Seized Russian Dark Web Sites—Trump’s Dumps, Ferum Shop—Raked In $263 Million In Bitcoin, Ether And Litecoin Sales From Stolen Credit Cards

Topline

Amid a growing wave of cryptocurrency seizures and government cybercrime crackdowns, Russian authorities have taken down massive swaths of the illicit credit card market as the nation looks to bolster legal cryptocurrency adoption, shutting down four sites this week that together have pulled in hundreds of millions of dollars from the sale of stolen credit cards, according to cybersecurity firm Elliptic.

Key Facts

Four illicit websites seized by the Russian Ministry of Internal Affairs on Monday made more than $263 million in cryptocurrency proceeds from the sale of stolen credit cards, representing roughly one-fifth of the global market for illicit cards, according to an Elliptic analysis released Wednesday.

Among sites taken down, Ferum Shop was the world’s largest marketplace for stolen credit cards, making an estimated $256 million in bitcoin since its launch in 2013, according to Elliptic, while marketplace Trump’s Dumps, which infamously used former President Donald Trump’s likeness to help sell raw magnetic strip data from stolen cards, raked in about $4.1 million since 2017.

Notices posted on both websites Wednesday morning warned users that the platforms had been seized by police and were pending criminal investigations, while in another seized marketplace, dubbed SkyFraud, Russian authorities left an emoji-laden message buried in the sites’ source code teasing, “Which of you is next?”

Investigators on Monday asked a Mascow court to arrest six members of an unnamed hacking group for allegedly circulating illegal “means of payment,” according to state-owned Russian news agency TASS, but it’s still unclear whether the suspects are directly linked to the dark web credit card sites.

The seizures come less than a month after Russian authorities seized the then-largest illicit credit card dealer, UniCC, which facilitated some $358 million in transactions over nine years.

According to Elliptic, closures and seizures of carding sites this year have already accounted for almost 50% of sales in the dark web market for stolen credit cards—part of a broader slowdown in illicit dark web activity as tightening cryptocurrency regulation makes it more difficult to launder funds.

Key Background

Earlier this week, Russia’s government said it had reached an agreement with its central bank to draft legislation recognizing cryptocurrency as a form of currency by February 18, largely as an effort to help curb cybercrime. According to a draft document, the move would force users to undergo identity checks conducted by the country’s banking system or licensed intermediaries and make it a criminal offense to transact cryptocurrencies without the checks. “The establishment of rules for the circulation of cryptocurrencies and control measures will minimize the threat to the stability of the financial system and reduce the use of cryptocurrencies for illegal purposes,” legislators said, lamenting that a complete ban on cryptocurrencies would be “impossible.”

Big Number

$214 billion. That’s roughly the value of Russia’s crypto market, representing about 12% of the total value of the world’s cryptocurrencies, according to United Kingdom broker GlobalBlock. 

What To Watch For

Amid simmering tensions with Russia over state-sanctioned cybercrime, President Joe Biden is reportedly slated to release an executive order that will task federal agencies with regulating cryptocurrencies as a matter of national security as soon as this month.

Tangent

Russia’s not alone in cracking down on cybercrime. U.S. authorities arrested a New York City couple on Tuesday for allegedly conspiring to launder $4.5 billion worth of bitcoin stolen during a hack of cryptocurrency exchange Bitfinex in 2016, $3.6 billion of which federal authorities have recovered in what the Department of Justice is calling the largest financial seizure ever. According to court filings, 34-year-old Ilya Lichtenstein and his wife, Heather Morgan, 31, conspired to launder the proceeds of 119,754 bitcoins by employing “numerous sophisticated laundering techniques”—including using fake identities to set up online accounts and running computer programs to automate transactions.

Editor’s Note: Heather Morgan was a ForbesWomen contributor from July 2017 until Forbes ended the relationship in September 2021, and was never an employee.

Further Reading

Feds Seize $3.6 Billion In Stolen Bitcoin, Arrest Couple Five Years After Massive Crypto Exchange Hack (Forbes)

Internet’s Biggest Marketplace For Stolen Credit Cards Will Shut Down (Forbes)

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Cathie Wood Buys More Robinhood And Tesla, Tells Investors To Take ‘Advantage’ Of Volatility

Topline

Widely-followed stock picker Cathie Wood of Ark Invest, looking to bounce back as her funds continue to underperform, is using recent market volatility to buy the dip on big growth names like Tesla and Robinhood—both of which have seen shares struggle amid the wider sell-off in January.

Key Facts

The founder and CEO of Ark Invest purchased a total of 2.58 million shares of popular stock trading app Robinhood after the stock plunged to a record low of less than $10 per share on Friday following a dismal quarterly earnings report.

Wood purchased more than 2 million shares for her $12 billion flagship ARK Innovation ETF, with a total stake in Robinhood worth nearly $200 million, according to Morningstar data.

Robinhood is down nearly 70% since going public last year but Wood has continued to buy shares of the company since late October—when the stock plunged below its IPO price of $38 per share.

