Besides the market continuing its’ downward trend (except Friday) – which can’t really be considered “news” anymore, the data point I was waiting for (PPI) came in flat month over month. If this is the start of a trendline, perhaps inflation has peaked – but the CPI lags by 30-60 days so we’ll have to wait and see.
Unless, of course, we have additional Black Swan events (recession or stagflation, perhaps?)
With the recent Bitcoin (BTC) downward spiral, I figured it was time to check under the hood a little to ensure my investment thesis remained intact. To refresh your memory, I’m a Crypto skeptic but Blockchain enthusiast. The news crossing the wires can best be summed up with this piece but the Three Arrows fiasco is noticeably absent. To summarize, some stablecoins instability (Luna for one) blindsided some extremely bullish hedge funds resulting in at least one staking and lending firm (Celsius) restricting client withdrawals. In layman’s terms, this is akin to a good old-fashioned bank run – albeit with no underlying FDIC insurance. The view from Crypto World is that these are isolated events involving a few bad actors. I have difficulty with this assessment based on the number of job cuts across the entire industry. Naturally, the answer will arrive in due course.
What really got my attention was the role of a ‘real’ bank (actually, an ILC) in this saga. Silvergate Capital (SI) provided the leverage used by MicroStrategy (MSTR) in their recent purchases. Word on the street is this loan has a harsh 75% underlying balance requirement – meaning it is unlikely to have received a margin call, as yet. Silvergate’s business model is to have various Crypto Exchanges (like Coinbase) park their cash in non-interest bearing accounts (being the conduit between the exchange and USD), loan out some of it and invest the remainder in Treasuries. What remains to be seen is how conservative their underwriting is in a volatile market.
Some other players in the “real bank” space are New York Digital Investment Group (NYDIG) and American Trade Exchange (Sequior), both which partner with banks (such as Flushing Financial (FFIC)) provide client Crypto services. Recent OCC interpretations have granted banks the authority to provide custody services, holding dollar deposits acting as stablecoin reserves and identifies when a bank can be a node on the blockchain to facilitate payment processing.
My question then becomes, on what basis are these apps or APIs deemed secure? Otherwise, the prior caution on my FFIC holding becomes moot.
As we come into the final week of the month/quarter/half, my portfolio down some with no changes anticipated as I’m not willing to sell at depressed price points and a lot of what I want to buy has more room to drop. So I’m just collecting the dividends and increasing my cash position and waiting to see what July has in store.
Next week – First Half Review!
Seeking Returns 