The Crypto Daily – Movers and Shakers – March 21st, 2021

The Crypto Daily – Movers and Shakers – March 21st, 2021

Bloomberg

(Bloomberg) – The Turkish lira plunged as much as 15% following President Recep Tayyip Erdogan’s shock decision to replace the country’s central-bank chief.It was quoted at 8.1012 at 10:53 a.m. Sydney time after earlier weakening to 8.4707 per dollar. That erased more than four months of gains since the now ex-governor Naci Agbal was appointed in November and putting the lira within a few percentage points of a record low reached earlier that month.Erdogan’s decision to fire Agbal, who had sought to restore the central bank’s credibility, is a blow to investor confidence and raises concern the country will once again embark on a path of rock-bottom rates. The initial backlash exceeded some analysts’ estimates, and marks a swift reversal of investor enthusiasm toward Turkish markets. That now seemingly sated appetite had helped make the lira the best carry-trade currency this year, with money managers cheering Agbal’s move to raise interest rates and efforts to bring inflation under control.“Bulls’ optimism was based on CBRT being allowed to keep rates high for some time, and after last Thursday that looked very promising,” said Henrik Gullberg of Coex Partners Ltd., who previously saw the lira appreciating beyond 6.90 per dollar. “That’s ruined now; it will be hard to find lira bulls,” he said, adding that the currency could now head back to levels when Agbal was appointed.New PledgeAgbal’s replacement, Sahap Kavcioglu, pledged on Sunday to use monetary-policy tools effectively to deliver permanent price stability. He also said the bank’s rate-setting meetings will take place according to schedule.A rush to sell the currency in thin liquidity as trading got underway in Asia overwhelmed support for the lira from state banks, according to an FX trader familiar with the transactions, who asked not to be identified because the person isn’t authorized to speak publicly.“I expect massive state bank intervention in the short term to hold a line on the lira,” said Timothy Ash, a strategist at BlueBay Asset Management in London, adding that he’s not yet sure where the line will be drawn. “The new governor will be dependent on utilizing the reserve bounty that the former governor left him to smooth his entry into the job.”Erdogan Ousts Central-Bank Head, Installs Interest-Rate AllyAny weakness in the lira could add to inflationary pressures building in the economy and erode Turkey’s real rate, currently the highest in emerging markets after Egypt’s.“The shock firing of central bank chief Agbal over the weekend may deal a fatal blow to investor confidence in Turkey,” Win Thin, head of global currency strategy at Brown Brothers Harriman & Co., wrote in a note. “At this point, it doesn’t matter who Agbal’s replacement is or what they say, as it’s clear that Erdogan is running the show. USD/TRY is likely to test the all-time high near 8.58.”The lira had strengthened under Agbal’s watch as he ended a complicated funding structure and pledged to ensure price stability. His abrupt removal comes on the heels of a 200 basis-point interest-rate hike on Thursday, double what was expected in a Bloomberg survey, amid accelerating inflation.What Bloomberg Economics Says“The hit to the central bank’s credibility and independence can’t be overstated. Erdogan has battered the institution with interventions that have repeatedly backfired. Financial markets were willing to give Agbal a chance, his successor will find it hard to build that trust again.”–Ziad Daoud, chief emerging markets economist. For full REACT, click hereWhile Turkey’s high nominal rates are a lure for yield hunters, its mercurial inflation and the perception that central-bank policy has been too loose for the prevailing economic conditions has made the lira one of the most volatile currencies in the world.“We must conclude, for now, that Kavcioglu will be mandated with reducing and keeping rates as low as possible,” said Cristian Maggio, head of emerging markets at TD Securities in London. “If this hypothesis proves true, not only will we see a looser policy setting in Turkey in the coming months, but we will also likely experience a return to managing policy through unorthodox measures.”Last year, Turkish banks spent more than $100 billion of the nation’s foreign reserves to support the sinking currency, according to a report by Goldman Sachs Group Inc. That prompted calls by Turkish opposition for a judicial probe into the nation’s official reserves.In comparison, foreign investors purchased a net $4.7 billion worth of Turkish stocks and bonds in the months following Agbal’s appointment. Overseas inflows to Turkey through swaps were about $14 billion during that period, Istanbul-based economist Haluk Burumcekci said.Among those who may find themselves on the wrong side of the trade are Japanese retail investors. Long positions by individuals in lira-yen stood at 263,585 contracts as of Friday, according to Tokyo Financial Exchange data. They’ve climbed about 9% since the start of the year.“We will never know how successful Agbal’s approach could have been, but initial signs were positive,” said Emre Akcakmak, a portfolio adviser at East Capital in Dubai, who anticipated challenges to intensify in the near future and a reversal on some of the recent and large hot money inflows in the face of the unexpected decision.“Even when the market stabilizes after a while, investors will have little tolerance, if any, in case the new governor prematurely cuts the rates again,” Akcakmak said.(Updates with quote from Brown Brothers and latest prices. An earlier version of the story was corrected over the extent of the decline in the lira)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

