MicroStrategy’s continuous Bitcoin acquisition has drawn the ire of investment banking giant HSBC. Despite being one of the largest business intelligence firms in the world, HSBC has stated that MicroStrategy is now a “virtual currency product,” a designation akin to the pseudo-Bitcoin exchange-traded fund status attached to the company on account of its sizable Bitcoin (BTC) balance sheet.
Since August 2020, MicroStrategy has embarked on a Bitcoin acquisition spree and now holds more than $5 billion worth of BTC. Michael Saylor, the company’s CEO, has also become an outspoken Bitcoin proponent. Saylor’s Bitcoin evangelism has included attempts to encourage other publicly listed firms to add BTC to their balance sheet. Indeed, some other companies in the United States have emulated Saylor’s Bitcoin adoption.
With corporate Bitcoin adoption becoming commonplace, the conversation appears to be shifting toward life and annuity companies and sovereign wealth funds to see where the next wave of institutional BTC investment will emerge. However, for legacy players like HSBC, Bitcoin and cryptocurrencies, in general, remain anathema even if the actions taken thus far appear to be arguably arbitrary.
HSBC blacklists MicroStrategy stock
HSBC blacklisted MicroStrategy’s stock, preventing customers of the bank’s online retail trading platform in Canada from acquiring the company’s shares. While HSBC did not respond to Cointelegraph’s request for confirmation on the report, the bank has publicly verified the news using similar statements contained in the original message shared by customers on Twitter.
In the message sent to HSBC InvestDirect customers who already hold MicroStrategy (MSTR) stock, the bank revealed that additional MSTR purchases will no longer be possible on the platform. The communique stated that such customers could hold their current MicroStrategy stock balances or sell their shares.
According to HSBC, the blacklisting was in line with the bank’s crypto restrictions enacted back in 2018. An excerpt from the bank’s policy as contained in the message to HSBC InvestDirect, or HIDC, customers reads: “HIDC will not participate in facilitating (buy and/or exchange) product relating to virtual currencies, or products related to or referencing to the performance of virtual currency.”
Reacting to the news, Stuart Hoegner, general counsel at crypto exchange platform Bitfinex, told Cointelegraph that the decision was a “regressive step” in the context of the growing appeal of cryptocurrencies in the mainstream arena, adding:
“Instead of refusing to participate in products relating to virtual currencies, HSBC should instead focus on delivering optimal services to its customers, many of whom pay high fees and interest rate charges on the bank’s loans and credit card products. In fact, it is blockchain technology’s capacity — by virtue of removing intermediaries — that can enhance levels of inclusion, accessibility and transparency in financial products.”
Making sense of it all
In singling out MicroStrategy, HSBC referred to the company as a “virtual currency product,” hence its decision to prevent customers from buying MSTR. However, HDIC lists shares of several companies with significant cryptocurrency involvement including Tesla, Square and Hut 8 Mining, to mention a few.
Elon Musk’s electric vehicle manufacturing giant, Tesla, acquired about $1.5 billion worth of Bitcoin back in February. Hut 8 is a Bitcoin mining establishment, while Square operates Cash App, an avenue for buying BTC that also contributes greatly to Square’s revenue bottom line.
Unlike MicroStrategy, which only holds Bitcoin on its balance sheet while still carrying out its function as a business intelligence firm, some of the tradable stocks on the HDIC platform belong to companies, like Hut 8, that derive value directly from cryptocurrencies.
Commenting on the lack of clarity in HSBC’s decision, Jeffrey Wang, head of Americas at crypto finance provider Amber Group, told Cointelegraph: “It’s a very slippery slope for HSBC. Will they publish a clear set of defined rules for what they deem to be companies that derive value from virtual currencies?”
He questioned further: “Why haven’t they also put this trading restriction on other companies that have publicly disclosed holdings of Bitcoin like Tesla? Will they block trading in Coinbase?” As an HDIC customer, Wang also expressed displeasure at the uneven application of HSBC’s anti-crypto policies, adding:
“I think this is HSBC overstepping its reach on its retail brokerage offering. If a company is lawfully listed on the Nasdaq and is in compliance with any regulatory requirements, the decision to buy this stock should be left up to the end-user and not the brokerage.”
HSBC’s ban on MicroStrategy stock trading becomes even more bizarre, given that customers can still buy exchange-traded funds that contain MSTR on the platform. Indeed. According to ETF.com, 88 ETFs hold MicroStrategy shares.
The MSTR blacklisting is hardly the first negative consequence of MicroStrategy’s Bitcoin investment push. In December 2020, Citibank downgraded the company’s stock citing MicroStrategy’s “disproportionate” focus on BTC.
