Venezuela, The Price of Oil and ‘Dark’ Cryptocurrencies (08 Jan ’17)

Another day and another development in the fast-moving cryptocurrency universe.

Venezuela’s national cryptocurrency, Petro, will be launched ‘in days’.

Announced by President Nicolas Maduro in December 2017, it will be backed by the country’s reserves of oil, gasoline, gold and diamonds.

Whilst the traditional cryptocurrencies, eg bitcoin, Ripple, move independently, the commodities backed Petro could behave differently.

Rather than being influenced by ‘word of mouth’, the Petro will be at the whim of global commodities markets, in particular oil.

This begs the question, what is the outlook for oil in the coming months?

 

Energy in the coming months

 

Looking at the broader US Energy Sector, investors are maintaining a positive stance.

 

Energy Sector showing steady improvementA fresh positive signal on our proprietary Tension Indicator, coupled with improving momentum studies, highlights further gains in the coming months. Strong resistance at the 643~ high of 2012 is coming into view, and a close above here would add further conviction to already positive investor sentiment. Subsequent focus would then turn to psychological resistance at 700, as pension funds, hedge funds and other ‘big players’ increased their exposure.

 

 

 

 

 

Additionally, there are signs of improvement appearing in the Energy Sector relative to the broad US S&P500 Index.

 

Energy Sector also improving relative to US stocksWhat this chart shows is how the Energy Sector is performing RELATIVE to US stocks.

A falling line indicates the Energy Sector is UNDERPERFORMING stocks, whilst a rising line indicates the Energy Sector is OUTPERFORMING stocks.

Following multi-year Underperformance relative to US stocks, the US Energy Sector is showing signs of stabilisation. Rising momentum studies and positive divergence suggest fresh upside potential in the coming months.

Money managers will view this as an opportunity to increase their exposure in the Energy sector. They could do this by increasing their exposure in energy related stocks.

 

 

 Oil also showing improvement

 

However, they could also move fresh funds into energy related commodities, eg Oil.

Oil poised for further strength in the coming monthsIn tandem with the strengthening Energy Sector, Oil prices have also been steadily improving.

Strong resistance at the $62.58 high of 2015 is within reach, and as momentum studies and the bullish Tension Indicator continue to strengthen, we anticipate a later break. This will help to further improve investor sentiment, and push prices towards $70.

 

 

 

 

 

Once again, as with the Energy Sector, Oil prices are also showing improvement relative to the S&P500 Index.

 

Oil prices beginning to outperform US stocksThis suggests money managers will likely look to increase their exposure in Oil.

 

 

 

 

 

 

 

 

Against this backdrop of potential gains in the Energy Sector – and Oil in particular – the launching of the Petro could prove to be very well timed.

Indeed, from a currency perspective, the Petro could prove to be a significant outperformer relative to the USD.

USD remains under pressureThere are signs of continued USD weakness into the coming months.

 

 

 

 

 

 

 

 

However, whilst the Petro provides revenue potential for Venezuela, it also provides a direct link into what could swiftly become a new asset class, Crypto.

Specifically, it will be tradeable via other crypto currencies, such as bitcoin and Monero.

Monero is a later addition to the crypto FX universe, but it is fast gaining attention due to, among other things, privacy.

 

Invisible Transactions

 

Each transaction within the crypto universe creates a digital footprint in the blockchain. If necessary, investigators can examine these footprints, and map the transaction from sender to recipient.

Monero, however, is different.

Monero transactions obscure the sender, recipient and amount. There is no digital footprint. Investigators cannot ‘see’ Monero transactions.

Naturally, this has attracted the attention of those who are looking to move funds in an illicit manner.

As the Petro begins to trade, Venezuela will be opening itself up to increased reputational risk.

“Venezuela Using Cryptocurrencies to Bypass Sanctions” is a possible headline.

Russia, another country currently the subject of US sanctions, is also looking to launch its own cryptocurrency.

If successful, news articles will likely be written asking if Venezuela and Russia are getting around the sanctions via deals through the crypto universe.

 

Conclusion

 

The Petro potentially provides Venezuela with a new monetary avenue. If it proves successful, Venezuela could pave the way for other countries to launch their own cryptocurrencies.

However, it also opens itself up to increased global political risks.



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