SEC Cryptocurrency ETFs are Not Getting Decided Upon on Schedule

 

The Securities and Exchange Commission (SEC) is requiring more time to review two Cryptocurrency ETFs that were nearing the agency’s decision dates. In its notice informing that it would need a longer period, the SEC indicated it was still reviewing issues raised during the comment period and that it maintains concerns over potential manipulation and bad actors.

The SEC gave notice in a filing on Monday (March 21) that it will delay the decision on an application by WisdomTree for a spot-based Bitcoin ETF. The original deadline was March 31; the SEC has now moved that out 45 days until May 15. The WisdomTree fund has been rejected by the agency before, back in December, it resubmitted a proposal in February and was approaching the original “decision date” of March 31. WisdomTree and others interested in the future of spot-based crypto ETFs now will have to wait up to another 45 days for an SEC approval or disapproval.

The regulator also gave itself 60 days after April 3 to decide on a proposal by One River Digital Asset Management for a fund it has proposed that tracks the price of Bitcoin adjusted for the carbon toll of mining tokens. The ETF would be called, One River Carbon Neutral Bitcoin Trust. The securitized trust would hold bitcoin and value its shares with an additional adjustment for the cost of offsetting carbon credits.

Excerpt: SEC Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change 3/21/22

The agency is apparently still grappling with concerns and prefers to err on the side of caution. It has indicated before that it isn’t comfortable with a Bitcoin ETF based on spot prices. The SEC has rejected several such applications, including an attempt by the corporate owners of the Grayscale Bitcoin Trust (GBTC) to convert that private-placement trust into an ETF. The Commission has said it is concerned with the lack of surveillance between the U.S. Securities regulators and the unregulated crypto markets.

One River is trying to address the SEC’s concerns by avoiding the issue of an ETF owning Bitcoin directly. Its proposed ETF wouldn’t buy, sell or hold Bitcoin directly through the spot market. Rather, it would use a creation-redemption process with “authorized participants” to guard against “bad actors” trying to manipulate prices and NAV calculations, according to its filing.

 

Take-Away

SEC Chairman Gary Gensler would prefer not to rush on approval of a novel Bitcoin ETF based on spot prices rather than futures contracts. The agency also delayed a similar decision on an application by Bitwise in February. Gensler, who taught cryptocurrency at MIT would prefer to take time and measure any concerns.  The agency did approve several futures-based crypto ETFs last Fall including The ProShares Bitcoin Strategy ETF (ticker: BITO), Valkyrie Bitcoin Strategy ETF (BTF), and VanEck Bitcoin Strategy ETF (XBTF).

 

Paul Hofman

Managing Editor, Channelchek

 

Suggested Reading

Imagine a Bitcoin ETF With No Underlying Bitcoin Assets

Stealth Digital Asset Bill Surprises Crypto Market

SEC Approves ETF for Bitcoin Revolution Investors

Cryptocurrencies and the Howey Test

 

Sources

https://www.sec.gov/rules/sro/cboebzx/2022/34-94476.pdf

https://www.sec.gov/Archives/edgar/data/1863687/000110465921070846/tm2116981d1_s1.htm

https://www.coindesk.com/markets/2021/05/24/asset-manager-one-river-files-for-carbon-neutral-bitcoin-etf-in-us/

https://www.theblockcrypto.com/linked/138680/sec-punts-on-wisdomtree-one-river-spot-bitcoin-etf-proposals

https://www.barrons.com/articles/sec-bitcoin-etfs-51647893798?mod=hp_LEAD_3

 

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What it Means When the Federal Reserve Bank Tightens Monetary Policy

 

When the US Federal Reserve expects that the economy is growing at a pace that may cause inflation above its target, it will try to slow the pace of growth, perhaps even cause a contraction of growth.

Tightening or tighter Fed monetary policy sometimes referred to as “taking the punch bowl away,” is implemented by the Fed by its own transactions in the bond market. The most common form of tightening involves the Fed selling bonds. These are secondary issues they purchased when “easing.”

Selling bonds takes money out of the hands of businesses and individuals and increases the float of bonds. This drives up rates as there is less money in the economy and more bonds competing for it – money is tighter across the economy.

Interest rates rise as a result of fewer dollars/more bonds money in the system, so the price of it (interest rates) increases. Increased rates, or more expensive money, causes fewer transactions. The decrease in transactions has a reverse snowball effect that shrinks growth.

The main interest rate that the Federal Reserve tries to impact has historically been the overnight rate that banks use to lend to each other to satisfy imbalances through the banking system at the end of the day. This overnight rate called the Fed Funds rate impacts rates (yields) in longer maturities. So While the Fed may tighten by 0.25% or 25 basis points, for overnight loans, this increase can impact longer maturities in the same direction, but not necessarily the same magnitude.

How this Works

The impact of fewer dollars chasing the same goods with a higher cost to borrow is lower economic activity. An example from just one segment of the market is housing: , if mortgage rates rise, fewer homes are sold, fewer homes cause fewer people decorating or renovating, fewer purchases equates to fewer needs for businesses to hire to manufacture, ship or sell goods. Lower employment needs create less stress on the wage component of inflation. There is also less stress on manufacturing inputs like materials. Shipping experiences reduced demand and may adopt more competitive pricing.

Overall the above chain reaction occurs in most industries as money becomes tighter and therefore more valuable. More valuable dollars is the opposite of inflation which reduces the dollars ability to purchase goods or services.

 

When Would a Central Bank Use Tight Monetary Policy?

The Fed has two primary goals when it comes to U.S. monetary policy: maximum employment and price stability.

When it comes to price stability, the long-run goal for average inflation is stated as 2%. When the outlook for average inflation is higher than 2%, the Federal Reserve will look to enact tight monetary policy. When inflation is persistently higher, the Fed will balance a tighter policy for the purpose of price stability with maximum employment.

 

 

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  Image: Trafigura (Flickr)

Why JP Morgan’s Guru has Maintained a Positive Stance on Stocks

 

A month back, JP Morgan released a research note indicating the bull market in stocks is “far from over” despite investors’ increasing concerns about a hawkish Federal Reserve. Since then, Russia has invaded Ukraine, interest rates have risen, and the major indices have fallen another 3.00-5.50%. Yesterday (March 15), JP Morgan’s “quant guru,” Marko Kolanovic doubled down on the positive stance with the notion that the S&P 500’s year-to-date decline of 12% represents an opportunity that investors with a medium-term time horizon should take advantage of.