Crypto Long & Short: Bitpanda’s Raise Is About More Than Market Infrastructure

The pace of startup raises in the crypto industry, especially for businesses involved in building or operating crypto market infrastructure, has passed from a gentle canter to what feels like a gallop. I keep a note of the raises that CoinDesk reports on, and did some counting this morning: 14 in January, 24 in February, and so far this month – with a week and a half still to go – we’re at 32. That’s acceleration.

While most raises are under $10 million, so far this year there have been four (that I am aware of) that were greater than $100 million. Two of them were this week. One was crypto custodian Fireblocks, which raised $133 million. The other was a $170 million Series B round for a crypto market-infrastructure player that I confess had not been on my radar as much as it probably should have been.

You’re reading Crypto Long & Short, a newsletter that looks closely at the forces driving cryptocurrency markets. Authored by CoinDesk’s head of research, Noelle Acheson, it goes out every Sunday and offers a recap of the week – with insights and analysis – from a professional investor’s point of view. You can subscribe here.

Related: Bidding on NFT of First-Ever Tweet Ends Today; Top Offer Remains at $2.5M

I’m talking about Bitpanda, a crypto exchange and card issuer headquartered in Vienna that, with this raise, is now valued at $1.2 billion. This makes it one of Europe’s largest crypto platforms, and Austria’s first unicorn ever. Let’s take a moment to appreciate that Austria’s first unicorn is a crypto company.

This raise is worth looking at a bit more closely in that it embodies some deeper trends that will most likely continue to get noisier as the year progresses.

One is the self-reinforcing impact of crypto price movements. Increasing crypto prices lead to increasing revenues at market-infrastructure providers, which leads to more investment, which develops better on-ramps, which leads to more investors coming into the market which leads to increasing crypto prices. And so on.

Story continues

This is evident in the amount raised. For context, Revolut’s Series B was roughly one-third the size. What’s more, Bitpanda’s raise came just six months after a $52 million Series A, when the average time between rounds is 18 months.

Related: AMD, Unlike Nvidia, Won’t Try to Block Crypto Miners From Using Its Chips: Report

Bitpanda has been profitable for four years, according to CEO Eric Demuth, so it doesn’t really need the funds. This raise highlights a notable ambition: “to become ‘the’ investment platform for all of Europe.”

But wait, Europe has a slow and fragmented regulatory approach to finance and innovation, right? It doesn’t even yet have full capital markets union, so how can there be a pan-European crypto investment platform?

This is the second intriguing development highlighted in the Bitpanda funding round: upcoming European legislation that aims to create a unified approach to crypto industry oversight. This is potentially a very big deal.

Opening doors

Published in September 2020, the EU’s “Markets in Crypto-Assets Regulation” (MiCA) aims to implement clear-cut rules and long-term legal certainty in the regulation of crypto assets. As usual in the European Union, however, clear-cut rules are usually anything but, as each member state has some leeway in the interpretation and implementation. And MiCA’s text is not yet finalized.

There does seem to be momentum, however, and not just because of the intensifying interest from all types of investors. Just this week the European Securities and Markets Authority issued a reminder about crypto asset risk. The momentum is also propelled by concern over the threat that privately issued cryptocurrencies could pose to financial stability. MiCA would also regulate stablecoins.

MiCA will bring a unified policy to crypto asset services, clarifying the regulatory status of crypto assets and their market-infrastructure providers. What’s more, it will enable crypto services in one member country to legally operate in any other.

And crypto asset service providers will be subject to requirements regarding capital needs, insurance coverage and more. This will instill greater institutional confidence in service providers’ legality and financial soundness. Greater legal certainty around market development will attract both investors and builders, accelerating the emergence of regulated crypto services.

