Global Connect Admin B.V. Investment Archives

LUNA Cryptocurrency Collapse: Is The End Near?

14 May 2022

cryptocurrency, Investment, LUNA, Meltdown

The downfall of LUNA shook the crypto world. With most cryptocurrencies plunging more than 50%, billions of dollars have gone into thin air. Fear and uncertainty have taken the place of confidence as noticeable in the investment behaviour in the cryptocurrency market. How could this meltdown happen and what are the consequences?

LUNA

The cryptocurrency LUNA is associated with TerraUSD (UST). UST is a stablecoin which entails that there is an algorithmic $1 peg governed by underlying code. UST is inherently different from the other stablecoins like Tether and USD which are both backed by real-world assets such as bonds. UST has no real-world assets are merely relies on the algorithm. To maintain the $1 peg, the UST algorithm stabilises to create and burn tokens of both UST and the linked crypto LUNA. However, due to the extreme market volatility, UST has been unable to maintain the peg and dropped to 12 cents according to data from CoinGecko. Further, the Terra blockchain, which is the operating chain for UST and LUNA, had problems processing transactions twice in less than 24 hours.

Due to the inability to maintain the peg, LUNA plunged to $0 from more than $100 in the last months. This decline in price in UST – and therefore LUNA- has resulted in a meltdown in the crypto market. Even while the collapse of UST only lasted for several hours to regain the $1 peg, billions of dollars in value have been erased and the largest cryptocurrency bitcoin dropped 15% for the week, a level not seen since late 2020.

LUNA price (USD) in the last 7 days. Derived from https://coinmarketcap.com/currencies/terra-luna/

Compensation

Bitvavo, a big trading platform, compensates investors after this disaster. The prices are equal to the prices of the pause on 13-05-2022 at 8:20. This pause was needed to create a plan to further stop the devaluation of the stable coin. Binance, the world’s largest crypto exchange temporarily delisted UST and LUNA but reversed this decision after Terra announced resuming new verifications on the blockchain and halting direct transfers.

Fear

The LUNA / UST situation resulted in panic and insecurity in the crypto market. In combination with the higher inflation and interest rates that have caused a sell-off in the global stock market, the cryptocurrency market seems to be related to the stock markets and manifests in a loss of more than 50% value in most cryptocurrencies. The growing fear and growing levels of inflation decrease the trust and investment in the crypto market. According to Vijiay Ayyar, the vice president of corporate development and international at crypto exchange Luno, in the crypto market “it’s normal to see bounces amounting to 10-30%”.” While “these are normally bear market bounces, testing previous support levels as resistance”, even the largest of cryptocurrencies such as bitcoin may not be sustainable or be able to bounce back. As To long-term feasibility of cryptocurrency needs to be further explored – focussing on the environmental impact of the mining of these coins.

Conclusion

Cryptocurrencies as investments bring the known risks of (heavy) value fluctuation. However, as seen in the LUNA case study, the value of your assets can rapidly drop to a point of no return. KSI, a well-known Youtube, lost $2.8 million in his LUNA investment making his coins virtually worthless.

For more information about personal advice regarding international business advice, tax situations or consolidation, Global Connect Admin B.V. can assist you with these challenges due to the rich experience and framework of connections.

Non-Fungible Tokens (NFTs) in the Era of Online Investment: What are Your Opportunities?

15 Nov 2021

Actual, Investment

artworks, cryptocurrency, hype, Investment, NFT, non-fungible token, opportunity

Non-fungible tokens or NFTs are gaining momentum in contemporary society. These non-fungible coins or assets are often presented in the form of artwork as part of a whole collection (e.g. Bored Ape Yacht Club). The main question is if the insane price for acquiring an NFT is worth the benefits. In this article, we explore what NFTs are, the benefit of buying an NFT and the opportunities this purchase can have for your business. Moreover, we provide tips and risks needed when intrigued by this new investment phenomenon.

