Reserve Asset – Local Collectors Post http://www.localcollectorspost.org/ Tue, 21 Jun 2022 18:44:29 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://www.localcollectorspost.org/wp-content/uploads/2021/03/locacollectorspost-icon-70x70.png Reserve Asset – Local Collectors Post http://www.localcollectorspost.org/ 32 32 Why this bear market is bad for stocks and bonds https://www.localcollectorspost.org/why-this-bear-market-is-bad-for-stocks-and-bonds/ Tue, 21 Jun 2022 18:42:21 +0000 https://www.localcollectorspost.org/why-this-bear-market-is-bad-for-stocks-and-bonds/
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A global bear market in financial assets has been raging for months and shows few signs of abating. The MSCI World Stock Index is down about 22% from its peak last fall. Emerging market stocks are down around 30% since their peak early last year. But most striking is the poor performance of other assets at the same time, notably government and corporate bonds. The 7 to 10 year US Treasuries and investment grade corporate debt indices have lost around 10% and 13% respectively this year. It’s still much better than the dismal performance of their European counterparts. Yet it is highly unusual for fixed income securities and equities to perform so poorly at the same time. Since the late 1990s, stocks and bonds have been negatively correlated: if stocks fell, bonds tended to rise. What happened?

In February 2021, I wrote that the Federal Reserve had created the biggest financial bubble in history because it encompassed everything. Growing inflationary pressures, I said, would burst this bubble as the Fed and other central banks would be forced to act. What I should also have pointed out is that the overall valuation of most traditional securities portfolios, which contain a selection of bonds and equities, was undoubtedly by far the highest in history. . These valuations have been pushed higher by central banks’ reaction to the previous two decades of disinflation and their extraordinary and untimely reaction to the Covid pandemic.

One way to explain what has happened in recent months is quite simple. Inflation has accelerated more than most people expected, especially central bankers. It has already eaten away at real growth, and as central bankers are starting to realize they need to do more to contain it – possibly a lot more, that’s why the Fed has hiked rates by 75bps last week and the Swiss National Bank caught everyone off guard by raising rates by 50 basis points – growth is sure to continue to slump. High and rising inflation and low and falling growth are a toxic combination for bonds and equities when their starting valuations were so high.

But I think other more subtle and powerful forces are also at work, ones that could ultimately take years to dissipate. Prior to the late 1990s, correlations between stocks and bonds were broadly positive—they rose and fell in tandem—because, the evidence strongly suggests, investors worried about inflation. At the turn of the century, they became more concerned about disinflation and growth, and the correlations reversed. As inflation concerns have come to the fore over the past two years, correlations have turned positive again.

This can have significant results, even in the short term. Although the smartest investors try to hedge extreme events by buying very low chance options to protect themselves against extreme scenarios, almost all banks, hedge funds and investment companies rely heavily on a management system. risks in which correlations are a key element. This risk management model is called Value-at-Risk (VaR, for short). At the risk of oversimplifying, if you have two assets in a portfolio, the model will look at the volatility and price performance of those two assets and the correlation between them. If one asset goes up while the other goes down, you get diversification benefits. This means that, for a given amount of capital, a fund manager can have larger positions overall.

But when prices fall, volatility picks up and these correlations change, leading to big losses on both assets when the model assumed a diversification benefit; the investor is forced to reduce his exposure to both assets. It’s called a VaR shock, and I think that’s what we’ve seen in recent weeks: forced selling by investors who suddenly find they’ve exceeded their risk limits. This shock will dissipate when asset prices have fallen enough that longer-term investors are happy to get in. The question of what these levels are is open: each has different measurement or evaluation needs.

There remain, however, at least two longer-term questions. The first, in fact, concerns the cost of hedging risky positions such as equities with government bonds. Correlations say nothing about where two assets end up, only how they get there. Over the past two decades, holding government bonds was the ultimate hedge because, until 2020, the price only rose over time. Investors made money with both asset classes. Since the middle of 2020, however, extreme inflationary pressures in many countries have led to steep losses. I would have thought that unless inflation starts to come down much more than the markets expect, most government bonds still look expensive and ripe for further losses. Either way, how much are investors willing to pay for hedges that don’t work?

The second question is more subtle but perhaps more powerful. When stocks are well-diversified with bonds, demand for both increases, driving up the valuations of each on an individual basis. To really limit inflation, central banks would have to raise rates far more than markets currently expect, pushing countries into severe recessions – the so-called sacrifice ratio. Because I doubt they have the stomach or the political support for it, I think it’s likely that, even if it comes and goes, inflation will persist as a rumbling problem for some time. Since this means that correlations are likely to remain positive, isolated valuations should fall further.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Richard Cookson was Head of Research and Fund Manager at Rubicon Fund Management. Previously, he was Chief Investment Officer at Citi Private Bank and Head of Asset Allocation Research at HSBC.