Priced for Negativity

With interest rates already having begun their climb, a spike in producer prices, and a full-blown war between two large European countries, the stock market has reacted to hit after hit of news and events to feel negative over. Despite this, JPMorgan’s, Kolanovic, said Monday the S&P 500’s year-to-date decline of 12% represents an opportunity that investors with a medium-term time horizon should take advantage of. The confidence is largely attributed to the idea that despite the disruptions, he doesn’t expect the US economy to enter a recession. He highlighted that consumers and corporations currently have healthy balance sheets.

 

 

“We think that outright recession should not be a base case given continued favorable financing conditions, very strong labor markets, an unleveraged consumer, strong corporate cash flows, strong bank balance sheets, a turn for the better in the China policy outlook, and the COVID-19 impact should be fading further,” Kolanovic said. This is “quant speak” for recession shouldn’t be the expectation since rates are still low, people are not heavily in debt, they have jobs, banks will continue to lend, and the China situation along with the pandemic drag is fading.

Of course, there are still risks that were pointed out. While Russia is not a large trading partner with the US, it is a substantial producer of commodities that can slow US economic growth as prices for raw materials rise globally. Despite all of this, the expectations he believes are largely built into prices, none of these are a surprise, they have already had their impact. “A lot of risk is already priced in, sentiment is depressed and investor positioning is low, so we would add to risk with a medium-term horizon,” Kolanovic said.

 

Monetary Policy Impact

Kolanovic points out that prior periods of Fed rate hikes have proven to be bullish for the broader stock market. “Equities tended to firm up 3-4 months after the first hike, and make fresh all-time highs within 6-12 months,” he said.

Take-Away

Is the worst close to over? JP Morgan seems to think so. While the Global Head of Macro Quantitative and Derivatives Research at the bank thinks the broader market may treat investors well, he also cautions that this view is intended for medium-term investors. This means the turnaround may not occur for a while.

The risk to this position is that more or new negativity occurs. There is hardly a limit on events that could frighten the market. On the flip side, there is risk in not being invested when prices are down, the rates being paid for being in cash, even after a Fed rate hike are below current inflation.

 

Suggested Reading

New Economic Variables Confound Fed’s Future Path

Investors Have Added Money to the Markets a Record 71.4% After Dips

Carl Icahn Selling into Warren Buffet’s Buying, Can they Both be Right?

What it Means When the Federal Reserve Bank Tightens Monetary Policy

 

Sources

https://www.linkedin.com/in/marko-kolanovic-a335b6/

https://markets.businessinsider.com/news/stocks/stock-market-outlook-bull-market-far-from-over-dovish-fed-2022-2

https://markets.businessinsider.com/news/stocks/stock-market-outlook-economy-will-avoid-recession-jpmorgan-kolanovic-inflation-2022-3

 

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What it Means When the Federal Reserve Bank Tightens Monetary Policy

 

When the US Federal Reserve expects that the economy is growing at a pace that may cause inflation above its target, it will try to slow the pace of growth, perhaps even cause a contraction of growth.

Tightening or tighter Fed monetary policy sometimes referred to as “taking the punch bowl away,” is implemented by the Fed by its own transactions in the bond market. The most common form of tightening involves the Fed selling bonds. These are secondary issues they purchased when “easing.”

Selling bonds takes money out of the hands of businesses and individuals and increases the float of bonds. This drives up rates as there is less money in the economy and more bonds competing for it – money is tighter across the economy.

Interest rates rise as a result of fewer dollars/more bonds money in the system, so the price of it (interest rates) increases. Increased rates, or more expensive money, causes fewer transactions. The decrease in transactions has a reverse snowball effect that shrinks growth.

The main interest rate that the Federal Reserve tries to impact has historically been the overnight rate that banks use to lend to each other to satisfy imbalances through the banking system at the end of the day. This overnight rate called the Fed Funds rate impacts rates (yields) in longer maturities. So While the Fed may tighten by 0.25% or 25 basis points, for overnight loans, this increase can impact longer maturities in the same direction, but not necessarily the same magnitude.

How this Works

The impact of fewer dollars chasing the same goods with a higher cost to borrow is lower economic activity. An example from just one segment of the market is housing: , if mortgage rates rise, fewer homes are sold, fewer homes cause fewer people decorating or renovating, fewer purchases equates to fewer needs for businesses to hire to manufacture, ship or sell goods. Lower employment needs create less stress on the wage component of inflation. There is also less stress on manufacturing inputs like materials. Shipping experiences reduced demand and may adopt more competitive pricing.

Overall the above chain reaction occurs in most industries as money becomes tighter and therefore more valuable. More valuable dollars is the opposite of inflation which reduces the dollars ability to purchase goods or services.

 

When Would a Central Bank Use Tight Monetary Policy?

The Fed has two primary goals when it comes to U.S. monetary policy: maximum employment and price stability.

When it comes to price stability, the long-run goal for average inflation is stated as 2%. When the outlook for average inflation is higher than 2%, the Federal Reserve will look to enact tight monetary policy. When inflation is persistently higher, the Fed will balance a tighter policy for the purpose of price stability with maximum employment.

 

 

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  Image Credit: Federal Reserve (Flickr)

New Economic Variables Confound Fed’s Future Path

 

Federal Reserve Chairman Jay Powell tends to tell the markets exactly what to expect from the Fed. Last week he said he’d propose raising interest rates by 25bp (up from 0.00-0.25) after the March 15-16 FOMC meeting. This would be the first increase since 2018. Earlier this year, Powell set expectations for the possibility of raising rates by twice as much; he also suggested the Fed might need to eventually raise borrowing costs to a level designed to deliberately slow economic growth. This was the chairman’s thinking before the war broke out in Europe. The uncertainty of its impact on growth here in the US is the main reason to be cautious now. What are the variables?

