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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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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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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Cathie Wood’s Ark Invest Buys $80 Million Worth Of Robinhood After Earnings Sell-Off

Topline

Despite Robinhood facing growing skepticism from Wall Street analysts, famed stockpicker Cathie Wood of Ark Invest recently doubled down on her investment in the popular stock trading app, shares of which tumbled more than 10% on Wednesday after reporting a huge third-quarter revenue miss.

Key Facts

Shares of Robinhood, which went public to much fanfare in July, are down 12%—below its IPO price of $38—since reporting lackluster third-quarter earnings late on Tuesday.

Cathie Wood, the founder and CEO of $75 billion asset manager Ark Invest, purchased a total of 2.24 million shares of Robinhood in various funds on Wednesday, a position worth roughly $80 million at the time. 

The innovation investor is still clearly bullish on Robinhood, buying the dip in the stock despite the company’s big revenue miss, which was in large part due to a sharp drop in crypto trading on its platform, and a slowdown in user growth. 

Wood added to her position in Robinhood—she has been buying the majority of shares for her flagship fund, the ARK Innovation ETF—even as Wall Street analysts grew increasingly negative on the company following its troublesome earnings report.

Analysts across the board slashed their price targets for Robinhood on Wednesday, including those at JPMorgan, Goldman Sachs, Piper Sandler, Barclays and Deutsch Bank.

As experts point out, investors are growing increasingly concerned that without a major market event—such as the GameStop frenzy in the first quarter or Dogecoin in the second quarter—Robinhood’s trading activity and revenue will likely continue to take a hit.

What To Watch For:

Robinhood’s earnings showed that more users left the app or sold off holdings than opened new accounts during the third-quarter, a worrying sign for a company that boasted enormous user growth in 2020 and the first half of 2021. Monthly active users dropped to 18.9 million from 21.3 million last quarter, according to Robinhood, while the number of overall funded accounts fell from 22.5 million to 22.4 million. There are certainly emerging signs that some users may be quitting the platform and moving to competitors like Fidelity of Schwab, which could account for the slowdown in account growth. In recent weeks, there have been dozens of different posts on finance Reddit forums with users posting screenshots showing that they left Robinhood for a new brokerage.

Tangent:

Though Wood has continued to build a position in Robinhood since it went public in July, the brokerage still accounts for just 1.33% of her flagship Ark Innovation ETF. 

Key Background:

Despite some skepticism from Wall Street, Wood’s strategy focuses almost exclusively on investing in “disruptive innovation.” She remains especially bullish on cryptocurrencies, she told Forbes on Wednesday, firmly believing that regulation won’t hamper the innovation that is taking place. Wood also bought the dip in Twitter stock on Wednesday, adding a position worth about $60 million, as shares of the social media company fell nearly 11% after its earnings showed a slowdown in user growth. 

Further Reading:

Star Stockpicker Cathie Wood Dismisses Hyper Inflation Risk And Pitches Zoom And Invitae During Forbes’ 2021 Wealth Summit (Forbes)

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S&P 500 Falls From Record Highs But Remains On Track For Its Best Month Since 2020

Topline

The stock market pulled back from record highs and fell on Wednesday as the rally driven by third-quarter earnings began to lose steam, although the S&P 500 remains on track for its best month since November 2020.

Key Facts

The Dow Jones Industrial Average and S&P 500 declined by 0.7% and 0.5%, respectively, on Wednesday, while the tech-heavy Nasdaq Composite was flat.

The Dow and S&P 500 both fell for the first time in at least three days, despite a recent earnings-driven rally that has boosted the market to new record highs. 

The S&P 500 remains on track for its best month since November 2020, rising by more than 5% so far in October, while the Dow is up around 4%. 

Third-quarter earnings have so far proved more resilient than expected, despite concerns about inflationary pressures, supply chain disruptions and labor shortages: Just over a third of S&P 500 companies have reported results so far, with 83% of them topping estimates, according to Refinitiv. 

Big tech stocks like Microsoft and Google-parent Alphabet rose by more than 4% after both companies topped earnings estimates on Tuesday, while shares of Visa fell nearly 7% after issuing a conservative revenue outlook. 

Shares of popular stock trading app Robinhood, meanwhile, fell more than 10% on Wednesday after reporting earnings that substantially missed expectations because of a sharp drop in crypto trading.