More stories like this are available at bloomberg.com/opinion

]]> Federal Reserve Governor backs another big inflation-fighting rate hike ‘All In’ https://www.localcollectorspost.org/federal-reserve-governor-backs-another-big-inflation-fighting-rate-hike-all-in/ Mon, 20 Jun 2022 00:18:56 +0000 https://www.localcollectorspost.org/federal-reserve-governor-backs-another-big-inflation-fighting-rate-hike-all-in/

Federal Reserve Governor Christopher Waller on Saturday became the latest U.S. central banker to pledge an all-costs approach to tackling inflation, three days after the Fed hiked interest rates by three-quarters of a percentage point and announced further increases to come.

“If the data comes in as I expect, I will support a similarly sized decision at our July meeting,” Waller said at a Society for Computational Economics conference in Dallas. “The Fed is ‘all in’ to restore price stability.”

A spike in inflation, which is at its highest level in 40 years, has made hawks out of almost all Fed policymakers, only one of whom earlier this week opposed what was the strongest increase in central bank rates in more than a quarter of a century.

Policymakers currently expect to raise the Fed’s benchmark overnight interest rate, now in a range of 1.50% to 1.75%, to at least 3.4% over the next six months. month. A year ago, the majority believed that the rate should remain close to zero until 2023.

On Friday, the Fed called its fight against inflation “unconditional” and Atlanta Fed President Raphael Bostic, who had been its most dovish policymaker, said “we will do whatever it takes.” to bring inflation down to the central bank’s 2%. target.

Inflation, as measured by the personal consumption expenditure price index, is more than three times that level.

“That’s the most important thing that worries me,” Waller said on Saturday, adding that moving rates quickly to neutral and into restrictive territory is necessary to slow demand and control inflation.

This monetary tightening will likely drive unemployment, currently at 3.6%, between 4% and 4.25%, or even higher, Waller said, “but my goal is just to slow the economy down.” Growing fears that the Fed’s rate hikes could cause a recession, he said, “are a bit overblown.”

Waller also said there are limits to how quickly the Fed can act: Markets would have a “heart attack” if the central bank raised rates by one percentage point in one move.

Risk of overspending

Speaking at the same event in Dallas, former Fed Vice Chairman Donald Kohn blamed high inflation in part on a decision to delay policy tightening which he attributed to an executive that the US central bank adopted in 2020. This framework ruled out a rate hike to anticipate inflation triggered by falling unemployment.

Waller, however, argued that it was the Fed’s overly specific promises about when it would end its massive asset purchases, implemented in 2020 to shield the economy from pandemic-related fallout, that were at fault.

Structural changes in the economy mean there is a “decent chance” that the Fed will have to cut its key rate to zero again in the future and buy bonds to fight even a typical recession, he said. he declares.

Waller said next time around he would support less restrictive promises around an end to bond purchases and more clarity on not just when the Fed will begin to tighten policy, but also how quickly. If the Fed says it won’t start raising rates until the labor market reaches full employment, as it did in the recent cycle, markets should be ready to understand that the costs borrowing will increase very quickly once rates begin to rise.

Kohn, for his part, urged caution once rates get high enough to begin to slow inflation, warning that the Fed risks overshooting its targets.

“It takes judgment and confidence to know when to back off,” Kohn said.

By Anne Sapphire

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ALT 5 – WEEKLY DIGITAL ASSETS https://www.localcollectorspost.org/alt-5-weekly-digital-assets/ Fri, 17 Jun 2022 18:04:00 +0000 https://www.localcollectorspost.org/alt-5-weekly-digital-assets/

Defi Defections Add Macro Pressure to Crypto Token Prices

NEW YORK, NEW YORK, USA, June 17, 2022 /EINPresswire.com/ — ALT 5 Sigma Inc., a global fintech that provides next-generation blockchain-powered technologies for tokenization, trading, clearing, Settlement, Payment and Custody of Digital Data Instruments publishes its Digital Assets Weekly.

• Locked Collateral and Margin Calls Add Selling Pressure in Crypto

• Ether underperforms given its use in defi protocols

• Crypto Market Cap Falls Below $1 Trillion

The combination of a tougher macro backdrop and crypto-specific pressures arising from tensions in the area of ​​decentralized finance (defi) have weighed heavily on crypto token prices.

Macro headwinds remain in the medium term but should be less so in the short term

Macroeconomic conditions are likely to get worse before they get better. The events of the past week with impressions of high inflation, a series of central bank tightening measures and outsized declines in stocks and bonds have left a mark on sentiment that will be evident for some time. .

