Doing Analysis

All of this has happened before, and will happen again – every single experienced crypto-enthusiast out there probably thinks of this quote from either Peter Par or Battlestar Galactica each time a sudden drop in the price of a top cryptocurrency happens, just like it did on December 6th. On said date, around 6 AM UTC, a yet unexplained blip occurred, plunging the price of Ethereum from $100 to $13 for just a few seconds before arbitrage makers corrected the price back.

Although this was not a global event, but instead only an anomaly that took place on Coinbase Pro and affected the ETH/USDC trading pair, it still caused quite a stir and meant enormous immediate profits of up to 770% for those lucky enough or smart enough having placed low orders.

The Occam’s Razor sentencing

Later that evening, Coinbase addressed the issue on Twitter, stating that “over the past 24 hours, all Coinbase platforms had operated as planned”. No further statements have been issued since and the matter is currently considered resolved.

The simplest solution tends to be the correct one – although not an irrefutable logical doctrine, this principle can be helpful in most non-scientific occasions, and regarding this incident, it offers a straightforward explanation. Apparently, some poor soul probably forgot to add a zero in the process of making a sell order, and the market responded swiftly, without hesitation and without mercy.

This, however, is not the first time such weird events took place – the previous occurrence was way more extreme.

In June of 2017, Ethereum was trading at around $300, when suddenly a flash-crash happened, dropping the price to $0.1 – you saw it right, TEN cents! As it so happens, there were those smart enough to place low orders, even at $2 and $1, but a guy that hit a real jackpot bought 3809 ETH for $380. Three and a half minutes later, the price went back to $300, making this person 299,899.99% richer or, effectively, a millionaire. This incident was also limited to GDAX, run by Coinbase.

Is $13 or $0.1 perhaps too much to pay for ETH?

So far we’ve established that the human factor was the most probable cause for both flash-crashes. But as we mourn with those who mourn, the gargantuan improbability that the exact same thing would happen in the exact same place, twice in 18 months, still leaves room for one dreadful doubt: could it be that something is seriously wrong at the core of the Ethereum network? The answer is: it might likely be so, but it’s not what you think.

While neither Ethereum Foundation nor Coinbase has confirmed any „suspicious“ actions which might address stability and vulnerability of the Ethereum blockchain, a completely different type of problem might lead to an absurd situation in the nearby future: ETH might succeed beyond expectations, while the asset itself – the coin – might become worthless.

Let’s say you want to create a DApp. Every transaction on this DApp pays for gas in ETH. The „gas“ is just a different name for fees on the Ethereum network: if you imagine the network as a shared car, depending on how much you want to use it, you pay for gas more or less. However, there is a catch: an Ethereum contract does not specifically require gas! This means that, instead of paying for gas in ETH, which means dependency and risks that come with it, you could use your own DApp’s ERC-20 token, making it functionally independent of ETH. The community refers to this as „economic abstraction.“

While the economic abstraction is a logical upgrade to the ETH essentials, there are many counter-arguments with some valid points. Without going into too many technical details, the two things that most investors would probably be interested in are the price of a token and the wallet software.

First of all, the current version of the software does not nearly support the full implementation of abstraction. It eventually might but at the cost of increased complexity for both portions of the code dealing with contacts and transactions, as well as the wallet software, which would have to manage balances for both ETH and the DApp tokens.

The market price of a token, or ETH for that matter, would be much more difficult to determine, as the software would have to take into consideration many different aspects of an ecosystem to create a unified perspective and calculate the correct price. This is extremely difficult to implement, yet it is required as miners need projections to calculate their profits against mining difficulty, hardware and electricity costs.

Closing thoughts of wisdom

Suffice it to say, placing very low buy orders is probably a prudent thing to do. Of course, it is highly improbable that you’ll ever get ETH or BTC for $0.1 again, not to mention the questionable morality of getting rich off someone’s tragic mistake, but one of the basic principles of crypto trading is: if you won’t, someone else will. So, it might as well be you.

While extremely low buy orders are probably never going to get filled, setting the price reasonably low increases your chances dramatically. This, however, requires some special care, as crypto markets are still volatile and such orders might lead to situations in which your reasonably low orders abruptly become much higher than the current market price, decimating your portfolio. So, if you’re into crypto, always have a smartphone ready by your side and install one of the hundreds of apps which sound an alarm when things start going south.

The good news: the same rule can be applied to any trading pair, just letting you know, in case you have your own fears about ETH. The bad news, though: it is the same as rolling an apeirogonal prism, as this could happen to just about any trading pair, at any time, on any exchange.

