Bitcoin’s Waning Dominance Stirs Warning of Crypto Market Froth

Bitcoin’s Waning Dominance Stirs Warning of Crypto Market Froth

Bloomberg

(Bloomberg) – Gas stations along the U.S. East Coast are beginning to run out of fuel as North America’s biggest petroleum pipeline races to recover from a paralyzing cyberattack that has kept it shut shut for three days.From North Carolina to Florida to Alabama, gas stations are reporting that they’ve sold out of fuel as supplies in the region dwindle and panic buying begins to set in. At least two gas stations in Tallahassee, Florida, were completely out of stock, according to employees who asked not to be named. In Asheville, North Carolina, Aubrey Clements, a clerk at an Exxon Mobil station answered the phone with “Hello, I’m currently out of gas.” Colonial Pipeline said it’s manually operating a segment of the pipeline running from North Carolina to Maryland and expects to substantially restore all service by the weekend. The restart may not come fast enough to avert immediate shortages in the southeast, where North Carolina declared a state of emergency as gas stations reported running of out gasoline.Stations in Asheville, North Carolina, are out of fuel and lines are forming at outlets that still have supplies. David Marcos, an employee at a Royal Dutch Shell Plc-owner station in the city said they ran out of gasoline and diesel earlier on MondayThe Marathon gas station in Elizabethtown, North Carolina, had roughly two dozen cars waiting to fuel up, said Chanss Arnett, an employee there. The stations in town are all packed, Arnett said over the phone, where the door bell chimes from people entering could be heard every other minute.The conduit has been shut down since late Friday, prompting frenzied moves by traders and retailers to secure alternative supplies. On Monday, the Federal Bureau of Investigation pointed the finger at a ransomware gang known as DarkSide. The pipeline hasn’t suffered any physical damage and no fuel shortages have been detected, a White House official said.Colonial Chief Executive Officer Joe Blount and a top lieutenant assured Deputy Energy Secretary David Turk and state-level officials on Monday that the company has complete operational control of the pipeline and won’t restart shipments until the ransomware has been neutralized.Bases, RefineriesIn an 18-minute virtual meeting, Blount said shortages may develop in some markets but said Colonial is working with refiners, marketers and retailers to prevent those, according to a person involved with the meeting who wasn’t authorized to speak publicly about the discussion.The pipeline serves 90 U.S. military installations and 26 oil refineries, the person said. Meanwhile, President Joe Biden said Russia has “some responsibility” to address the attack.Emergency shipments of gasoline and diesel from Texas already are on the way to Atlanta and other southeast cities via trucks, and at least two Gulf Coast refineries began trimming output amid expectations that supplies will begin backing up in the nation’s oil-refining nexus. Airlines flying out of Philadelphia International Airport are burning through jet-fuel reserves and the airport has enough to last “a couple of weeks,’ a spokeswoman said.READ: How a Key U.S. Pipeline Got Knocked Out by Hackers: QuickTakeGovernment officials haven’t advised Colonial on whether it ought to pay the ransom, Deputy National Security Adviser for Cyber and Emerging Technologies Anne Neuberger said during a briefing.New York PricesThe national average retail gasoline price rose to $2.967 a gallon on Monday, a 2.4% increase from Friday, according to AAA. The premium for wholesale gasoline in the New York area expanded to its widest in three months.The attack came just as the nation’s energy industry was preparing to meet stronger fuel demand from summer travel. Americans are once again commuting to the office and booking flights after a year in lockdown. Depending on the duration of the disruption, retail prices could spike, further stoking fears of inflation as commodity prices rally worldwide.DarkSide said in a post on the dark web that it wasn’t to blame and hinted that an affiliate group may have been behind the attack. The group promised to do a better job of screening customers that buy its malware.Gasoline futures that initially surged as much as 4.2% in overnight trading surrendered most of those gains on Monday.Learn more about how emergency powers can counter fuel-supply disruptions.Convenience-store chains in places like Atlanta and Savannah, Georgia, began clamoring for emergency fuel deliveries on Friday afternoon, said Steve Boyd, senior managing director at Houston-based distributor Sun Coast Resources Inc.Water-Borne SuppliesLandlocked cities face the greatest danger of fuel shortages compared with those with access to water-borne deliveries, Boyd said. If the pipeline remains down for many more days, he’s anticipating a “massive surge” in orders. Sun Coast, which operates about 900 trucks, has delivered emergency supplies during 75 major storms over the past 15 years, including during hurricanes Harvey and Irma in 2017.Gasoline for June delivery settled little changed at $2.1334 a gallon in New York. Futures prices have gained more than 50% this year, helped by the recovery from the worst effects of the pandemic.Tankers BookedPrior to Colonial’s Monday statement, traders were seeking vessels to deliver fuel to coastal terminals. Four vessels were provisionally chartered to send diesel or gasoline from Europe to the U.S. Atlantic Coast, according to Danish oil-product tanker company Torm A/S.Some tankers are also being secured to temporarily store gasoline along the Gulf Coast, according to market participants who asked not to be identified because the information isn’t public. Meanwhile, Total SE scaled back activity in a key unit at its Port Arthur, Texas, refinery because of the Colonial shutdown, according to a person familiar with operations. Citgo Petroleum Corp. took similar measures at its Lake Charles, La., plant.Increased SecurityColonial halted all operations on its system late Friday after suffering a ransomware attack that affected some of its IT systems.The event is just the latest example of critical infrastructure being targeted by ransomware. Hackers are increasingly attempting to infiltrate essential services such as electric grids and hospitals. The escalating threats prompted the White House to respond last month with a plan to increase security at utilities and their suppliers. Pipelines are a specific concern because of the central role they play in the U.S. economy.“It’s an all-hands-on-deck effort right now,” said U.S. Commerce Secretary Gina Raimondo. “We are working closely with the company, state and local officials to make sure that they get back up to normal operations as quickly as possible and there aren’t disruptions in supply.”The White House pulled together an inter-agency task force to address the breach, including exploring options for lessening its impact, according to an official. Biden can invoke an array of emergency powers to ensure supplies keep flowing to big cities and airports along the East Coast.Rules EasedSome rules curbing domestic transportation of fuel have been eased to help deal with any shortages. That doesn’t extend to waiving Jones Act, a measure that would allow foreign tankers to help shuffle more petroleum products between U.S. ports.Colonial has the capacity to send about 2.5 million barrels (105 million gallons) a day from Houston as far as North Carolina, and another 900,000 barrels a day to New York.Extortion FeeRansomware cases involve hackers seeding networks with malicious software that encrypts the data and leaves the machines locked until the victims pay the extortion fee. This would be the biggest attack of its kind on a U.S. fuel pipeline.With gasoline inventories ample, pump prices weren’t expected to tick much higher until Memorial Day at the end of May, which is traditionally viewed as the start of the U.S. summer driving season. If the pipeline doesn’t restart soon it will accelerate the move higher.“Atlanta will be one of the earlier sore spots, along with eastern Tennessee, and perhaps the Carolinas,” said Patrick DeHaan, head of petroleum analysis at GasBuddy.The Northeast can secure gasoline shipments from Europe but it will come at an increasing cost the longer the pipeline stays shut. The fuel’s premium to crude in northwest Europe had jumped by more than 5% in intra-day trading earlier on Monday but was still down week-on-week.In the meantime, fuel producers including Marathon Petroleum Corp. are weighing alternatives for how to ship their products to the Northeast.One potential route is the Kinder Morgan-operated Plantation Pipeline, even though it only extends as far north Washington D.C. and has a capacity of 720,000 barrels a day, far short of Colonial’s. Kinder said Sunday it’s working with customers to accommodate additional barrels during Colonial’s outage, and that Plantation is deferring where possible any non-essential maintenance that might otherwise reduce flow rates.While all of the major segments of Colonial’s system remain offline, some smaller so-called laterals connecting specific fuel terminals to delivery points are in service, the company said earlier.Inventories offer minimal cover, ClearView Energy Partners said in a research note. Tankers leaving Rotterdam could take up to 14 days to make the trip to the New York Harbor. The Midwest could theoretically send some of its supplies to the East Coast via rail and barge, but the region’s inventories are tighter than in previous years, ClearView said.“The Colonial outage comes at a critical juncture for the recovering U.S. economy: the start of the summer driving season,” ClearView said. “We therefore think lawmakers could begin a ‘blame game’ immediately, and a sustained disruption that leads to a significant pump price spike could increase prospects of domestic policy interventions.”(Updates with comments from gas stations in paragraph 2)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.

Wall Street Uses Old Tricks in $2.4 Trillion Crypto Jungle

(Bloomberg) –

Wall Street traders like Trey Griggs are finding a new lease on life in the $2.4 trillion crypto Wild West.

After two decades in energy trading, the 51-year-old was lured by a former Goldman Sachs Group Inc. colleague this February into a new world of market-making in digital currencies.

Now he’s in fighting spirits – unleashing old-school finance tricks to exploit the industry’s rampant inefficiencies, volatility and downright weirdness.

“All the fun that used to be had 30 years ago in the commodity markets and is no longer fun – that fun is now in crypto,” says the U.S. chief executive officer at GSR Markets in Houston.

Griggs is among crypto newcomers deploying systematic strategies that are tried-and-tested in conventional asset classes – price arbitrage, futures trading, options writing – in a booming new corner of finance. As more mainstream investors get behind Bitcoin, boutique firms are joining the likes of Mike Novogratz in an ever-broadening crypto rally that keeps breaking records.

For those who can stomach the price swings, the threat of exchange hacks and the byzantine market structure, complex fast-money trades are offering an alternative way to ride the digital mania.

At GSR, the firm’s bread and butter is market-making, where traders pocket the spread between buy and sell orders.

In stocks, that’s a nearly oligarchic business where the likes of Citadel Securities and Virtu Financial operate at lightning speed. In virtual currencies, where hundreds of exchanges offer free access at a slower pace, GSR can capitalize on the big volumes without splurging millions on high-frequency infrastructure.

“Part of the tech we have is just to tell us did we actually trade or not, is this trade good or bad,” says GSR co-founder and former Goldman trader Richard Rosenblum. “We don’t want to be slower than our competitors, but it’s just not quite as much of the driver.”

For every strategy in stocks, bonds or currencies rendered boring by low rates, regulation or market crowding, there’s a lucrative trade in a token lying across the hundreds of exchanges out there. Or so the thinking goes.

Story continues

Read More: Veterans of FX’s Wilder Days Are Loving Bitcoin’s Volatility

While crypto die-hards have made merry like this for years, the relentless rallies across the tokensphere this year are drawing more Wall Street converts seeking riches and new thrills.

Take Mark Treinkman. After a career mostly at proprietary stock-trading shops like Chimera Securities, digital money is renewing his passion for quant trading.

“I’ve been going through some of my old strategies and things that wouldn’t have worked in equities in decades have an edge in crypto still,” he says.

A market-neutral strategy run by his $60 million firm BKCoin Capital gained 71% last year using investing styles that often include arbitraging different prices across exchanges and the gap between the spot and futures market.

For a few minutes during trading on Wednesday, for example, the price of Ethereum Classic jumped well above $100 on the Coinbase exchange. The digital token was trading at less than $80 at other venues, offering an obvious opportunity for investors to make money simply by buying in one place and selling in another.

It’s one of the best-known – albeit diminishing – discrepancies exploited by the likes of Alameda Research, a crypto trading firm filled with former traders from high-frequency shops. A famous example is the kimchi premium, the tendency for Bitcoin to trade higher in South Korea thanks to strong demand and the difficulty of moving money around to profit from the gap.

With no one-stop prime broker to centralize trading books and offer clients leverage across venues, traders like Treinkman face plenty of challenges in their bid to arbitrage price gaps, but say the rewards are commensurate.

And the opportunities pop up everywhere. For instance, when longer-dated futures in pretty much any asset class trade higher than the spot price – known as contango – the former almost always converges to the latter as the contracts mature.

That’s popularized the crypto basis trade, where an investor goes long the spot rate and shorts the futures.

When Bitcoin last peaked in mid-April, the December contracts were nearly 4% higher than August which were in turn about 2% higher than the spot reference rate, as speculators unleashed bets on rising prices. By contrast, the December oil contracts were trading beneath August’s on the same day, according to the data compiled by Bloomberg.

“The crypto market is still dominated by retail investors who use excessive leverage and bid the premiums for futures,” said Nikita Fadeev, a fund manager at $60 million crypto unit at quant firm Fasanara Capital.

Trades common in the industry also include short-term momentum and a form of statistical arbitrage, which bets on gaps between various tokens eventually closing like when Ethereum is surging but Bitcoin isn’t, Fadeev says.

As assets grew, the fund recently appointed Laurent Marquis, the former co-head of derivatives at Citadel Securities, as chief risk officer, and Steve Mobbs, co-founder of quant fund Oxford Asset Management, as senior adviser.

Over in Zug, Switzerland, St. Gotthard Fund Management has transformed from an old-school family office writing options on Swiss shares to a digital evangelist in its income strategy aiming to yield 8% a year. Just like in stocks, the investing style sells derivatives to take advantage of big demand to hedge price swings – which causes the volatility priced into options to be higher than what’s likely to come to pass.

For option writers like St. Gotthard, that means the premiums are much juicier, though they also come with a higher risk of having to actually pay out, like an insurer during an earthquake.

“The major difference at the end of the day is how much premium retail investors are willing to pay,” says chief investment officer Daniel Egger. “On the other hand of course we’ve written calls we wished we hadn’t in those moves up.”

In fact, going long crypto over the past year has proved the easiest and most profitable way to tap into the boom. And for those choosing the systematic route, competition is rising.

For example, in order to get an edge in its market-making strategy, BKCoin has recently installed servers at Asian crypto exchanges, a move known as co-location in the high-frequency world of stocks. It’s a sign the industry is growing up fast.

“In any emerging market we’ve seen these inefficiencies decrease over time,” said George Zarya, founder of Bequant, a crypto prime brokerage that caters to systematic traders. “There are more professional players that come in.”

(Updates first chart and market value in first paragraph. An earlier version corrected the seventh paragraph under the second chart to show Fasanara does not engage in momentum and stat-arb trades but says they are common in industry.)

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Ethereum price swoons after record peak, bitcoin momentum fizzles as crypto market faces late-Monday slump

Crypto assets experienced a sudden retreat Monday afternoon, with Ethererum prices pulling back firmly after reaching a record above $4,200.

Prices of bitcoin BTCUSD, +0.68% , the most prominent crypto in the world, also was trading notably lower.

The reason for the retreat in values wasn’t immediately clear, but digital assets are notoriously volatile.