There are few events scheduled in the coming week that have the potential to shed light on the macro fundamentals driving the markets. This could allow for some near-term consolidation of recent losses in financial assets in general. However, the reality is that the combination of high inflation, tighter monetary policy and downside risk to economic growth will, to some degree, persist as a headwind for crypto token prices. In the coming months.

The effects of defiant defections continue to be felt

In the defi space, it is still unclear how the Celsius situation will evolve. So far, there has been no announcement on when or how they might start resuming withdrawals/trading on their crypto lending platform after suspending them on June 12th. In the meantime, they have locked in counterparty collateral in a way that could force some to liquidate other holdings to meet margin calls.

Margin calls and blocked guarantees

There is little public clarity on any of these possible actions or transactions. But at the very least, it remains a significant drag on sentiment and, by extension, crypto token prices. Additionally, this follows – and may be in part due to – the collapse of the TerraUSD/LUNA project and tokens last month. We characterize it this way because losses resulting from the fallout from Project LUNA may cause some of the affected investors to liquidate other defi/crypto holdings in order to meet their own margin calls or risk parameters.

As an example, on Friday the CEO of Blockfi, a major crypto lending platform, tweeted that “we have fully accelerated the loan and fully liquidated or hedged” all associated collateral from a large client who does not failed to meet its obligations. This public statement coincided with numerous news reports of a crypto hedge fund facing liquidations and possible insolvency.

Ether underperforms bitcoin

Blockfi shares are surely not isolated and may well be followed by others, contributing to a sell-off cycle. It could also play a role in ether’s underperformance (-44%) against bitcoin (-34%) since this latest wave of price declines began on June 9-10. This is because many smart contracts in defi are built on the Ethereum blockchain. Therefore, the collapse of the TerraUSD/Luna protocol last month, and now the current halt to Circle withdrawals, could add further selling pressure in ether in particular, as it is a widely used vehicle. to access these protocols.

Crypto Market Cap Falls

Some attention will be paid to the fact that the total market capitalization of crypto token assets has now fallen below $1 trillion (according to data from CoinMarketCap) alongside the latest price decline. As of June 17, it was around $905 million. By any measure, this is a painful setback from the peak capitalization level of nearly $3,000,000 reached last November.

The Fed’s Liquidity Pump, and Its Subsequent Pivot, as Catalysts

However, it is also useful to recognize these milestones in context. First, the peak in market capitalization occurred alongside the approximate peak in financial asset prices last year. The subsequent price reversal was a direct result of the Federal Reserve’s monetary policy “pivot” in November 2021, where the central bank signaled that it would begin reversing the massive liquidity injections it had begun in March. 2020 to help counter the negative economic effects. of the pandemic.

Comparisons with pre-pandemic price levels are instructive

Looking a little deeper, the total crypto market capitalization had only passed the $1 trillion threshold in January 2021, helped (again) by central bank (and fiscal government) liquidity. which inflated the value of a wide range of financial and real assets, including crypto prices. For comparison, in the two years before the start of the pandemic in March 2020, the total crypto market capitalization ranged from around $100 million to $450 million.

This is in no way an effort to trivialize recent losses. Rather, it may be helpful to view these declines in the context of the dramatic rise in crypto token prices over the past four years, and to recognize that the current market capitalization is still well above, or even a multiple of what it is. she was only 3-4 years old. from.

Robert Lynch
Research and Strategy Manager
ALT 5 Sigma Inc.
bob@alt5sigma.com
alt5sigma.com

ABOUT ALT 5 Sigma

ALT 5 Sigma is a global fintech that provides next-generation blockchain-powered technologies for trading, clearing, settlement, payment and safe custody of digital instruments. ALT 5 was founded by specialists in the financial sector out of the need to provide the digital asset economy with security, accessibility, transparency and compliance. ALT 5 offers its customers the ability to buy, sell and hold digital assets in a safe and secure environment deployed with best practices in the financial industry. ALT 5 Sigma’s products and services are available for banks, brokers, funds, family offices, professional traders, retail traders, digital asset exchanges, digital asset brokers, developers blockchain companies and financial information providers. ALT 5’s digital asset custodian services are secured by Fireblocks.

DISCLAIMER:
Digital Assets Weekly is for informational purposes only and does not constitute, expressly or by implication, any provision of services or products by ALT 5 Sigma (“ALT 5”). Investors should determine for themselves whether a particular service or product is suitable for their investment needs or should seek such professional advice for their particular circumstances. ALT 5 Sigma. makes no representations or warranties to any investor regarding the legality of an investment, the tax or income consequences, or the suitability of an investment for such investor. ALT 5 Sigma does not solicit or provide financial advice. This is at the sole discretion of the individual.

