USD 3 Trillion Corporation State Street Goes Crypto
USD 3 Trillion Corporation State Street Goes Crypto 101
Source: Adobe/Lubo Ivanko

US-based financial giant State Street aims to enter the crypto trading market in the middle of this year.

State Street’s trading platform Currenex, that was reportedly put for sale last year, partnered with London-based Puremarkets Ltd (Pure Digital) in order to develop a wholesale, multi-custodial digital currency trading platform, Puremarkets said today, adding that the partners “intend to further explore the digital currency trading space.”

“Pure Digital will be a fully automated, high throughput [over-the-counter] market for digital assets and cryptocurrencies with physical delivery and bank custody,” the company said.

According to them, institutional participants will trade on the platform utilizing bilateral credit enabling efficient capital utilization and control for all trading participants.

“The Pure Digital trading platform will be the first of its kind, offering a wholesale interbank market for Tier 1 investment banks to trade bitcoin and other digital assets. Pure Digital is in discussions with several other Tier 1 investment banks to use the platform, which will provide a high throughput OTC market for digital assets and cryptocurrencies with physical delivery and bank custody,” Norway’s digital asset-focused company Arcane Cryptosaid in a separate announcement. They indirectly own a 37.5% stake in Puremarkets.

At the end of 2020, State Street had USD 3.47trn in assets under management or 11% more than a year ago. However, their revenue dropped by 4%, to 2.9bn, and net income decreased by 5%, to USD 537m.

“While State Street rose to the challenges in 2020, we are laser-focused on fee revenue growth and expense management to continue to make progress in 2021 towards our medium-term targets. We are confident in the trajectory of our business and will continue to drive innovation, automation and productivity to achieve these goals,” Ron O’Hanley, Chairman and CEO of State Street, said.

Spain Seeks Public Comments on Potential Cryptocurrency Regulations

Cryptocurrency regulations across different countries continue to be a hot topic, and Spain is the latest to join in. The nation’s watchdog has asked industry participants, investors, and consumers for their opinion, and they have until April 16th to respond.

Spain’s Regulator Looks for Crypto Legislation

According to a report from La Informacion, The National Securities Market Commission (CNMV), Spain’s watchdog overseeing the securities markets, has initiated the first steps of nationwide crypto regulations.

The process has started by sending emails to representatives of the cryptocurrency industry, investors, and customers. They have less than two weeks to prepare statements with their comments on the proposals and send them back to the agency.

The coverage outlined that the potential regulations could affect almost all areas of the cryptocurrency industry. However, the legislation could exempt some professional activities, assets that are exclusively used as means of payment, and non-fungible tokens (NFTs).

Interestingly, the US also hinted at new rules regarding NFTs recently, but they seemed significantly more strict. The Internal Revenue Service (IRS) may implement taxes on NFT purchases made with profits of digital assets, as CryptoPotatoreported recently.

Apart from the aforementioned potential regulations on crypto assets, Spain has also explored developing a central bank digital currency. The country’s central bank said in late 2020 that releasing a CBDC is among the priorities in the next three years.

Regulations in Other Countries

The exponential growth of the entire crypto space in the past year or so has caught the attention of global regulators. Consequently, numerous countries have started looking into inserting legislative frameworks.

Spain’s northern neighbor, France, called for a new and robust approach towards crypto regulations in February this year. The chairman of the nation’s financial regulatory body (AMF) believes that the current legal structures are insufficient when it comes down to new asset classes such as digital currencies.

Continuing north on the map and Britain’s Finance Minister, John Glen, urged the country to firstly focus on regulating stablecoins rather than the entire market, while the FCA has repeatedly issued warnings.

In some countries, such as South Korea, the implemented regulations have caused troubles for some of the firms operating within their borders. The East Asian nation introduced new AML legislation last month, and several cryptocurrency exchanges announced closing doors for their respective South Korean branches in response.

Coinbase Reports Record-Breaking Q1 With $1.8 Billion in Revenue Ahead of IPO

A week prior to its direct listing on NASDAQ, Coinbase has posted preliminary Q1 data indicating a massive increase in its userbase and revenue. The trading volume has increased by nearly 300%, the revenue is about $1.8 billion, and more than 11% of all crypto assets are stored on the platform.

Coinbase’s Record-Breaking Q1

The largest US-based cryptocurrency exchange published its Q1 results yesterday, showing a substantial growth in every area compared to previous quarters.