Another of Wood’s big trades in recent days: Adding to her position in Tesla for the first time since June 2021, buying roughly 55,000 shares—worth nearly $50 million—of the electric vehicle maker.

Tesla’s stock has fallen over 20% so far this year amid a wider selloff in growth and tech stocks, but Wood’s latest purchase may be a sign that she thinks shares are down to a more reasonably priced level.

Elon Musk’s electric vehicle outfit is Wood’s biggest holding in her flagship fund, making up about 8% of the ARK Innovation ETF—a position worth over $900 million, according to Morningstar data.

Surprising Fact:

The Ark Invest founder also sold 70,000 shares worth of Spotify on Friday, amid the latest controversy surrounding the company. Several artists have boycotted the music streaming platform in light of false Covid-19 claims spread on Joe Rogan’s podcast. Wood still holds a sizable stake in Spotify—it is one of her flagship fund’s top ten holdings—worth almost $500 million, according to Morningstar. 

Crucial Quote:

Amid the wider sell-off in tech stocks, Wood told investors last week that “innovation is on sale,” though she remained unswayed by the recent market swings. “We use volatility to our advantage,” she said. “We concentrate towards our highest conviction names and that tends to work very well as we go through these corrections.”

Key Background:

After rising to fame in 2020, with her flagship fund surging nearly 150%, Wood’s performance has since gone downhill. The ARK Innovation fund fell 24% in 2021—losing over a fifth of its value–while the S&P 500 was up 27%. So far this year, the fund is down another 20%. With the Federal Reserve tightening its monetary policy and preparing to raise interest rates, investors have largely dumped riskier growth stocks, with shares of tech companies particularly hard-hit. The Nasdaq Composite index subsequently fell into correction territory in January, more than 10% below its record highs last November.

Further Reading:

Robinhood Shares Plunge Amid Gloomy Revenue Outlook Just One Year After Meme Stock Mania (Forbes)

Cathie Wood Doubles Down On Growth Stocks After Fund Loses A Fifth Of Its Value In 2021 (Forbes)

Stocks Just Had Their Worst Month Since March 2020: January’s Wild Ride In 8 Numbers (Forbes)

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Elon Musk And The Other Billionaires Whose Fortunes Fell This Week As Tech Stocks Continue To Struggle

THE CHANGING FORTUNES OF THE WORLD’S RICHEST


The founders of Tesla, Oracle and Airbnb lost billions of dollars this week amid surging market volatility and continued pressure on tech stocks.

D

espite several days of declines, stock indices finished the week slightly higher, offsetting some of this month’s widespread losses. But the market’s troubles look far from over. 

Many tech company CEOs and founders were unsurprisingly among the billionaires whose fortunes fell the most since the market close on Friday, January 21, according to Forbes’ calculations.

Leading the declines for the second week in a row: Tesla chief exec Elon Musk, whose fortune fell $22 billion after shares of his electric vehicle maker had yet another rough week, falling over 10%. Even though Tesla posted record profits after reporting quarterly earnings on Wednesday, investors focused on the company’s warning that supply chain issues may hurt growth in 2022. 

Musk also took to Twitter on Thursday to insult President Joe Biden, apparently in response to being snubbed at a White House forum for electric vehicle makers. Still the world’s richest person, Musk now has a net worth of $222.2 billion, according to Forbes’ estimates.

Oracle cofounder Larry Ellison, meanwhile, fell from fifth to eight richest in the world over the course of the  week as shares of his software giant sank more than 2%. Ellison, who owns about 35% of Oracle (and has pledged millions of his shares as collateral for loans), saw his fortune drop by $3.4 billion, to $109.2 billion, according to Forbes’ calculations. Shares of Oracle have been on a downward trajectory since last month, when the company confirmed it was planning to acquire medical records company Cerner for nearly $30 billion.

Other notable billionaires whose net worths fell this week include Airbnb CEO Brian Chesky and Roblox cofounder David Baszucki. Chesky, who cofounded the home rental company in 2008, dropped $1.1 billion to $11.3 billion, , as shares of Airbnb fell 9% this week. Meanwhile, shares of gaming company Roblox fell nearly 16% since last Friday, shaving roughly $700 million off of Baszucki’s net worth, which now stands at $3.9 billion, Forbes estimates.

Fourth quarter earnings season has so far failed to boost equities as some big name companies posted lackluster results. Combined with investor fears about the Federal Reserve’s tightening monetary policy and upcoming interest rate hikes, the stock market is now on pace for its worst month since March 2020. 

As government bond yields surge, investors have continued to rotate out of riskier growth and tech stocks, many of which have been among the hardest hit in the market’s wider sell-off. The  tech-heavy Nasdaq Composite, which is in correction territory after falling nearly 15% since the start of 2022, is on pace for its worst January ever—and its worst month overall since the financial crisis in October 2008

Other billionaires whose fortunes contracted this week: Coinbase CEO Brian Armstrong’s  net worth dropped around $600 million to $7.3 billion, as shares of his cryptocurrency exchange fell 7.5%. Spotify cofounder Daniel Ek similarly lost around $400 million—putting his net worth at $2.9 billion—as shares of his music streaming platform fell nearly 12% since last Friday.

