Before we get started today, I have something to tell you.
You’ve probably noticed my publishing schedule has been a bit erratic over the last few weeks.
That’s because I’ve found myself with less and less time to dedicate to this service.
So unfortunately, I’m going to have to cut it back. I’ll no longer be writing an article every week. But I will still be writing around one article a month.
That article will be more like the one I’m sending you today… basically a round up of the most interesting crypto stories I’ve seen over the past month, with some commentary on each story.
And I also plan to keep writing more in-depth features and guides, too.
So it’s not the end. Coin confidential will still keep going… it just won’t be “going” as often.
Now on with today’s issue…
Today, I’m bringing you some of the most interesting crypto stories that emerged over the last month or so, which I think many people will have missed… Except for the last one. That was everywhere.
IBM wants to help banks get into DeFi
IBM has certainly left its mark on history.
It invented hard drives, floppy disks and barcodes… and it was also a major player in popularising PCs and, later, laptops.
But you don’t tend to hear a lot about it these days. It’s still a monster company, valued at over $100 billion. But unlike the FAANGs, it rarely makes headlines.
However, IBM is pretty into crypto.
Back in January 2018, I reported on the biggest stories from Blockchain Week London for Exponential Investor. And IBM’s head of blockchain gave by far the best presentation.
Fast forward to today, and IBM now wants to help banks get some DeFi goodness.
As Coin Telegraph reports:
In a Cointelegraph interview, director of IBM financial services and digital assets, Nitin Gaur, shared how the technology company is helping financial institutions to capitalize on the DeFi movement…
“I think that the financial institutions should understand [DeFi] because it has the potential to eventually sort of take over and subside the business elements of existing business models. And that’s one reason why a bank should do it.”
DeFi presents a set of regulatory challenges to financial institutions and IBM believes it can help their clients navigate it.
Coinbase will soon let you take out loans against your Bitcoin holdings
Later this year Coinbase will let US customers take out loans using their Bitcoin holdings as collateral.
(And like most things that come to Coinbase US, I’m sure it’ll eventually come to UK customers, too.)
Crypto loans are nothing new. They are at the heart of the new DeFi craze. But having a fully regulated, fully-insured, company like Coinbase issuing them certainly is new.
Coinbase is one of the largest and most regulated crypto exchanges to get into the lending business, and the exchange is setting conservative parameters on the product, capping credit lines at $20,000 per customer and offering an interest rate of 8% for bitcoin-backed loans with terms that are a year or less.
Customers will need to fill out a brief application but won’t have to go through a credit check, however, and borrowers will be able to receive their loans in two to three days.
“Customers may use bitcoin-backed loans in different ways depending on their financial needs, including for large expenditures like home or car repairs, financing major occasions like a wedding, or helping to manage higher-interest personal loans or credit card debt,” Max Branzburg, head of product at Coinbase, said in an emailed statement.
The advantage of loans like these are summed up well by Coinbase’s tagline for them: “Have you ever needed cash for something urgent, like a car or home repair? In the past, you might have sold Bitcoin to cover it and incurred a taxable gain or loss. Now you don’t have to.”
So you get to unlock the value of your Bitcoin gains without getting taxed. But of course, you do still need to pay the loan back – plus 8% interest – if you ever want to get your Bitcoin back.
Kraken gets banking charter
If you’re a fan of the TV show Billions you’ll know what a big deal it is to get a banking charter.
Which is why Kraken – one of the top US crypto exchanges (which also lets you trade directly in GBP) – getting a banking charter is a very big deal for crypto.
A few months ago I reported that the US government had just declared national banks could now offer crypto custody services to their clients.
At the time I called this the tipping point to crypto going mainstream. You can read my full article on that here.
But it turns out the first bank to take advantage of this new paradigm wasn’t a bank at all, but a crypto exchange… that used the new rules to become a bank.
How’s that for a turn up for the books.
Kraken has been silent about its application until now. The first hint the exchange was interested in the Wyoming charter was in December when it opened a position for the job Kinitsky has now [managing director at Kraken and the CEO of the newly formed Kraken Financial].