Starting with the monthly transacting users (MTUs) – the increase is roughly 117% since the last three months of 2020. At the time, the number of the company’s user base was about 2.8 million, and it has expanded to 6.1 million in Q1 2021.

Naturally, this has also impacted the revenue, which has reached $1.8 billion. For comparison, this means a near 10x surge from the Q1 last year when it was around $190 million.

According to the preliminary estimations for this year’s first quarter, the net profit should be between $730 million and $800 million.

The company attributed a large part of its quarterly increase to the ongoing bull cycle in the cryptocurrency market. As bitcoin and numerous altcoins have exploded multi-fold in value since October 2020, it has garnered the attention of retail investors.

11.3% of Crypto Assets Held on Coinbase

Perhaps what’s even more notable for the entire cryptocurrency industry is the billions of dollars worth of digital assets held on the exchange. The report highlighted that as of March 31st, there were $223 billion stored on Coinbase.

With the entire market capitalization worth just shy of $2 billion at the time, this means that 11.3% of all cryptocurrency assets had a home on the US-based trading venue.

The firm’s estimations showed that roughly half – $122 billion – were “assets on the platform from institutions.” Coinbase is among the most preferred venues for accredited and institutional investors to receive exposure to bitcoin and other crypto assets. Consequently, the company projects a significant advancement on that front by the end of the year.

“We expect meaningful growth in 2021 driven by transaction and custody revenue given the increased institutional interest in the crypto asset class.” – reads the statement.

Coinbase’s record-breaking quarterly results come just a week before the company concludes its direct listing. As CryptoPotatoreported before, the giant exchange plans to go public on NASDAQ on April 14th.

Tech has dominated the economy – but the real world is about to strike back

Even money itself has gone digital. Only about 3% of money globally is now in physical form. Bitcoin is now (measured by market cap, at least), the 13th largest currency in the world. It didn’t exist 15 years ago.

The key to this rapid growth is scalability. A digital product can be endlessly and instantly copied. I can design a fantastic app once, upload it to the app store once, and it can be downloaded a million or a billion times. If Google can get some new groovy feature in its search engine, then once implemented it’s almost infinitely scalable.

But let’s say I design a fantastic washing machine. It takes much longer to get this washing machine to the world – the fabrication and distribution are all tricky, but perhaps most difficult is the burden of regulation in the physical economy, particularly as it attempts to cross the national borders.

By contrast, the economy of the internet is (almost) borderless. The digital space, or certainly the areas where the innovation is, is largely unregulated – how do you regulate something that hasn’t been invented? So digital escapes the ties of regulation that curb the growth of the tangible.

Then, because of the extraordinary speed of growth in digital, there is the potential for investors to make far quicker returns on their investment. And so the digital economy attracts the most capital, the most talent and so on.

With this in mind, let us turn our attention to metals.

The physical world is treacherous and time-consuming

You don’t get much more tangible than metal. Mining is in many ways the most analogue industry there is; it is the very opposite of the dynamic digital world. A geologist is studying rock formations that took thousands of years to take shape, and will take decades to mine.

BTC Slips As Coinbase Sees 15% User Growth At Best, Focuses on Altcoins
BTC Slips As Coinbase Sees 15% User Growth At Best, Focuses on Altcoins 101
Source: Coinbase

The price of the most popular cryptocurrency, bitcoin (BTC), corrected lower following the much-anticipated announcement of Coinbase‘s results.

At 05:02 UTC, BTC trades at USD 57,576 and is down by 2% in a day and a week.

The US-based major crypto exchange, that is preparing for a direct listing of its shares on April 14, said that, according to their best scenario, the annual average number of their monthly transacting users (MTUs) is expected to growth by 15% and reach 7m this year.

“This scenario assumes an increase in crypto market capitalization and moderate-to-high cryptoasset price volatility. In this scenario, we expect that MTUs continue to grow for the remainder of 2021,” the company said.

Other two scenarios assume that MTUs might drop to 5.5m or 4m from the current 6.1m.

The 5.5m scenario assumes flat crypto market capitalization and low-to-moderate cryptoasset price volatility. While MTUs might drop to 4m if there is a significant decrease in crypto market capitalization, similar to the decrease in 2018, and low levels of cryptoasset price volatility thereafter.

However, Alesia Haas, Chief Financial Officer of the company, said during an earnings call that given the strong performance of Q1 2021, it is likely that annual average net revenue per user will exceed their historical range.