The fortunes of Snap cofounders Bobby Murphy and Evan Spiegel,  declined by $350 million and $250 million, respectively. They’re now worth $6.4 billion and $6.2 billion, after Snap’s stock fell over 5% this week.


HERE’S HOW SOME OF THE WORLD’S RICHEST PEOPLE FARED THIS WEEK.

The net worth change is from close of markets Friday, January 21 to Friday, January 28.


NET WORTH | $222.2 BILLION, DOWN $22 BILLION

COUNTRY | UNITED STATES

SOURCE OF WEALTH | TESLA


NET WORTH | $109.2 BILLION, DOWN $3.4 BILLION

COUNTRY | UNITED STATES

SOURCE OF WEALTH | SOFTWARE



NET WORTH | $11.3 BILLION, DOWN $1.1 BILLION

COUNTRY | UNITED STATES

SOURCE OF WEALTH | AIRBNB


NET WORTH | $3.9 BILLION, DOWN $700 MILLION

COUNTRY | UNITED STATES

SOURCE OF WEALTH | ONLINE GAMES


NET WORTH | $7.3 BILLION, DOWN $600 MILLION

COUNTRY | UNITED STATES

SOURCE OF WEALTH| CRYPTOCURRENCY


NET WORTH | $107 BILLION, DOWN $500 MILLION

COUNTRY | UNITED STATES

SOURCE OF WEALTH | FACEBOOK


NET WORTH | $6.6 BILLION, DOWN $400 MILLION

COUNTRY | UNITED STATES

SOURCE OF WEALTH | TWITTER, SQUARE


NET WORTH | $2.9 BILLION, DOWN $400 MILLION

COUNTRY | SWEDEN

SOURCE OF WEALTH | SPOTIFY


NET WORTH | $6.4 BILLION, DOWN $350 MILLION

COUNTRY | UNITED STATES

SOURCE OF WEALTH | SNAPCHAT


NET WORTH | $6.2 BILLION, DOWN $250 MILLION

COUNTRY | UNITED STATES

SOURCE OF WEALTH | SNAPCHAT


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Robinhood Shares Plunge Amid Gloomy Revenue Outlook Just One Year After Meme Stock Mania

Topline

Shares of popular stock trading app Robinhood tumbled nearly 10% after the company reported fourth quarter earnings that failed to impress investors, while also issuing a grim revenue forecast for the start of 2022 as trading activity continues to slow down.

Key Facts

Robinhood’s stock, which fell nearly 7% to around $11 per share on Thursday, plunged another 8% in after hours trading following the company’s quarterly earnings report.

The popular stock trading app reported earnings which came in slightly below Wall Street expectations: For the fourth quarter, revenue fell slightly from $365 million to $363 million, while Robinhood’s loss of 49 cents per share was wider than the 45 cent loss expected by analysts, according to Refinitiv.

The trading platform’s total number of accounts grew from 22.4 million last quarter to 22.7 million by the end of 2021—though monthly active users fell to 17.3 million from 18.9 million in the previous quarter.

What particularly spooked investors, however, was Robinhood’s gloomy revenue forecast for the next quarter: The company anticipates revenue of less than $340 million—significantly less than the nearly $450 million expected by analysts, according to FactSet.

Transaction based revenues on Robinhood’s platform fell slightly to $264 million in the fourth quarter, with revenue from cryptocurrency trading accounting for just $48 million of that figure and down slightly from $51 million last quarter.

As of Thursday’s close, the stock is down more than 70% off its initial public offering price in July 2021, with shares falling more than 30% alone this month.

Big Number: $22 Billion.

That’s how much Robinhood has lost in market value since going public at a $32 billion valuation in July 2021. After recent stock struggles, the company now has a market capitalization of just $10 billion.

Surprising Fact:

With Robinhood shares at a new record low, cofounders Vlad Tenev and Baiju Bhatt both have both lost their billionaire status, according to Forbes. The pair first became billionaires in September 2020 after a private funding round valued Robinhood at $11.7 billion, by Forbes’ calculations.

Crucial Quote:

“Robinhood’s awful results highlight the several challenges the trading platform company currently faces, mainly a slowdown in user growth, as well as weaker retail trading activity in stocks and crypto,” according to Jesse Cohen, senior analyst at Investing.com. “With a current valuation of roughly $10 billion, Robinhood’s market cap still seems high… they haven’t done a good job of justifying its sky-high valuation and the market has punished the stock accordingly.”

