From his front-row seat, [Barney Frank] blames Signature’s failure on a panic that began with last year’s cryptocurrency collapse — his bank was one of few that served the industry — compounded by a run triggered by the failure of tech-focused Silicon Valley Bank late last week. Frank disputes that a bipartisan regulatory rollback signed into law by former President Donald Trump in 2018 had anything to do with it, even if it was driven by a desire to ease regulation of mid-size and regional banks like his own.
“I don’t think that had any impact,” Frank said in an interview. “They hadn’t stopped examining banks.”
But Warren, a fellow Massachusetts Democrat who designed landmark consumer safeguards that ended up in Frank’s 2010 banking law, is placing the blame firmly on the Trump-era changes that relaxed oversight of some banks and says Signature is a prime example of the fallout. Warren argues that, had Congress and the Federal Reserve not rolled back stricter oversight, Silicon Valley Bank and Signature would have been better able to withstand financial shocks.
Public pension plans have mostly avoided direct investments into cryptocurrencies, and for good reason. Public pension benefits are constitutionally protected, meaning taxpayers are on the hook for paying for unfunded liabilities. If a highly volatile investment, such as crypto, were to go sour, the public pension fund—thus, taxpayers—would be on the hook to make up for the shortfall and pay for the retirement benefits promised to public workers. Even though there is a potential upside in generating significant returns by investing in cryptocurrency at the right times, the risks and market swings far outweigh the potential benefits for public pension systems.
Similarly, “The Missouri State Employees’ Retirement System lost roughly $1 million because a private equity firm it invested in was invested in FTX, the embattled cryptocurrency exchange that filed for bankruptcy last week,” the Kansas City Star reported.
Overall, the story of FTX is a cautionary tale for all investors. When it comes to public pension systems, which have largely steered clear of making direct investments in crypto, pension funds should resist the growing pressures to seek higher returns and take on risks that could expose taxpayers to major financial losses and more public pension debt.
Canada’s Ontario Teachers Pension Plan could lose as much as $95 million that it had invested in now bankrupt cryptocurrency exchange FTX.
In October of last year, the C$242.5 billion ($182.9 billion) pension fund announced that it had participated along with 68 other investors in a $420 million funding round for FTX Trading Ltd., which is the owner and operator of FTX.COM. The investment was made through OTPP’s C$8.2 billion Teachers’ Venture Growth platform.
The pension fund says TVG, which was established in 2019 to invest in emerging technology companies raising late-stage venture and growth capital, seeks out innovative companies “that are using technology to shape a better future.”
Although the pension fund didn’t say how much of the $420 million it accounted for at the time of the announcement, it recently disclosed that it invested a total of $75 million during that round of funding in both FTX International and its U.S. entity FTX.US. It also revealed that it made a follow-on investment of $20 million in FTX .US three months later in January.
Meanwhile, in Congress the Retirement Savings Modernization Act was just introduced to allow cryptocurrency and just about anything short of lottery tickets into America’s 401(k) accounts. The alternative asset industry — private equity, hedge funds, venture capital, real estate, and more — has been trying for years to offer their speculative products — and reap huge fees in the process — through personal retirement accounts as they are already able to do in some public pensions, such as Ohio’s.
There has been no legal barrier to these investments, and the Trump administration’s Department of Labor went so far as to specify that alternative investments could be part of 401(k)s, a decision affirmed by the Biden Administration. But companies administering 401(k) accounts are fiduciaries, and they’ve avoided alternative investments in fear of getting sued for breach of fiduciary duty for offering them to workers. For decades, prudence has prevailed and 401(k) retirement accounts have not allowed high-fee, illiquid funds as a 401(k) option.
The proposed bill simply states that alternative investments, despite the higher fees associated with them, are “covered” investments that do not establish fiduciary breach by their presence in a 401(k) plan. The cloak of congressionally created cover for alternative investments is needed because the current commonsense assumption is that the mere presence of these investments is strong evidence fiduciary duty has been breached.
Last week, real yields, which take into account the corrosive effects of inflation, hit some of their lowest levels on record. One measure of real yields, 10-year Treasury inflation-protected securities, fell to minus 1.2%, according to Tradeweb. That is the lowest on record, according to data going back to February 2003.
In essence, with real yields negative, the purchasing power of money invested will decline over the lifetime of those bonds.
Real yields have fallen because of colliding factors. These include the highest inflation rate in over three decades combined with nominal bond yields that have risen only modestly as central banks hold back from raising rates.
The prospect of negative returns on super safe inflation-protected bonds has pushed investors to buy riskier assets.
The Fairfax County Police Officers Retirement System and Fairfax County Employees’ Retirement System are planning to invest, pending board approvals, a total of $50 million in Parataxis Capital Management LLC’s main fund, which buys various digital tokens and cryptocurrency derivatives.