“Over the last 2 years, we have seen average annual net revenue per MTU range between USD 34 – USD 45 per month, with the low end of this range occurring in 2019, a period of low Bitcoin price and low cryptoasset price volatility, and the high end of the range occurring in 2020, a period of rising Bitcoin price,” Haas said, adding that the company believes that “we entered the fourth price cycle in late 2020.” They last 2-4 years, per the CFO.

Meanwhile, Brian Armstrong, Founder and CEO of Coinbase, stressed during the call that while Bitcoin is critical to the cryptoeconomy, “it’s just the beginning” as they’re innovating and creating new products and services: “In recent years, we have expanded to be much more than a place to buy and sell bitcoin.”

“You’ll often hear the comparison of Bitcoin to “digital gold”. But crypto is bigger than just Bitcoin — and Coinbase will ultimately strive to support every legitimate cryptocurrency in the market,” Armstrong said.

In Q1 alone, the company added support for 18 new assets, bringing the number of assets supported on the platform to 108.

Coinbase also revealed the following estimations for the first quarter of 2021:

  • Verified users of 56m
  • Assets on platform of USD 223bn, representing 11.3% crypto asset market share (includes USD 122bn of assets on platform from institutions)
  • Trading Volume of USD 335bn
  • Total Revenue of approximately USD 1.8bn
  • Net Income of approximately USD 730m to USD 800m
  • Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of approximately USD 1.1bn
Does nuclear power have a future?

Why the controversy?

Right from the beginning of nuclear power – the first commercial nuclear reactor was built at Windscale in Cumbria in 1956 – it was controversial due to issues of safety, cost and the long-lived and toxic waste it produces. Even so, nuclear energy continued to expand globally until the 1990s, since when it has all but flatlined. Then, ten years ago last month, the disaster at Fukushima dealt its reputation a body blow. Within days Angela Merkel, previously a strong backer of nuclear energy, ordered all of Germany’s reactors to be phased out. In China the world’s biggest programme of new nuclear plants was put on hold.

How much energy does nuclear provide?

Globally, nuclear power produces around 10% of the world’s electricity, making it the second-biggest source of low-carbon energy after hydroelectric power. But that’s a sharp drop from a peak of 18% in the mid-1990s. According to figures collated by Bloomberg, there are 440 nuclear reactors currently in operation, with a combined electrical capacity of 392 gigawatts (GW). Another 50 are under construction, adding around 15% to current capacity. But that’s not even enough to make up for the 25% of reactors due to be shut down in advanced economies by 2025. Nuclear accounts for a bigger slice in advanced economies – 18% rather than 10%, according to the International Energy Agency (IEA), making it the largest low-carbon source of energy. In the UK, for example, about 20% of current electricity capacity is nuclear. However, half of that is due to be retired by 2025, and all but one of the existing fleet of nuclear reactors is due to be taken offstream in the next ten years. Meanwhile, only one new plant, the 3.2 GW Hinkley Point C in Somerset, is being built, replacing just under 40% of current nuclear capacity.

So it’s in decline?

In most of the world, yes, with advanced economies due to lose two-thirds of their nuclear capacity by 2040. Proponents of nuclear power (including the IEA) argue that it is vital to the overall drive for net-zero carbon emissions by mid-century. Despite the impressive growth of solar and wind power, says the IEA, the overall share of clean-energy sources in total electricity supply in 2018, at 36%, was the same as it was 20 years earlier due to the decline in nuclear since the 1980s. “Halting that slide will be vital to stepping up the pace of the decarbonisation of electricity supply,” it says. Advocates argue that nuclear-power plants aid electricity security by keeping power grids stable and limiting impacts from seasonal fluctuations from renewables, and cutting dependence on imported fuels. In other words, nuclear has a vital role to play as reliable “firm generating capacity” during the decarbonising shift to renewables, and winding nuclear down for misguided safety reasons would be folly.

But isn’t nuclear power dangerous?

The debate about that has long been a battle between those concerned more with climate-change warming (nuclear is carbon-free) and those worried about safety. For pro-nuclear environmentalists, the embrace of nuclear power by China and (to a lesser extent so far) India is cause for celebration. Advocates have long argued that, in terms of the number of people killed or harmed, nuclear power is far safer than other forms of power generation. Since its earliest days, nuclear accidents have killed one person every 14 years, proponents say. Indeed, in 2013, Pushker Kharecha and James Hansen calculated that, between 1971 and 2009, nuclear power saved the lives of 1.84 million worldwide thanks to reductions in air pollution.