Introducing NFTs and the operational method

The NFT or Non-Fungible token is a token within a blockchain (digital ledger) connected from an account to a unique and digital item via a smart contract. Most NFTs are part of the Ethereum blockchain, a cryptocurrency, and are currently seen in the rise of buying and selling digital art using this blockchain technology for multiple reasons (e.g. investment). In simple words, the NFT is a unique link between an account and a digital item that assures that said item is uniquely yours. This blockchain technology is non fungible which means that the item or artwork is unique and cannot be replaced with something else. As the trading dynamic can be seen as investing just like is the case with bitcoins and altcoins, the difference is that the NFTs are one of a kind. Whereas you can trade a bitcoin for a bitcoin, the NFT is distinctive and can never be fungible for the same artwork.

The uniqueness and function of the NFTs

The NFT gets seen as the new era of art. Both art collection and art investment are considerable motives for buying an NFT. As mentioned before that every NFT is a unique piece of artwork including the corresponding blockchain entry (proof of authenticity) plus the fact that these tokens are limited and tradeable, making all the NFTs depend on the supply and demand principle. NFTs are nowadays often seen as pictures and videos, but can also cover the realm of music and other forms of art. The next paragraph will thoroughly explain the four motives for purchasing an NFT.

Four motives of buying an NFT

Knowing the technical information and the uniqueness of the NFT, the question might arise why someone wants to spend money on NFT artworks.

Firstly, the NFT is currently in a hyped-up phase. Newspapers, NFT creators and NFT purchasers are trying to start the momentum of this “new era” to get more recognition among the people. This triggers the Fear Of Missing Out (FOMO) effect that stimulates the demand of the NFTs – as these groups wish. This is noticeable in the fact that NFTs are sold from hundreds to millions of euros worth of Ethereum. Exemplifying the prices of

Figure 1. NFT properties of Bored Ape Yacht Club #9355

NFTs, this video made by the famous creator Beeple got sold for 6.6 million dollars (5.8 million euro). Further, NFTs within a specific group like the TrendyTigers or Bored Ape Yacht Club have different characteristics that make them more special and more valuable to stand out from the crowd. Here we can think of background, clothes, eyes, fur, hat and mouth as depicted in figure 1.

Secondly, you get complete ownership of the work. Instead of downloading the video or picture, the purchaser owns the artwork including proof of authenticity. This can be seen in the way that copying (downloading) a Van Gogh painting is still possible, but only one person can have the original. However, on par with physical artwork, the artists can still retain copyright and reproduction rights.

Thirdly, the purchaser can show off their new asset and try to fan the flame for interest in NFTs and in particular the purchaser’s artwork. Owners of an artwork change their profile picture to their acquired NFT to show the everyone that they own an NFT, brag with their latest purchase, and show the world they are part of a particular niche or group. This phenomenon of showing-off is mostly visible on Twitter.

Lastly, and maybe the least concerned with investment, is that the purchaser can (financially) support the creator of the art.

Opportunities for you

As the hype is getting a boost by the media and the groups associated with the NFTs, the incentive to buy might seem bigger than it is. Knowing that an NFT can be an investment strategy – just like cryptocurrency – we should be careful with the post-hype stage, as this might be unpredictable. The NFT market including the price of the NFTs -without the hype- can collapse and result in loss after this high gamble. While this is part of investment in general, we should look at the other main benefit the NFTs give over for example cryptocurrencies: the community.

Pudgy penguins, CrytoPunks, TrendyTigers or Bored Ape Yacht Club are examples of NFTs with a community around the ownership of their NFTs. The latter is a project concerning, as the name suggests, 10.000 NFTs of Apes. Only 10.000 proud ape owners can be part of the clique. Important is that the Bored Ape Yacht Club functions like a family. The occasional networking events among the Apes are used to get to network and to get beneficial connections for the business. Furthermore, this nepotism is noticeable in the example of producer and songwriter Timbaland searching for Bored Ape Yacht Club owners to form an artist-owned entertainment company Ape-In Productions.

Conclusion

In short, the price for NFTs can be feasible when being able to network with celebrities, business leads, or new friendly contacts. In case you are intrigued by NFTs, please be aware that many individuals and/or corporations are trying to hop on the bandwagon of the NFT hype. This means that thorough research in this particular NFT community/club is absolutely necessary. Always look at the benefits, the listing date and amount of followers. Do not forget to analyse the follower-to-like ratio on social media to notice, as is often the case, fake and bought followers. NFTs are often listed on the trustable platform OpenSea.io where Ethereum is mostly used as currency to purchase the NFTs.