In terms of institutional investment, the U.S. will continue to dominate the global financial stage. It has the world’s largest capital market and the largest funds. But Europe has so far shown itself to be more forward-thinking about the eventual fusion of traditional and crypto markets. A handful of stock exchanges list crypto-backed products. Some are developing entire token ecosystems. Two European crypto asset managers are now listed companies. Traditional banks are offering crypto trading and custody.

What’s more, Bitpanda’s sights appear to be on more than just being the biggest crypto exchange in Europe. Demuth told TechCrunch this week that the company was “shifting to become a pan-investment platform, not just a crypto broker.”

Its Mifid II license gives it scope to eventually trade other types of assets. According to reports, the company will add fractional trading of traditional shares in April. And, given their new war chest, it’s unlikely the expansion of offerings will stop there.

Given the investment and regulatory interest in helping platforms like Bitpanda achieve those goals, it could be that Europe is where the merging of traditional and crypto finance takes shape first.

But whether the U.S. or Europe takes the lead in crypto market progress over the next few years really doesn’t matter in the grand scheme of things. What matters is that the progress is accelerating and becoming almost tangible. It’s morphing from vague futuristic ideas to real rules guiding real platforms that offer real products to a changing market. And progress in one hemisphere will support development in the other.

It’s becoming increasingly apparent that the rapid change in crypto market infrastructure that we’ve seen over the past year was just the warm-up.

Momentum and gateways

This week, CNBC’s report that Morgan Stanley was allowing its financial advisers to put client funds into bitcoin sent ripples through the wealth-management industry.

The firm, one of the largest asset managers in the world with over $4 trillion AUM, will give clients access to three bitcoin funds via its platform. Two of these funds are managed by Galaxy Digital, and the third is overseen by FS Investments and NYDIG.

For now, the bitcoin funds are only available to clients with accounts that have been active for at least six months and are worth over $2 million ($5 million for investment firms), and there is a limit of 2.5% of a client’s net worth.

Nevertheless, the move is significant for the whole market for the signals it sends:

Clients are demanding bitcoin exposure. We knew this anyway, but here’s more proof.

Bitcoin is now officially investment grade. Morgan Stanley’s acceptance of bitcoin’s liquidity, custody and market integrity is a loud stamp of approval. This signals to financial advisers of all types that this market is worth thinking about with an open mind.

These signals won’t just reach investors. They will also reach other investment houses and financial advisers, who will probably scramble to offer similar services rather than be seen as overly conservative in a low-yield market that is pushing investors further along the risk curve.

CHAIN LINKS

“There are plenty of things that people want and value highly that have no intrinsic value. How about a painting or a diamond or a bar of gold?” – Howard Marks, in a video interview

“For speculative investment opportunities to rise to the level of an investable asset class that can play a role in diversified investment portfolios requires transformational progress on both the supply and demand sides. With cryptocurrency, we think that threshold is being reached.” – Morgan Stanley Wealth Management, in a report released this week

“Importantly, small changes in investors’ overall perceptions about Bitcoin can have a large impact on its price, especially because relatively few bitcoins are in circulation. So, if several pension funds or large asset managers with trillions of dollars decide to allocate a few basis points of their portfolios in a cryptocurrency, it can have a very large impact.” – Deutsche Bank Research, in a report released this week

SEC commissioner Hester Peirce gave a speech this week at the British Blockchain Association’s conference in which she discussed her view on the regulator’s inconsistent reasons for rejecting previous bitcoin ETF applications:

“Rather than applying the fairly straightforward standard that we have typically applied in approving other ETP filings—including for precious metals like palladium and platinum—we have insisted on increasingly sophisticated analyses of the relationship between the underlying spot market and the futures market to determine the susceptibility of these markets to fraud and manipulation. Not only is it unclear whether prior non-crypto ETP filings could have passed muster under this more rigorous approach, the ever-shifting goalposts are unfair to innovators who spend ever-increasing amounts of money on attorneys and quantitative experts only to find that they have failed to hit a target that has moved once again.”