János Áder, the Hungarian President, signed the controversial new bill on labor law, despite thousands of Hungarians organizing a massive protest in Budapest against it. This new reform allows employers to seek up to 400 hours of overtime work annually. The draft of this law on labor was submitted to parliament earlier last week, which caused the most massive protest that Hungary had seen in more than a year, with people calling this law the “slave law.”

The far-right Hungarian Prime Minister, Viktor Orbán, dismissed the opposition to this reform as “hysterical shouting,” even though there were more than 5,000 demonstrators on the streets for days. Orbán re-entered the office in 2010 and has made a number of moves since then causing concern among both Hungary’s EU allies and people in Hungary itself, but none have brought about such anger as the latest changes to the labor law.

Why is the new labor law so controversial?

The latest changes to the Hungarian labor law, passed by the governing majority in Hungarian Parliament, nearly double the amount of time employees can work overtime – from 250 to 400 – and at the same time give the companies the opportunity to delay the payment for three years, instead of one.

In some instances, the new law also allows the companies to avoid paying extra for overtime work, by compensating some employees at their regular rate per hour.

The President, however, stated that the new provisions were similar to other regulations about overtime work in other members of the European Union – the employees are required to give written consent for overtime work, and they would not be penalized for refusing to work extra hours. Additionally, a government representative stated that overtime work would be optional for all employees.

However, experts believe that outside Budapest workers are at the mercy of their employers since there are few alternative forms of employment, which means that they are not in a position to refuse to work overtime, which puts them at a significant disadvantage.

Moreover, according to an analysis by the Organization for Economic Cooperation, the people in Hungary already work longer hours than the majority of their western neighbors. In Austria, employees worked an average of 1,613 hours in 2016, whereas Hungarian employees spent 1,740 hours working and receiving half the pay, on average.

A new opposition

Balázs Bárány, a member of the left-winged party MSZP (The Hungarian Socialist Party), said that these protests helped to create of a new opposition, as they managed to unite rival political fractions for the first time. Some of those who participated included the members of Jobbik, a radical right movement rebranding itself as a “peoples’” party, the most prominent liberal and left opposition parties, trade unions and supporters of Soros’ Budapest University.

Those who opposed the new labor law had been trying to stop its passage by sounding sirens and blowing whistles in Parliament meetings a few weeks ago. This initial protest set off the protests on the streets as well, with several thousand people marching from the Parliament building to the presidential palace in freezing temperatures, and smaller rallies happening throughout the country in other cities. Protesters blocked two major road bridges flanked by the police.

Why the new labor law?

The government believes that these longer hours are necessary because Hungary is running out of workers. There are estimated 350,000 Hungarians (more than 5% of Hungary’s working-age population), who are currently working in other countries of the EU. Due to such a high number of emigrants, and not an equally high number of immigrants, the country is faced with a great labor shortage.

According to research by the Boston Consulting Group, more than half of young Hungarians would rather work abroad than in their own country. There is even a projection by the United Nations according to which there would be 15% fewer people in 2050 in Hungary than there are today.

The low number of immigrants is mainly due to Orbán’s policy of discouraging immigration by a number of xenophobic campaigns and physical barriers on the borders themselves. These actions have increased his popularity in Hungary, but at the same time created an impression that emigrating to Hungary might not be the best idea.

Some experts also believe that the government made a grave mistake by placing about 200,000 unemployed people on workfare programs run by the government when it should have encouraged them to seek jobs in the private sector. This stopped a significant number of potential workers to enter the primary job market.

According to the latest United Nations estimates, Hungary has a population of around 9,673,000. The unemployment rate was 3.7% in October 2018, and it is expected to be 4.2% by the end of this quarter, slightly higher in one year (4.5%), and to trend around 5% in 2020.

Hungary also has a relatively low birthrate. On average, a Hungarian woman gives birth to 1.45 children, which is not enough to maintain the population at the current level.

What’s to come

In 2014, the Hungarian government caved under pressure of massive protests over a proposed tax on Internet usage with Orbán canceling the tax. However, this time around it might not be so easy. The internet tax from 2014 was one way to get more money, but this new labor law aims at fixing the labor shortage so that major foreign investments could potentially happen.

One thing that Hungary can do is loosen its anti-immigration policy to deal with its aging population and a shortage of young workers. However, Orbán has been very vocal about his views on immigrants with his border barriers, and the country will obviously have to find another way to deal with this labor law crisis.

Bruno Le Maire, French Minister of Finance, said on December 4th, 2018, that France will introduce a tax on digital giants on the national level from 2019 even if the European Union members fail to reach an agreement on the issue.