Key Background:

Shares of Robinhood have fallen nearly 40%—to less than $15 per share—so far in 2022, continuing a downward trend in recent months. After a blockbuster start to last year—when a wild rally in meme stocks like GameStop and cryptocurrencies like Dogecoin helped spur massive growth for Robinhood, trading activity and account growth has substantially settled down. Robinhood’s stock plunged 10% after reporting lackluster earnings in October, in which the company warned that lower retail trading activity “may persist” into the end of 2021. The popular stock trading app had reported a steep revenue drop in quarterly revenue—from $565 million to $365 million, in large part due to a sharp decline in revenue from crypto trading on Robinhood’s platform.

Further Reading:

Robinhood’s Struggles Continue: Its Cofounders Are No Longer Billionaires, Shares Down 60% Since IPO (Forbes)

Robinhood Shares Plunge After A Decline In Crypto Trading Hits Earnings (Forbes)

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Germany’s “Fund Location Act” Allows Funds To Allocate Up To 20% Of Their Assets In Bitcoin and Other Crypto Assets

Germany is moving swiftly to legitimize crypto assets. With the passing and introduction of the Fund Location Act a few months ago, a new milestone has now been reached. This new regulation allows specific funds (open-ended domestic special AIFs with fixed investment terms) to allocate up to 20% of their assets under management in crypto assets.

Introduction

While internationally a lot of the discussion surrounding crypto markets is still focused on bans and innovation stifling regulation, Germany is moving to become more open to this new asset class. Admittedly, the financial industry is still in the early stages of incorporating crypto investments, with current issues still revolving around infrastructure and related regulation, experience, and trust. At the behest of the German Fund Association, however, the legislature has now opened a gateway enabling traditional institutions to explore the world beyond. The Fund Location Act will bring significant changes as S-AIF managers now have a legal framework to include cryptocurrencies in their funds. This article provides an initial overview of the current outlook of special funds regarding crypto investments, identifies gaps that still need to be addressed, and highlights what we can expect to see in the short and medium term.

Structures of special funds (S-AIFs)

 In Germany, special funds have existed as an investment vehicle since 1969. S-AIFs fall under the umbrella of institutional business, meaning regulation is much less stringent than is the case with, for example, mutual funds. Hence, the decision to first allow S-AIFs to invest in crypto assets was to be expected. The main areas of application for S-AIFs include pension funds and insurance companies, but also family offices and corporates. They are a type of investment fund for professional investors created for specific investment purposes, managed by a capital management company, and not traded on public markets. The German S-AIF market has grown by more than 100% since 2011 and currently (Sept. 2021) spans more than €2.1 billion in total assets (Figure 1), of which more than €1.9 billion is in special securities funds. 

With the 20% allowance for cryptocurrency allocation, the legislator has aligned itself with existing limits in the German Capital Investment Code (KAGB) that serve to prevent funds from over-allocation in certain asset classes. The KAGB already has a limit of 20% for non-listed corporate investments, which set the precedent for cryptocurrencies in the Fund Location Act. In the first two months since the amendment to the law came into force, the investments of S-AIF in cryptocurrencies were still low. This is partly due to the short preparation time afforded to asset managers and partly due to the risk profiles as well as internal investment restrictions. For example, insurance companies have historically had very strict investment policies. As a result, they first have to adjust their internal investment controls and determine how much risk capacity they have for crypto assets. Pension funds are somewhat more flexible in theory but face other insurance law requirements. Thus, we estimate that at least half of all S-AIF market participants will or must remain cautious and avoid crypto investments.

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 Family offices and companies that are not bound by the investment limits of insurers are most likely to take advantage of this new law. However, in their investment models, assets in S-AIFs are typically used to cover retirement obligations and therefore follow risk-averse investment philosophies. Even if companies and family offices can in theory use Bitcoin and Co. as part of their investment strategy to cover retirement provisions, they may be reluctant to do so for now. A large portion of capital in S-AIFs of 200 or 300 billion remains from the banks themselves, which invest their equity through Depot A S-AIFs (Figure 2). In their case, a more restrictive investment policy must be chosen, since CRR (Capital Requirements Regulations) apply a risk premium to volatile investments.

What has really changed since August 2021?

Due to the risk profiles of investors and the novelty of the law, relatively little capital has flown into cryptocurrencies thus far. The question however remains:  what investment flows are to be expected? According to the experts at BVI, single-digit percentages of S-AIF portfolios are to be expected to flow into cryptocurrencies in the short to medium term (over the next 5 years). Even if the KAGB now allows 20% investments in crypto assets, other regulations, e.g. Solvency II, impose restrictive to prohibitive capital requirements limiting the impact of this legislature change for the time being. The surrounding regulation is expected to catch up with the new opportunities in the future.

What will investment strategies of S-AIFs look like?