The outlays come on the heels of the Fairfax funds — which together manage about $7.15 billion — investing several times in Morgan Creek Asset Management funds, and, earlier this year, in crypto venture firm Blockchain Capital. While some of these investments ended up going into coins like Bitcoin, the majority was invested into technology startups, so Fairfax considered them venture-capital investments. Parataxis, with its focus on actual coins, is different.
But that same volatility can lead to outsized returns, which have been one reason for Fairfax’s expanded investment. Molnar’s $1.95 billion police retirement fund was planning for 2% exposure to crypto via Morgan Creek and Blockchain Capital, but at the end of June crypto accounted for 7% of assets, due to appreciation, she said. Although Molnar couldn’t discuss exact appreciation, crypto “was not an insignificant contributor to performance” in the second quarter, she said.
Lastly, Bitcoin is an investment vehicle that, if held in the city’s treasury, could help Miami’s fiscal prospects. After all, a currency whose per-unit value has increased 18,641 percent the last five years is more tempting than a currency that gradually declines in value.
But just as Bitcoin has proven upwardly volatile, that volatility can spike downward (such as when Bitcoin lost one-third of its value in a two-week period in 2017). This means that any money Miami invests in Bitcoin could plummet in value if Bitcoin crashes.
There are also technical issues with Bitcoin. The mining process consumes lots of energy, making it expensive and environmentally hazardous to produce. Bitcoin has an average transaction fee of $23, and relatively long processing times of between 10 minutes and several hours. And there are questions about whether, once all 21 million bitcoins are mined, monetary incentive will exist for the network of nodes to continue maintaining the blockchain.
John McAfee, founder of cybersecurity software company McAfee, has been indicted on multiple charges stemming from two purported schemes relating to the allegedly fraudulent promotion of cryptocurrencies. Jimmy Watson, who served as an executive adviser on McAfee’s “cryptocurrency team,” was also charged in the indictment.
According to the allegations in the complaint, which was unsealed in Manhattan federal court, the first of the two schemes involved a fraudulent practice called “scalping,” also known as a “pump-and-dump” scheme. As part of the alleged scheme, McAfee, Watson, and other associates allegedly bought large quantities of publicly traded cryptocurrency altcoins at low market prices, knowing that McAfee planned to publicly endorse them on his Twitter account, which had approximately 784,000 followers.
Can the store of value argument hold up for BTC without it being a medium of exchange? It has for gold for thousands of years so quite possibly. Gold is money but it’s not readily usable currency. BTC could be considered in the same light.
The artificiality of BTC’s value is a problem. It can be argued using cultural relativism that gold is no more intrinsically valuable than BTC. But it does have a long history, especially as a reserve currency, that must be worth something. Can we see central banks buying BTC? Certainly not if it develops as a parallel medium of currency that undermines them.
Likewise, gold is the outcome of production. BTC consumes resources to produce nothing. Not that that is necessarily a problem in a virtual world but it again weighs against the perception of BTC as a store of value. So does the fact that BTC is a truly useless item if some kind catastrophe befalls society which does underping the value of gold in some measure.
In a week when bitcoin is setting records with a market value exceeding a trillion dollars, what would it mean if cryptocurrencies succeed?
The only reason all the bitcoins are worth a trillion dollars is the expectation of success, as they are not very useful today. Cryptocurrencies must provide some valuable service if they are to justify their high valuation, otherwise holding bitcoin is just like collecting stamps or beanie babies – a minority activity that does not justify the current $51,000 price.
But what is the valuable service that makes bitcoin successful?
Records show that a person, or entity, owns about 28% of all of the cryptocurrency in circulation—a stake worth about $2.1 billion at current prices. The holder’s identity isn’t known, which is common in the opaque world of digital currencies.
It is hard to tell what to make of this giant position in what has long been a small and niche corner of the cryptocurrency world.
Dogecoin was created in 2013 as a satirical homage to bitcoin. Its developers were riffing off the meme of a Shiba Inu dog with bad spelling habits. It wasn’t designed to be used as a form of payment, or as anything except a joke. At the start of 2021, a dogecoin was worth about half a cent, even as bitcoin prices had surged to nearly $30,000.
Bitcoin has been on a roll lately, rising in price five-fold over the past 12 months. Meanwhile, the US dollar, the world’s reserve currency, has lost 9% of its value.
All this has buoyed talk that someday Bitcoin in particular, or cryptocurrency in general, will replace the buck. Well, forget about that, argues St. Louis Federal Reserve President James Bullard, invoking the lessons of pre-Civil War days to warn about the chaos brought by a world of nonuniform currencies—that would be one where the buck isn’t king.
Appearing on CNBC Wednesday, he predicted that “it’s going to be a dollar economy as far as the eye can see—a dollar global economy really as far as the eye can see—and whether the gold price goes up or down, or the Bitcoin price goes up or down, doesn’t really affect that.”