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The Federal Reserve raises interest rates by 0.75 points https://www.localcollectorspost.org/the-federal-reserve-raises-interest-rates-by-0-75-points/ Wed, 15 Jun 2022 18:08:02 +0000 https://www.localcollectorspost.org/the-federal-reserve-raises-interest-rates-by-0-75-points/

The Federal Reserve took another aggressive step in its campaign to cut inflation on Wednesday, raising its target interest rate by three-quarters of a percentage point, the biggest rate hike since 1994.

Driving the news: In addition to raising their short-term interest rate target to a range between 1.5% and 1.75%, Fed officials forecast their target rate to hit 3.4% by the end of the month. this year, well above the 1.9% they envisioned in March.

Why is this important: The Fed has shifted to an emergency stance on inflation, but such steep rate hikes risk sending the economy into recession and markets plunging further.

  • For weeks, Fed officials had signaled they would likely only raise rates by half a percent at this meeting, a plan undone by a wave of poor inflation data in recent days.
  • Between last Thursday’s close and Tuesday’s close, the S&P 500 fell 7% and the average rate for a 30-year fixed-rate mortgage rose nearly three-quarters of a percentage point as markets began to adjust to the possibility of an aggressive Fed move.

What they say : “Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, rising energy prices and broader price pressures,” the policy committee said in a statement.

  • The committee “expects that continued increases” in rates will be appropriate. Members’ forecasts imply that it will raise rates by around another 1.75 percentage points over the rest of the year.

By the numbers: Fed officials also released projections of how they expect the economy to develop in the coming months, and they now expect both slower growth and higher inflation. higher than just three months ago – a more stagflationary mix of conditions.

  • The median leader of the Fed now expects inflation to be 5.2% this year, down from 4.3% projected in March.
  • The median official expected GDP growth of 1.7%, down from a forecast of 2.8% in March.

decision was not unanimous. Esther George, president of the Federal Reserve Bank of Kansas City, preferred to raise rates only half a percentage point.

And after: Fed Chairman Jerome Powell will take questions from the media at 2:30 p.m. ET.

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25% of central banks to increase gold holdings amid global uncertainty https://www.localcollectorspost.org/25-of-central-banks-to-increase-gold-holdings-amid-global-uncertainty/ Tue, 14 Jun 2022 03:19:01 +0000 https://www.localcollectorspost.org/25-of-central-banks-to-increase-gold-holdings-amid-global-uncertainty/

More central banks are expected to increase their gold holdings this year as they continue to view bullion as a reserve asset.

In a World Gold Council (WGC) survey of central banks, 25% said they planned to buy more gold over the next 12 months, up from 21% last year.

Central banks are also more bullish this year on gold as a reserve asset, with 61% of respondents saying global gold reserves will increase over the next 12 months.

“Gold continues to be viewed favorably by central banks as a reserve asset,” the World Gold Council said.

The historical position of the precious metal is now the main motivation for central banks to buy gold, as cited by the majority (59%) of respondents.

Gold’s ‘zero default risk’, as well as its ‘crisis performance’ and ability to hedge against inflation are also among the main reasons why central banks are increasing their holdings of gold.

Good delivery bars”

Of those who buy the precious metal, nearly half (46%) said they acquire gold on the global OTC market. For nearly half (43%) of economies, gold is a legacy asset, while 22% are increasing their holdings through domestic purchases.

About 15% of central banks opt for off-market transactions and 17% acquire financial derivatives on gold.

Most central banks (85%) buy gold that meets the standards set by the London Bullion Market Association, or those called “good delivery bars”, while a smaller number buy gold gold and kilo bars.

(Reporting by Cleofe Maceda; editing by Seban Scaria)

Cleofe.maceda@lseg.com

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Reserve Bank of India Deputy Governor Tells IMF: CBDCs Can Kill Digital Currencies https://www.localcollectorspost.org/reserve-bank-of-india-deputy-governor-tells-imf-cbdcs-can-kill-digital-currencies/ Sun, 12 Jun 2022 00:06:03 +0000 https://www.localcollectorspost.org/reserve-bank-of-india-deputy-governor-tells-imf-cbdcs-can-kill-digital-currencies/

T. Rabi Sankar, Deputy Governor of the Reserve Bank of India (RBI), said his organization believes that Central Bank Digital Currencies (CBDCs) have the potential to kill private digital currencies.

According to Sankar, India’s state-run payment platforms including Unified Payment Interface (UPI) and Aadhar are already seeing massive adoption despite the challenges. The Deputy Governor highlighted the UPI system, noting that its simplicity has been central to its success. The platform, a fiat-based peer-to-peer payment system, has seen average transaction growth of 160% per year over the past five years and was particularly accelerated by the 2020 lockdown.

In contrast, he noted that blockchain technology and digital assets have not seen the same level of adoption growth.

“Blockchain, which was introduced six to eight years before the start of UPI, is still considered a potentially revolutionary technology today. [Blockchain] the use cases haven’t really been established at the speed that was originally hoped,” he said.