Finalizing, NFTs as investments bring the known risks of (heavy) value fluctuation just like cryptocurrencies and comparable investments. However, while NFTs can be pricey, these revolutionary blockchain technologies assure ownership and bring an additional opportunity to network and make contacts in the NFT clique or group. As mentioned before, when you are part of this community, the nepotism and proudness of the NFT ownership can possibly result in great opportunities.

Special Economic Zones (SEZs) in China: How can they benefit your company?

25 Oct 2021

China

Benefits, China, Comparison, Development, Incentive, Industry, Investment, SEZ, ShenZhen, Special Economic Zone

Marking the 40^th anniversary of China’s Special Economic Zones (SEZ), further scrutinization can start regarding the influence of the Special Economic Zones. Opposing the frequent usage of “SEZ” as a buzzword, what does it precisely entail and more importantly what advantages have these zones. How do the rules and incentives set these economic zones apart from Mainland China, and are these capitalistic hotspots beneficial for your organisations?

What are Special Economic Zones?

Chinese Special Economic Zones are areas with different regulations and business policies than in Mainland China. These zones can vary in function and scope but all adhere to the principle of supporting (specific) economic functions in globalising aspect. SEZs have been implemented since the late 1970s as part of the Chinese market reform in the conquest of realising the entrance to the international market. Remarkable is the placement of these SEZs: manifested in areas with a potential for high import and export volumes, being in the vicinity of airport and harbours, and / or being nearby natural sources. Resulting in the coverage of the east coast of China in the early stages of the SEZs to the establishment of SEZs in rural Xinjiang, to trade free zones (Shanghai), and regional zones that stimulate technology as seen in Dalian. Thus, in these 40 years of development, China opened coastal cities and created national and local high-tech zones to further attract investments. Nowadays, the fruitfulness of these experimental zones can be analysed: SEZs contribute 22% of China’s GDP, 45% of total national foreign investment and 60% export, and created an estimate of 30 million jobs.

The purpose of the Special Economic Zones

The purpose of the Chinese Special Economic zones, including the open coastal cities and the regional zones, is to attract foreign investments, innovation, and knowledge. These opportunities for China, and the fact that it is a cheap labour country, stimulates the build and development of infrastructure. Shenzhen in the Guangdong province, as one of the initial four SEZs, is the beneficiary of this Special Economic Zone: transformed from a fishing village to a nationwide, even worldwide, centre of innovation and development. Housing tech giants, telecommunication companies and even claiming to be the first to achieve “full coverage” of 5g within the tech hub of China’s Silicon Valley. As a reaction, the initial four SEZs transformed into 19 local development zones, 7 large-scaled SEZs, local and national free trade areas, and high-tech zones. As the purpose to foster globalisation in China becomes evident. However, how are SEZs applicable to your business?

What are the benefits of China’s Special Economy Zones?

To ensure and stimulate foreign investors, the regulations in the SEZs (including open coastal and local zones) are made to attract. While exact policies or regulations can change over time (e.g. due to supply and demand of investors), the overarching advantages are as follows :

Tax incentives:
- Reduced income tax: down to 15% (SEZ) versus 33% (Mainland)
- Elimination of corporate tax under losses;
  - Being profitable after losses will result in reduced taxes for 5 years
- Exemption of local taxes in certain industries
Special economic policies:
- Duty-free export
- Lowering import tariffs
Foreign companies are allowed to set up joint ventures
The local government has legislative authority

With all these benefits it is no wonder that SEZs attract a lot of foreign investments and thus benefit the flourishment of the Chinese economy. However, while SEZs are keeping the interests of investors high with the incentives, special economic policies and other benefits, China is slowly starting to applying these experimental policies as tested in the SEZs into the national policy. Furthermore, in line with the changes in Mainland China: the newest procedure is cutting the red tape to ameliorate the investment options in Mainland China.

Conclusion

Currently, the incentives of the SEZs do not need to be causally related to the success of the high-tech and developed metropolises (e.g. Shenzhen). While the economic liberation is surely impactful for the growth of certain districts and businesses, not all of the 54 “special” zones have been successful. With constant development, creating new SEZs, changing regulations, the business-friendliness and the special tax programs for new entrants, the Special Economic Zones are even more convenient for new investors that are aiming to advance to the Chinese market. Knowing this, will your company be the next booming business in one of the Chinese Special Economy Zones?

