We also recommend paying attention to the speeches by FOMC representatives.
Indicators do not give accurate signals: the price has fixed between 50 MA and 100 MA.
The MACD histogram is in the negative zone and continues to decline, which indicates the development of bearish sentiment.
Stochastic Oscillator is in the neutral zone, the %K line is below the %D line, which also gives a signal to sell EUR/USD.
Trading recommendations
Support levels: 1.0885, 1.0845
Resistance levels: 1.0925, 1.0970, 1.1015
If the price fixes below 1.0885, a further fall in the EUR/USD currency pair is expected. The movement is tending to 1.0850-1.0820.
An alternative could be the growth of EUR/USD quotes to 1.0950-1.0980.
The GBP/USD currency pair
Technical indicators of the currency pair:
Prev Open: 1.24823
Open: 1.24408
% chg. over the last day: -0.09
Day’s range: 1.24350 – 1.24740
52 wk range: 1.1466 – 1.3516
There is an ambiguous technical pattern on the GBP/USD currency pair. The British pound is consolidating. There is no defined trend. Local support and resistance levels are still: 1.2425 and 1.2485, respectively. Financial market participants expect indicators of economic activity in the UK. A trading instrument is tending to decline. We recommend opening positions from key support and resistance levels.
At 11:30 (GMT+3:00), data on economic activity will be published in the UK.
Indicators do not give accurate signals: the price has fixed between 50 MA and 100 MA.
The MACD histogram is near the 0 mark.
Stochastic Oscillator is in the neutral zone, the %K line is below the %D line, which indicates the bearish sentiment.
Trading recommendations
Support levels: 1.2425, 1.2385, 1.2315
Resistance levels: 1.2485, 1.2515, 1.2570
If the price fixes below the support level of 1.2425, a further drop in GBP/USD quotes is expected. The movement is tending to 1.2380-1.2350.
An alternative could be the growth of the GBP/USD currency pair to 1.2530-1.2560.
The USD/CAD currency pair
Technical indicators of the currency pair:
Prev Open: 1.40828
Open: 1.40862
% chg. over the last day: +0.02
Day’s range: 1.40315 – 1.40918
52 wk range: 1.2949 – 1.4668
The USD/CAD currency pair has become stable. There is no defined trend. The loonie is currently testing support of 1.4030. The round level of 1.4100 is the key resistance. The Canadian dollar is supported by price recovery in the “black gold” market. We recommend paying attention to the news feed from the US. Positions should be opened from key levels.
At 15:30 (GMT+3:00), data on Canada’s trade balance will be published.
Indicators do not give accurate signals: the price has fixed between 50 MA and 100 MA.
The MACD histogram has moved into the negative zone, which signals the power of sellers.
Stochastic Oscillator is near the oversold zone, the %K line has crossed the %D line. There are no signals at the moment.
Trading recommendations
Support levels: 1.4030, 1.4000, 1.3940
Resistance levels: 1.4100, 1.4150, 1.4200
If the price fixes below the support level of 1.4030, USD/CAD quotes will fall. The movement is tending to 1.3980-1.3960.
An alternative could be the growth of the USD/CAD currency pair to 1.4130-1.4160.
The USD/JPY currency pair
Technical indicators of the currency pair:
Prev Open: 106.800
Open: 106.723
% chg. over the last day: -0.02
Day’s range: 106.509 – 106.789
52 wk range: 101.19 – 112.41
USD/JPY quotes are in a sideways trend. The technical pattern is ambiguous. At the moment, the trading instrument is testing local support and resistance levels: 106.55 and 106.80, respectively. The demand for safe-haven currencies has grown significantly. We expect economic releases from the US. We also recommend paying attention to the dynamics of US government bonds yield. Positions should be opened from key levels.
Indicators do not give accurate signals: the price has crossed 50 MA.
The MACD histogram is in the negative zone, but above the signal line, which gives a weak signal to sell USD/JPY.
Stochastic Oscillator is in the neutral zone, the %K line has started crossing the %D line. There are no signals at the moment.
Trading recommendations
Support levels: 106.55, 106.40
Resistance levels: 106.80, 107.00, 107.35
If the price fixes below 106.55, USD/JPY quotes are expected to fall. The movement is tending to 106.30-106.00.
An alternative could be the growth of the USD/JPY currency pair to 107.00-107.30.
By Jameel Ahmad, Global Head of Currency Strategy and Market Research at FXTM
Small advances in stock market appetite following the first three-day fall in worldwide stocks since early March suggests that investors are still looking cautiously when it comes to global market sentiment. The same can also be said for Gold, which is hoovering near $1705 at time of writing and appears to be awaiting its next trigger in volatility.
