Leading U.S. exchange by trade volume, Coinbase, has revealed plans to add half a billion dollars worth of crypto to its balance sheet.
Coinbase CEO, Brian Armstrong, announced that the company’s board had approved the crypto spending spree in an August 20 tweet, adding that Coinbase also plans to invest 10% of all profits generated into digital assets moving forward.
Armstrong also indicated the company hopes to increase the percentage of profit it allocates to cryptocurrency purchases over time.
We recently received board approval to purchase over $500M of crypto on our balance sheet to add to our existing holdings. And we’ll be investing 10% of all profit going forward in crypto. I expect this percentage to keep growing over time as the cryptoeconomy matures.
— Brian Armstrong (@brian_armstrong) August 19, 2021
A blog post published by Coinbase on the same day announces that the move will establish the exchange as the first publicly-traded company to hold Ether, DeFi tokens and Proof-of-Stake assets on its balance sheet.
The announcement emphasizes Coinbase’s commitment to making long-term investments in the crypto sector, stating:
“Our investments will be continually deployed over a multi-year window using a dollar cost averaging strategy. We are long term investors and will only divest under select circumstances, such as an asset delisting from our platform.”
The post adds that future investments may be informed by its customers’ holdings, suggesting Coinbase may add an asset to its balance sheet should users make significant custodial deposits of a given crypto cryptocurrency.
Coinbase will make its trades on third-party platforms or via its over-the-counter trading desk to avoid creating conflicts of interest with its customers.
According to Crypto Treasuries, Coinbase is currently the eight-largest public company by Bitcoin holdings on its balance sheet, and the largest crypto exchange by value of BTC held in its treasury.
Related: Coinbase creates support phone line for account takeovers
The news about new expenditures on crypto comes just a day after Coinbase completed its Japanese launch in partnership with Mitsubishi UFJ Financial Group (MUFG). Coinbase will also gain access to Mitsubishi’s customer base of about 40 million customers as part of their agreement, according to the announcement.
On the same day, Coinbase also announced that it had amassed a $4 billion war chest of cash to prepare for regulatory expense and the next crypto winter.
Both the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have claimed jurisdiction over the crypto industry. A CFTC commissioner clarified that pure commodities, including crypto assets, or their trading venues are not regulated by the SEC.
Regulation of Crypto Assets by SEC and CFTC
A commissioner with the U.S. Commodity Futures Trading Commission, Brian Quintenz, clarified Wednesday that pure commodities, including crypto assets, fall under the jurisdiction of his agency.
He tweeted: “Just so we’re all clear here, the SEC has no authority over pure commodities or their trading venues, whether those commodities are wheat, gold, oil …. or crypto assets.”
Quintenz’s clarification followed the statements by SEC Chairman Gary Gensler on Tuesday and Wednesday regarding the regulation of the crypto industry whenever investment products are considered securities.
Gensler stressed that there is not enough investor protection when it comes to crypto assets and their trading platforms. He called for additional authority and resources to protect investors.
The CFTC declared several years ago that cryptocurrencies, including bitcoin, are commodities. The derivatives watchdog’s website explains:
Virtual currencies, such as bitcoin, have been determined to be commodities under the Commodity Exchange Act (CEA).
In addition, the U.S. District Court for the District of Massachusetts ruled in October 2018 that virtual currencies are commodities and the CFTC has the power to prosecute crypto-related fraud.
Over the years, the CFTC has been working closely with the SEC on consumer protection relating to crypto assets. They have jointly issued several Investor Alerts on topics such as funds trading in bitcoin futures and websites promoting fraudulent crypto trading.
The Digital Asset Market Structure and Investor Protection Act introduced last week by U.S. Representative Don Beyer provides the SEC with authority over “digital asset securities” and the CFTC with “authority over digital assets.”
What do you think about the clarification by the CFTC commissioner about the SEC’s jurisdiction over crypto assets? Let us know in the comments section below.
Image Credits: Shutterstock, Pixabay, Wiki Commons
Goldman Sachs Group Inc. and Morgan Stanley were quick to move large blocks of assets before other large banks that traded with Archegos Capital Management, as the scale of the hedge fund’s losses became apparent, according to people with knowledge of the transactions. The strategy helped limit the U.S. firms’ losses in last week’s epic stock liquidation, they said.
Losses at Archegos, run by former Tiger Asia manager Bill Hwang, have triggered the liquidation in excess of $30 billion in value. Banks were continuing to sell blocks of stocks linked to Archegos Monday, traders said.