“We would expect to offer a host of new products as we get established,” Kinitsky said. “Those will range from things like qualified custody for institutions, digital-asset debit cards and savings accounts all the way to new types of asset classes. We can engage with securities and commodities and things like that as a bank. So a lot more TBD there.”
You can read more about this story in an interview Forbes did with Kraken’s Chief Legal Officer here.
You can now invest in stocks using crypto
Stocks will be traded as tokens, and issued directly by companies themselves. The cost and efficiency savings this will offer everyone involved in the market are just too good to pass up.
Of course, this means there will need to be a token standard and all the regulatory hurdles that will entail. But eventually, I believe it will happen. Just like how stocks moved from paper to computers with “the big bang”.
But back to today.
I saw an interview recently with crypto.com, a company that lets you trade stocks using crypto.
It basically buys the stocks at a 1:1 ratio for every crypto stock you buy… like how most stablecoins in crypto work.
So its crypto stocks are backed by real stocks.
It’s a different idea to stocks being turned into crypto by the companies themselves, but it’s an interesting development all the same.
From its whitepaper:
A synthetic market backed by real assets
Currency.com is in effect a synthetic market that is pegged to the value of other markets. Each time investments are made on Currency.com to an asset on a traditional financial exchange, the real asset or a derivative of the asset is bought by Currency.com. We will always maintain full reserves, meaning a so-called bank run will never occur. Client funds are stored in a bank account entirely separate from Currency.com’s operational account and client funds cannot be borrowed or lent – even for margin trading – to fund operations on the platform.
The company has been going for a while, so it seems to be working pretty well. However, I haven’t done any research into it, so I have no idea how reputable it is. But it’s an interesting idea nonetheless.
You can read the interview here.
$1.4 billion company trading on the NASDAQ moves $425 million into Bitcoin
Last month MicroStrategy, a $1.4 billion company, decided to move its cash reserves into Bitcoin… all $425 million of them.
Well, it decided Bitcoin was a better bet than cash or bonds over the long term.
(see my feature, What does inflation have to do with Bitcoin anyway? For more on that idea.)
“We feel pretty confident that Bitcoin is less risky than holding cash, less risky than holding gold,” [CEO Michael Saylor] said in an interview.
“Once the real yield on our treasury got to more than negative 10%, we realized that everything we are doing on P&L is irrelevant,” Saylor said. “We really felt we were on a $500 million melting ice cube.”
MicroStrategy invested some money in a share buyback and considered real-estate investments, but much of the commercial market has been decimated by Covid, he said. Gold is still being mined, decreasing future returns, unlike the finite amount of Bitcoin to be issued, he said.
So this summer, MicroStrategy became the first public company to invest the lion’s share of its treasury in Bitcoin. In mid-August, the company announced it has purchased $250 million of the cryptocurrency, and on Sept. 15, Saylor bought an additional $175 million. He intends to continue buying with cash from operations.
MicroStrategy’s CEO, Michael Saylor, also believes many other companies will make the same move over the next few months: “It will probably be private companies first, because they don’t have as much inertia. Then public companies our size, then mid-sized companies,” he said
Another interesting thing about this move is that it now makes some unlikely entities indirect holders in Bitcoin, as Forbes points out:
As a result, some of MicroStrategy’s biggest investors, including Norway’s $1 trillion oil fund and major asset managers BlackRock and Vanguard, have picked up indirect exposure to bitcoin—with their combined holding worth around $100 million.
“Through its ownership stakes in MicroStrategy (1.51% as of December 31 2019), the Norwegian Government Pension Fund now indirectly holds 577.6 bitcoin,” wrote Vetle Lunde, an analyst at Oslo-based bitcoin and crypto intelligence firm Arcane Research, adding it’s “not unlikely” Norway’s oil fund, the world’s largest sovereign wealth fund with assets worth over $1 trillion, has previously garnered indirect bitcoin exposure from its holding of 1.4% of all global stocks and shares.
Arcane Research analysis also revealed major U.S. asset managers BlackRock and Vanguard, which hold 15.2% and 11.7% of MicroStrategy respectively, have indirectly picked up over 10,000 bitcoin between them.
Okay, that’s all for today.
Thanks for reading.