BNY Mellon: Navigating the Non-Cleared Margin Rules

Discussion: Technology vs. value

Hello everyone. I would like to start a little discussion from a fundamental value perspective. I often read in this sub that Ether is so much more advanced than Bitcoin, Ripple will take over Forex market and often people jump to the conclusion that technological superiority will eventually be reflected in price. However, in my opinion these cryptos all serve different purposes and thus should be valued differently from a fundamental perspective. Here are some hypotheses I would like to discuss:
If Bitcoin is a commodity than in the long-run it should be more or less valued at the marginal cost of production which is the costs of mining the last Bitcoin by the marginal miner. Last time I read this cost is around 650$ after the halvening. If there is profit to be made by the least efficient miner than more miners will enter, difficulty will increase, and we reach the same equilibrium again. If Bitcoin stays below that value for a longer time than miners will exit, difficulty will decrease and we reach again the same equilibrium. Demand for Bitcoin comes from consumers moving money around globally, using it as a store of wealth, or circumventing national regulation. Due to its deflationary nature and slow transaction processing, Bitcoin has low velocity which is good for price.
Ether is used to pay for computation steps performed on the network. Demand is thus driven by applications running on the network as well as the price per computation step. My current knowledge is that this price is not fixed in the future. The value of performing computations on the network is most likely subject to heavy network effects and increases with the number of contracts interacting with each other. Thus, from this perspective, the two most important things for wide adoption by applications should be security and easy access, i.e. low entry barriers. Without a secure platform these network effects will never really materialize. Judging the future velocity of Ether is less clear. If contracts hold mostly Ether as a means of a payment for a contractual agreement between two parties, than velocity can be low in the future. If Ether is only used for paying for transaction on the network and contracts hold also other currencies or lets say mostly Bitcoin in the future, than velocity could be much higher. Higher velocity requires less overall market cap so this would be bad for the price of Ether even if the technology succeeds. My conclusion is that there are a lot of unknowns and even if the technology succeeds, Ether itself has an unclear value proposition.
Ripple's goal seems to be mostly to be used as a transaction layer between banks with a focus on targeting the Forex market. From what I have read, average transaction time using Ripple is 10 seconds. There is no reason for banks to hold Ripple longer than during the transaction because once the money arrives they will exchange it back for national curreny. Let us be optimistic and assume Ripple takes over the global forex market which currenttly trade around 5 Trillion Dollars daily. The market cap of Ripple given an average transaction time of 10 sec would need to be: 5,000,000,000,000/(66024)= 578,703,703.70 where I assume that trading will be 24 hours and each Ripple changes hands 6 times on average per minute. The current market cap of Ripple is $291,042,535. So the market attaches a roughly a 50% probability of that happening. Seems insane to me. What are banks doing? Well they invest in Ripple equity not the currency because the company itself could actually be quite valuable as Ripple charges transaction fees.
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When you partner with BNY Mellon to meet your Non-Cleared Margin requirements, you truly gain access to the finest collateral, funding and liquidity solutions available. * As of September 30, 2018 ** Source: International Swaps and Derivatives Margin Survey FY 2017, April 2018 View Document Guidelines on Margin Requirements for Non-Centrally Cleared OTC Derivatives Contracts [SFA 15-G03] (850.8 KB) These guidelines explain how MAS expects non-centrally cleared OTC derivatives contracts to be margined. In particular, guidance is provided on the following areas: Scope of products and entities. Margin calculations and methodologies. Eligible collateral and haircuts ... As the next phases of uncleared margin rules come into force, there will be an economic driver for more clearing of FX. It may feel like there's an implicit clearing mandate of FX products for ... Uncleared swaps entered into on or after the relevant compliance date (other than FX Products) Non-centrally cleared over-the-counter OTC) derivatives (uncleared derivatives) entered into on or after the relevant compliance date (other than Exempted Products) 8; Exempted Products FX Products; 9; are not subject to IM/VM requirements under US Margin Rules. Permanent Exemptions • FX Products ... CFTC Approves a Final Rule to Amend Uncleared Swap Margin Requirements. The Commodity Futures Trading Commission (CFTC) announced today that it has approved a final rule to amend its uncleared swap margin requirements (CFTC Margin Rule) to better align with certain rules (QFC Rules) adopted by the Board of Governors of the Federal Reserve System (FRS), the Federal Deposit Insurance Corporation ... The Commodity Futures Trading Commission has passed the final rule on margin requirements for uncleared swaps, however one commissioner has dissented over the move and another noted the rule “reflects a disingenuous reading of the Dodd-Frank Act to favour cleared derivatives over uncleared swaps”. CFTC says that margin requirements will protect the safety and soundness […] Read about the margin requirements for uncleared derivatives under EMIR and changes introduced by EMIR REFIT. The margin requirements under EMIR require counterparties who are in scope to exchange margin on their over-the-counter (OTC) derivatives contracts that are not cleared through a central counterparty (CCP).

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Lesson 10: All about margin and leverage in forex trading ...

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