“This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are being discussed as Mr. Hwang and the team determine the best path forward,” a company spokeswoman said in a statement Monday evening.
Archegos took big, concentrated positions in companies and held some positions in a mix of stock and swaps. Swaps are a common arrangement in which a trader gets access to the returns generated by a portfolio of shares or other assets in exchange for a fee.
Losses threatened to spill over into the so-called prime brokerage businesses that have been handling the firm’s trading. The group of large Wall Street banks includes Goldman, Morgan, Credit Suisse Group AG, Nomura Holdings Inc., UBS Group AG and Deutsche Bank AG , said people familiar with the firm’s trading.
to dispose of its media assets, as officials grow more concerned about the technology giant’s sway over public opinion in the country, according to people familiar with the matter.
Discussions over the matter have been held since early this year, after Chinese regulators reviewed a list of media assets owned by the Hangzhou-based company, whose mainstay business is online retail. Officials were appalled at how expansive Alibaba’s media interests have become and asked the company to come up with a plan to substantially curtail its media holdings, the people said. The government didn’t specify which assets would need to be unloaded.
Alibaba, founded by billionaire
Jack Ma,
has throughout the years assembled a formidable portfolio of media assets that span print, broadcast, digital, social media and advertising. Notable holdings include stakes in the
Twitter
-like Weibo platform and several popular Chinese digital and print news outlets, as well as the South China Morning Post, a leading English-language newspaper in Hong Kong. Several of these holdings are in U.S.-listed companies.
Such influence is seen as posing serious challenges to the Chinese Communist Party and its own powerful propaganda apparatus, the people said.
The party’s propaganda department didn’t reply to a faxed request seeking comment.
Alibaba declined to comment on discussions with regulators pertaining to possible media asset disposals. In a statement, the company said it is a passive financial investor in media assets.
“The purpose of our investments in these companies is to provide technology support for their business upgrade and drive commercial synergies with our core commerce businesses. We do not intervene or get involved in the companies’ day-to-day operations or editorial decisions,” the statement said.
The asset-disposal discussions are the latest development in a series of run-ins between Beijing and Mr. Ma, who was once China’s most-celebrated entrepreneur. Late last year, Chinese leader
Xi Jinping
personally scuttled plans by Ant Group Co.—Alibaba’s financial-technology affiliate—to launch what would have been the world’s largest initial public offering, amid growing unease in Beijing over Ant’s complex ownership structure and worries that Ant was adding risk to the financial system. Mr. Xi was also angry at Mr. Ma for criticizing his efforts to strengthen financial oversight.
Antitrust regulators are also preparing to levy a record fine in excess of $975 million over what they call anticompetitive practices on Alibaba’s e-commerce platforms, The Wall Street Journal previously reported citing people with knowledge of the matter. In addition, Alibaba would be required to end a practice under which, regulators believe, the tech giant forbade merchants to sell goods on both Alibaba and rival platforms.
Beyond media and online retail, Alibaba also has a sizable entertainment division, consisting mainly of Hong Kong-listed
Alibaba Pictures Group Ltd.
and Youku Tudou Inc., one of China’s largest video streaming platforms. Officials also reviewed Alibaba’s entertainment portfolio, although outright divestitures in that part of Alibaba’s business may not be necessary, people familiar with discussions related to Alibaba’s entertainment business said.
It isn’t clear whether Alibaba will need to sell all of its media assets. Any plan that Alibaba comes up with will need approval from China’s senior leadership, people familiar with the matter said.
Concerns have been growing in recent years in China’s officialdom over Alibaba’s media clout and how the company may have leveraged its investments in news and social media to influence government policies deemed unfavorable to its businesses.
Those concerns grew following an incident in May last year when scores of Weibo posts about a senior Alibaba executive’s alleged involvement in an extramarital affair were deleted.
After Jack Ma criticized Chinese regulators, Beijing scuttled the initial public offering of his fintech giant Ant and he largely disappeared from public view. WSJ looks at recent videos of the billionaire to show how he got himself into trouble.
An ensuing investigation by the Cyberspace Administration of China, the country’s internet watchdog, found that Alibaba was responsible for the interference with Weibo posts and said the company had used “capital to manipulate public opinion” in a report to the leadership, the Journal has reported, citing officials who saw the report. It is the Communist Party that controls public opinion on all media platforms and the private sector should not take up the role, the officials said.