There is still hope for Gold prices to push beyond the seven-year highs that it has already met this year and many look at the economic challenges that will remain long after the coronavirus pandemic is over with as an opportunity for stronger Gold demand. I would however be keen to point out that at least for now, Gold is trading in a very narrow range and the end of this range with an upper-limit at $1740 would be required to the upside in order to open up a probability of Gold advancing towards $1800 over the coming months.
$1720 and $1740 are near-term resistance levels on the Daily timeframe that are preventing further increases in Gold.
(Gold Daily timeframe FXTM MT4)
Traders should also be mindful that at times where the market appears overly-positioned for a move in one direction, that this is where potential surprises in the other direction become a risk. For Gold this would be another round of unexpected selling.
The Daily timeframe suggests that the lows seen near the candlesticks on 13 April, 20 April and 1 May around $1670 is acting as a near-term support preventing further Gold declines.
Should this level be breached, $1655 might be viewed as a future support level for traders.
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
Markets are rising today as optimism boosted by lockdowns easing around the globe outweigh concerns over US-China tensions. Recovery of crude oil prices also buoyed investors’ appetite as earnings season rolls on.
Forex news
Currency Pair
Change
EUR USD
+0.38%
GBP USD
-0.23%
USD JPY
-0.41%
The Dollar weakening has resumed today. The live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, jumped 0.5% Monday despite reports US factory orders sank 10.3% in March, and orders for durable goods slumped 14.7%.. Both EUR/USD and GBP/USD reversed climbing Monday as drops in purchasing managers indexes showed manufacturing activity fell to all-time lows in Germany, France, Spain and Italy in April. Both pairs are lower currently. AUD/USD continues climbing today while USD/JPY continues its slide.
Stock Market news
Indices
Change
Dow Jones Index
-0.11%
Hang Seng Index
+0.56%
Australian Stock Index
+1.14%
Futures on three main US stock indexes are edging higher currently after ending higher Monday despite steep falls in airline shares after news Berkshire Hathaway of Warren Buffett had sold its carrier holdings. Walt Disney, DuPont and Sysco are among companies in the SP 500 reporting quarterly results today. Stock indexes in US rebounded on Monday : the three main US stock indexes posted gains ranging from 0.1% to 1.4% led by technology shares. European stock indexes are higher currently after extending losses Monday with data pointing to continued decline in economic activities in April. Asian indexes are mostly higher today with markets closed in Japan, South Korea and mainland China. Australia’s All Ordinaries Index surged 1.6% as the Reserve Bank of Australia held interest rates steady at 0.25%.
Commodity Market news
Commodities
Change
WTI Crude
+4.43%
Brent is extending gains today for a sixth straight day. Oil prices rose on Monday supported by recent announcements of voluntary production cuts by US oil firms. Organization of the Petroleum Exporting Countries and other major producers have commenced cuts equating to 9.7 million a barrel a day, about 13% of global production, on May 1 through June. US shale oil producers have cut production roughly 1 million barrels per day below pre-COVID pandemic levels. The US oil benchmark West Texas Intermediate (WTI) futures advanced Monday: June WTI added 3.1% and is rising currently. July Brent crude closed 2.9% higher at $27.20 a barrel.
Gold Market News
Metals
Change
Gold
-0.1%
Gold prices are edging lower today. June gold added 0.7% to $1713.30 an ounce on Monday.
Note: This overview has an informative and tutorial character and is published for free. All the data, included in the overview, are received from public sources, recognized as more or less reliable. Moreover, there is no guarantee that the indicated information is full and precise. Overviews are not updated. The whole information in each overview, including opinion, indicators, charts and anything else, is provided only for familiarization purposes and is not financial advice or а recommendation. The whole text and its any part, as well as the charts cannot be considered as an offer to make a deal with any asset. IFC Markets and its employees under any circumstances are not liable for any action taken by someone else during or after reading the overview.
Investors got a look at first quarter GDP, and it wasn’t pretty. The U.S. economy contracted by 4.8%, even worse than the 3.3% decline anticipated by economists.
In addition to that bad news, 4 million more Americans filed for unemployment last week. More than 30 million people have lost jobs over the past 6 weeks, and the situation is only getting worse.
The S&P 500 lost 2.8% on Friday.
Perhaps equity investors are beginning to wonder if share prices, which have moved relentlessly higher in recent weeks, accurately reflect the dismal economic data.
Warren Buffett certainly is. The famed investor announced his company, Berkshire Hathaway, had sold all of its holdings in four U.S. Airlines and sounded a generally bearish tone in his annual letter to shareholders.
A new wave of selling and turmoil in the stock markets could drive a new wave of demand in the physical gold and silver. It is something for gold bugs to watch closely.