New layers of legitimacy
HSBC’s action puts the bank firmly in the corner of legacy financial institutions still averse to Bitcoin and cryptocurrency innovation. The move offers the latest indication of the bank’s repudiation of digital currencies following efforts to block customers from repatriating crypto trading profits from exchanges to their bank accounts earlier in the year.
Meanwhile, several major players in the traditional finance arena are increasingly becoming more exposed to Bitcoin and cryptocurrencies as the novel technology gains new layers of legitimacy. From offering custody services for digital currencies to establishing digital asset exchange platforms, banks across the United States, Europe and Asia are showing a greater appetite for digital currencies.
For Wang of Amber Group, HSBC is holding fast to a shrinking position of being a banking institution that remains averse to cryptocurrencies, telling Cointelegraph:
“I think HSBC will be in the tiny minority — if not the only brokerage — that will restrict its retail investors from buying shares in publicly traded and regulated companies due to exposure to virtual currencies.”
Recently, European investment banking giant Société Générale issued a tokenized security representing one of its structure products — investment packages linked to assets and derivatives — on the Tezos blockchain. The news marked a third consecutive year of a blockchain-related financial product being issued.
In a message to Cointelegraph, Jean-Marc Stenger, managing director of digital capital markets at Société Générale and head of its fintech startup subsidiary, SG Forge, remarked that crypto companies will challenge legacy finance players that are slow to adapt to the emerging digital financial landscape. Rather than advocate for eschewing digital assets, Stenger identified the advantages held by traditional finance in real-world asset-based tokenization, adding:
“Traditional financial institutions know how to structure regulated digital assets and how to cope with related requirements (investors protection, rules for markets integrity, compliance, KYC, continuity plans). But more importantly, they have origination and distribution capabilities and day-to-day business relationships with their clients.”
While Société Générale’s digital asset offerings are not tied to cryptocurrencies, major U.S. investment banks such as Goldman Sachs and Morgan Stanley are looking to offer their clients exposure to Bitcoin funds.
Amid the continued influx of institutional actors into the Bitcoin space, the question of whether governments will invest in BTC is likely becoming a matter of “when” and not “if.” With insurance companies and pension funds dipping their toes in the Bitcoin pool, sovereign wealth funds appear to be not too far behind.
GBTC discount presents a unique challenge for Grayscale and investors
Since 2013 the Grayscale Bitcoin Trust Fund (GBTC) has offered its investors exposure to Bitcoin (BTC) through a publicly quoted private instrument. However, the trust’s convertibility and liquidity vastly differ from an Exchange Traded Fund (ETF).
Trusts are structured as companies, at least in regulatory form, and are ‘closed-end funds’ which can initially only be sold to accredited investors. This means the number of available shares is limited, and retail traders can only access them via secondary markets. Furthermore, a GBTC share cannot be redeemed for the underlying BTC position.
Historically, GBTC used to trade above the equivalent BTC held by the fund, which was caused by the retail crowd’s excess demand. The common practice for institutional clients was to buy shares directly from Grayscale at par and sell at a profit after the six-month lock-up period.
During most of 2020, GBTC shares traded at a premium to its Net Asset Value (NAV), which varied from 5% to 40%. However, this situation drastically changed in March 2021. The approval of two Bitcoin ETFs in Canada heavily contributed to extinguishing the GBTC premium.
ETF funds are less risky and cheaper compared to trusts. Moreover, there is no lock-up period, and retail investors can attain direct access to buy shares at par. Therefore, the emergence of a better Bitcoin investment vehicle seized much of allure that GBTC once possessed.
Can DCG save GBTC?
In late February, the GBTC premium entered adverse terrain, and holders began desperately flipping their positions to avoid getting stuck in an expensive and non-redeemable instrument. The situation deteriorated up to an 18% discount despite BTC price reaching an all-time high in mid-March.
On March 10, Digital Currency Group (DCG), Grayscale Investments’ parent company, announced a plan to purchase up to $250 million of the outstanding GBTC shares. Although the conglomerate did not specify the reason behind the move, the excessive discount certainly would have pressured their reputation.
As the situation deteriorated, DCG announced a roadmap for turning its trust funds into a U.S. ETF, although no specific guarantees or deadlines have been informed.
On May 3, the firm announced that it had purchased $193.5 million worth of GBTC shares by April. Moreover, DCG increased its GBTC shares repurchase potential to $750 million.
Considering the $36.3 billion in assets under management for the GBTC trust, there’s reason to believe that buying $500 million worth of shares might not be enough to ease the price discount.