 

Uncertain Impact

While the Fed Chairman is just one of 12 voting members, past FOMC meeting minutes show that the vote on monetary policy change, after debate and deliberations, most often goes along with the Fed Chairman’s judgment. Prior to the war-related global economic upheaval, the big risk was inflation caused by a number of variables, including tight labor markets, supply chain problems, raw material shortages, etc. A 0.50% hike could have added enough pressure on the economic brake pedal to temper some of these price pressures while letting other problems such as shortages work their way out of the system.

The market was pricing itself for 0.50% prior to the invasion of Ukraine, now a 50bp hike would surprise and disrupt the markets. While market levels are not part of the Fed’s mandate, a severe downturn in stock and bond markets could pummel spending and economic growth. So, the Fed is cognizant of market reaction. And with recent uncertainty, likely to err on the side of doing too little.

 

Decision and Outlook

If not for the international upheaval of unknown length and consequences, a half percentage hike would have been the most likely action after this meeting. But after Powell’s more recent comments, the decision on what to say after the rate announcement is likely the bigger decision at the meeting. In 2022 we are accustomed to an extremely overt Fed, anything but clarity and confidently setting expectations will leave markets uneasy.

The last time inflation was running in 8% territory (decades ago), the Fed did not signal its intentions, nor did it announce a change. Its actions backe then were just another variable in the market that participants needed to analyze and speculate on. If it eased or tightened was not certain until the FOMC meeting minutes were published three weeks after the next FOMC meeting. And the rate changes were most often between meetings. The need to guide expectations and fear of catching the market off-guard was not a part of any decision. Secrecy and being covert was its own powerful tool.

Today all involved want to be told what to expect, and when. Currently, the markets (stock, commodity, real estate, currency, and bond) are pricing themselves for the 0.25% expectation newly set by the Fed Chair. But speculation is running high on the guidance statement that follows the two-day meeting. The interest-rate path that is signaled will indicate the US central bank’s best evaluation of the most likely economic outlook. And the updated outlook in the face of stiff economic sanctions with trading partners, which could slow the US economy and at the same time add to some root causes of inflation, is highly anticipated. The markets want to know what the Fed sees and what it views as its path.

 

Take-Away

The Fed Announcement will be the most important in nearly two years. Three months ago, almost all Fed voting members indicated they felt a need for between two and four rate rises this year. This has changed, we’ll learn by how much soon.

The market has expectations that the Fed will raise rates 25bp and the market reaction at this point, if that is the level, will be minimal. Perhaps relieved. However, the announcement following at 2 pm, Wednesday (March 16) is likely to show that Fed officials are on guard for either weakness related to changed global circumstances or strength based on recent US economic numbers.  This is what is most anticipated.

What is certain about the statement afterward is the Fed will sound confident in its assessment; uncertainty would roil markets further.

 

Suggested Reading

The Detrimental Impact of Fed policy on Savers

Money Supply is Like Caffeine for Stocks

Deflation Not Inflation is Risk Says Cathie Wood

The Limits of Government Economic Tinkering (June 2020)

 

Sources

https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

https://www.wsj.com/articles/fed-wrestles-with-the-challenge-of-how-quickly-to-raise-interest-rates-11647336602?mod=hp_lead_pos2

 

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  Image: ARS Electronica (Flickr)

NFTs: One Year After Beeple Sale, Non-Fungible Tokens Have Become Mainstream

 

One year ago, an artwork was sold for US$69 million (£52.6 million) by the prestigious auction house Christie’s. This was no lost Matisse or rarely seen Van Gogh. Instead, it was a composite collection of digital art by the then relatively unknown artist Beeple.

What makes this piece, Everydays: the First 5000 Days, truly remarkable, is that it was sold as a non-fungible token (NFT). In the year since that sale, NFTs have gone from a relatively obscure tech-world phenomenon to the mainstream.

NFTs are tokens that exist on a secure record-keeping system called a blockchain. These tokens are akin to certificates of ownership a gallery might give to an art collector, but for digital items.

Celebrities such as Eminem and Jimmy Fallon have helped raise the profile of NFTs through the Bored Ape Yacht Club profile picture collection. These collections have become so popular that Twitter now allows users to use their NFTs as their profile image.

For the collectors, NFTs are arguably a digital extension of benign hobbyist pursuits. In recent generations, collectors may have sought rare Magic The Gathering cards or obscure stamps. Today, those with an impulse to own rare items are attracted to a world where rarity can be transparently recorded and easily verified.

For the creators, NFTs provide a clear path toward monetization. Artists have historically struggled to make money from their work, but NFTs are sold through marketplaces that provide creators with royalties. The Ethereum economy sustained by NFTs earned its creators US$3.5 billion (£2.7 billion) in 2021.

The Right-Click Approach

Despite their growing popularity, NFTs still baffle most people. This is because we are not used to the concept of owning digital art. After all, can’t I just right-click and save an image to my own computer? I could, naturally, but this would be to miss the point.

As with all currencies, NFTs have value because of the meaning a community ascribes to them. In the online culture NFTs belong to, “on-chain” blockchain items are meaningful – and some have more value than others.

The characteristic missed by the right-click perspective is that when you own an item on the blockchain, everyone in your community can see this. This can translate into prestige, for example, when outrageously wealthy entrepreneurs bid on rare NFT items, like Beeple’s work or a rare cryptopunk. Or it can simply be a sign to other community members that you belong.

Mainstream Attention

Popular attention is not always positive. As NFTs grow, so has the proliferation of cash grabs and scams, especially from social media influencers. Elsewhere I have called this the trash moat that surrounds legitimate projects in the cryptocurrency and NFT world. YouTubers Logan and Jake Paul, in particular, are notorious for their litany of low-quality NFT “rug pulls”, when a crypto project is abandoned by their creators once the money flows in.

Melania Trump, to pick another example, has released several NFT projects. However, blockchain analysts were able to uncover how one of these projects was bought by none other than the creator of the NFT themselves. This practice, known as wash trading, involves NFT creators buying their own works either to save face due to a lack of interest or to generate hype around an influencer or artist and boost the price of the next sale.

 

Photo of Beeple – Mike Winkelmann (US) at Expanded
Animation, Courtesy of ARS Electronica (Flickr)

 

Yet another capacity of NFTs has emerged in their potential for fundraising. In what started as a meme, Constitution, DAO was created by a group of cryptocurrency enthusiasts to buy a rare copy of the US constitution that was on auction at Sotheby’s. This group sold a token in exchange for the cryptocurrency Ether that was then used to bid on the constitution. Within a week, ConstitutionDAO raised US$47 million (£35.8 million). This was not enough to win the auction, but it revealed just how financially powerful this corner of the web has become.