This slow adoption is due to several shortcomings of digital currencies, the MP said. Some of them are lack of issuer and intrinsic value. Based on this, Sankar believes that CBDCs will replace even the small use case of digital assets.

“We think central bank digital currencies (CBDCs) might actually be able to kill any small case that might be for private cryptocurrencies,” he added.

India and the IMF have similar views on digital currencies and CBDCs

Sankar’s view comes just after the RBI released its annual report, in which it proposed taking a three-phase approach to deploying a CBDC. The central bank has even named the development of the CBDC as one of its major initiatives for 2022-23.

Meanwhile, India’s central bank’s stance on digital assets has long been contradictory. Last month, RBI Governor Shaktikanta Das reiterated that digital currencies have no underlying value and therefore need to be carefully regulated for the stability of the economy.

The outlook on digital assets and CBDCs is something that India shares with the IMF. The IMF has also long warned nation states of the dangers of embracing digital currency. The organization has told El Salvador and the Central African Republic that their adoption of Bitcoin as legal tender is of concern.

Similarly, the IMF has asked Argentina to discourage the adoption of digital currency as part of a bailout deal. The Financial Times notes that the IMF strongly supports the globalization of CBDCs.

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NY Tackles Reserves and Redemption in Stablecoin Guidance https://www.localcollectorspost.org/ny-tackles-reserves-and-redemption-in-stablecoin-guidance/ Thu, 09 Jun 2022 01:50:00 +0000 https://www.localcollectorspost.org/ny-tackles-reserves-and-redemption-in-stablecoin-guidance/
By Jon Hill (June 8, 2022, 9:50 p.m. EDT) – New York-licensed companies that want to issue US dollar-backed stablecoins will need to meet certain reserve, redemption and auditing requirements set out in new guidelines unveiled Wednesday by the state financial services regulator.

The New York State Department of Financial Services said the guidelines are the first of their kind to be issued by a US financial regulator and set out basic regulatory expectations for dollar-backed stablecoins issued under its oversight in New York. York.

This population already includes major coins like the Pax Dollar, Binance USD, and Gemini Dollar, but the guidelines would also apply to any additional stablecoins that DFS-regulated companies…

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Gold Price Fundamental Daily Forecast https://www.localcollectorspost.org/gold-price-fundamental-daily-forecast/ Tue, 07 Jun 2022 10:13:00 +0000 https://www.localcollectorspost.org/gold-price-fundamental-daily-forecast/

Gold futures are up Tuesday morning as US Treasury yields softened overnight and the US dollar retreated from a two-year high. Nonetheless, expectations of interest rate hikes in the US, Europe, Australia and New Zealand are dampening demand for bullion.

As of 09:21 GMT, August Comex gold futures are trading at $1850.40, up $6.70 or +0.36%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $171.80, down $0.78 or -0.45%.

Global Rate Hike Expectations Weigh on Gold

Gold bulls fear higher interest rates as they reduce demand for the valuable non-interest-bearing, non-earning asset.

Overnight, the Reserve Bank of Australia (RBA) raised its benchmark interest rate. The Reserve Bank of New Zealand is also expected to raise its official exchange rate later in the month.

Additionally, the Federal Reserve is expected to raise its benchmark next week. On Thursday, the European Central Bank (ECB) is expected to outline its rate hike plans on Thursday.

Reserve Bank of Australia raises rates above market expectations

The Reserve Bank of Australia (RBA) raised interest rates the most in 22 years on Tuesday and signaled tightening ahead as it struggles to contain soaring inflation, stun markets and send bond yields skyrocketing.

Concluding its June policy meeting, the RBA raised its benchmark rate by 50 basis points to 0.85%, surprising investors who had bet on a move of 25 or 40 basis points.

Reserve Bank of New Zealand: should take a more aggressive tightening path

The Reserve Bank of New Zealand (RBNZ) made its fifth consecutive interest rate hike on May 24 and signaled a much more aggressive tightening path as authorities seek to reduce the second-round effects of the crisis. galloping inflation.

The RBNZ has raised the official cash rate by 50 basis points to 2.0%, a level not seen since November 2016. Basically, a hawkish RBNZ now expects the cash rate to double to 4.0% over the next next year and will remain there until 2024.

European Central Bank: rate hike expected in July

The European Central Bank (ECB) will probably decide on Thursday to end its stimulus program in July, and could announce an interest rate hike at the same time. In May, ECB President Christine Lagarde opened the door to a 50 basis point hike next month.

Federal Reserve: Traders bet on 50 basis point rate hikes in June and July

The US Federal Reserve is on track for half-point interest rate hikes in June and July. However, the strength of the economy and last week’s US jobs report boosted expectations of continued tightening from the US central bank.