Because of this, some important questions arise. For example, can DCG lose money by making such a trade? Who’s desperately selling, and is a conversion to an ETF being analyzed?
As the controller of the fund administrator, DCG can buy the trust fund’s shares at market prices and withdraw the equivalent Bitcoin for redemption. Therefore, buying GBTC at a discount and selling the BTC at market prices will consistently produce a profit and there’s no risk by doing this.
Apart from a few funds that regularly report their holdings, there’s no way to know who has been selling GBTC below net asset value. The only investors with 5% or more holdings are BlockFi and Three Arrows Capital, but none have reported reducing their position.
Therefore, it could be potentially multiple retail sellers exiting the product at any cost, but it is impossible to know right now.
While buying GBTC at a 10% or larger discount might seem a bargain at first, investors must remember that as of now, there’s no way of getting out of those shares apart from selling it at the market.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
As Bitcoin’s payment options grow, BTC true future role up for debate
In an August 2020 paper “Is bitcoin money?” Peter Hazlett and William Luther wrote that there exists only “a small corner of the internet where transactions are routinely conducted with Bitcoin serving as the medium of exchange.” But that corner may be growing into a room, or even a house now.
“Demand for Bitcoin has certainly grown over the last year,” co-author Luther, assistant professor of economics at Florida Atlantic University, told Cointelegraph in a recent conversation. “As new users find themselves with Bitcoin, and existing users find themselves with more Bitcoin, it’s only natural that more people will consider using it to make payments.”
Others see a recent rise in crypto payment options. “Definitely,” Joanna Wasick, a partner at law firm BakerHostetler, told Cointelegraph, adding: “More people are owning cryptocurrencies, and more companies are accepting them — sometimes even at an incentive over fiat. There’s also an influx of exchanges and payment platforms facilitating these kinds of transactions. I don’t think that happens without a demand.”
This past week, eBay was reported to be exploring crypto payment options, including NFT auctions, while PayPal was said to be discussing the development of its own stablecoin. Elsewhere, Switzerland’s Canton of Zug began recently accepting tax payments in Bitcoin (BTC) and Ether (ETH).
“There have certainly been some major announcements from mainstream financial services companies in the past several months that point to the momentum of viewing crypto as a payment option,” Kristin Smith, executive director at the Blockchain Association, told Cointelegraph, citing Visa, PayPal — and from the crypto world — BlockFi.
Still too volatile?
Not all believe that Bitcoin is viable as a medium of exchange, though. Aswath Damodaran, professor of finance at New York University’s Stern School of Business, told Cointelegraph: “I don’t see it, and the reasons are simple: It is an incredibly inefficient currency, with transaction costs overwhelming the benefits.”
These inefficiencies are likely to multiply, too, as BTC moves closer to its 21-million limit. “It is also far too volatile for people to trust it,” he added — though he doesn’t rule out other cryptocurrencies as potential payments options.
St. Louis Federal Reserve president James Bullard noted that in the 19th century –– before the American Civil War –– it was common for private United States banks to issue their own notes, a practice analogous to today’s cryptocurrencies, in his view. “They were all trading around [i.e., the banknotes], and they traded at different discounts to each other, and people did not like it at all.” People want a uniform currency like the U.S. dollar, said Bullard.
Because Bitcoin has yet to find widespread use as a means of exchange, growing numbers have suggested that its proper role might really be as an alternate store of value, like gold. But Luther, for one, doesn’t think this makes much sense, telling Cointelegraph:
“I don’t understand those who say Bitcoin is better suited as a store of value than as a medium of exchange. An asset can only function as a store of value if it is expected to have a positive price in the future. And it will only have a positive price in the future if it has some use in the future.”
To say that Bitcoin can be a store of value today, and possibly a medium of exchange one day — though maybe not — could be putting the cart before the horse. In Luther’s view: “Bitcoin is expected to function as a medium of exchange in the future — that its price fluctuates today as people expect it to be more or less useful as a medium of exchange in the future.” Moreover, he believes that “conditional on its usefulness as a medium of exchange in the future, it might serve as a store of value as well.”
Meanwhile, Bitcoin remains the most used crypto payment platform, according to BitPay, which processes some $1 billion annually in crypto payments. In March, Bitcoin accounted for 72% of BitPay’s crypto payments (by number), far ahead of Bitcoin Cash (BCH) (14%) and ETH (10%), which ranked second and third, respectively.