Crucial Quote:

Today was actually “one of the most tumultuous, brutal, and frustrating sessions in a long time,” as most sectors suffered losses—with the biggest declines coming from financials and energy stocks, says Vital Knowledge founder Adam Crisafulli. “The overall market was very soft in the U.S., although this was somewhat masked by huge post-earnings rallies in Google and Microsoft.” The market sank late in the session, he points out, after Democrats suffered another setback in their efforts to reach a deal on the government spending bill.

Tangent:

As Democrats continue to iron out the details of their massive social spending plan—and how to pay for it, a newly proposed billionaire wealth tax was immediately shot down on Wednesday. Moderate Sen. Joe Manchin (D-W.V.), whose support is crucial for Democrats to pass legislation in the evenly split Senate, voiced concerns—effectively killing the proposal mere hours after its release.

What To Watch For:

“The Nasdaq continues to outperform following robust mega-cap tech results and as Democrats struggle to find ways to increase taxes—Kryptonite for big-tech has always been raising taxes and regulation,” says Oanda senior market analyst Edward Maya. “With Senator Joe Manchin showing little openness for tax increases, tech stocks are soaring.”

Further Reading:

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

Twitter Shares Jump After Apple’s Privacy Changes Have Minimal Impact On Quarterly Earnings (Forbes)

Billionaire Tax Dead On Arrival After Manchin Blasts Proposal Mere Hours After Its Release (Forbes)

Stocks Close At Record Highs After Tesla Hits $1 Trillion In Market Value (Forbes)

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Robinhood Shares Plunge After A Decline In Crypto Trading Hits Earnings

Topline

Shares of Robinhood plunged below its IPO price from earlier this year, a day after the company reported third-quarter earnings that substantially missed expectations because of a sharp drop in crypto trading.

Key Facts

Robinhood’s stock was down nearly 10% to just under $36 per share late Wednesday morning, sinking below its $38 initial public offering price from late July. 

The popular stock trading app reported earnings after the bell on Tuesday which came in well below Wall Street expectations: Revenue fell to $365 million from $565 million last quarter, while the company’s net loss of $2.06 per share was greater than analysts’ average expectation of a loss of $1.37 per share, as compiled by Refinitiv.

The huge earnings miss was in large part due to a sharp decline in revenue from crypto trading on Robinhood’s platform, which tumbled 78% to $51 million from the last quarter.

After a blockbuster start to the year—when a wild rally in meme stocks like GameStop and cryptocurrencies like Dogecoin helped spur massive growth for Robinhood, trading activity has settled down, the company’s earnings report showed.

Robinhood’s total number of user accounts dropped slightly to 22.4 million, while fees tied to stock and options trades also declined. 

Revenue the company earns from selling customers’ trades to Wall Street’s high-speed trading firms, known as payment for order flow, was down 41% from last quarter to $267 million.

Big Number: Nearly $500 Million.

That’s how much the combined fortune of Robinhood cofounders Vlad Tenev and Baiju Bhatt fell by 11:00 a.m. ET on Wednesday, as shares of their online brokerage plummeted. Tenev and Bhatt are now worth $2.2 billion and $2.4 billion, respectively, by Forbes’ estimates.

Crucial Quotes:

“In [the third quarter], crypto activity came off record highs, leading to fewer new funded accounts and lower revenue as expected,” CEO Vlad Tenev said after the earnings release. “Historically our growth has come in waves—the surges have come during periods of increased volatility or market events,” added Robinhood’s chief financial officer, Jason Warnick. “Going forward, we expect to continue to see the ebb and flow of our growth with market conditions, as well as product launches.”

What To Watch For:

Robinhood anticipates that many of the same factors which impacted results this quarter will continue through the end of 2021. Lower retail trading activity “may persist” and affect fourth-quarter earnings, the company warned in its press release.

Further Reading:

Despite Robinhood’s Rocky IPO, Each Cofounder Is Now Worth Billions (Forbes)

Robinhood Billionaire Cofounders’ Fortunes Nearly Double In Two Days Amid Stock’s Wild Rally (Forbes)

Robinhood’s Triumph: More Than A Billionaire Windfall (Forbes)

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Dow Briefly Hits New All-Time High, While S&P 500 Nears Record

Topline

The stock market hit new record highs Wednesday, with the Dow Jones Industrial Average rising up to 200 points to surpass its previous peak in August, thanks to upbeat earnings reports and a strong rally in Bitcoin prices.

Key Facts

The Dow rose as much as 0.6% to a new record high before paring back gains somewhat, while the S&P 500 was up 0.3%, less than 0.2% shy of its own record.