Alibaba owns about 30% of Nasdaq-listed Weibo Corp. and has been the largest customer of the social-media company, having contributed nearly $100 million in advertising and marketing revenue in 2019 to its platform, according to the most recent annual data available.
In June, the internet watchdog publicly reprimanded Weibo for what it called “interference with online communication” and asked it to rectify the situation. In November, Xu Lin, a vice-director of the Party’s central propaganda department, said in a public forum that China must “resolutely prohibit dilution of the party’s leadership in the name of [media] convergence, resolutely guard against risks of capital manipulating public opinion.”
He didn’t identify Alibaba by name during his speech but used the words that appeared in the cyber watchdog’s report.
Divesting its media interests isn’t necessarily a big negative for Alibaba, which could re-emerge from the regulatory onslaught in a more secure position with Beijing after giving up some noncore assets. It could also help steer the company clear of future political minefields as authorities maintain a tight grip on the media.
Alibaba isn’t the only Chinese tech giant that dabbles in media.
Tencent Holdings Ltd.
’s WeChat messaging service has become one of the primary ways in which ordinary Chinese people get news. Bytedance Ltd. operates popular news aggregator Jinri Toutiao, which employs artificial intelligence to push news to hundreds of millions of users.
It isn’t clear if any other tech companies will have to follow the same pattern as Alibaba in considering the disposal of media assets.
Alibaba’s media investments began before the company rose to international fame with its then record-breaking IPO on the New York Stock Exchange in 2014. Over the years, Alibaba and Ant purchased stakes in some of the country’s most popular media outlets, including business-focused Yicai Media Group and tech-focused news portals Huxiu.com and 36Kr.com.
One of the most prominent acquisitions was the South China Morning Post, which traces its roots to the era of British colonial rule in Hong Kong. Alibaba has also set up joint ventures or partnerships with powerful state-run media like Xinhua News Agency and local government-run newspaper groups in Zhejiang and Sichuan provinces.
Media outlets often met Alibaba’s overtures with enthusiasm, given the tech giant’s deep pockets and digital expertise. Since being bought by Alibaba in 2016, the Post has expanded its digital news offerings and editorial staff and completed a makeover of its Hong Kong headquarters.
Some journalists and readers worried that Alibaba, which has offices a few floors above the Post’s newsroom, would interfere with the paper’s coverage to please Beijing. But the newspaper at times published stories that appeared unfavorable to the Chinese leadership, including extensive coverage of Hong Kong’s 2019 and 2020 protests and Beijing’s growing control over the city.
Mr. Ma, explaining the reasons for his acquisition of the Post, said in a public forum in 2017 that he never interfered with newsroom operations and respected journalism.
“[We] must not let the media fall, must not let the media lose themselves, and must not let the media lose objective and rational communication because of money,” Mr. Ma said in the event, organized by Xinhua.
Media Empire
Media assets held by Alibaba include:
100% of the South China Morning Post, Hong Kong’s premier English newspaper.
Nearly 37% of Yicai Media Group, one of China’s most influential news outlets.
About 30% of Weibo, a Twitter-like social media platform. Its stake is valued at more than $3.5 billion.
6.7% of Bilibili, a video platform popular among younger Chinese people. Its stake is worth nearly $2.6 billion.
5% of Mango Excellent Media, a subsidiary of government-run Hunan TV. Its stake is worth about $819 million.
Nearly 5.3% of Focus Media, China’s largest offline advertising network. Its stake is worth nearly $1.2 billion.
Media assets held by Ant include:
16.2% of 36Kr, a U.S.-listed digital media outlet focused on technology. Its stake is worth $25 million.
Former 5.62% stake in Caixin Media, one of China’s most respected news sources. Ant sold its interest in 2019.
Sources: The Securities and Exchange Commission, Shenzhen Stock Exchange, National Equities Exchange and Quotations of China, National Enterprise Credit Information Publicity System of China, FactSet, Wind.
Note: Market values for U.S.-listed companies are as of March 12; for China-listed firms, as of March 15.
Markets are buckled into the fighting chair as another day of the retail-led feeding frenzy on shorted stocks is about to come online.
In case you thought the trading mania was a limited battle between internet day traders and Wall Street hedge funds: videogame retailer GameStop was one of the most traded stocks by value in the U.S. on Wednesday.
Amateur investors, many based on the Reddit group WallStreetBets, are jumping into heavily-shorted stocks, driving prices to astronomical levels and forcing hedge funds to sell bigger, safer bets to cover losses.