Physical inventories remain tight, and premiums are already high. A new rush of buying will only exacerbate the scarcity problem in coins, bars, and rounds.
The Money Metals News Service provides market news and crisp commentary for investors following the precious metals markets.
As states push to reopen businesses, arguing their economies are losing too much money under current coronavirus precautions, they can’t ignore the other side of the economic equation – the one involving human lives and potentially hundreds of billions of dollars in medical costs.
If the U.S. reopens its economy prematurely and COVID-19 cases surge again, medical expenses will surge, too. Someone has to pay those costs. If you own a business, pay for health insurance or pay taxes, that someone is you.
It allows us to quantify what could happen depending on how the pandemic progresses and the resulting direct medical costs and health care resource needs. The results were published in the journal Health Affairs.
These models try to recreate all of the people, processes, resources and systems involved in a given health or public issue, such as a pandemic, to serve as virtual worlds to test different possible scenarios, policies and interventions and calculate the expected costs.
For this latest coronavirus model, we created virtual representations of the entire U.S. population.
Each virtual person had probabilities of becoming infected with the new coronavirus, SARS-CoV-2. Like a real person, the virtual person had chances of developing mild or severe symptoms, or having no symptoms at all during the course of the infection. No symptoms naturally meant no health costs.
How medical costs pile up
If the person developed symptoms, what happened next depended on how severe the symptoms became and what the person ended up doing.
For example, treating a child with only a mild illness requiring no more than a telephone call to a doctor would typically cost around US$32 (in most cases ranging from $19 to $56). The cost for an adult in the same situation would be about $17 (in most cases ranging from $16 to $67). Our model incorporated the variations in costs that occur, so that two people could have the exact same paths, yet still have different costs.
Not surprisingly, costs increased substantially if the person had more severe symptoms that required hospitalization.
The costs of a hospital bed, health care personnel, medications and potentially the use of medical equipment such as ventilators quickly add up, pushing up the median cost for a person hospitalized to $14,366.
Most COVID-19 patients don’t require hospitalization, so the median cost for any person with symptoms turned out to be $3,045 during the course of the person’s infection. But this is still over four times the typical cost of a symptomatic influenza case and around 5.5 times that of a symptomatic pertussis case. Consider this further evidence that COVID-19 is definitely not “just like the flu.”
Health care costs for the coronavirus don’t end when the patient leaves the hospital. Patients with severe illness may require follow-up visits to the doctor, imaging such as X-rays and CT scans, lab tests, medications or even additional hospitalizations. Those with significant lung damage, for example, may be more susceptible to subsequent infections.
The resulting health care costs over the year after the initial infection raise this median cost per patient by 30% to $3,994.
This shows that you can’t ignore what happens after the initial infection. That would be like walking out of a three-hour movie after just the second hour.
For some patients, the suffering and medical costs don’t end once the virus is no longer present. For example, those who experience lung damage may continue to have breathing problems. Those who managed to survive sepsis and organ failure can have a variety of persistent symptoms. Given these persistent problems, for some, COVID-19 may become more like a chronic condition.
Herd immunity and the high cost of viral spread
Our findings also shed light on what can happen when more and more of the population becomes infected.
We found that if 20% of the U.S. population gets COVID-19, it would mean about 11.2 million people would be hospitalized, and the sickest among them would spend a combined 13 million days on ventilators.
This would cost about $163.4 billion in direct medical expenses, and that’s before accounting for the costs incurred after the infection is over. It also does not include many other health-related costs, such as physician fees that can vary from doctor to doctor, the costs of public health measures such as widespread testing and the costs of protecting health care workers and other patients.
If half the population becomes infected before a vaccine is ready, the numbers jump to 27.9 million hospitalizations and 32.6 million ventilator days. The median cost: $408.8 billion, rising to $536.7 billion with a year of follow-up medical costs taken into account.
That’s getting close to what’s known as herd immunity, the point where enough people are immune that the disease no longer finds hosts to spread it. With the coronavirus, herd immunity is believed to be reach when at least 60% of the population has either been infected naturally or vaccinated.
If 80% of the population gets infected, the numbers rise to 44.6 million hospitalizations, 52.2 million ventilator days and $654 billion in direct medical expenses. With a year of follow-up medical expenses included, that median cost rises to $1.25 trillion.
All of this shows what could happen if the country allows more people to become infected by prematurely relaxing social distancing or trying “herd immunity strategies” that just allow people to get infected. The costs also go well beyond health care expenses when lives are at stake.
Good decision-making during this pandemic requires good science and data. Ultimately, not considering the potential associated medical costs can be like ignoring a large part of the field in a football game. And that could be a losing proposition.
The UK’s annual public deficit is predicted to balloon from a previously forecast £55 billion to £273 billion by the end of 2020. This increase is the product of higher government spending to contain the human and economic costs of the coronavirus pandemic, and lower tax revenues linked to the lockdown.