But what about Fukushima?

The earthquake and tsunami that flooded Japan’s east coast ten years ago killed about 18,500 people. But the destruction of the three reactors of the Fukushima plant – the worst nuclear disaster since Chernobyl in 1986 – killed only one person as a result of radiation exposure. Moreover, a report on Fukushima released last month by the United Nations Scientific Committee on the Effects of Atomic Radiation (UNSCEAR) concluded that “no adverse health effects among Fukushima residents have been documented that could be directly attributed to radiation exposure”. Future consequences for health “are unlikely to be discernible” and there was “no credible evidence of excess congenital anomalies, stillbirths, pre-term deliveries or low birthweights related to radiation exposure”.

And Chernobyl?

The worst ever nuclear disaster was the result of human errors so “bizarre” that the scenario would have been “thought overambitious by a genuine saboteur”, says Dominic Lawson in The Sunday Times. The Soviet-era accident, which blew a 1,000-ton concrete reactor shield away in a mighty explosion, was the result of an insane experiment in which one of the reactors was made to run at a dangerously low level, the cooling unit disconnected and the safety mechanism switched off. It was feared deaths would run into the hundreds of thousands. In fact, “apart from the heroic Chernobyl emergency team, fewer than 100 deaths have been attributable to increased radiation – and no known birth deformities”, according to UNSCEAR.

So nuclear is safe?

It’s far safer than most people realise, says The Economist. China’s post-Fukushima pause on nuclear didn’t last long: it soon accelerated again and by 2019 produced four times as much as in 2011, with more expansion planned. There’s a strong case for countries such as Britain to follow China’s lead and import its technology. Moreover, modern smaller reactors with lower unit costs are a promising development that can make nuclear cheaper and more flexible. Nuclear power has its drawbacks, but to hasten its decline “is wilfully to hobble the world in the greatest environmental struggle of all”. The lesson of Fukushima is “not to eschew nuclear power, it is to use it wisely”.

Share tips of the week

Three to buy

Kingfisher

(Mail on Sunday) B&Q and Screwfix-owner Kingfisher had an “extraordinary” 2020. The DIY group has benefited from “our desire to make the same four walls look nicer”. But the firm owes its success to more than the lockdown boom: CEO Thierry Garnier’s five-year plan has focused on improving performance in France, a key market, cutting some costs and investing in its digital presence. Turnover for the year to 31 January 2021 was up by 7.2% to £12.3bn and pre-tax profits grew from £103m in 2019 to £756m in 2020. The firm’s cash pile is “reassuring on the dividend front”, and its long- term strategy “seems to be paying off”. 325p

Ford

(Shares) Ford’s investments in electric and autonomous vehicles are yielding positive results. As activity recovers after the pandemic the car maker “should see increased sales for its cars and pickup trucks”. The group is suffering from the impact of the global semiconductor shortage, which could see earnings drop by $1bn to $2.5bn. But with a “clearer electric-vehicle strategy” the firm looks well prepared for the future. $12.85

Kenmare

(Investors’ Chronicle) Mozambique-based miner Kenmare Resources had a difficult year, but the firm has nonetheless managed to maintain its dividend. Production for the year was down by 15%, but higher ilmenite (a mineral-rich sand) prices “helped the bottom line”. Debt has risen sharply but the firm’s relocation of its WCP B plant was also the final step in a “multi-year growth programme” that should yield positive results. 407p

Three to sell

Genel Energy

(Investors’ Chronicle) Kurdistan-based oil company Genel Energy saw its sales more than halve in 2020. Cashflow slumped to $4m from $99m in 2019. Production is set to stay flat at around 32,000 barrels of oil per day. The firm has previously struggled to get paid by the Kurdistan Regional Government and is still owed around $159m of oil sales, “equal to its entire 2020 revenue”. Profits were further harmed by a $320m impairment. All this adds up to a sell. 187p

Manchester & London

(The Daily Telegraph) The Telegraph tipped Manchester & London in 2017 when it switched from “largely British shares to a growth-focused fund” containing big tech stocks such as Amazon, Facebook and Alphabet. It has performed strongly over the last three years. But now a “basket of stocks” that should have returned 32% over 2020 only yielded an 8.4% gain. This is because the trust sold call options on the shares it holds, limiting overall returns. This approach has complicated “what should be a straightforward investment rationale”. The argument for the trust “no longer holds”. 586p