Digital tax for tech giants

In March 2018, The European Commission revealed a proposal to tax firms such as Google, Amazon, Apple, and Facebook on their revenue, which could reportedly bring €5 billion per year.

According to this proposal, the profits of these international companies working in the digital space would be taxed inside the borders of the EU countries. They currently pay 9.5% effective tax rate in the EU, while traditional businesses pay 23.2%.

This announcement initially received the support of five biggest economies in Europe – France, Germany, Italy, Spain, and the United Kingdom. However, France emerged as the leading proponent of this proposal, while the other countries seemed to gradually back away.

Germany continued to show support for France but advised caution because, just like other EU countries, Germany feared that the introduction of this digital tax could cause the USA to retaliate, and this would affect the German automobile industry. This meant that it would be very difficult to get the unanimous approval from all the members of the EU for the tax proposal (as it is required).

According to some sources, the USA would accept a temporary levy on its digital companies under only one condition – that the EU commits to overhauling global corporate tax rules. This meant that companies would not be taxed based on where they book profits, but on where they make money. Germany worried that since its industry is primarily export-based, its business abroad would be subjected to new taxes, and other countries would start issuing new levies on their cars, as well.

Germany’s finance minister, Olaf Scholtz said that the policy on digital tax should be coordinated internationally, and experts agreed that this meant Germany would avoid an open division with Paris, but would not lobby on its behalf actively.

The opposition

However, a group of countries strongly opposing the introduction to digital tax was formed, led by Ireland, the Czech Republic, Sweden and Finland in support of digital companies claiming that they would be taxed twice on the same revenue. Ireland led this group firmly opposing the taxation as it feared that trade tensions with the USA might arise and the European competitiveness might be damaged.

Current corporate tax in Irelands is very low (12.5%), and this country is the host to a great number of tech firms, such as LinkedIn, Adobe, Airbnb, Google, and Facebook.

On December 4th, France and Germany presented a revised plan for the proposed digital tax reforms, abandoning plans for imposing a wide-range digital tax on digital companies, in favor of a levy on advertising sales, which is likely to exclude Apple and Amazon from its scope.

Both German and French Ministers of Finance agreed on this proposal, and the initiative is set to come in force in 2021 if an agreement is reached on an internationally implemented digital tax regime. The other finance ministers should reach a consensus before March 2019.

Many member states, including Spain, Slovakia, and Italy, criticized this plan for not being ambitious enough, and the UK and Spain representatives said that their countries would move forward with their plans on digital taxes while the talks on a broader, international level, are stalled.

The “Yellow Vests” protest

At the same time, France is faced with massive protests lasting several weeks against the government’s decision to increase taxes on fuel to move away from fossil fuels.

Last week, the government canceled a planned tax rise on petrol and diesel in an effort to defuse the situation after four weeks of protests which turned radical.

The movement of “gilets jaunes” (“yellow vests”) first started as an online protest against the rise of fuel prices, but it quickly spread to a broader anti-Macron rebellion, with demonstrators blocking major French roads and violent protests occurring in some of Paris’ elite arrondissements.

The protest started as the French people believed that the potential increase of tax on diesel which is commonly used by French motorists, and the carbon tax, would primarily affect those who commute every day.

According to transport experts, this hike in fuel prices happened due to a rise in crude oil prices that this year has seen. In October 2018, a little more than €80 was wanted per barrel, and due to euro being weak in regards to the dollar, the motorists were the ones most affected by this increase.

Additionally, there was an increase in the carbon tax, which was introduced in 2014, in an effort to limit greenhouse gas emissions. This tax affects a part of the domestic consumption taxes, and the government came forward with a plan to increase it even more next year (from current €39 to €47.5).

If that was not enough, the adjustment of the tax on diesel and the tax on petrol made diesel prices increase, meaning that the tax on diesel went up by 7.6 cents per liter, and the petrol tax went up by 3.9 cents per liter.

The government officials said that the carbon tax needed to be increased so that the country could continue on its path of fighting the climate change, and the alignment of diesel and petrol taxes had to happen because researches pointed out that diesel was just as much polluting as petrol. The additional revenues that the taxes would bring were supposed to be used for eco-friendly projects.

The news is not good for Asian stock markets these days. Most major indexes plunged from 1 to 2 percent owing to escalating frictions between two of the world’s leading economies, China and the USA, and increasing concerns over growth.

Just hours after Chinese economic data was released over the weekend, the rapid sales of global equities in Asia happened, signaling an even deeper weakening of not only domestic but also international demand in November. Furthermore, the friction increased after the arrest of Meng Wanzhou, the chief financial officer of Huawei, who was apprehended in Canada for alleged US sanctions braking on Iran and is faced with extradition to the US. Apart from this diplomatic issue, the ongoing trading war between the USA and China has had an impact on many China’s neighbors, as well.