Failure, or the Future?

Perhaps the harshest critiques of NFTs come from the socially conscious art world that sees the infrastructure of NFTs as the problem. NFTs mostly exist on the Ethereum blockchain, which relies on vast computational resources to function, generating a huge carbon footprint. Ethereum is transitioning away from its current mechanism to another, which will hopefully alleviate this concern.

Perhaps the more subtle defence of NFTs resides in how they push the medium of digital art in interesting directions. Damien Hirst’s The Currency playfully challenges the collector to choose whether to keep the NFT (the digital token) or exchange it later for a physical artwork. This forces the collector to make a bet on the future: physical or digital, which retains the most value?

This places NFTs in a curious spot. They appear at once a benign hobbyist pursuit, a means to value and make money from scarce digital art, a cash grab for unscrupulous influencers and celebrities, a new mechanism for online fundraising and an explored avenue for legitimate art. However you view them, NFTs have crossed fully into the mainstream and deserve our attention.

 

This article was republished with permission from  The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Paul Dylan-Ennis, Lecturer/Assistant Professor in Management Information Systems, University College Dublin

 

Suggested Reading

Russia/Ukraine War and Reliance on Crypto and Blockchain

Digital Currencies Gain Value on Biden Executive Order

The Era of Flying Cars May Have Just Dawned

NFT Fractional Ownership and Metaverse Museums

 

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Further Optimism on Digital Currency Based on White House Order

 

Crypto participants believe a better-defined market is positive news for the asset class.

Digital assets’ potential benefits and the related technology usage are to get a “whole-of-government approach” according to an Executive Order signed by President Biden today (March 9). The Order outlines the U.S. policy for digital assets across six key priorities. The crypto market has reacted extremely positively with bitcoin (BTC) up over 20% since news of the order began circulating on Tuesday. Other cryptocurrencies like ethereum (ETH), and dogecoin (DOGE) have pushed higher as well.

The President’s six key priorities are: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation. Specific to each of these priorities, the order:

 

• Explore a U.S. Central Bank
  Digital Currency (CBDC) by placing urgency on research and development of a potential United States CBDC, should issuance be deemed in the national interest. The Order directs the U.S. Government to assess the technological infrastructure and capacity needs for a potential U.S. CBDC in a manner that protects Americans’ interests. The Order also encourages the Federal Reserve to continue its research, development, and assessment efforts for a U.S. CBDC, including development of a plan for broader U.S. Government action in support of their work. This effort prioritizes U.S. participation in multi-country experimentation and ensures U.S. leadership internationally to promote CBDC development that is consistent with U.S. priorities and democratic values.

• Protect U.S. Consumers, Investors, and Businesses by directing the Department of the Treasury and other agency partners to assess and develop policy recommendations to address the implications of the growing digital asset sector and changes in financial markets for consumers, investors, businesses, and equitable economic growth. The Order also encourages regulators to ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets.
• Protect U.S. and Global Financial Stability and Mitigate Systemic Risk by encouraging the Financial Stability Oversight Council to identify and mitigate economy-wide (i.e., systemic) financial risks posed by digital assets and to develop appropriate policy recommendations to address any regulatory gaps.
• Mitigate the Illicit Finance
  and National Security Risks Posed by the Illicit Use of Digital Assets by directing an unprecedented focus of coordinated action across all relevant U.S. Government agencies to mitigate these risks. It also directs agencies to work with our allies and partners to ensure international frameworks, capabilities, and partnerships are aligned and responsive to risks.

• Promote U.S. Leadership in
  Technology and Economic Competitiveness to Reinforce U.S. Leadership in
  the Global Financial System by directing the Department of Commerce to work across the U.S. Government in establishing a framework to drive U.S. competitiveness and leadership in, and leveraging of digital asset technologies. This framework will serve as a foundation for agencies and integrate this as a priority into their policy, research and development, and operational approaches to digital assets.

• Promote Equitable Access to Safe
  and Affordable Financial Services by affirming the critical need for safe, affordable, and accessible financial services as a U.S. national interest that must inform our approach to digital asset innovation, including disparate impact risk. Such safe access is especially important for communities that have long had insufficient access to financial services.  The Secretary of the Treasury, working with all relevant agencies, will produce a report on the future of money and payment systems, to include implications for economic growth, financial growth and inclusion, national security, and the extent to which technological innovation may influence that future.

• Support Technological Advances
  and Ensure Responsible Development and Use of Digital Assets by directing the U.S. Government to take concrete steps to study and support technological advances in the responsible development, design, and implementation of digital asset systems while prioritizing privacy, security, combating illicit exploitation, and reducing negative climate impacts.

 

Biden’s order asks the Justice Department to look at whether a new law is needed to create a new currency, with the Treasury, Securities and Exchange Commission, Federal Trade Commission, Consumer Financial Protection Commission and other agencies to study the impact on consumers. Although the Order uses words like ‘explore” and “potential” and provides financial market regulators a higher ability to place restrictions and reporting requirements on the asset class, it is a move forward that speculators in the crypto market have shown they believe further legitimizes current crypto.

Digital assets, including cryptocurrencies, have seen explosive growth in recent years, surpassing $3 trillion in circulation last November, up from $14 billion just five years prior. Around 16 percent of adult Americans – approximately 40 million people – have invested in, traded, or used cryptocurrencies. Over 100 countries are exploring or piloting Central Bank Digital Currencies (CBDCs) – digital forms of the country’s sovereign currency.

 

Suggested Reading

Elon Musk Weighs in on Unrealized Capital Gains Tax Idea

The Era of Flying Cars May Have Just Dawned

Investing in the Businesses in and Around Crypto

What is the Feds position on Crypto, Stablecoin, and CBDCs?

 

Sources

https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/09/fact-sheet-president-biden-to-sign-executive-order-on-ensuring-responsible-innovation-in-digital-assets/

https://home.treasury.gov/news/press-releases/jy0644

 

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The Predictability of Stocks Taking Off as Crisis gives Way to Clarity?

 

Although past performance is no indication of future returns, uncertainty causes stocks to dive a very high percentage of the time. Clarity, even when not great news, allows investors understanding and a place to build from. Just two years ago investors experienced the dramatic pandemic sell-off during the period between February 12, and March 23^rd. The announcements of canceled air travel, major venues such as Disney closing its theme parks, and workers asked to stay home and isolate for two weeks caused a massive sell-off.

When understanding what areas would remain affected by the pandemic, and which would benefit, the overall market rebounded. Sectors such as energy lagged behind any recovery as it was clear that there would be continued weakness and inventories to digest. However, communications stocks took off as it became clearer what consumer and business demand would be. But during mid-March that year, no one knew what to expect and investors couldn’t sell fast enough. Today the strongest sector of the stock market is energy producers which had lagged.

Last week as Russian ground forces crossed the border into Ukraine. A war that was unforeseen by most experts weeks before sent stock markets tumbling. With the ruble now worth less than a penny, or about a fifteenth of what it was a month ago, the Russian economy is said to be barely functioning. European stocks are way down, and U.S. markets have been gyrating wildly from day to day and even intraday.

High Expectations

Chief strategist for Ned Davis Research (NDR), Ed Clissold offers reassuring insight for investors today. In a report that looked at post-crisis markets, he had this to say, “The stock market hates uncertainty, and a crisis by definition creates uncertainty.” Clissold followed with, “Once investors begin to grasp the scope of the crisis, the uncertainty abates and the stock market can recover. Some stocks may still struggle, but benchmark indices tend to rally.”

NDR examined the effect on stocks of over 50 crisis events since the turn of the 20th century. This began with the panic of 1907 and is inclusive of the Covid-19 crash of 2020. The result? He sees a discernable pattern. After falling an average of 7% in the immediate aftermath of a crisis, the Dow rose 4.2% over the next three weeks. Nine weeks later, it had gained 6%, and after 18 weeks, it was up an average of 9.6%, according to NDR.

Not every event followed the exact pattern, as some were affected by larger economic forces, but the study shows a repeated pattern of market reaction.

 

Some Stats

Germany invaded France 82 years ago. This wasn’t a surprise as a state of war had existed in Europe after Poland had been invaded by Germany the previous year. But stocks still reacted sharply. The Dow dropped 17.1% immediately after, then dipped another 0.5% over the next three weeks. Then, nine weeks later the DOW gained 8.4% and remained up 7% after 18 weeks.

More recently, Russia’s 2014 annexation of Crimea prompted an initial 2.4% drop in the Dow. The index then gained 1.2% after three weeks, 4.4% after nine, and 5.7% after 18, according to NDRs research.

The reaction was a bit different after the 2008 Russian invasion of Georgia. NDR explains this was because there were larger U.S. economic events weighing on the markets with the subprime mortgage crisis. An initial 2.2% drop in the Dow grew with time, as the index fell 4% over the next three weeks, 26% after nine, and 34.2% after 18.

 

What’s Next?

According to Clissold, there are three factors that determine what happens next.

First, he says, “this is a negative for European economic growth,” citing the many interconnections between the economies of the combatants and the other nations of Europe. He believes it could be a drag on the whole global economy.

The second, according to Clissold, is the effect on energy markets, with Russia being one of the major oil, gas, and coal suppliers to Europe and elsewhere. Germany, for instance, has moved to suspend the certification of the Nord Stream 2 gas pipeline from Russia. This permanently impacts energy dynamics for the major manufacturer.

The third key factor, according to Clissold, “is how the Fed reacts.” Any plans to aggressively raise the federal funds rate are likely off the table, he says.

 

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Is it Wise to Buy on Dips?

Investing in Leisure Post Pandemic

Hydrogen About to Take to the Skies

Why it May be Prudent in a Down-Market to Allocate to Individual SPACs

 

Sources

https://pesd.princeton.edu/node/586

https://www.nytimes.com/2022/03/03/business/ukraine-putin-markets.html

 

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Cryptocurrencies with the Help of DAOs Provide a Means to Support Ukraine’s Efforts

 

More than $22 million worth of cryptocurrencies has been sent in support of the Ukrainian war effort.

Bitcoin, ether, doge, and newly added polkadot, among other digital assets, have become more than an interesting side story to the war – the benefits and drawbacks of crypto are now being tested in a new environment and on the global stage.

Through the use of a blockchain decentralized autonomous organization (DAO), digital wallets believed to be controlled by the country’s authorities are building a literal war chest of crypto to fund the country’s defense. At the same time, the U.S. may be contemplating crypto sanctions against Russia. The DAO serves as a crypto repository and currently serves exclusively for the benefit of Ukraine.

What is a DAO?

A DAO exists on the blockchain for a specific purpose decided by its members. The members own the organization, and all decisions are made by the collective owners as to the purpose and use of the entity. There are various ways to participate in a DAO, usually through the ownership of a token. For example, crypto could be placed in the collective via the purchase of an NFT that demonstrates one is part of the collective.

DAOs operate using smart
contracts. This is code that automatically executes whenever a set of criteria are met. Smart contracts are now available on many blockchains after first being pioneered by Ethereum. The smart contracts establish the DAO’s rules. Those with a stake in a DAO then get voting rights and are influencers to how the organization operates by deciding on or creating new purposes.

DAOs are autonomous and transparent. Since they’re built on open-source blockchains, anyone can view their code. And as a level of safety, anyone can also audit their built-in treasury since the blockchain records all transactions.

 

Crypto on the Frontline

Twitter has become very powerful in helping to shape world events and provide mass communication where there might otherwise not be a means. So, it shouldn’t be a surprise that Ukraine’s official Twitter account has been sharing its digital wallet addresses so those interested would know how to send financial aid. In total, Ukraine’s government and other organizations have surpassed $22 million through more than 23,000 crypto donations since the start of the Russian invasion.

The funds are reportedly being used for uniforms, food, and artillery.

The U.S. is said to be weighing limits on Russia’s access to bitcoin and other cryptocurrencies as part of its next wave of sanctions, according to the Wall Street Journal. The possible crypto sanctions would likely target exchanges that violate bans against transacting with blacklisted Russian banks and potentially limit Russia’s ability to seek refuge in digital assets. Targeting the country’s access to these digital assets would take sanctions and crypto into uncharted territory. Actually blocking transactions would be challenging, since, by its nature, private digital currencies are designed to exist without borders and for the most part, outside the government-regulated financial system.