In The Style

(The Sunday Times) Online fashion retailer In The Style listed on Aim this month. It made a £2m profit on sales of £35.4m in the nine months to January 2021. FounderAdam Frisby ascribes last year’s growth to the firm’s “switch from selling dresses to lockdown-friendly jogging bottoms”. But it remains to be seen whether recent growth will “outlive the pandemic… Investors should wait for evidence [that it] isn’t just a passing fad.” Avoid. 235p

…and the rest

Investors’ Chronicle

“Pent up demand” by homeowners spending their savings on improvements helped offset the lockdown-induced downturn at LED-lighting manufacturer Luceco. It looks “well positioned” for the recovery. Buy (266p). Speciality chemicals and personal care business Elementis “posted a predictably downbeat set of results after a pandemic-ravaged year”. Sales in its core divisions, personal care and coatings, fell by 9% and 7% respectively. The group also needs to reduce debt. “We remain cautious for now.” Sell (121p).

Shares

Data services group Relx has seen its shares fall behind “since the market shifted its focus to cheap value stocks”. But the share-price weakness represents an opportunity. Relx’s focus on organic growth, coupled with an “excellent track record”, make it a good investment for the long term. Buy (1,757p).

The Daily Telegraph

Record-low interest rates hit banks even before the virus. Lockdowns threatening customers’ solvency “make matters worse”. Sell Italy’s Intesa Sanpaolo(€2.30).

The Motley Fool

Hydrogen fuel cells “are increasingly being made obsolete by lithium-ion batteries”, which doesn’t bode well for green-energy hydrogen companies such as Plug Power. The company has also said it will have to restate accounts for previous years. Avoid ($35). Revenue at Nokia declined by 6% last year and is set to fall again this year. Consumers are ditching Nokia’s traditional 4G network for 5G, “to which the company has yet to fully upgrade”. Avoid (€3.50).

Three stocks to buy to forge a path to our green future

The world is undergoing rapid change amid the degradation of the natural environment and the looming breakdown of the global climate system. There is therefore a worldwide pan-industrial effort to use resources with much greater efficiency. To exploit this secular theme, we identify companies that either deliver or benefit from the efficient use of resources. We have strict criteria covering both quality and value.

We like to own firms with enduring assets that generate predictable long-term cash flows. They must benefit from high barriers to entry (so it is difficult for potential rivals to gain a foothold in the market) and trade at a reasonable valuation. This approach has served us well: the Menhaden investment trust’s net asset value (NAV) has risen by an annual 11% in the past five years.

Helping technology go green

Google’s parent company Alphabet, (Nasdaq: GOOGL) is helping the entire technology industry transition to a more sustainable footing. The company is one of the largest corporate buyers of renewable-power worldwide and aims to run only on carbon-free energy by 2030. The firm occupies a dominant position in search engines and has the ability to monetise an unparalleled level of user interaction, which should underpin revenue growth for many years. Furthermore, there should be significant potential to expand margins as YouTube, Cloud and other business lines mature and investments in start-ups mature.

Sophisticated internet infrastructure

Telecoms and media group Charter Communications (Nasdaq: CHTR), a key broadband provider to over 20 million households, is set to play an important role in enabling significant improvements in resource and energy-efficiency with the development of the internet of things (IoT). Its hybrid fibre-coax network (comprising a mix of fibre-optic cables and coaxial cables, the type used to deliver cable television), is critical for infrastructure. Traditional telecom providers still partly rely on copper telephone wires, while high upfront costs serve to limit fibre build-outs by incumbents and new entrants.

Charter offers a superior bundled connectivity product (including mobile) at a lower price than competitors. We believe it can continue to deliver robust growth in free cash flow per share based upon a combination of revenue growth, falling capital intensity, share buybacks and lower customer turnover.

On track for industry-leading profits

Canadian Pacific Railway (Toronto: CP) owns infrastructure that can’t be replicated. Prohibitive start-up costs and building regulations ensure that no one is building railways today. Economies of scale mean that transporting freight by rail is up to four times more fuel-efficient than by road, which helps provide rail operators with a significant cost advantage over their main competitor, trucks, on longer-haul routes.

We believe these scale benefits will persist even as we shift to electric and autonomous vehicles because rail should be able to harness the same technologies. The proposed merger with Kansas City Southern will create a unique footprint linking Canada, the US and Mexico. The ensuing opportunities should help the company deliver industry-leading earnings growth in the years ahead.