Short-term outlook

Friday’s US consumer inflation (CPI) report should provide further clues to the pace of US rate hikes.

The CPI is expected to have gained 0.7% in May, from 0.3% in April, with annual inflation unchanged at 8.3%, according to the median estimate of economists polled by Reuters.

While some believe higher inflation would be bullish for gold prices, a jump in inflation in this report could actually be bearish for gold, as it could bolster expectations that the Fed will continue. to aggressively raise rates as it attempts to ease rising price pressures. at the fastest pace in 40 years.

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MicroStrategy CEO Saylor Says Bitcoin’s Short-Term Volatility Is Largely Irrelevant https://www.localcollectorspost.org/microstrategy-ceo-saylor-says-bitcoins-short-term-volatility-is-largely-irrelevant/ Sun, 05 Jun 2022 08:57:33 +0000 https://www.localcollectorspost.org/microstrategy-ceo-saylor-says-bitcoins-short-term-volatility-is-largely-irrelevant/

Bitcoin’s short-term volatility is largely irrelevant once you understand the fundamentals of the leading cryptocurrency and how difficult it would be to create something better, says MicroStrategy CEO Michael Saylor.

“Bitcoin is the most certain thing in a very uncertain world, it’s more certain than the other 19,000 cryptocurrencies, it’s more certain than any stock, it’s more certain than owning property anywhere in the world,” he said in an interview with The Block last seen. week after attending CoinMarketCap’s The Capital virtual conference.

People who have spent at least $100 on bitcoin can talk about the cryptocurrency, Saylor admitted, but otherwise they “probably wouldn’t have anything to say about it.”

MicroStrategy’s bet on bitcoin

Saylor’s software company holds a massive position in bitcoin — ownincluding through subsidiaries, around 129,218 bitcoins – and he has become a leading supporter of cryptocurrency since being added to his company’s balance sheet in August 2020.

MicroStrategy’s most recent purchase, revealed in an April 5 filing, was the acquisition of 4,167 bitcoins worth approximately $190.5 million. at the timewhile bitcoin traded at $45,714.

The company acquired all of its bitcoin holdings at an average price of $30,700. With bitcoin trading at $29,716.37 On Sunday, Saylor’s company is in the red on its purchases – although it has no plans to sell, he said.

He said bitcoin would have to fall 95% before the company would consider doing anything, even then he said. said in the past, the company could deposit alternative sureties.

In order to finance its bitcoin bet, MicroStrategy took out three loans between December 2020 and June 2021 by issuing senior convertible bonds and senior secured bonds.

Senior convertible bonds are debt securities that contain options to be converted into a certain amount of the issuer’s equity upon maturity. When they mature, they must either be converted into shares, redeemed in cash, or a combination of both. Senior secured notes are loans that use the assets of the issuer as a form of collateral.

MicroStrategy issued senior secured notes in June 2021, secured by assets including any bitcoin purchased at or after closing of the offering. Yet it did not include any of MicroStrategy’s existing bitcoins, nor any that could be purchased with proceeds from existing bitcoins or other holdings.

MicroStrategy and Bitcoin, a difficult course in May

In May, MicroStrategy stock price hit a 20-month low of $159.67 before recovering to close the month at $246.65, still down from an open of $355.68. During the month, the company’s bitcoin position fell into the red, where it remains.

Bitcoin prices fell in May as the cryptocurrency market, as well as broader financial markets, were in turmoil. After an initial crash in crypto prices earlier this month, and as the broader macroeconomic environment deteriorated, prices plunged further amid the collapse of the Terra blockchain, following the failure of its stablecoin, TerraUSD (UST).

This contagion dragged bitcoin below $30,000 as it fell to its lowest level in 18 months since trading at around $27,000 on December 21, 2020. While many observers said this was clear evidence of a crypto bear market, Saylor said he was unconvinced.

“I don’t know if it’s a bear market or not, but if it’s a bear market, then we’ve had three in the last 24 months,” he told The Block. Saylor was referring to April 2021, when the price rose to $60,000 before falling back to around $31,000 in July 2021 and then reaching all-time highs of $69,000 in November 2021.

Saylor said he prefers not to get caught up in short-term prices, adding that people who focus too much on charts are “playing with tea leaves.”

His take: “If you’re not planning to hold it for four years, you’re not really an investor, you’re a trader, and my advice to traders is don’t trade it, invest in it.”

TerraUSD and bitcoin as a reserve asset

One of the main reasons bitcoin and crypto prices fell in May was the capitulation of TerraUSD and luna (LUNA), the two main offerings on the Terra blockchain.

Terra’s ecosystem is under pressure after its stablecoin, TerraUSD, lost its peg against the dollar on May 7. A shared relationship between TerraUSD and luna then dragged the two down, even though TerraUSD had a “foreign exchange reserve” of over $3 billion in bitcoin which it unloaded in a futile attempt to defend its peg.

TerraUSD had a burning mechanism involving luna so that anyone holding TerraUSD could redeem a token for $1 worth of luna tokens in the event of an unpeg – if TerraUSD was trading at $0.95 for example.

This would make TerraUSD rarer and was supposed to bring the price back towards $1, also allowing holders to take advantage of the price difference and potentially earn an arbitrage profit, incentivizing them to maintain the peg.

Yet after TerraUSD lost its peg to the dollar on May 7, the Luna Foundation Guard (LFG) – a non-profit organization managing Terra’s foreign exchange reserve – used most of its reserves to buy UST in an attempt unsuccessful to defend the anchorage.

Despite the collapse of TerraUSD and the depletion of its bitcoin reserves, Saylor maintained that bitcoin is a valid reserve asset.

“I think it all comes down to the amount of leverage. I think it makes a lot of sense to use bitcoin as a reserve asset,” he said, noting that with reasonable leverage, like owning $1 billion worth of bitcoin and issuing $50 million of a stablecoin, there would be much less risk. with the use of bitcoin as a reserve asset.

The problem with Terra was not so much the idea of ​​owning bitcoins, he said, but that they had too much TerraUSD in circulation.

© 2022 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended for use as legal, tax, investment, financial or other advice.

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North American morning briefing: Stock futures slide ahead of jobs report https://www.localcollectorspost.org/north-american-morning-briefing-stock-futures-slide-ahead-of-jobs-report/ Fri, 03 Jun 2022 09:38:00 +0000 https://www.localcollectorspost.org/north-american-morning-briefing-stock-futures-slide-ahead-of-jobs-report/

MARKET ENVELOPES

To watch:

Employment report for the month of May; Services PMI for May; ISM Business Services PMI Report for May; Canada’s official international reserves for May

Opening call:

US stock futures fell slightly ahead of May’s jobs report, which will provide insight into the state of the labor market and likely guide central bank policy.

Economists polled by the Wall Street Journal expect U.S. employers to add jobs at a healthy pace in May, though they believe the pace of hiring has slowed from the previous month as businesses face to a tight labor market and growing economic uncertainty.

One of the concerns of Federal Reserve officials is that a strong labor market will add to high inflation, as competition for workers strengthens wage bargaining power. Fed Vice Chair Lael Brainard said Thursday she backs plans to raise interest rates by half a percentage point at a meeting later this month and again. in July.

Frank Øland Winther, chief global strategist at Danske Bank, said he would look to see if wages had risen in the past month. That, plus a slowdown in hiring, could cause markets to weaken, he said.

“It’s an unfortunate cocktail,” he said. “Then inflation gets wider, and then the Fed will continue to tighten.”

Forex:

Monthly U.S. jobs data later today should remain strong and could help lift the dollar, UniCredit Research said.

“The US jobs report for May is clearly the key test on the macro front today and comes after a disappointing jobs survey from ADP,” UniCredit added.

For now, the dollar’s recovery from comments by Federal Reserve Vice Chair Lael Brainard that she doesn’t see the case for a “pause” in September rate hikes is missing. of momentum, UniCredit said.

Energy:

Oil futures fell, paring gains made on Thursday after OPEC+ agreed to increase oil production.

The market is skeptical whether the group could actually achieve the 650,000 barrels per day increase it agreed on.

Nigeria, Angola and Russia have recently struggled to meet their targets and a further increase in crude production evenly distributed among OPEC+ members seems unlikely, SPI Asset Management said.

“Traders believe the incremental increase is too small compared to the growing supply downside risks associated with the EU embargo amid expected increased demand from China,” SPI said. .

Metals:

High prices for many global commodities could ultimately lead to demand destruction, making it a less attractive investment at the moment, said Daniel Hurley, principal portfolio analyst at T. Rowe Price.

He is underweight commodities and expects oil prices to fall within a year. An exception could be copper, he noted, given the state of demand in electric vehicle industries.

Copper could be boosted on hopes that industrial activity in China will pick up as the country eases Covid-19 restrictions, ANZ said.

“With [Covid-19 curbs] now lifted, the market is looking to stimulate demand as economic activity picks up,” ANZ said.

“Potential supply disruptions in Peru, due to protests at Southern Copper’s Los Chancas mine, are also contributing to higher copper prices,” ANZ added.

   
 
 
   
 
 

THE BEST TITLES OF THE DAY

 
 

Frontier Airlines to pay Spirit $250 million in severance fees if deal falls through

Frontier Airlines will pay Spirit Airlines Inc. a $250 million break fee if regulators block a merger between the two carriers, under a new agreement between the companies on Thursday.

The move comes as Spirit tries to win investor support for its merger with Frontier and fend off a hostile bid from rival JetBlue Airways Corp.

