Welcome to CrushTheStreet.com’s Weekly Market Wrap-Up!
I’m Joshua Enomoto, sitting in for Kenneth Ameduri. Our top story of the week is the growing acceptance of bitcoin transactions amongst developing nations, particularly in Latin America where political instability and fiscal uncertainty has weighed heavily on the populace, thus driving demand for either hard currencies or hard assets. Unfortunately for the residents of regional powers like Venezuela, finding access to sound financial instruments is a pricey luxury in and of itself. According to a recent Reuters article, currency controls introduced by late president Hugo Chavez a decade ago has meant that acquiring hard currencies can only occur either by requesting it from the state, which struggles to satisfy demand, or engaging the black market. Even small dollar transactions are out of the question for most Venezuelans.
The current president, Nicolas Maduro, makes frequent tirades against black market traders, whom he views as instigators of an “economic war” against the government, and the reason for inflation and hard currency shortages. However, he has never issued a statement about bitcoin, nor has the government commented on its bitcoin policy, if such a thing exists.
This ambiguity has paved the way for a gray market for digital currencies, or a monetary system that is neither governed by a central bank nor controlled by a single entity. It also has led to a spirit of entrepreneurialism, with Venezuela-born brothers Kevin and Victor Charles, who are currently based in New York, to open a bitcoin exchange in their native country.
When asked about their motivation for starting the exchange, Kevin Charles cited financial security, noting that while bitcoin is an extremely volatile instrument, it has fared better than the national currency. The contextual numbers align with Mr. Charles assertion, with bitcoin losing 70-percent of valuation from its absolute peak, while the Venezuelan currency has lost 60-percent of value against the dollar in just the past year alone.
Understanding the tenuous nature of this economic malaise, more and more Venezuelans have embraced the digital currency craze, with some buying high-powered computer equipment to mine for bitcoin. While such a tactic would not make much sense in the United States due to our relatively onerous utility expenses, it would be a clever way for Venezuelans to cheat the system, with government subsidies allowing for electrical costs to be rendered for pennies on the dollar.
U.S. Equities Sector
The U.S. equities sector was rocked on Thursday after German export data showed a 5.8 percent drop in August, the largest decline since the financial crisis. The news rippled throughout the major indices, with the Dow Jones giving up over 300 points to close down below 16,660, while the S&P 500 lost an astonishing 40 points to finish the session at 1,928. The precious metals complex posted modest gains throughout this week, with gold digging itself out of the hole and closing above 1,220. Silver had a more difficult time as it attempted to move past contentious trading, with the close coming in at 17.34. Palladium was one of the better performers as geopolitical tensions was back on again in the headlines, with Thursday’s close coming in just under 800 dollars.
In the digital currency front, bitcoin suffered from early volatility but managed to climb above 360. Still, there is some near-term concern amongst bullish speculators that the overall price action is failing to break above a declining trend channel.
And that will do it for this edition. Thanks for watching and we’ll see you next week!