Wiretap Wednesday: Purchasing Power of the USD vs. Commodities

Understanding how economics works, connecting DeFi & Ramifi Protocol

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Measuring the value of the SPX500 or BTC in USD nominal terms is totally natural for investors…

…But, what if there was a better way to assess value on assets when comparing them to each other, excluding the USD?

For example: How much has Bitcoin, the asset, increased in value compared to Wheat in the last 5 years?

Well you’d come to find out that the value of Wheat has increased vs. the USD as well - alluding to the fact that BTC/Wheat (or Bitcoin measured in per bushel of wheat terms) has had a drastically less dominant performance than when traded against $1.

What are we really trying to say?

Well. The value of $1 in terms of purchasing power is steadily decreasing as the value of assets against the USD is increasing.

An inverse relationship that makes sense once jammed into your noggin’ a few times.

In this piece, we’ll explore this relationship deeper & extrapolate causes and solutions to this trend.

Maybe touch on some crypto-bullish narratives too.

-Andy


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Wiretap Wednesday: Purchasing Power of the USD vs. Commodities

Bull market is ON for commodities.

Just look.

Oil is on its way up big time.

Gold with an incredibly bullish year.

Corn futures absolutely getting sent.


Its a recurring pattern. It seems ‘too easy’ to play these trades. As you can see, the purchasing power of $1 is getting lower and lower every month. How does this end?

Really tough to quantify an ending at this point.

Feel like a permabull-dumbo for saying this but, the bull will continue.

Commodity markets have traditionally had their ups and downs, even this year when we saw oil prices reach the negatives…that was insane. Commodities markets are extremely volatile, however the demand for commodities is always present. We need oil to fuel our cars and planes. We need corn to produce quality food. Precious metals for buildings and luxuries. And here’s the thing:

The demand for these commodities doesn’t really change *that* much.

So then, why are the price of these commodities going thru the roof?

Pricing Assets in USD

Assets haven’t always been priced against the USD…pricing against gold, other forms of collateral were extremely common until the introduction of fiat currencies and the United States sanction-esque actions to effectively require allied nations to transact in the US dollar.

Because of this, the global standard has been one and the same: USD.

But, we think that is about to change…here’s why:

  • Overall faith in the US government to conduct proper economic & political actions is diminishing quickly

  • The excessive printing of dollars is slashing the real ‘value’ of 1 US dollar

  • Increasing emergence of Bitcoin as a store of value and global standard

For these three reasons, were expecting changes in the way the world denominates wealth in the next 50 years. Feels weird saying so being a US citizen, but this is an objective POV that we stand by.

THIS is why commodities have been on the rise against the USD. Commodity pricing plays a large factor in the value of a nation-state’s currency, explained here:

“The purchasing power of many national currencies roughly correlates to the price of their most produced commodity. For example, when the price of oil fluctuates, the Canadian dollar often mirrors its movements. The same goes for the Australian dollar and gold — as a significant gold producer, the price of AUD is in part based on the price of gold. When it comes to commodities, however, no currency is more central than the US dollar.

The US dollar is used as the base currency in almost all commodity trading today. So much so that there exists an inverse relationship between the US dollar and commodity prices in general. This relationship is due to the dollar’s perceived stability on the world stage. As the world’s de facto reserve currency, a stronger dollar means your buck buys more, whereas a weaker dollar means you’ll need to pay higher prices for that barrel of oil. However, there’s a big problem with this approach.”

- Ramifi Medium Post

If we analyze the biggest index in the USA, the S&P500 against the USD & against gold we get two vastly different performances. Same with silver or other commodities. The point is, we are seeing a rise in asset valuations because the USD is being devalued.

Introducing Ramifi Protocol

Ramifi aims to alleviate the stress of denominating in USD by using the purchasing power & CPI as measures of value. This allows you to store value in Ramifi and dodge the inflationary risks that come with fiat currencies.

A revolutionary idea at worst, a paradigm shift in stablecoins at best.

Recently we did a podcast with the team, Kyle x2, two very smart and genuine fellas:

We tend to think that 2021 could be the year of the stablecoin & were excited to see how Ramifi Protocol pushes through with their algorithmic stability mechanism. This episode is a MUST listen to get caught up with whats going on in the decentralized stablecoin world.

We will be tweeting more details on launch etc., but there is a way you can get involved now:

Thanks for reading & supporting Ramifi Protocol, this was a paid sponsor post from the DeFi Slate team!


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⚠️ DISCLAIMER: Investing into cryptocurrency and DeFi platforms comes with inherent risk including technical risk, human error, platform failure and more. At certain points throughout this post, we might get commission for promoting certain projects, if this is the case we will always make sure it is clear. We are strictly an educational content platform, nothing we offer is financial advice. We are not professionals or licensed advisors.


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