Selloff is creeping to other investments and spooking sentiment. Major indexes took a 2% to 3% ride down on Wednesday and are set to continue surfing.
A must-read: Tendies? Diamond hands? Your guide to the lingo on WallStreetBets, the Reddit forum fueling Gamestop’s wild rise
Our call of the day comes from the U.S. equity researchers at Jefferies, led by global equity strategist Sean Darby, with a bonus call from Sébastien Galy, a strategist at Nordea Asset Management.
The team at Jefferies is clear that the correction in share prices has little to do with fundamentals. Rather, what’s happening is a reflection of a “sentiment shift within some of the more overbought and speculative parts of the market.”
The group’s retail speculative index, measuring the deviation from trend of assets where value is hard to determine, is high at 4 standard deviations. “Hence, there is plenty of air to come out of the riskier financial assets,” the team said.
Darby’s team noted that the short-term worry is whether the “popping” of riskier parts of the market will create a domino effect, as mainstream equities are liquidated to stem losses.
Galy, of the Nordic asset manager Nordea, echoes Jefferies’ caution about a wider selloff. He also says it’s too early to buy the dip, because there’s more to come.
The big moves to cover shorts at a time of high leverage typically forces more deleveraging, Galy said. This is because the constraint on capital from the risk of losses on investments is ratcheting up.
“As a consequence, the cost of hedging downside risk has sharply increased,” Galy said. “This risk reduction could last a few days followed by a sharp liquidity driven rebound in U.S. and to a lesser extent European stocks.”
Galy said that even a dovish Federal Reserve meeting on Wednesday couldn’t turn around this market, which is another signal that it may last.
The buzz
Shares in GameStop
GME,
+134.84%
touched the $500 level in the premarket before pulling back. The stock was just $19 heading into 2021. Fashion brand Nakd
NAKD,
+252.31%
is another stock making a big leap in the premarket, up 130%.
In a Securities and Exchange Commission filing this morning, cinema-theater chain AMC
AMC,
+301.21%
revealed that holders of the company’s convertible bonds have chosen to convert the notes into stock, as shares in the company have rallied around 330% since Tuesday.
Apple
AAPL,
-0.77%,
Facebook
FB,
-3.51%,
and Tesla
TSLA,
-2.14%
posted earnings after the close yesterday. Technology giant Apple topped $100 billion in quarterly revenue for the first time, crushing expectations, as social-media company Facebook also beat estimates, with sales soaring 156% from “other revenue” — like virtual-reality headsets and video-chat devices. Electric-car maker Tesla reported its sixth straight quarter of profit, but it was a miss on expectations.
But if you can peel your eyes away from the stock market, it is a big day on the economic front. Initial and continuing jobless claims are due at 8:30 a.m. EST, with around 875,000 people expected to have filed for unemployment last week. Gross domestic product figures for the fourth quarter of 2020 will come at the same time, before new home-sales figures for December are reported at 10 a.m.
After the Federal Open Market Committee decided to hold monetary policy steady yesterday, Fed Chair Jerome Powell gave dovish signals that the central bank wasn’t done restoring the COVID-19 pandemic-ravaged economy to health. “We have not won this yet,” he said.
The markets
It looks like another wild day on Wall Street. Yesterday’s tumult saw the Dow Jones Industrial Average
DJIA,
-2.05%
tumble more than 630 points, and stock market futures
YM00,
-0.07%
ES00,
-0.31%
NQ00,
-0.90%
are pointing down, set to continue the selloff. Asian markets
NIK,
-1.53%
HSI,
-2.55%
HSI,
-2.55%
fell across the board and European indexes
SXXP,
-0.76%
UKX,
-1.13%
DAX,
-0.86%
PX1,
-0.17%
are firmly in the red.
The chart
Our chart of the day, from Marshall Gittler at BDSwiss, shows how the S&P 500
SPX,
-2.57%
dropped by the most since October 2020, and the VIX index of expected volatility saw its biggest one-day rise since the COVID-19 pandemic hit in March 2020.
The tweet
When the sharks root for the fish. Billionaire entrepreneur and investor Mark Cuban — of “Shark Tank” fame — is rooting for Reddit’s WallStreetBets traders.
Random reads
An Oklahoma lawmaker has proposed a ‘Bigfoot’ hunting season with a new bill.
Key West wants to ban people from feeding fat, feral, free-roaming chickens.
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