As soon as the financial supervisory authority (BaFin) and asset managers have clarified the operational requirements for crypto investments, the question for portfolio managers will be which coins to invest in. Of course, fund managers will have to coordinate with the shareholders of the fund, but generally, it is to be expected that investments will be made in the top 3 – top 10 cryptocurrencies by market capitalization. First movers will most likely include Bitcoin and Ethereum, simply due to their widespread adoption. It is also expected that certain funds will develop active strategies to select investments from the top 2000, with the aim of achieving a higher return. However, this entails a different risk profile and for the time being, will be limited to the family office sector. On the other hand, actively managed products whose primary intention is not to achieve higher returns than market averages, but to minimize volatility, are also a possibility. In principle, investments in cryptocurrencies are an attractive component of a portfolio due to potentially high returns, and improved diversification possibilities. However, the high potential returns of cryptocurrencies are associated with increased volatility. This risk could be minimized as in traditional financial markets, for example, by use of broad market index funds and through proper diversification.  

Another aspect of cryptocurrency investments is the possibility of generating additional yield by actively participating in the protocols. For example, by participating in staking, providing liquidity, or participating in governance functions. Initially, S-AIFs are not expected to actively participate in protocols since, for example in the area of staking, there are tax issues for institutional investors to sort out. Ultimately, it is up to investors to decide whether they want to take advantage of the full potential of cryptocurrencies or only have minimal exposure to Bitcoin & Co. What is certain is that potential investment models will evolve over time. For example, with specialized funds focusing on DeFi, industrial applications, and crypto infrastructure.

Looking to the future

Until now, S-AIF managers have simply been able to stonewall the issue of investment allocation in crypto-assets with statements like “We’re interested, but we’re not allowed” or “S-AIFs can’t.” Now, this hurdle has been taken and the excuses have shifted to arguments like “it’s too expensive because of capital requirements”. Now that the possibility is out there though, fund managers will have to pivot or risk losing their clients to fund managers with more progressive attitudes.

The more significant issue is the lack of expertise and resources when it comes to this new asset class. Many pension funds support a specific customer base and do not have the capacity to employ full-time compliance experts to properly engage with digital assets. For significant amounts to be invested in cryptocurrencies by these funds, they must lay a solid foundation. However, as long as the staff and general expertise is lacking, it is unlikely that these institutions will be able to accommodate such investments in the short term. In the coming months, it will be vital for capital management companies to promote employee education in this area in order to remain competitive.

Many institutional investors and traditional financial service providers have begun seeking external help, but there is still a severe lack of expertise in the field of crypto assets as few advisors have studied cryptocurrencies in detail. Here, too, there is currently a gap in the market for management consultancies that needs to be filled. 

Overall there are significant positive developments towards crypto markets. Allianz Global Investors, for example, recently announced that they will be allocating an amount in the billions of Euros in cryptocurrencies. Headlines such as this one go to show that even big names in the industry are at the very least keeping an eye on Bitcoin & Co. wanting to include it in their portfolios. In the future, we will likely see more and more large investors no longer bypassing this asset group. If they don’t want to miss the train, now is the time for S-AIF managers and investors to take a closer look at cryptos. 

As in the first two waves of digitalization, PC & Internet, Germany is in danger of missing the bus and leaving the field to our global competitors in the USA and China. In this respect, it is particularly important to deal intensively with this topic now. Opportunities and risks should be weighed honestly instead of merely using the risks as an excuse and procrastinating on the issue.

Acknowledgements

Authors: Philipp Sandner, Robert Richter, Frank Wagner, Cedric Heidt, Benjamin Schaub. We would like to thank the German Fund Association BVI (Rudolf Siebel, Tim Kreutzmann, Michael Pirl) for their expert support. Thanks to the Frankfurt School Blockchain Center, INTAS.tech, and INVAO for providing the knowledge and the resources to conduct this research.

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OCC Slams Brakes On New Bank Charters With New Barriers To Using Crypto

Today, the Office of the Comptroller of the Currency (OCC), the nation’s regulator of large banks such as J.P. Morgan Chase and Wells Fargo, issued Interpretive Letter 1179, which erects supervisory barriers that will slow the entry of the fast-growing cryptocurrency industry into the U.S. banking system. Acting Comptroller Michael Hsu effectively issued a rebuke to the work of previous Acting Comptroller Brian Brooks by instilling greater risk management thresholds prior to any bank conducting crypto-asset bank activities.

According to Hsu, “…Because many of these technologies and products present novel risks, banks must be able to demonstrate that they have appropriate risk management systems and controls in place to conduct them safely. This will provide assurance that crypto-asset activities taking place inside of the federal regulatory perimeter are being conducted responsibly.” 

However, the Interpretive Letters already issued to banks in 2020 – specifically Interpretive Letters 1170, 1172, and 1174 – listed that safety and soundness principles must be followed by banks using cryptocurrency as part of their permissible bank activities.