She also pointed out that the SEC stance has heightened risk for retail investors, rather than protected them:

“The SEC’s reluctance to permit traditional investment vehicles to hold bitcoin or bitcoin futures has contributed to investors seeking more expensive, less convenient, or less direct substitutes, but it also has heightened the stakes of any regulatory approval for a mainstream retail product we might one day grant. By waiting we also have magnified the first-approved advantage in the bitcoin ETP or registered fund space. Moreover, because we have comported ourselves like merit regulators, investors might view any approvals as an official blessing by the Commission about the quality of the products we approve. That would be the wrong inference to draw.”

Speaking of ETFs, the SEC acknowledged the ETF application submitted by VanEck, formally kicking off its 45-day window to make an initial decision on the proposal. TAKEAWAY: If approved, the ETF would be the first bitcoin ETF in the U.S., and its approval would send a strong signal to the global investment community that the market has “grown up” and now passes the SEC’s rigorous (albeit contentious) standards.

First Trust Advisors and SkyBridge Capital, the hedge fund run by Anthony Scaramucci, have filed an S-1 with the SEC for the “First Trust SkyBridge Bitcoin ETF Trust,” to trade on NYSE Arca. TAKEAWAY: They join WisdomTree, NYDIG, Valkyrie and VanEck in the queue, with Grayscale (a subsidiary of CoinDesk parent DCG) hiring ETF positions.

Grayscale Investments (a subsidiary of CoinDesk parent DCG) has launched five new trusts based on decentralized application tokens Chainlink (LINK), Decentraland (MANA), Brave (BAT), Filecoin (FIL) and Livepeer (LPT). TAKEAWAY: This is a meaningful nudge to institutional investors to look a bit further down the market cap rankings for potential – and the inflows this is likely to produce will send not just funding but also more mainstream attention to innovative platforms and use cases.

Trading platform eToro will become a publicly traded company via a merger with special purpose acquisition company (SPAC) FinTech Acquisition Corp. V. The combined entity will have an implied equity value of about $10.4 billion, reflecting an implied enterprise value for eToro of about $9.6 billion, according to the company. TAKEAWAY: This adds to the list of crypto market infrastructure companies to go public, boosting our access to financial statements and a better understanding of the business dynamics of the industry.

Kraken could also soon contribute to that list. The crypto exchange, which has been trading since 2011, is reported to be considering a direct stock exchange listing in 2022. TAKEAWAY: Kraken is a key player in the industry, offering not only one of the leading exchanges, but also the first regulated “crypto bank” after receiving a bank charter from the state of Wyoming. While those would be some financial statements I would love to take a look at, it’s possible that an eventual listing, should it materialize, would be for only part of the growing company’s business lines.

SBI Crypto – a subsidiary of Japanese conglomerate SBI Holdings – is opening up access to its mining pool for both institutional and retail customers. TAKEAWAY: This is part of what seems like an emerging trend to bring greater liquidity to bitcoin mining as an investment asset, and follows just one week after North American mining firm Foundry (a subsidiary of CoinDesk parent DCG) opened up its mining pool to institutional customers.

The latest survey by Bank of America shows that inflation fears have replaced the pandemic impact as fund managers’ biggest worry, and that “long bitcoin” is still the second-most crowded trade, behind “long tech.” TAKEAWAY: “Most crowded” does not mean “unadvisable.” It does warn investors that, should sentiment turn, the stampede toward the exit could be nasty.

An Investopedia survey showed that 20% of respondents have added bitcoin to their portfolios, while 60% believe it is in bubble territory. TAKEAWAY: The U.S. financial website’s editor in chief Caleb Silver said that respondents’ concerns were founded, as bitcoin’s price has risen without any specific catalyst other than growing institutional demand. I’m perplexed as to why that wouldn’t be considered a catalyst.

Hong Kong-listed software firm Meitu has bought another 16,000 ETH valued at around $28.4 million and 386.086 BTC valued at approximately $21.6 million. TAKEAWAY: Could this be another corporation on its way to becoming an ETF-by-proxy? These purchases more than double the previous investment earlier this month. The company’s share price did not noticeably react to the first announcement, but has picked over the past couple of days. I haven’t seen the 2020 balance sheet, nor am I clear on the distribution of the crypto holdings among subsidiaries – but we can probably conclude that $90 million is starting to feel more material for shareholders than the previous investment of $40 million. Also, given that Meitu’s main business line appears to be social media apps, this could end up being part of a strategic business pivot.

Related Stories

Are you a robot?

Why did this happen?

Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy.