Crypto wallets: What you need to know

Crypto wallets: What you need to know

Crypto prices appear to have an unstoppable upward trajectory. With Bitcoin and Ethereum hitting all-time highs again this month, more people are investing their money in digital currencies. And they have a wealth of options to keep their investments safe.

Cryptocurrencies are stored in what’s called a wallet, which has a private key associated with it, similar to a password. The easiest way to get your coins in a wallet is on the cryptocurrency exchange you used to buy your currency (think Coinbase or Gemini). But more mainstream companies, like PayPal and Robinhood, have also added options to buy, sell and store crypto.

James Martin/CNET

Crypto owners who want complete control over their investments can also rely on digital wallets managed by software locally on a user’s own device. For an extra layer of security, you may consider using what’s known as a cold wallet, which is essentially a local device like a hard drive that’s not connected to the internet.

Companies like Trezor and Ledger make special drives specifically for cryptocurrency wallets. The companies say sensitive information isn’t exposed even when the devices are plugged into your computer (just don’t lose the device, or the key needed to access the data on it). Check out the video above for an in-depth look at how all these options work.

Crypto Long & Short: How Coinbase Going Public Is Reshaping Trust in Markets

Finally, what we’ve been waiting for: the U.S. Securities and Exchange Commisison has published Coinbase’s S-1, clearing the way for a direct listing on Nasdaq.

While some major details are still missing (most notably when they plan to list), we now have a glimpse into how a major crypto exchange works, what it’s worried about and just how much the market is growing.

The figures are indeed eye-opening: in the fourth quarter of 2020, the number of verified users on Coinbase’s platform reached 43 million after adding almost 45,000 new users a day. The average number of monthly transacting users grew by over 30% in the fourth quarter alone, to 2.8 million.

Related: A Better Breed of DOGE? Developers Release New Core With Faster Synch Speed 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.

Also eye-opening is the inflow of institutional investors, something that we’ve talked about often in this column. Over the fourth quarter, institutional trading volume grew over 110% to $57 billion, while retail trading volume grew by almost 80%. The company services 7,000 institutional accounts.

The Coinbase filing gave everyone who works in this industry something to chew on. There was the bold vision, the numbers, the services overview, and some details on their recent acquisitions. There was even a nod to Bitcoin creator Satoshi Nakamoto, who was featured on the front page as a designated recipient of copies of the filing documents.

And for those interested in the future of work, the customary physical location of the filer was given as “Address not applicable,” with the footnote: “In May 2020, we became a remote-first company. Accordingly, we do not maintain a headquarters.”

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Related: Google Finance Adds Crypto Data Tab

While there is much to enjoy in the filing, and no doubt much to continue to pick apart over the next few days, let’s take a step back and look at what this document is really about, and what it says about the future of capital markets. Deep down, it’s about the reshaping of trust.

Opening the books

One of the big steps forward for the industry is greater transparency as to the inner workings of a key infrastructure company.

With greater transparency comes greater trust. This is not the same as trust that Coinbase’s value will go up and up. It’s trust that there is a real business opportunity here, for investors and builders.

We’ve all experienced the dismissal from mainstream economists and investors that crypto is anything but hot air. We’ve all seen how market innovations are dismissed as trivial or even irritating. Yet with this hefty document, even the most skeptical of market observers will look at the numbers and realize that this business is substantial, and that crypto assets move significant amounts of money. What’s more, the market is attracting a growing user base that is generating meaningful profit margins.

With this filing, more traditional businesses will start to trust that crypto assets are here to stay, and are a market force to be reckoned with.

Sharing concerns

The filing also lists in detail the potential risks to Coinbase and to the industry as a whole. Any therapist will tell you that sharing your worries helps to diminish them. In finance, disclosing every risk you can think of makes good regulatory sense; it also helps them to seem more containable.

The risks listed by Coinbase include the usual caveats about the sensitivity of Coinbase’s income to the volatile nature of crypto markets, the possibility of cyber attacks and the threat of adverse regulation. It also includes some less talked-about risks such as the possibility of class action lawsuits, the loss of banking relationships and the reemergence of Satoshi Nakamoto in person.