As a summary, below are links to each of these Interpretive Letters and the subject that each letter covers, which the new guidance from The OCC addresses:

Interpretive Letter 1170 – Banks are permitted to custody cryptocurrencies;

Interpretive Letter 1172 – Banks can hold U.S. dollar reserves against stablecoins;

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Interpretive Letter 1174 – Banks can use ‘INVN’ (blockchain) nodes and stablecoins for payment activities;

Interpretive Letter 1176 – The authority of the OCC to charter national banks that limits its operation to trust powers;

However, under the auspices of attaching ‘safety and soundness’ as a specific requirement prior to a bank engaging in crypto activities, there is the possibility that the OCC may have set an unintentional precedent that might have required a formal rulemaking rather than an interpretive letter. For example, by attaching safety and soundness in the use of a specific permissible bank activity, the OCC may need to declare the lending activities of Wells Fargo illegal based on their September 2021 cease and desist order against the bank in which the OCC “assessed a $250 million civil money penalty against Wells Fargo Bank, N.A, of Sioux Falls, S.D., based on the bank’s unsafe or unsound practices related to deficiencies in its home lending loss mitigation program and violations of the 2018 Compliance Consent Order.”

A similar order against MUFG Union Bank also issued in September 2021 cites unsafe and unsound practices against the bank based on their use of technology. The OCC order, “…requires the bank to improve longstanding technology and operational risk governance, technology risk assessments, internal controls, and staffing deficiencies to address the unsafe or unsound practices.” 

Not only is the potential tying of safety and soundness to bank permissible activities put the OCC in a difficult position with other banks it regulates, but if it is true that the idea of safety and soundness assigned to a specific bank activity is an actual condition for that bank to engage in the activity, the question arises as to whether Hsu should have issued a proposed rulemaking with public comment rather than issue an interpretive letter.

Finally, and speaking as an ex-(FDIC) regulator, this makes it dangerous for any OCC Supervisor to issue a ‘non-objection’ to any bank’s use of cryptocurrency, as it then puts that Supervisor specifically on the hook if anything does go wrong from a safety and soundness perspective with that bank offering cryptocurrency services. 

Ultimately, Interpretive Letter 1179 will likely only add confusion to the marketplace and potentially cost banks millions of dollars that have been investing in cryptocurrency activities to meet these new thresholds imposed by Hsu, leaving only the largest and most well-funded incumbent banks in a position to afford conducting cryptocurrency activities. 

The letter also raises a barrier to crypto companies who are seeking a bank charter, as it addresses Interpretive Letter 1176 and indicates that the letter “…did not expand on or change a bank’s existing obligations under the OCC’s fiduciary activities regulations. The OCC retains discretion in determining whether an activity is conducted in a fiduciary capacity for purposes of federal law.” 

Thus, those applicants who are in the crypto business and plan to use trust banks as a vehicle for conducting crypto activities as a de novo bank may need to re-evaluate how they meet the statutory requirements of what is required in terms of fiduciary activities that typically defines a bank with trust powers. Also, this likely means these institutions may need much higher levels of capital and liquidity to satisfy the OCC’s new requirements. 

While an additional joint statement was provided as well by the OCC with the FDIC and the Federal Reserve that provides a roadmap that outlines how in 2022 the agencies will seek additional public input on various subjects relating to cryptocurrency, the inability of cryptocurrency firms to receive new bank charters and the difficulty of facing high barriers to even using cryptocurrency in the banking system will dramatically impact the planning of the current players in the crypto industry who are seeking to abide by the same safety and soundness standards and regulations to which the large banks already subscribe.

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Here Are Morgan Stanley’s Top Stock Picks For Investing In The Metaverse

Topline

Ever since Facebook’s recent name change and new focus on the ‘metaverse,’ there has been massive interest in the concept of a virtual world which could replace today’s internet—and that means a massive new opportunity for investors, according to Morgan Stanley.

Key Facts

Wall Street firm Morgan Stanley sees the metaverse as an $8 trillion addressable market which is likely to become the “next generation social media, streaming and gaming platform.”

“Like current digital platforms, we expect the metaverse to initially and primarily operate as an advertising and e-commerce platform for offline products/purchases,” wrote analyst Brian Nowak.

The firm’s most obvious stock pick in this space is Meta (formerly Facebook), thanks to the growth durability of its core business and strong free cash flow even as it invests billions of dollars to “build the next generation version of social networking.”

Morgan Stanley analysts also like gaming company Roblox, which it says can leverage its 47 million daily active users and “strong” monetization algorithms with the metaverse’s advertising and e-commerce opportunities.

The firm picked out several other stocks it thinks can benefit from growing adoption of the metaverse concept, including those focused on augmented reality, like Google-parent Alphabet and social media platform Snap.

It also likes Unity Software, the most widely used engine in the video game industry, which could be in a position to help with content creation for the metaverse, according to the firm.

Key Background:

Facebook’s rebranding to Meta last month heralded the company’s new focus on the metaverse, a vision for a virtual world accessed by headsets or smartphones where people can work, play and socialize. Though the metaverse is still largely conceptual, the possibilities are endless with the idea being that there could be many different types of virtual worlds which could revolutionize the way people interact. While Facebook is ahead of the curve in this space, several companies including Microsoft and Disney have also begun investing in the metaverse.

Crucial Quote:

“We believe the Metaverse will be the successor to the mobile internet,” Facebook CEO Mark Zuckerberg said last month when he announced the company’s rebranding to Meta. 