One devaluation after another

However, this tension between the USA and China hanging over the entire region can be a blessing in disguise for Pakistan, the country struggling with a massive economic crisis.

Pakistan experienced the sixth currency devaluation by the central bank since December last year. The rupee devalued by the central bank in December and March by 5% respectively, 4% in June, and then 15% In July due to parliamentary elections. The most recent devaluation happened when the value of Pakistani rupee fell sharply to 142 per dollar from 133.3 in just one day, or close to almost 6%. Since the first devaluation happening in December 2017, the rupee has lost around 35%, as the officials tried to establish control over the soaring current deficit threatening to initiate a balance of payment crisis.

Additionally, the Pakistan Stock Exchange 100 index fell by 700 points (from the current 40,000 points) in the early day trading.

This fall occurred at a time of financial crisis in a country that is considering a package of assistance from the IMF worth $8 billion. The IMF and Pakistan failed to come to an agreement on this bailout package when the IMF delegation visited Islamabad in November, so Pakistani officials set the middle of January as the target date for obtaining this second assistance package (the IMF loaned $6.7 billion to Pakistan in 2013 for the first time).

Economic experts say that the State Bank of Pakistan’s reserves are below critical level, which also causes the currency to be under enormous pressure. The country is currently faced with great economic challenges, due to high current-account and budget deficits, diminishing growth, and low foreign exchange reserves. The State Bank of Pakistan says that the latest plunge is due to the current account dynamics and a gap in demand and supply in the foreign exchange market, and rising oil prices, which have increased the cost of imported oil and put pressure on the country’s large trade deficit.

When it comes to the economic situation in Pakistan, things are far from positive. The country’s GDP was worth almost $305 billion in 2017, and it is expected to go to $315 billion by the end of this quarter and rise to $360 billion in 2020. In this fiscal year, the economy registered a 13-year high GDP growth rate of 5.8%, but the economy shrunk in relation to the dollar due to the rupee devaluation. Even though the GDP rate increased, the country of Pakistan and its developing economy need growth of at least 7% to be able to keep up with the increasing unemployment and create new jobs.

The Pakistani unemployment rate was the same in 2016 and 2017 – 5.9%, and by the end of this quarter, it is expected to be 6%. When it comes to long-term forecasts, it is projected to trend around 5.7% in 2020.

According to the latest UN estimates, Pakistan is the fifth most populated country in the world and has a population of almost 202,498,000, which is the equivalent to 2.63% of the total world population.

China to the rescue

Some experts believe that Pakistan can benefit from the ongoing trade war between China and the USA and their battle on trade tariffs, and consequently boost the economy. Razaq Dawood, the advisor to the Pakistani PM, said that these tensions were good for Pakistan because they could put Islamabad in a better negotiating position.
China and the USA have been engaged in this trade war and imposing tariffs on one another over the last few months, and Pakistan has been trying to deepen ties with China since the relations with the United States have been on tenterhooks. The Pakistani Prime Minister, Imran Khan, visited China in November and had talks with Chinese officials related to improving trade partnership between the two countries. Islamabad was hoping to negotiate increasing the imports from Pakistan to China to at least $2 billion.

Beijing wants to invest $60 billion in Pakistan for infrastructure for the “Belt and Road Initiative.” This project is described as the ”21st century Maritime Silk Road,” and it is a strategy which was adopted by the Chinese government involving the development of infrastructure and investments in countries in Asia, Africa, and Europe. China-Pakistan Economic Corridor (CPEC) is a number of “Belt and Road Initiative” infrastructure projects which are underway throughout Pakistan, with investments in energy, transportation, and maritime structure.

The CPEC encompasses an enormous network of railways and highways which are going to be built throughout Pakistan. The government estimates that the country’s dilapidated transportation network, which causes a lot of inefficiencies, brings a loss of almost 4% of Pakistan’s annual GDP. This project will, among other things, connect seaports in Karachi and Gwadar with northern Pakistan, and points which are further north in Central Asia and Western China.

The CPEC is the greatest investment that the country has ever attracted and it is considered to be vital for Pakistani economic growth.

For the first time in history, the people of Georgia elected a woman president. Salome Zurabishvili, a former French diplomat, was elected the first woman president of Georgia and will be taking office on December 16th,2018 for the next six years.

Zurabishvili won with 59.6% of the ballot or 1,147,701 votes during the second round of elections held on November 28th, 2018, as no candidate received the support of 50% or more voters in the first round. These presidential elections were the last ones when the president was chosen by voting. The next president of Georgia will be elected by a college of electors consisting of 300 members who are lawmakers and regional officials.