If interrested, we at Global Connect Admin provide administrative advice for European and cross-border businesses. Do you have any questions regarding the Special Economic Zones, or need other information to do business successfully? Feel free to send us any questions our way; we would love to assist you.

Sources

Experts hail pivotal role of special economic zones – Chinadaily.com.cn

经济特区：中国改革开放的伟大创举__凤凰网 (ifeng.com)

Special Economic Zones in China (SEZs): Characteristics & Benefits – Intrepid Sourcing

investing-in-africa-forum-chinas-special-economic-zone.pdf (worldbank.org)

From Beach Destination to Global Influential Trade Port: Hainan’s Masterplan

11 Oct 2021

China

China, Global Connect Admin, Hainan, Investment, Master Plan, Oppertunity, Regulations, SEZ

Hainan, the tropical destination on the south coast of China is more than a wedding island. Announced on June 1st this year, the Masterplan by the Chinese government is to transform the entire island province into China’s biggest special economic zone (SEZ). By 2025, this trade port is “basically” established and by 2035 this system will focus on the free and convenient flow of trade and investment. Whereas this results in global presence and influence, what does this Masterplan entail and what are the potentials for economic trade and welfare?

What is the Masterplan?

The Masterplan for the Hainan Free Trade Port (FTP) is aimed at the transformation of the southern island province into the flagship of trade ports. While already coined in 2017 as a concept, and approved by the province in 2018, the implementation of the FTP is currently ongoing. Moreover, one of the main aspects is that the FTP can easily cooperate and compete with the high-level ports of Hong Kong, Singapore and Dubai due to the international location. While the Hainan Free Trade Port is basically established in 2025, the maturing of the port will continue decades after the establishment. Here, the prospect is to establish a fully developed high-level free trade port including strong international influence around the year 2050. Bearing this in mind, there will be 4 major steps in the timeline for achieving different stages of development:

Hainan Free Trade Port policy highlights

For investors, the key policeis under the Masterplan yield the most importance weighting the opportunities that the Hainan FTP can provide. Therefore, a few policies will be highlighted to further explore the potentials Hainan can offer:

Taking the timeline and the benefits of the new Free Trade Port policies into account, the district of Hainan is an interesting development in the further globalisation of China. In the search for competitiveness among the high-level free trade ports such as Singapore and Hong Kong, the Masterplan for the Hainan Free Trade Port is aimed to be established in 2035 to fully realized these characteristics. The maturing of this FTP will continue until 2050, where Hainan should be established as a competing port with strong international influence. To optimize the potentials of the establishment of the Free Trade Zone (2025), and simultaneously the Free Trade Port (2035), we need to bear in mind that some industries have relatively more preferential support. According to RVO, the following industries will have these extra benefits in terms of taxation and restrictions within the Hainan Free Trade Port (see figure 2 points .2 & .3): Tourism – Modern service – New and High Tech – Retail (Duty-Free Consumer Goods) – Cruise and Yacht – Cultural and Sports – Education – Landscaping (Island loop Scenic Highway design) – Shipping – Air Transportation – Finance Lease – Offshore Trading – Modern Finance – ICT – Advanced Manufacturing – Medical Services and Pharmaceuticals – Oil, Gas and Chemicals – Deep Sea Technology – Modern Tropical Agriculture – Aerospace – Headquarter Economy.

Conclusion

Being aware of the potentials in the abovementioned sectors, the Hainan Free Trade Port can be seen as a good alternative to the Hong Kong, Singapore, and mainland China ports. With the international located position of the Hainan FTP, goods, people, and data can be easily transported to the mainland market due to the free flow in the first line and the efficient control at the second line. Whereas all the enterprises benefit from the full implementation of Zero-Tariffs on the entire island of Hainan and the increased duty-free shopping quota per person per year, the encouraged industries have competitive tax rates and exemption of duties when trading to mainland China in the case of Hainan processed goods having an added value of 30%. To conclude, the Hainan Free Trade Port is an interesting and encouraging development that should be followed closely to further evaluate the potential investing prospects.

Do you have any questions regarding the new Hainan Free Trade Port, or want other vital information to do business successfully? Feel free to send us any questions our way; we would love to assist you.

Sources

China-Briefing

RVO