Airing in public everything we think could go wrong in our industry will assuage mainstream concern that we’re blind to the dangers of untested technologies, new financial instruments and the lure of the quick profit. It broadcasts that we know, and yet we still believe that these markets are necessary.

It boosts trust in our industry and in the overall integrity of the main market participants.

Market power

The reshaping of trust is also obvious in Coinbase’s decision to use the direct listing approach. This bypasses much of the IPO rigmarole, in that the company lists by selling already existing shares on the market. This means that there is no need for a roadshow to drum up institutional interest, no expensive fees to underwriters, no shareholder dilution.

It is also appropriate for a company steeped in a decentralized ethos, even if it runs a centralized business. In an IPO, the initial trading price is decided on by a group of investment bankers who balance declared institutional interest with the company’s desire to get the highest price possible (and the advisers’ fondness for higher fees). In a direct listing, the market decides.

It is almost a pity, though, that Coinbase chose to forgo the crypto education opportunity that a roadshow to institutions would have offered. Just imagine the investment committees of mutual funds, pension funds, etc., getting a masterclass in crypto assets and their markets.

A further effect of Coinbase’s direct listing decision is the message it sends to other businesses in the industry also contemplating taking advantage of soaring prices and volumes. Investment banks are no doubt already fielding a flood of incoming requests for meetings, and the next few months will most likely see other well-known crypto companies, and probably even some more obscure ones, follow a similar path.

More companies making public their accounts will lead to even greater industry understanding, which enhances trust.

Phase 2

Zooming out even further, the Coinbase move delineates where we are in the arc of crypto impact on capital markets.

Those of us that work in the crypto industry have been saying for some time that crypto markets will influence traditional markets more than most currently realize.

What’s becoming clearer now is that it will happen in phases. Right now, we’re in the assets phase, where the value propositions and price potential of cryptocurrencies and tokens dominate the mindshare of traditional market participants. Companies that help investors onboard and manage their crypto holdings have center stage. We will also see traditional players tiptoe into the crypto pool to harness some of the attention-grabbing action for their clients.

This first phase is about the assets themselves, and facilitating access to them.

The next phase will be how assets move.

Coinbase hints at this in the S-1 document when it discusses traditional assets that move on blockchains. Included in the outlines growth strategy is: “Tokenize new assets.” The section goes on: “We will invest in infrastructure and regulatory clarity to pave a path for the digitization of more traditional financial assets to help pave the path for new assets to be represented as crypto assets.”

It is worth remembering that Coinbase has participated in the funding rounds of several start-ups building security token infrastructure.

Some had hoped that Coinbase would set an example and come to market via a security token. Progress is being made, but the security token market is still too illiquid and immature to support such an ambitious step. Interest is building, however, supported by recent market events that have laid bare the inefficiencies of current capital market plumbing.

And Coinbase did bury deep in the S-1 text a hint that it might consider issuing blockchain tokens in the future, with the following statement: “We may issue shares of capital stock, including in the form of blockchain tokens, to our customers in connection with customer reward or loyalty programs.”

This is yet another way in which the Coinbase listing is about trust. The eventual migration of capital markets to blockchain-based systems, nudged along by the issuance of new security-like assets as well as tokenized securities, could push trust in capital markets back to a healthy level.

With its S-1 filing, Coinbase is not just pushing for a new type of trust in crypto markets. It is possibly also setting the stage for a new type of trust in capital markets more broadly. This is a mammoth ambition, but one that both crypto market practitioners and capital markets observers can get behind.

CHAIN LINKS

Payments giant Square has purchased an additional 3,318 BTC for $170 million, bringing its holding up to 8,027 BTC. It also revealed that its allocation of 4,709 BTC to its treasury holdings in October 2020 cost approximately $50 million. That holding is now worth over $250 million. TAKEAWAY: This highlights the complex issues surrounding treasury allocations to bitcoin, a growing trend among innovative companies worried about the impact of fiat debasement. Should treasury holdings be a speculative bet? What happens when the value appreciation exceeds the company’s revenue? How should this be reflected in accounting? Interesting to note that RBC increased its price target for Square for 2021, in part due to a 69% jump in 2021 bitcoin revenue.