More traditional sanctions against Russia are said to be disrupting an already disrupted Russian economy and currency. Bitcoin trading volumes using the ruble and Ukraine’s hryvnia have surged to their highest level in months. This suggests bitcoin could be more attractive in those markets. Crypto exchanges are also being pulled into the conflict, with Ukraine asking them to block Russian customers’ accounts.

 

Crypto Market

While benefits of digital currency are being showcased with the Russia/Ukraine war, currencies like bitcoin haven’t derived much price benefit. At current exchange rates, bitcoin has approximately $180 billion less in value compared to the beginning of the tensions. The longer-term impact has yet to be seen. Successful sanctions that may include crypto exchanges could hurt the long-term purpose of cryptocurrency. However, the ease at which banks and central banks are avoided while individuals and corporations transmit currency during times of crisis may highlight how critical it can be to financial safety.

Take-Away

Cryptocurrency is being donated to Ukraine to help their defense. The primary donation method has been through a blockchain-based DAO. A transfer of donated assets may not be as efficient or as certain to reach its intended recipient by any other method. Ukraine has been grateful and sends updates through its Twitter account.

 Paul Hoffman

Managing Editor, Channelchek

Suggested Reading

Blockchain Smart Contract Applications

What are Dapps?

Decentralized Finance, is it the Future?

Five Essential Commodities that Will be Hit by the War in Ukraine

 

Source

https://fortune.com/2022/02/28/ukraine-crypto-donations-tweet-bitcoin-ethereum-usdt-russia-invasion/.

https://www.comebackalive.in.ua/

https://sports.yahoo.com/sanctions-bitcoin-donations-heres-crypto-184258610.html

https://www.wsj.com/articles/russian-bitcoin-and-other-cryptocurrencies-could-be-part-of-future-sanctions-11645902740

https://finance.yahoo.com/quote/BTC-USD/

 

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Cryptocurrencies with the Help of DAOs Provide a Means to Support Ukraine’s Efforts

 

More than $22 million worth of cryptocurrencies has been sent in support of the Ukrainian war effort.

Bitcoin, ether, doge, and newly added polkadot, among other digital assets, have become more than an interesting side story to the war – the benefits and drawbacks of crypto are now being tested in a new environment and on the global stage.

Through the use of a blockchain decentralized autonomous organization (DAO), digital wallets believed to be controlled by the country’s authorities are building a literal war chest of crypto to fund the country’s defense. At the same time, the U.S. may be contemplating crypto sanctions against Russia. The DAO serves as a crypto repository and currently serves exclusively for the benefit of Ukraine.

What is a DAO?

A DAO exists on the blockchain for a specific purpose decided by its members. The members own the organization, and all decisions are made by the collective owners as to the purpose and use of the entity. There are various ways to participate in a DAO, usually through the ownership of a token. For example, crypto could be placed in the collective via the purchase of an NFT that demonstrates one is part of the collective.

DAOs operate using smart
contracts. This is code that automatically executes whenever a set of criteria are met. Smart contracts are now available on many blockchains after first being pioneered by Ethereum. The smart contracts establish the DAO’s rules. Those with a stake in a DAO then get voting rights and are influencers to how the organization operates by deciding on or creating new purposes.

DAOs are autonomous and transparent. Since they’re built on open-source blockchains, anyone can view their code. And as a level of safety, anyone can also audit their built-in treasury since the blockchain records all transactions.

 

Crypto on the Frontline

Twitter has become very powerful in helping to shape world events and provide mass communication where there might otherwise not be a means. So, it shouldn’t be a surprise that Ukraine’s official Twitter account has been sharing its digital wallet addresses so those interested would know how to send financial aid. In total, Ukraine’s government and other organizations have surpassed $22 million through more than 23,000 crypto donations since the start of the Russian invasion.

The funds are reportedly being used for uniforms, food, and artillery.

The U.S. is said to be weighing limits on Russia’s access to bitcoin and other cryptocurrencies as part of its next wave of sanctions, according to the Wall Street Journal. The possible crypto sanctions would likely target exchanges that violate bans against transacting with blacklisted Russian banks and potentially limit Russia’s ability to seek refuge in digital assets. Targeting the country’s access to these digital assets would take sanctions and crypto into uncharted territory. Actually blocking transactions would be challenging, since, by its nature, private digital currencies are designed to exist without borders and for the most part, outside the government-regulated financial system.

More traditional sanctions against Russia are said to be disrupting an already disrupted Russian economy and currency. Bitcoin trading volumes using the ruble and Ukraine’s hryvnia have surged to their highest level in months. This suggests bitcoin could be more attractive in those markets. Crypto exchanges are also being pulled into the conflict, with Ukraine asking them to block Russian customers’ accounts.

 

Crypto Market

While benefits of digital currency are being showcased with the Russia/Ukraine war, currencies like bitcoin haven’t derived much price benefit. At current exchange rates, bitcoin has approximately $180 billion less in value compared to the beginning of the tensions. The longer-term impact has yet to be seen. Successful sanctions that may include crypto exchanges could hurt the long-term purpose of cryptocurrency. However, the ease at which banks and central banks are avoided while individuals and corporations transmit currency during times of crisis may highlight how critical it can be to financial safety.

Take-Away

Cryptocurrency is being donated to Ukraine to help their defense. The primary donation method has been through a blockchain-based DAO. A transfer of donated assets may not be as efficient or as certain to reach its intended recipient by any other method. Ukraine has been grateful and sends updates through its Twitter account.

 Paul Hoffman

Managing Editor, Channelchek

Suggested Reading

Blockchain Smart Contract Applications

What are Dapps?

Decentralized Finance, is it the Future?

Five Essential Commodities that Will be Hit by the War in Ukraine

 

Source

https://fortune.com/2022/02/28/ukraine-crypto-donations-tweet-bitcoin-ethereum-usdt-russia-invasion/.

https://www.comebackalive.in.ua/

https://sports.yahoo.com/sanctions-bitcoin-donations-heres-crypto-184258610.html

https://www.wsj.com/articles/russian-bitcoin-and-other-cryptocurrencies-could-be-part-of-future-sanctions-11645902740

https://finance.yahoo.com/quote/BTC-USD/

 

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  Image Credit: Slices of Light (Flickr)

Institutional Shorts of Meme Stocks Reduced While Top Hedge Fund Adds Long Positions

 

It’s the premise of many movies; two unlikely partners fighting for a common goal.

In their quarterly SEC filing, it was discovered that Renaissance Technologies (RenTech), considered one of the best-performing giant hedge funds in history, added substantially to its AMC Entertainment (AMC) position and GameStop (GME) holdings. Meanwhile, hedge fund Citadel LLC., is further reducing its shares in a short fund managed by Melvin Capital that was near collapse early last year after suffering substantial difficulties with short positions including AMC and GME. 

According to The Wall Street Journal, Citadel LLC is further reducing its once $2 billion investment in Melvin Capital Management’s Short Fund. During late January, Citadel asked to redeem half the firm’s remaining position in Melvin.  It had previously halved the investment late last year after Melvin produced double-digit losses for the second January in a row. The Journal reported the recent redemption request would be paid out at the end of March.

Shares in GameStop and AMC were severely underperforming the S&P 500 year-to-date 2022. As of Thursday (February 24), the S&P 500 averaged -10.34%, while GME had a negative return of -18.49% and AMC dropped more substantially with a -33.33% return on the year.

This may have turned around this week. As the market traded off in response to Russia invading Ukraine, reporting by RenTech showed they are aggressively adding to their positions, this helped push the two stocks up. During the fourth quarter they nearly doubled their holding of AMC to 4.7 million shares and the fund has also gotten back involved with Gamestop with a 2600 share position at year-end.

 

 

The recent advance of AMC and Gamestop creates curious allies. RenTech is a huge hedge fund. It was founded by Jim Simons, a former NSA codebreaker and MIT math professor. The quantitative fund relies on algorithms to decide many of its trades. The retail investing “Apes” said to derive their decisions from social media and stock memes owned 80% of AMC by November 2021. The social media-driven positions of the retail accounts and the Renaissance Technologies PhDs developing sophisticated models make for peculiar allies. But together, they are causing the likes of Citadel to continue its retreat. The more those that are short, give up ground, the more likely the stocks will trade up. For now, the PhDs and the “Apes” seem to control the “battlefield.” The proof is in the price movement of AMC and GME.

 

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

More Power to the Individual Investor

Is Biden Tightening the Reins on Large Companies?

Can Small Investors Compete With Wall Street?

Reddit Era Investors May Want to HODL this New Book

 

Sources

https://markets.businessinsider.com/news/stocks/jim-simons-renaissance-technologies-rentech-amc-entertainment-gamestop-tesla-stock-2022-2

https://www.marketwatch.com/story/meme-stocks-soar-on-bad-news-for-melvin-capital-and-russias-invasion-of-ukraine-11645744516

https://www.cnbc.com/video/2021/10/29/how-the-amc-apes-are-taking-on-wall-street.html

www.koyfin

https://www.wsj.com/articles/citadel-is-further-paring-back-2-billion-melvin-investment-11645710666?mod=rss_markets_main–

 

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It’s Officially Warren Buffett Season – Hints on What to Expect

 

Berkshire Hathaway’s annual report is set to be released Saturday, February 26^th.  As is customary, it will be accompanied by the famous CEO, Warren Buffett’s Letter to Shareholders. Using past years as an indicator, investors can expect a lot of news and views surrounding the report and letter. For the next two months, investors can expect more media interviews with Buffett or Berkshire’s number two man Charlie Munger. These all have the potential to move stocks and even crypto prices. The Berkshire Hathaway annual meeting will be in person this year on April 30^th. The presentations will be viewable live on Yahoo Finance.

As investors enter “Buffett season” the time of year when Warren Buffett, one of the most recognized and highly successful investors, shares his thoughts and wisdom related to current markets, an early read of Berkshire’s actions can be helpful for investors – and we just received one. Berkshire Hathaway’s (BRK/A, BRK/B) fourth-quarter 13F of all public market transactions was just filed last week. Below we highlight some of the more notable shifts in the company’s portfolio, these changes may provide an early read on presentations at the annual meeting.

Using
Berkshires 13F as an Oracle

Berkshire Hathaway’s fourth-quarter 13F was filed on February 14. There are two new names of publicly-traded companies in the portfolio. The combined equity securities of Berkshire’s portfolio represent a fraction of company assets since Berkshire wholly owns large brand name companies such as Fruit of the Loom, Geico, and Duracell. The filing shows Berkshire’s $331 billion investment portfolio consists of 44 companies, one company more than the previous quarter.

The top 5 holdings account for over 79% of the total securities portfolio. These include Apple (AAPL), Bank of America (BAC), American Express (AXP), Coca-Cola (KO), and Kraft Heinz (KHC). The significant holdings in Apple, Bank of America, and American Express cause the portfolio, relative to the S&P 500 Index to be more highly weighted in technology, staples, and the financial sector.

Overall, the total securities portfolio carries a slightly more expensive valuation than the S&P 500 while having achieved higher profitability (ROE) and exhibiting lower debt ratios and higher credit ratings.

In the quarter, there were two new additions: Activision Blizzard (ATVI) and Liberty Media – Formula One (FWONK). Microsoft announced a deal to buy ATVI for $95.00 per share in cash on January 18, 2022. Berkshire also added a position of Nu Holdings (NU), which it backed before the firm became public late last year.

Berkshire added to its position in Chevron (CVX), Liberty Media – Liberty SiriusXM (LSXMA), RH (RH), Floor & Decor-A (FND). FND was a new purchase in the last quarter, with the position increased this quarter. The CVX holding was also increased in the third quarter. RH was last increased in the second quarter of 2021.

Reduced can be seen in Berkshire’s holdings of Kroger (KR), Charter Communications (CHTR), Visa (V), Mastercard (MA), Abbvie (ABBV), Royalty Pharma (RPRX), Bristol-Myers Squibb (BMY), and Marsh & McClennan (MMC). Many of the pharmaceuticals being reduced were added in the first half of 2020 and served the portfolio well. The reduced credit card positions began in the third quarter of 2021, with Berkshire previously trimming its positions in V and MA back in the second quarter of 2020.

Teva Pharmaceutical (TEVA) and Sirius XM Holdings (SIRI) were eliminated from the portfolio in the fourth quarter.

Take-Away

Individual stocks can make big moves with just a small utterance from highly-followed investors. Warren Buffett is the ultimate “highly-followed” investor. Over the upcoming days and weeks investors will be treated to more than just utterances.

All of this comes at a time when the investment climate is shifting. Sign-up for Channelchek to receive emails containing research and articles to help provide actionable ideas for your portfolio.

 

Suggested Reading

Cathie Wood Thinks if There is No Blood in Your Street, You Should Move

Michael Burry’s Public Investments in SPACs, Prisons, and Electric Hogs

One Great Protection Inherent in SPACs for Investors

The Last Thing You’ll Ever Need to Read About the Berkshire Hathaway Meeting Until 2021 (Seriously!)

 

Sources

https://www.sec.gov/cgi-bin/browse-edgar?CIK=0001067983

https://www.berkshirehathaway.com/news/jan2722.pdf

https://13f.info/manager/0001067983-berkshire-hathaway-inc

https://en.wikipedia.org/wiki/Berkshire_Hathaway

https://www.forbes.com/sites/bill_stone/2022/02/14/berkshire-hathaways-portfolio-moves-in-the-fourth-quarter/?sh=2fead431685c

https://stockzoa.com/fund/berkshire-hathaway-inc/

https://whalewisdom.com/filer/berkshire-hathaway-inc

 

Stay up to date. Follow us:

It’s Officially Warren Buffett Season – Hints on What to Expect

 

Berkshire Hathaway’s annual report is set to be released Saturday, February 26^th.  As is customary, it will be accompanied by the famous CEO, Warren Buffett’s Letter to Shareholders. Using past years as an indicator, investors can expect a lot of news and views surrounding the report and letter. For the next two months, investors can expect more media interviews with Buffett or Berkshire’s number two man Charlie Munger. These all have the potential to move stocks and even crypto prices. The Berkshire Hathaway annual meeting will be in person this year on April 30^th. The presentations will be viewable live on Yahoo Finance.

As investors enter “Buffett season” the time of year when Warren Buffett, one of the most recognized and highly successful investors, shares his thoughts and wisdom related to current markets, an early read of Berkshire’s actions can be helpful for investors – and we just received one. Berkshire Hathaway’s (BRK/A, BRK/B) fourth-quarter 13F of all public market transactions was just filed last week. Below we highlight some of the more notable shifts in the company’s portfolio, these changes may provide an early read on presentations at the annual meeting.

Using
Berkshires 13F as an Oracle

Berkshire Hathaway’s fourth-quarter 13F was filed on February 14. There are two new names of publicly-traded companies in the portfolio. The combined equity securities of Berkshire’s portfolio represent a fraction of company assets since Berkshire wholly owns large brand name companies such as Fruit of the Loom, Geico, and Duracell. The filing shows Berkshire’s $331 billion investment portfolio consists of 44 companies, one company more than the previous quarter.

The top 5 holdings account for over 79% of the total securities portfolio. These include Apple (AAPL), Bank of America (BAC), American Express (AXP), Coca-Cola (KO), and Kraft Heinz (KHC). The significant holdings in Apple, Bank of America, and American Express cause the portfolio, relative to the S&P 500 Index to be more highly weighted in technology, staples, and the financial sector.

Overall, the total securities portfolio carries a slightly more expensive valuation than the S&P 500 while having achieved higher profitability (ROE) and exhibiting lower debt ratios and higher credit ratings.

In the quarter, there were two new additions: Activision Blizzard (ATVI) and Liberty Media – Formula One (FWONK). Microsoft announced a deal to buy ATVI for $95.00 per share in cash on January 18, 2022. Berkshire also added a position of Nu Holdings (NU), which it backed before the firm became public late last year.

Berkshire added to its position in Chevron (CVX), Liberty Media – Liberty SiriusXM (LSXMA), RH (RH), Floor & Decor-A (FND). FND was a new purchase in the last quarter, with the position increased this quarter. The CVX holding was also increased in the third quarter. RH was last increased in the second quarter of 2021.

Reduced can be seen in Berkshire’s holdings of Kroger (KR), Charter Communications (CHTR), Visa (V), Mastercard (MA), Abbvie (ABBV), Royalty Pharma (RPRX), Bristol-Myers Squibb (BMY), and Marsh & McClennan (MMC). Many of the pharmaceuticals being reduced were added in the first half of 2020 and served the portfolio well. The reduced credit card positions began in the third quarter of 2021, with Berkshire previously trimming its positions in V and MA back in the second quarter of 2020.

Teva Pharmaceutical (TEVA) and Sirius XM Holdings (SIRI) were eliminated from the portfolio in the fourth quarter.

Take-Away

Individual stocks can make big moves with just a small utterance from highly-followed investors. Warren Buffett is the ultimate “highly-followed” investor. Over the upcoming days and weeks investors will be treated to more than just utterances.

All of this comes at a time when the investment climate is shifting. Sign-up for Channelchek to receive emails containing research and articles to help provide actionable ideas for your portfolio.

 

Suggested Reading

Cathie Wood Thinks if There is No Blood in Your Street, You Should Move

Michael Burry’s Public Investments in SPACs, Prisons, and Electric Hogs

One Great Protection Inherent in SPACs for Investors

The Last Thing You’ll Ever Need to Read About the Berkshire Hathaway Meeting Until 2021 (Seriously!)

 

Sources

https://www.sec.gov/cgi-bin/browse-edgar?CIK=0001067983

https://www.berkshirehathaway.com/news/jan2722.pdf

https://13f.info/manager/0001067983-berkshire-hathaway-inc

https://en.wikipedia.org/wiki/Berkshire_Hathaway

https://www.forbes.com/sites/bill_stone/2022/02/14/berkshire-hathaways-portfolio-moves-in-the-fourth-quarter/?sh=2fead431685c

https://stockzoa.com/fund/berkshire-hathaway-inc/

https://whalewisdom.com/filer/berkshire-hathaway-inc

 

Stay up to date. Follow us: