Welcome to your September issue of the Global Intelligence Wire.
This is the monthly digest exclusively for Global Intelligence Lifetime Circle members, in which I cut through the media chatter and highlight five underreported news stories from recent weeks.
First up this month…Norway’s new central bank digital currency project.
Norway’s Digital Currency Project Is Big News for Ethereum
Norges Bank, Norway’s central bank, recently announced that is has built a prototype infrastructure for its new central bank digital currency, or CBDC.
The big takeaway: The project is built on the Ethereum blockchain network. That’s huge news for Ethereum.
First, CBDCs are digital versions of our sovereign currencies like the dollar or euro or British pound, but based on the same blockchain technology as bitcoin and all other cryptos. Soon these digital currencies could completely replace the physical notes and coins in our wallets.
A big question mark about these projects is whether governments will build and maintain their own blockchain networks to host these CBDCs, or whether they will use existing blockchain networks like Ethereum.
Norway seems to be opting for the latter…likely because it can see where Ethereum is headed.
Since its inception, Ethereum has been slow, running at about 15 to 17 transactions per second. That’s molasses in the winter when compared to, say, the global Visa or Mastercard credit card networks that run at between 5,000 and 24,000 transactions per second.
But Ethereum is currently in the midst of a vast upgrade project, colloquially known as Ethereum 2.0, which will ultimately see the network’s transaction speed jump to as many as 100,000 transactions per second. Moreover, the cost per transaction, now commonly tens to hundreds of dollars, will fall to fractions of a penny.
Ethereum is making big progress toward this goal.
As I write this, it is implementing the “Merge”—one of the most important phases of the upgrade. This will see Ethereum move to a new model for validating transactions on the network…one that is 99.95% more energy-efficient than the current method.
There are still some other important updates to come, including something called “sharding”—a process under which the blockchain network will be divided into sections called “shards” that would function almost like lanes on a highway. This will provide multiple “lanes” for validating transactions, boosting network speed. That upgrade is scheduled for early next year.
Once all these upgrades are completed, however, Ethereum will become one of the fastest blockchains, plenty fast enough to support a CBDC. The network will then be able to easily handle a CBDC’s consumer, business, and government traffic volume.
Right now, Norges Bank is simply testing the various features it expects will be associated with a digital currency. But long term, my bet is that Norway sets a global standard with its CBDC.
Instead of countries building their own blockchain networks for their CDBCs, which would be time-consuming, costly, and repetitive, they can use Norway’s model and move onto the Ethereum network for their digital currency.
This will boost demand for the Ethereum cryptocurrency, since you have to use this token to pay network transaction fees. It’s another reason why we’re very likely to see Ethereum touch five-digit values in coming years.
Moving onto…coffee.
Starbucks’ New NFT Program Is a Sign of What’s to Come
Starbucks, the giant coffee-shop chain, is moving into crypto with the launch of a new loyalty program tied to non-fungible tokens, or NFTs—unique, one-off cryptos.
Through the loyalty scheme, known as the Starbucks Odyssey program, customers can earn or buy digital, collectible “stamps,” which are actually NFTs, that offer a range of interactive experiences such as games or challenges. These are aimed at deepening users’ knowledge of coffee and, of course, the company.
With this move, the coffee-shop chain joins a small but growing collection of restaurants and service companies that are using NFTs as part of customer loyalty and discount programs.
This is a trend that I’ve been predicting for the past year—that NFTs are going to emerge as an everyday fact of life.
These unique crypto tokens, which started as pictures of cartoonish monkey and pixelated cats, are now morphing into digital assets that can represent ownership of everything from event tickets and part ownership of a company, almost like shares of stock.
Starbucks is just the latest big company to embrace this technology. Expect many more such offerings to pop up in 2023. NFT programs such as this demonstrate that these crypto tokens are not just a goofy fad—they are here to stay.
Next up…big trouble ahead in Europe.