The first woman to become the president of Georgia was backed by the ruling party, Georgian Dream, founded by the richest man in the country – a billionaire banker, Bidzina Ivanishvili. Zurabishvili is expected to avoid further antagonization of Moscow all the while trying to balance pro-Western aspirations.

From diplomacy to presidency

Salome Zurabishvili, 66, was born in Paris because her parents left Georgia as political emigrants in 1921 after it was annexed by Soviet forces. Her father was the chairman of the Georgian Diaspora in Paris. He was the grandson of an eminent Georgian social democrat and a member of Georgian liberal intelligentsia.

Zurabishvili joined the French foreign service and took up the career of a diplomat having worked in Rome, the UN, Washington, Brussels, etc. She was then appointed French ambassador to Georgia in 2003.

From 2004 to 2005 she was appointed the Minister of Foreign Affairs in the new government of Mikhail Saakashvili, the president of Georgia. She was the principal negotiator in the agreement about the withdrawal of Russian military bases from Georgia’s territory in 2005. After many disputes with the Parliament members, Prime Minister Noghaideli dismissed her from the government and she decided to stay in Georgia, and go into politics.

In 2006, Zurabishvili founded a new political party, Georgia’s Way, which did not receive the support of the public in the elections that year. One of the reasons why she was not accepted by some Georgians is the fact that she was born in France. Her party joined the United Opposition alliance in October 2007, which nominated her as a prospective PM in case their candidate won the presidential elections in January 2008.

In 2010 she left Georgia’s Way and publicly endorsed Georgian Dream before the 2013 presidential elections. She was denied registration as a presidential candidate for these elections because she had dual Georgian-French citizenship. This is the reasons she had to renounce her French citizenship in order to register this year.

In the 2018 elections, she was running officially as an independent candidate, but Georgian Dream was heavily supporting her campaign. Her principal opponent, Grigol Vashadze, was supported by the former President who appointed Zurabishvili his Minister of Foreign Affairs – Saakashvili.

These elections are seen by some experts as an indicator of what’s in store for the parliamentary elections in 2020. Georgia wants to become a member of both NATO and the European Union, but these ambitions are thwarted by the presence of Russian troops in Georgia’s breakaway regions of South Ossetia and Abkhazia.
One thing is certain – Ms. Zurabishvili is faced with many challenges in the country with plenty of issues related to the economy.

Georgia is situated at the border of Eastern Europe and Western Asia in the Caucasus region of Eurasia. Its population is estimated to be 3.9 million at the end of 2018, according to the latest UN estimates. The capital and the largest city – Tbilisi – has a population of about 1.5 million people. More than 1.5 million Georgians left the country after the Soviet Union dissolution, and it is estimated that there are more than one million Georgians living in Russia today.

The unemployment rate in Georgia was just below 14% in the previous year when it was the lowest since 2004. This is somewhat below the average unemployment rate for the past 20 years, which averaged at 14.8%. The unemployment rate is expected to be around 13.8% by the end of this quarter, and to continue the trend and drop to 13.5% in 2020.

During the last year, the Georgian GDP was worth $15.1 billion, and it represents 0.02% of the world economy. The GDP is forecasted to be $15.9 billion by the end of this quarter and to increase to around $21 billion in 2020. The economy advanced 5.5% year on year in Q2 of 2018 due to gains in wholesale and retail trade, transport, financial intermediation, real estate activities, mining and quarrying, and manufacturing.

Expectations by the public

Before the presidential elections, the majority of citizens (69%) participating in the poll by the National Democratic Institute expressed their dissatisfaction with the direction the country was heading primarily when it came to the economy – prices, employment, and poverty. Only 3% felt that the economy was “good,” and as many as 59% said that they had not worked a single day during the last month.

Georgians who participated in this poll believed that there was an improvement when it came to the freedom of speech, rights of women and minorities, and affordable healthcare, but they would also like to see pensions, educations, healthcare and social assistance as the government’s priority in spending. Even though there were claims that the economy had grown in recent times, the majority of Georgians did not see any benefits of this. The people wanted this growth to be translated into specific improvements such as higher employment and greater economic outcomes, as well as reforms when it came to education and healthcare.

The new President-elect, Salome Zurabishvili, is expected to address all these issues now that the people have chosen her to lead the country, and it remains to be seen what she is going to prioritize once she formally takes office in a few days. Some experts believe that the presidency is, in essence, a ceremonial function and that the main political powers will still be in the hands of Mamuka Bakhtadze, the Prime Minister.