Eq: Tech
(New York)
Deutsche Bank has just put out a stern warning on what is one of the quickest growing asset classes there is. Yes, you guessed it, cryptocurrencies. The bank does not recommend any of its wealth management clients to invest in the space, saying “We do not recommend that. It’s only for investors who invest speculatively … There is a realistic risk of total loss”. The bank says cryptos are plagued by high volatility, possible price manipulation, and data loss or theft.
FINSUM: Just to clarify our opinion on cryptos, our view is that they are not going anywhere and will likely be a part of financial markets for the foreseeable future. However, they have such high regulatory risk right now, and such a lack of clarity on valuation, that it is simply too risky to put any money in.
(Washington)
The whole market seems to have become punch-drunk with blockchain fever. The recent cases of small companies seeing their share prices surge on the back of adding “blockchain” to their name has been well documented. Now the SEC is cracking down. Jay Clayton, chairman of the SEC had this to say on the issue, amidst an even larger statement shaming the rebranding practice: “The SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed-ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering.”
FINSUM: The final straw seemed to be when a publicly traded company that specializes in Long Island ice teas changed its name to Long Blockchain and saw its shares skyrocket.
(Washington)
The SEC has just made an announcement that those in financial industry, and beyond, were waiting for. That announcement was that the SEC has now all but grounded all hopes of having bitcoin ETFs. There has been a remarkable amount of hype about the chances of launching bitcoin ETFs in the hope of getting more mainstream investors involved in the asset class. However, the SEC dashed those hopes, saying “Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products”.
FINSUM: This was effectively an unsolicited warning not to try to shirk investor protection rules in efforts to create bitcoin ETFs. It looks like the SEC is taking a hard line here.
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(New York)
A few weeks ago bitcoin was trading at over $20,000 on some exchanges. No it is trading below $9,500. Critics of the cryptocurrency are taking the big fall as vindication of their view, while others are sticking to bitcoin. Other cryptocurrencies slid big too, with ethereum and litecoin both falling around 30%. “The crypto craze is morphing into a crypto crash, from Bitcoin mania to Bitcoin bust”, says a trading analyst, continuing that “that there is no level at which value players step in” when a bubble is bursting.
FINSUM: One of the big problems with bitcoin, as opposed to say the cotton bubbles of American history, is that there is no fundamental underlying economic value of the currency, so there is no potential bottom other than zero.
(New York)
The end of the exciting but short-lived Bitcoin era may be upon us. As everyone will know, the cryptocurrency surged this year by around 2000%, from $1,000 up to $20,000. However, after worries and threats of regulation, bitcoin has fallen back steeply and is now trading at around $10,000 or just half what it was a few weeks ago. One prominent fund manager commented on bitcoin that “Having no clear fundamental value and largely unregulated markets, coupled with a storyline conducive to delusions of grandeur, makes this more than anything we can find in the history books the very essence of a bubble”.
FINSUM: It is next to impossible to forecast what bitcoin will do, but it should be noted that the cryptocurrency has bounced back from 50% drops before in this big rally.
(New York)
For the last year there has been increasing public frustration with tech companies. Gone is the general perception of Silicon Valley being inherently good, replaced with an angry skepticism over data leaks, election manipulation, and automation. Now there is tangible change in the air amongst investors too. Jana Partners, along with Calstsrs, have just begged Apple to investigate the iPhone’s impact on kids, and it seems representative of a larger trend against the tech industry. There is also rumbling about regulation on the fringes, and increasing skepticism about the social impact of Amazon, in particular its effect on Main Street, jobs, and inflation (although the general public NEVER misses inflation).
FINSUM: We think there is a big change brewing for the tech industry, and that the next decade will likely be a lot more difficult than the last.