Square wasn’t the only company adding to its BTC holdings this week. MicroStrategy revealed the purchase of another 19,452 BTC for $1.026 billion in bitcoin. TAKEAWAY: Funds for this purchase came from a $1.05 billion convertible debt offering, and have leverage the firm even more to the BTC price.

Asset manager CoinShares has launched a physically backed Ethereum ETP on the Swiss SIX exchange with the ticker “ETHE.” TAKEAWAY: Following on the heels of CoinShares’ bitcoin ETP launch in January, this underscores the growing investor interest in ETH.

Crypto asset manager CoinShares also released the CoinShares Gold and Cryptoassets Index Lite (CGI), a decentralized finance (DeFi) token designed for institutional investors. The token’s value is based on two equally weighted “wrapped” crypto assets – wrapped bitcoin (WBTC) and wrapped ether (WETH) – and the firm’s wrapped gold token, wDGLD. TAKEAWAY: If you read last week’s newsletter, you’ll know that I think institutional interest in DeFi is worth watching. This token makes that even easier, not only because it can be tracked, but also because it provides a relatively convenient on-ramp for investors considering exposure. This is not really tracking “hard core” DeFi innovation, but it’s a start.

CI Global Asset Management, a subsidiary of a firm overseeing more than $230 billion in assets, filed a preliminary prospectus for CI Galaxy Bitcoin ETF (BTCX), which, if approved, would be Canada’s third bitcoin ETF. TAKEAWAY: Given the strong demand for the Purpose Bitcoin ETF in its early days of trading (when the BTC price wasn’t falling), this is possibly just the beginning of a stream of ETFs listed on Canadian stock exchanges. As the bitcoin ETF market starts to get populated in Canada, we could also start to see some more diverse approaches, such as offering investors exposure to a basket of assets.

A February survey of 30,000 people over the age of 18 conducted by Piplsay, a global consumer research platform, found that 25% of Americans surveyed hold crypto assets, with a further 27% saying that they plan to invest this year. TAKEAWAY: These results are in line with similar surveys carried out recently by Grayscale Investments (a subsidiary of DCG, also parent of CoinDesk) and Bitwise, and underscore the receding likelihood that the U.S. government would attempt to ban bitcoin. Rather, the more extensive the mainstream interest in bitcoin, the more regulated services will step in to service this market, and the more comfortable regulators will get with pending issues.

During the market sell-off on Monday, ETH traded as low as $700 (a more than 50% drop) on crypto exchange Kraken. TAKEAWAY: This highlights that, even though market liquidity has improved dramatically over the years, there could still be issues of order books drying up in the face of high volume and uncertainty.

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The Crypto Daily – Movers and Shakers – February 28th, 2021