Further Reading:

Why You Absolutely Must Invest In The Metaverse (Forbes)

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Dow Falls Over 200 Points After Highest Inflation Surge In 30 Years

Topline

Stocks fell on Wednesday, with the Dow Jones Industrial Average losing over 200 points after October’s consumer price index jumped by the highest rate in 30 years, adding to investors’ fears that high inflation could derail the recent market rally.

Key Facts

The Dow fell 0.7%, over 200 points, while the S&P 500 declined 0.8% and the tech-heavy Nasdaq Composite lost 1.7%.

The consumer price index—a key measure of inflation—rose 6.2% in October compared to a year ago, its fastest pace of increase in 30 years, according to data from the Bureau of Labor Statistics on Wednesday. 

The latest report showed that inflation isn’t slowing down: Spooked investors dumped high-flying tech stocks and sought refuge in hedges like gold and bitcoin, while Treasury yields also spiked.

Following the latest inflation data, the market is now betting that the Federal Reserve may need to raise interest rates sooner than expected, with the first rate hike expected as early as July 2022.

Shares of Big Tech stocks plunged as investors turned away from growth stocks on Wednesday: Amazon, Google-parent Alphabet and Facebook-parent Meta all fell by around 2%.

Tesla regained some of its losses this week after shares rose 4.3%, while rival electric vehicle maker Rivian saw shares surge 29% after going public at a $90 billion valuation—the biggest U.S. IPO since Facebook in 2012.

Crucial Quote:

“Inflation remains stubbornly high, to the surprise of many that expected prices to come back to earth sooner,” says Ryan Detrick, chief market strategist for LPL Financial. “The truth is you can’t shut down a $20 trillion economy and not feel some bumps as it restarts, but we are hopeful the supply chain issues will resolve over the coming quarters and inflation should calm down as well.”

What To Watch For:

“The financial markets had accepted the fact that prices would be climbing, but with every passing month inflation has only crept higher,” according to a note from Hilltop Securities on Wednesday. “Between now and year-end, demand for holiday goods will surge, while transportation-constrained supply struggles to keep up.”

Key Background:

This is the second down day in a row for stocks. Before Tuesday and Wednesday’s losses, the S&P 500 had notched eight consecutive days of gains—its best streak in over two years—and closed above 4,700 for the first time. Markets had gotten a boost from strong corporate earnings, but investors clearly remain fearful of high inflation, which will be exacerbated by labor shortages and supply chain issues through the end of the year. The Federal Reserve announced last week that it would begin reducing the historic level of stimulus it has been providing markets since the Covid-19 pandemic began. Fed chairman Jerome Powell said high inflation was “expected to be transitory.”

Further Reading:

Electric Vehicle Startup Rivian Hits $90 Billion Valuation In Biggest IPO Since Facebook (Forbes)

Stocks End Winning Streak As Investors Look Ahead To Inflation Data (Forbes)

Here’s What Investors Are Most Worried About—Including Meme Stocks And China Real Estate—According To Fed Report (Forbes)

Meat, Used Cars And Peanut Butter: Here’s What Costs More Because Of The Inflation Surge (Forbes)

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Here’s What Investors Are Most Worried About—Including Meme Stocks And China Real Estate—According To Fed Report

Topline

The Federal Reserve warned of several new risks to the U.S. financial system—including market volatility caused by meme stocks and a potential spillover from China’s real estate troubles—in its semiannual financial stability report released late on Monday.

Key Facts

Concerns over higher inflation and tighter monetary policy have risen since earlier this year and are now the top worry for investors, with roughly 70% of experts surveyed by the Fed flagging it as the main risk to financial stability.

The second most common concern—with over 50% of respondents—was over vaccine-resistant Covid-19 variants derailing the economic recovery, though that fell slightly since May, the last time the Fed published its financial stability report.

At the same time, the Federal Reserve also flagged several new types of potential risks to the financial system which merit attention and have recently emerged as top investor concerns, including the growing interest in “so-called meme stocks.”

A large group of younger retail investors, spurred by zero-cost brokerages and discussion on social media, have been investing heavily in meme stocks and cryptocurrencies, a trend which can cause stock market volatility in the future, the Fed pointed out. 

Another big risk—now the third-highest concern for investors according to the Fed—is China’s regulatory crackdown, and especially the troubles in its real estate sector, which could cause a “spillover” into U.S. markets. 

Property development giant China Evergrande has been attempting to avoid defaulting on its debt since this summer, causing wider damage to Chinese real estate stocks and raising investor concerns about the world’s second-largest economy.

Tangent:

“Fiscal and monetary policy accommodation, along with continued progress on vaccinations, continued to support a strong economic recovery,” the report said. “Despite the tragic human toll, the Delta variant has left a limited imprint on U.S. financial markets.”