BTC may be good enough
There are indeed valid reasons why crypto partisans continue to use BTC for transactions — even while other crypto platforms may be faster with lower fees. “I don’t like spending my Bitcoin, but I know that as soon as I say those words ‘just send me your Bitcoin address’ the transfer will get done quickly and cheaply,” said Quantum Economics founder Mati Greenspan in a recent newsletter, further adding:
“I know for a fact that my analyst will be happy to receive Bitcoin, and that I have a Bitcoin stash that I can feasibly use to pay with. However, if I tell him, ‘Hey, let me send you some XLM,’ the response probably won’t be enthusiastic because it would probably require him to spend time and energy researching wallets and exchanges.”
Bitcoin today occupies a somewhat unusual role as a “niche medium of exchange,” according to the Cato Institute’s Lawrence White in a blog post. “It is better than other media for making some payments that, even if for legitimate purposes, might be censored if routed through payment systems controlled by national governments and central banks.” A grassroots human rights organization in Belarus, for instance, has used the BTC network to transfer money to striking workers — in a way that the government cannot stop.
Others expect that BTC will achieve mainstream acceptance as a payments option. Bill Zielke, chief marketing officer of BitPay, told Cointelegraph that “crypto is already a significant payment method, as more than a billion in volume occurs annually.” Firms such as Newegg and Apmex, both top 100 merchants, already “see a meaningful percentage of their sales in Bitcoin and other cryptocurrencies.”
A need for greater stability
However, more still needs to happen before Bitcoin and/or other cryptocurrencies achieve widespread adoption as payments options. “Most importantly, cryptocurrency needs to become more stable and stop being a speculative vehicle,” said Wasick, adding: “If I think the value of my Bitcoin is going to go up, I’m not going to use it to buy a car. I’m going to sit on it so I can realize more gains.”
Damodaran agreed, as individuals who think about using Bitcoin to purchase items worry that their BTC will be worth 30% more in a day or two. Sellers — e.g., merchants — “don’t want to receive it since they are worried about the exact opposite.” Damodaran added: “For a good crypto to make it, it has to get governments to buy in, some version of a trusted authority to reduce transaction costs and [become] less of a speculative game.”
Related: Bitcoin’s upcoming Taproot upgrade and why it matters for the network
“The two biggest obstacles, in my view, are the volatility of its purchasing power and the relatively small number of transactions it can handle,” Luther told Cointelegraph while going on to add: “Second-layer solutions have gone a long way toward eliminating the second problem — and will no doubt go further. Of course, that means most on-chain Bitcoin transactions would merely be for settlement.”
“There are regulatory issues that we believe would encourage broader adoption, such as adopting a de minimis exemption for cryptocurrency transactions,” added Smith. For example, cryptocurrency transactions of less than $200 might be exempt from taxation.
“The regulatory regime needs to change or at least become clearer to people,” said Wasick, in addition to raising a question: “How many people using crypto for payments know exactly what the tax implications are of their payment transactions?”
Do people want a uniform currency?
But what about Bullard’s contention that people aren’t keen to deal with all these private forms of money. What they really want is a uniform currency, like the U.S. dollar.
“Bullard has a point — people generally want a uniform currency,” answered Wasick, but Bullard overlooks some key aspects of cryptocurrencies, she added. They are “decentralized and deflationary — or, at least, non-inflationary — by design.” Fiat, by comparison, created and managed by governments, “is by design inflationary. […] Dollars lose value over time.”
Bullard, in Luther’s view, also glosses over some important historical details. Most pre-Civil War banknotes were not discounted, he said — “they typically traded at par.” Only when they circulated far away from the issuing bank were they discounted. Banknotes issued in Chicago, for example, might trade at a discount in New York — but only because it was costly to redeem them. Luther further explained:
“Banknote collectors had to bundle them up and ship them back to the issuing bank in order to redeem them for gold. Then, they had to haul that gold back home. And, of course, they risked theft both ways.”
Banks would have liked to provide closer redemption options, but regulatory restrictions on branch banking didn’t allow it. According to Luther: “Far from demonstrating an uncompromising desire for a uniform redeemable currency, as Bullard claims, the historical evidence suggests that many redeemable currencies might prevail, even under a poor regulatory regime that makes them perform far worse than they otherwise would.”
If BTC can’t make it, could stablecoins prevail?
Still, the volatility problem with crypto persists, which is why some believe the solution for crypto as a payment mechanism starts with stablecoins. “We do see use of stablecoins growing,” answered Zielke, adding: “Accepting or paying with stablecoins opens up new possibilities for global businesses that require the stability of the dollar but the security, speed and efficiency of blockchain payments.”