A Bitter Winter Lies Ahead for Energy-Starved Europe
Investment management giant BlackRock says that the energy crunch currently slamming European economies is going to worsen, and will push the continent into a severe recession.
The situation arises from the Russian/Ukraine war and the tit-for-tat sanctions between the West and Russia. These sanctions have seen Russia completely shut off natural gas deliveries to Europe, which relies heavily on Russian oil and gas to supply electricity to businesses and consumer homes.
This has resulted in massive price hikes in electricity costs across Europe.
In some cases, prices have soared by 10x or more. Businesses face closure or bankruptcy because costs have risen so steeply, and households face a cold, uncomfortable winter with thermostats turned down.
The decrease in business activity and consumer spending that comes about from this energy crisis is a recipe for a recession…or maybe something more severe.
The standard solution for a recession is cutting interest rates. But because Europe’s inflation is running so hot—9.1% as of the latest reading—the European Central Bank is talking about big, upcoming rate hikes of 0.75%.
So, Europe ends up in a situation where recession and inflation co-exist and where rising interest rates will work overtime to pinch off consumer spending even more…further exacerbating the recession and perhaps causing a depression. (A recession is a downturn in the economy that leads to reduced household income and spending. A depression is much more severe and leads to widespread unemployment and a major drop in economic activity.)
This is a dangerous situation for the continent…one that cannot easily be resolved.
But there is a potential solution to this energy debacle, as Finland demonstrates…
Finland Moves Toward Energy Independence
Finland recently announced that it will become electricity self-sufficient within a year or two.
For Finns, this is huge news. It means they would no longer need to rely on any outside source of energy to power the country. And it has big implications for Europe as a whole, as governments across the continent grapple with the fallout of Russia’s move to shut off the continent’s natural gas supply, and as Europe sharply curtails purchases of Russian oil in solidarity with Ukraine.
European countries are suddenly scrambling for new power sources…and rising to the fore of this scramble is nuclear power.
Indeed, a big part of Finland’s self-sufficiency will come from the delayed launch of a nuclear reactor known as Olkiluoto 3. The reactor will supply more than 1,000 megawatts of power—enough electricity to power roughly 400,000 to 1 million homes per year.
Though nuclear power has been a much-loathed technology over the last decade, it now faces a renaissance as governments realize the importance of energy security in a world where access to energy supplies has proven so fragile.
You can read more about the opportunity I see in nuclear power in your September issue of Global Intelligence Letter.
Finally…worrying signs of inflation at home.
U.S. Crops See Record-High Prices
Soybean futures are surging on what Bloomberg is calling “shockingly tight supplies.”
Soybean futures recently rose 5.4% in just one day, the biggest move in more than a year, after the U.S. Department of Agriculture released its September crop report.
The report noted that the soybean “crush”—the process of extracting oil from the beans—is projected to drop by 20 million bushels, because of drought in the American heartland.
At the same time, that drought is also crushing the corn harvest.
The result is that the two largest crops in America are near record-high prices.
The problem, of course, is that this will further fuel inflation.
Corn and soy—as well as wheat, America’s #3 crop—form the core of the food cycle. They go into an immeasurable amount of consumer food products. As the price of those foundational crops rises, so too does everything from bread to PopTarts to Frosted Flakes and countless other products.
This is not something over which the Federal Reserve has a great deal of sway. This is a global issue that is tied not only to the Russia/Ukraine war, but also to the harvest-reducing droughts that are hitting the U.S., Brazil, and much of Europe.
The takeaway is that we can expect inflated food costs for many more months to come…and that you should probably own some exposure to farmland and food commodities, like the investments in the Global Intelligence Portfolio.
And that brings us to the end of this month’s Wire. If you have any feedback or any topics you’d like me to address in a future issue, you can reach me through the contact form on the Global Intelligence website.
Thanks for reading and for being a Global Intelligence subscriber.