Crucial Quote:

“Social media can contribute to an echo chamber in which retail investors find themselves communicating most frequently with others with similar interests and views, thereby enforcing their views, even if these views are speculative or biased,” the Federal Reserve warned about meme stocks in its latest report. While wild surges in stocks like GameStop and AMC have had a “limited” impact on financial stability so far, this area of the market should be “monitored” further, the report stated.

Key Background:

“Since the previous survey results published in May, concerns related to inflation, new COVID variants, and elevated risk-asset valuations have remained top of mind, while several new risks have surfaced, including possible fallout from Chinese regulatory changes,” the central bank said in its report. The Fed’s previous financial stability reports have mentioned China before, warning that its high debt levels and “stretched real estate prices” could adversely affect the U.S. economy.

Further Reading:

These Stocks Are Surging After House Passes $1 Trillion Infrastructure Bill (Forbes)

Stocks Hit Fresh Records After Fed Says It Will Taper Pandemic Stimulus (Forbes)

Federal Reserve Scales Back Pandemic Stimulus, Will End By June (Forbes)

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Famed Short-Seller Hindenburg Targets World’s Largest Stablecoin Tether With $1 Million Bounty

Topline

Wall Street investment firm Hindenburg Research, the short-seller that helped launch regulatory investigations into billionaire-backed firms Nikola and Clover Health, said Tuesday it’s offering a $1 million reward for information leading to previously undisclosed details about cryptocurrency Tether’s financial reserves, ramping up potential scrutiny of the so-called stablecoin as regulators warn the virtually unregulated tokens could imperil financial stability. 

Key Facts

Hindenburg announced the launch of its Tether Bounty Program Tuesday evening, pointing out the company “claims to hold a significant portion of its reserves in commercial paper,” but has disclosed “virtually nothing” about its counterparties, or the people and companies that may be exposed to financial risk as a result of their ties to the company

“We have doubts about the legitimacy of Tether,” Hindenburg said, adding that it doesn’t hold an investment position in the cryptocurrency, whose price is pegged to the value of one U.S. dollar (thus the name “stablecoin”) to help facilitate cryptocurrency transactions.

Hindenburg’s bounty comes less than one week after the Commodity Futures Trading Commission settled charges with Tether for making untrue or misleading statements about its token and ordered it to pay $41 million over claims its tokens were fully backed by U.S. dollars.

The CFTC found only about 27% of Tether’s reserves were backed by U.S. dollars between June 2016 and February 2019 and said the company has still not completed an audit of its reserves. 

In a statement, Tether called the bounty a “pathetic bid for attention” and said bitcoin’s all-time high on Wednesday served as evidence that “everyone sees through [Hindenburg’s] opportunism.”

Crucial Quote 

“Tether is a key underpinning of the multi-trillion-dollar crypto market, yet despite its repeated claims of transparency, its disclosures around its holdings have been opaque,” Hindenburg said Tuesday. “The company claims to hold a significant portion of its reserves in commercial paper yet has disclosed virtually nothing about its counterparties.”

Key Background

Launched in 2014, Tether quickly became the world’s largest stablecoin, amassing a current market value of nearly $70 billion and consistently weighing in as one of the world’s four largest cryptocurrencies. Stablecoin proponents note the tokens help protect cryptocurrency investors from the market’s volatility while facilitating trading on cryptocurrency exchanges. However, regulators have warned the tokens could pose a risk to financial stability if issuers fail to maintain sufficient collateral.

Contra

“Stablecoins are acting almost like poker chips at the casino right now,” SEC Chair Gary Gensler, who’s never singled out Tether in his frequent critiques of stablecoins, told the Washington Post last month. Due to stablecoins’ growing popularity across trading and lending platforms, Gensler said he fears “there’s gonna be a problem” if they aren’t fully collateralized, adding: “Frankly, when that happens…a lot of people are going to get hurt.”

Tangent

In a little over one year, short-seller Hindenburg helped spark regulatory investigations into multiple multi-billion-dollar companies. In published a report last year, the firm called electric-vehicle company Nikola a “fraud,” and alleged then-Chairman Trevor Milton misled investors about the company’s business. Milton has since been charged with criminal fraud charges. Meanwhile, Clover Health, the special-purpose acquisition company launched by former Facebook executive and “SPAC King” Chamath Palihapitiya, disclosed the Securities and Exchange Commission was investigating its practices in February, just one day after Hindenberg alleged the company misled investors about its business.

Chief Critic

“This is not the first time Hindenburg Research has orchestrated an apparent scheme in pursuit of profit. Nor will it be the last,” Tether said Wednesday, adding it “abhors and denounces [Hindenburg’s] actions and transparent motives.”

Further Reading

Short-seller Hindenburg sets $1m ‘bounty’ for details on Tether’s reserves (Financial Times)

Anyone Seen Tether’s Billions? (Bloomberg)

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Bitcoin (BTC) $ 27,142.27 1.11%
Ethereum (ETH) $ 1,894.49 1.99%
Litecoin (LTC) $ 95.31 3.74%
Bitcoin Cash (BCH) $ 114.69 1.60%