“I like the idea of stablecoins,” said Luther. But as is the case with traditional cryptocurrencies, they still need some improvements. “For one, they tend to be stable relative to the dollar, which by definition means they will never be managed better than the dollar.” A second concern is “they typically require one to trust the issuer to manage the supply appropriately — a risky proposition,” said Luther.
Related: The way of the stablecoin: A journey toward stability, trust and decentralization
Damodaran was skeptical about the utility of stablecoins, which he described as “solutions in search of problems,” further adding: “Of all the problems in the world, not having a currency that works is not in the top 100 in much of the world.”
But it is a problem in some locales, which is why Smith, for one, believes that crypto as a payment option may first catch on widely “in other, non-U.S. jurisdictions,” especially countries that “do not have the same access to payment systems that make internal transactions simple.”
Meanwhile, White listed some other current BTC use cases, including “fundraising by activists in Nigeria, Hong Kong and Russia, savings expatriation by people fleeing Venezuela, remittances into Iran, and peer-to-peer transfers within China among people seeking to avoid state financial surveillance.” He concluded: “Such uses — together with forecasts of wider future use — are enough to sustain Bitcoin’s positive market value.”
6 Crypto-centric songs you may not have heard
While the cryptocurrency industry is mostly centered around technology and data, the people who inhabit our sector are not without their creativity. This is seen not only in the various solutions and inventions they create, but also in their artistic (and often humorous) works.
Over the years, folks of the crypto space have crafted songs based on distributed technology, as well as its jokes and humor. Some of these songs are parodies of mainstream hits, substituted with crypto lyrics, while others are originals that are unique to the digital asset industry.
Here are several crypto-centric songs that are worth a listen.
“Bitcoin pls go to moon”
A classic in the crypto space, “Bitcoin pls go to moon” came after Bitcoin (BTC) had dropped significantly in price following its 2017 bull run. The YouTube channel 1thousandx posted this lyrical work on Nov. 6, 2018. The song urges Bitcoin to rise in price and “stop going sideways now.” At the time of the song, Bitcoin traded more than $10,000 lower than its then-all-time price high near $20,000, and had been consolidating in that range for a notable period of time, according to TradingView data. The song included sentiments from crypto industry personalities Michael Novogratz and Tone Vays.
“Banksters Paradise (A Bitcoin Song)”
A song posted by YouTube channel Renegade Investor, “Banksters Paradise (A Bitcoin Song)” is a parody of “Gangsta’s Paradise” by Coolio. The parody details the world as a playground for banksters amid an atmosphere of money printing and inflation, pointing toward Bitcoin as a solution.
Queen’s song “Bohemian Rhapsody” is one of the world’s more popular lyrical works. A YouTube channel known as Crypto Karaoke made a crypto-centered parody of the tune. “Bull markets come, bull markets go, HODL high, HODL low,” the song’s lyrics include — differing from the line from the original song: “Easy come, easy go, little high, little low.” The revamped line pays tribute to HODL, a popular term in the crypto space. Although the term has no set definition, it is usually used to mean holding on to assets regardless of market fluctuations.
“Old Town Road (Bitcoin Version)”
YouTuber Lil Bubble has carved out a niche for himself in doing crypto song parodies. The creator has made numerous song parodies based on the crypto industry. The music videos often include a person dancing in a space suit — a reference to the common industry imagery of assets going “to the moon.”
The YouTuber’s most popular song in terms of views on the social media platform is his rendition of “Old Town Road” by Lil Nas X. The parody comedically touches on the struggles of investing and holding assets in the crypto space through the low periods.
Musical artist Chris Record has put out a lot of different content on his YouTube channel, Chris Record TV, including some musical works. Although not directly focused on crypto, the channel has posted a few musical crypto creations. One such video turns Lil Pump’s song “Gucci Gang” into a Bitcoin rap remix titled “HODL GANG.” Published in December 2017, near the height of the previous crypto bull market, the song talks about various aspects of crypto investing, crypto’s history, and so forth.
“BITCONNECT EDM REMIX”
Now defunct, Bitconnect was a crypto scam prevalent during the 2017 crypto bull run. Bitconnect ran an event at which Carlos Matos, one of the project’s investors, gave a speech that started off with exuberant singing, yelling, and generally hilarious showmanship. The speech subsequently became meme-worthy content. Through his YouTube channel, musical artist Dylan Locke made an electronic dance music, or EDM, song based on Matos’ speech.
These are just a few examples of the industry’s creative musical and comedic talent. As crypto continues to gain mainstream attention, we can only hope that dulcet tones continue to proliferate for years to come.
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