   
 
 

Fitch withdraws ratings from Evergrande and its subsidiaries

Fitch Ratings withdrew its credit ratings on China Evergrande Group and two subsidiaries, citing insufficient information.

“Evergrande and its subsidiaries have elected to no longer participate in the ratings process,” the ratings company said in a statement Thursday. “As a result, Fitch will no longer provide ratings or analytical coverage for Evergrande and its subsidiaries,” namely Hengda Real Estate Group Co. Ltd. and Tianji Holding Limited.

   
 
 

Sycamore and Franchise Group submit offers for Kohl’s

Kohls Corp. received takeover bids from private equity firm Sycamore Partners and holding company Franchise Group Inc., according to people familiar with the matter.

Sycamore’s offer values ​​the Wisconsin department store chain at around $50 a share, while Franchise Group offered around $60, some people said, which equates to around $7 billion or $8 billion. Kohl’s stock closed Thursday at $41.18.

   
 
 

How a strong dollar is hitting Microsoft and other big US companies

Microsoft Corp. on Thursday cut its forecast for sales and earnings, citing gains in the U.S. dollar in currency markets. Here’s why the dollar has soared so much this year and what that means for companies and stocks.

   
 
 

The strength of the eurozone services sector helped support robust economic growth in May

The eurozone economy continued to grow at a strong pace in May as recently eased pandemic-related restrictions supported a sustained rise in activity levels, S&P Global said.

The Eurozone composite purchasing managers index fell to a four-month low of 54.8 in May from 55.8 in April. While the main measure was still indicative of economic growth in the eurozone, it also highlighted a loss of momentum.

   
 
 

India’s tech IPO market thaws, just a little

After a rocky start to 2022, India last week saw a surprisingly successful listing of a company-backed startup on public stock exchanges. But investors shouldn’t expect healthy animal spirits to return to India’s IPO market just yet.

Delhivery, which makes a living doing logistics for other e-commerce businesses in India and counts SoftBank, Tiger Global and Carlyle among its investors, raised about $675 million. The shares, which debuted at 487 Indian rupees each, closed Thursday at 570 rupees. A 17% jump may seem paltry by the standards of the go-go days of 2020 and 2021, but it looks like a success as markets around the world remain turbulent with little visibility on when they will hit bottom. .

   
 
 

Biden urges gun legislation after mass shootings

WASHINGTON — President Biden stepped up his calls for legislation to reduce gun violence in a speech Thursday night, as House Democrats pursued their own bill and Senate negotiators worked to reach a close bipartisan agreement after a series of deadly mass shootings.

Mr Biden, in a somber speech from the White House, said too many places in America had become killing fields, marked by names such as Columbine, Sandy Hook and Parkland. “For God’s sake, how much more carnage are we willing to accept?” He asked.

   
 
 

North Korea continues nuclear test preparations, US says

SEOUL-North Korea appears to be continuing preparations for its seventh nuclear test, the US point man has said on the country, even as Pyongyang takes the helm of a top nuclear disarmament forum at the United Nations.

Sung Kim, the US special envoy for North Korea, met with his South Korean and Japanese counterparts in Seoul on Friday and discussed strengthening deterrence against the North.

   
 
 

Email hoishan.chan@dowjones.com TODAY IN CANADA

Earnings:

BRP 1Q

Economic indicators (ET):

08 May 15 Official international reserves

   
 
 

Major events expected for Friday

00:30/JPN: May Japan PMI Services

06:00/RUS: May Russian Services PMI

06:00/GER: Apr Foreign Trade

06:45/FRA: April Industrial Production Index

07:45/ITA: May Italy PMI Services

07:50/FRA: May France PMI Services

07:55/GER: May Germany PMI Services

12:15 p.m./CAN: Official International Reserves for May

12:30/CAN: 1Q Labor productivity, hourly compensation and unit labor cost

12:30 p.m./US: Weekly US Export Sales

12:30 p.m./United States: May employment report in the United States

1:45 p.m./US: US services PMI in May

14:00/US: May ISM Business Services PMI Report

All times in GMT. Powered by Kantar Media and Dow Jones.

   
 
 

Earnings expected for Friday

Bridgford Foods Corp (BRID) is expected to report for Q2.

Brp Inc (DOO.T, DOOO) is expected to earn $1.11 for Q1.

Hurco Cos (HURC) is expected to report for Q2.

Statera Biopharma Inc (STAB) is expected to report for the first quarter.

Powered by Kantar Media and Dow Jones.

   
 
 

ANALYST RATINGS ACTIONS

Analyst rating actions unavailable on Friday.

This article is a text version of a Wall Street Journal newsletter published earlier today.

 

(END) Dow Jones Newswire

June 03, 2022 05:38 ET (09:38 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.

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