Bloomberg

(Bloomberg) – Warren Buffett’s 15-page annual letter to shareholders on Saturday made mention of the pandemic that ravaged the globe in 2020 exactly once: One of his furniture companies had to close for a time because of the virus, the billionaire noted on page nine.Buffett likewise steered clear of politics, despite the contested presidential election and riots at the U.S. Capitol, and never touched on race or inequality even after protests and unrest broke out in cities across the nation last year. He also avoided delving into the competitive deal-making pressures faced by his conglomerate, Berkshire Hathaway Inc., a topic routinely dissected in past year’s letters.“Here you have a company with such a revered leader who’s held in such high regard – whose opinion matters, who has businesses that were directly impacted by the pandemic, insurance companies that were influenced by global warming and social inflation – and there was not one word about the pandemic,” Cathy Seifert, an analyst at CFRA Research, said in a phone interview. “That to me was striking. It was tone deaf and it was disappointing.”Buffett, 90, has been unusually quiet since last year’s annual meeting in May amid a multitude of issues facing Americans. His annual letters are often seen as a chance to offer investors help in understanding his thinking on broad topics and market trends, in addition to details on how his conglomerate is faring.But the Berkshire chief executive officer carefully weighs his words, and some topics, such as the pandemic, risk veering into highly controversial political territory, Jim Shanahan, an analyst at Edward D. Jones & Co., said in an interview.“There’s been a lot of comments about the pandemic and the impact on the businesses, but by not saying something in the letter, I think it’s just a way to try and avoid saying something that could be perceived as a political statement, which he’s been less willing to do in recent years,” Shanahan said.A representative for Buffett didn’t immediately respond to a request for comment placed outside routine office hours.Buffett also stayed quiet on topics that are key to his conglomerate, such as the market environment amid a tumultuous year – and the work of key investing deputies like Todd Combs and Ted Weschler, according to Cole Smead, whose Smead Capital Management oversees investments in Berkshire.“There’s more found by what’s not in the letter,” said Smead, the firm’s president and portfolio manager. “I think just time and time again in this letter were sins of omission.”Here are other key takeaways from Buffett’s letter and Berkshire’s annual report:1. Buffett Relies on Buybacks Instead of DealsBerkshire repurchased a record $24.7 billion of its own stock as Buffett struggled to find better ways to invest his enormous pile of cash.And there’s more where that came from: The conglomerate has continued to buy its own stock since the end of last year, and is likely to keep at it, Buffett said Saturday in his annual letter.“That action increased your ownership in all of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet,” Buffett said in the letter, which pointed out that the company “made no sizable acquisitions” in 2020.Berkshire did make a small amount of progress in paring the cash pile, which fell 5% in the fourth quarter to $138.3 billion. Buffett has struggled to keep pace with the flow in recent years as Berkshire threw off cash faster than he could find higher-returning assets to snap up, leading to the surge in share repurchases.2. Apple Is as Valuable to Berkshire as BNSF RailroadBerkshire’s $120 billion investment in Apple Inc. stock has become so valuable that Buffett places it in the same category as the sprawling railroad business he spent a decade building.He began building a stake in the iPhone maker in 2016, and spent just $31.1 billion acquiring it all. The surge in value since then places it among the company’s top three assets, alongside his insurers and BNSF, the U.S. railroad purchase completed in 2010, according to the annual letter.“In certain respects, it’s his kind of business,” said James Armstrong, who manages assets including Berkshire shares as president of Henry H. Armstrong Associates. “It’s very much brand name, it’s global, it’s an absolutely addictive product.”Buffett had always balked at technology investments, saying he didn’t understand the companies well enough. But the rise of deputies including Combs and Weschler has brought Berkshire deep into the sector. In addition to Apple, the conglomerate has built up stakes in Amazon.com Inc., cloud-computing company Snowflake Inc., and Verizon Communications Inc.3. Buffett Concedes Error in $37.2 Billion DealBuffett admitted he made a mistake when he bought Precision Castparts Corp. five years ago for $37.2 billion.“I paid too much for the company,” the billionaire investor said Saturday in his annual letter. “No one misled me in any way – I was simply too optimistic about PCC’s normalized profit potential.”Berkshire took an almost $11 billion writedown last year that was largely tied to Precision Castparts, the maker of equipment for aerospace and energy industries based in Portland, Oregon.The pandemic was the main culprit. Precision Castparts struggled as demand for flights plummeted, prompting airlines to park their jets and slash their schedules. Less flying means lower demand for replacement parts and new aircraft. Precision slashed its workforce by about 40% last year, according to Berkshire’s annual report.4. Profit Gains Thanks to Railroad, ManufacturersDespite the pandemic’s effects continuing to hit Berkshire’s collection of businesses, the conglomerate posted a near 14% gain in operating earnings in the fourth quarter compared to the same period a year earlier.That was helped by a record quarter for railroad BNSF since its 2010 purchase and one of the best quarters for the manufacturing operations since mid-2019.5. Good-bye Omaha, Hello Los AngelesBerkshire’s annual meeting has for years drawn throngs of Buffett fans to Omaha, Nebraska, where the conglomerate is based. This year, the show is moving to the West Coast.While still virtual because of the pandemic, the annual meeting will be filmed in Los Angeles, the company said Saturday.That will bring the event closer to the home of Buffett’s longtime business partner, Charlie Munger. Buffett and Munger will be joined by two key deputies, Greg Abel and Ajit Jain, who will also field questions.Buffett and Abel, who lives closer to Berkshire’s headquarters, last year faced “a dark arena, 18,000 empty seats and a camera” at the annual meeting, Buffett said in his letter. The 90-year-old billionaire said he expects to do an in-person meeting in 2022.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.