Understandably, there are already concerns about how to pay for this. Concerns about affordability could lead to a premature exit from lockdown, endangering lives. Or they could limit political appetite for economic stimulus measures once the lockdown is over, endangering livelihoods.
On the face of it, these concerns appear justified. There is little scope for further cuts to public services after a decade of austerity. Economic growth looks unlikely to come to the rescue of the public finances either – even before the pandemic, the UK’s prospects looked grim, courtesy of global economic stagnation coupled with the more localised fallout from Brexit.
The coming slump will reduce UK tax revenues, not increase them. Borrowing is viable so long as the UK can do so cheaply, though without rapid economic growth, debts may prove hard to shift. This would limit the ability of the UK state to respond to future needs. Under the circumstances, renewed interest in modern monetary theory – the idea that governments in control of their own currencies can directly create limitless money in order to fund their spending – is unsurprising.
Yet there is an alternative way in which the government could choose to pay for the pandemic once the recovery is well underway: a one-off windfall tax on the wealth of UK citizens and long-term residents. According to the most recent data released by the Office for National Statistics, UK households own almost £15 trillion worth of net assets. These include property, savings, investments, private pensions and vehicles, less all outstanding liabilities (for instance, mortgages, loans and credit card debts).
A small fraction of that total could cover the forecast fiscal costs of the crisis in their entirety. This would free the government to spend on health, social care, infrastructure, education and regional economic development – all of which the country desperately needed even before the latest crisis hit. Wealth is so unevenly distributed in the UK that the poorest 50% of UK households could be excluded from the tax entirely and the revenues would drop by less than 10%.
Implementing it
Even allowing for dramatic falls in asset values since the onset of the pandemic, and a modicum of tax dodging, I estimate that a relatively modest tax rate of around 3% on the net wealth of the top 50% of UK households could offset the estimated fiscal costs of the pandemic. Most people would pay significantly less, assuming a tax-free allowance equivalent to the average level of wealth.
For example, a couple that owns an average-priced UK home, with no outstanding mortgage and £100,000 of private pension savings, might face a bill of around £1,000 in a one-off wealth tax. And they could opt to have this money deducted directly from their pension savings. Where there is no cash available to pay the charge – for instance, for people who purchased their homes decades ago in neighbourhoods where property prices subsequently went through the roof – the tax could be deferred until the owners decide to sell up. Or the government might take an equity share in lieu of payment.
Some commentators have expressed concern that such a tax could prompt capital flight, as investors seek to shelter their wealth offshore. But that position confuses capital levies with wealth taxes. Capital levies involve charges on all capital held in a territory (all savings deposits held by domestic banks, for instance). A wealth tax targets the assets of a territory’s citizens and long-term residents, irrespective of where in the world those assets are located.
Admittedly, there are still risks that wealthier members of UK society might seek to relocate to avoid the tax charge. This is an objection commonly levelled against annually recurring wealth taxes, albeit an objection for which the empirical evidence is mixed.
Nonetheless, wealthy individuals may well deem the costs of uprooting their lives to be higher than the costs of a one-off tax charge. Practically speaking, they may struggle to rid themselves of UK residency before a one-off wealth tax takes effect. Other countries may introduce similar measures to tackle the costs of the pandemic, further complicating any avoidance strategies. The idea has already been mooted in Germany and the United States, for example.
Ethical reasons
There are strong ethical arguments in favour of a one-off wealth tax. If the costs of the pandemic were added to the public debt in their entirety, to be serviced out of conventional future tax revenues, we would essentially be saying that those who engage in economic activity after the crisis should pay for the emergency healthcare spending and economic bailout enjoyed by taxpayers today.
That is what happened following the financial crash of 2007-09: incomes earned in the long boom that preceded (and in many ways precipitated) that crisis contributed comparatively little towards the cost of the economic rescue package required in the wake of the crash. By contrast, those who sought to enter or progress in the labour market post-crisis bore the brunt of financing it.
COVID-19 has exposed the inadequacy of the medical and social insurance Britain had in place. The fiscal costs of the crisis would have been substantially lower if there had been proper investment in public services and welfare over the last ten years. We may not have been forced to purchase PPE and ventilators at panic prices to quite the same extent; a less dramatic lockdown would have been needed in order to ration limited NHS capacity; working-age households would have been better equipped to weather a short period of economic inactivity.
Today’s wealth is yesterday’s income and gains, earned while we were failing to make those critical investments. Like anyone who has failed to buy adequate insurance in the past, we face a bigger bill today as a result of our earlier inaction. A one-off wealth tax may prove the fairest way of paying down the costs of the pandemic.