Investor sentiment got a boost as third-quarter earnings largely continued to come in above expectations: Through Wednesday morning, some 86% of S&P 500 companies have topped estimates, according to data from Refinitiv.

Shares of Verizon rose over 2%, after topping earnings estimates earlier in the day, while Netflix and United Airlines both posted better-than-expected results after the market closed Tuesday.

The price of Bitcoin, meanwhile, hit a new all-time high of $66,893 following weeks of positive momentum for the cryptocurrency, after the first Bitcoin-linked ETF, released by ProShares, rallied on its first day of trading Tuesday.

Adding to the buzz is hedge fund billionaire Paul Tudor Jones, worth $7.3 billion according to Forbes’ estimates, who told CNBC on Wednesday that he prefers Bitcoin over gold as a hedge against inflation.

Crucial Quote

“Earnings remain the main driver of the advance as results continue to come in ahead of expectations,” says Vital Knowledge founder Adam Crisafulli. “Anticipation of a fiscal deal in Washington (a rough framework could be in place by the end of the week) and indications of Xi dialing back his regulatory campaign in China are also adding to the market’s enthusiasm.”

Key Background

Since the previous highs in August, the market has been weighed down by a myriad of factors, including the Covid delta variant, reports of surging inflation and the removal of government stimulus.

What To Watch For:

“Bitcoin’s bullish momentum could last a lot longer, but the global energy crisis should not be ignored,” writes Oanda senior market analyst Edward Moya. “Cryptocurrency energy consumption could draw scrutiny from many governments that are battling energy shortfalls,” he argues. Moya says the price of Bitcoin may well hit $75,000, but reaching $100,000 will be “difficult,” at least until the global energy crisis is resolved.

Further Reading:

Restaurant Earnings Set To Take A Hit From Higher Labor And Food Costs (Forbes)

Netflix’s Solid Earnings Prove Why Wall Street Analysts Love The Stock (Forbes)

Disney Stock Slides Over 3% As Analysts Warn Of Subscriber Slowdown (Forbes)

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After Rejecting Bitcoin ETFs, Former SEC Chair Clayton Joins Fight For Approval

As SEC Chair Gary Gensler announces his rulemaking agenda, his predecessor Jay Clayton is working in some of the very sectors and investments that his commission failed to act on during his tenure.

One River Asset Management, where Clayton serves on the board, recently submitted a registration statement for One River Carbon Neutral Bitcoin Trust. The proposed exchange traded fund seemingly checks all the boxes on popular investing trends. It is the latest attempt to get approval for an elusive Bitcoin ETF, after several previous proposals were rejected during Clayton’s tenure as well as the latest in a long string of offerings selling themselves on their environmental bonafides under the ESG designation.

During his four-year chairmanship, repeated attempts to gain approval for a Bitcoin ETF failed. And despite the protestations of activists in and out of the financial services industry, the commission failed to act on ESG disclosure regulations and even moved to weaken that sector’s momentum with a proposal to restrict ESG consideration in retirement accounts.

“He’s no longer a government official, he needs to earn a living to pay for his fancy Manhattan apartment and you’re not going to get paid for being neutral on these topics,” Adam Pritchard, a professor at the University of Michigan Law school says. “People are hiring you to be an advocate or endorse what it is they’re doing or lend credibility. So if you’re monetizing your reputation, you’re going to have to pick a side.”

No doubt Bitcoin and other cryptocurrency enthusiasts will be happy to have the former SEC chair on their side but Clayton is not the first to make this leap through the proverbial revolving door of government and private industry.

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That maneuver was also made by Ben Lawsky, who went from New York State’s first Superintendent of Financial Services, making rules around crypto licensing, to advising Bitcoin funds. Clayton was also preceded by former Commodity Futures Trading Commission Chair J. Christopher Giancarlo who went from making regulations around the classification of digital assets to being hired through his work at New York-based law firm Willkie Farr & Gallagher to write briefs on behalf of Ripple, the creator and largest holder of the world’s fourth largest coin, XRP.

Clayton resigned from the commission in late December after former President Donald Trump lost the election, a customary move when there is a change in administration. His tenure as chair was regarded as quiet, with Regulation Best Interest being the sole major action during his time as chair. Even that was necessitated by the vacation of the far more prescriptive Department of Labor Fiduciary Rule shortly before his tenure.

Aside from that, the commission was relatively inactive in rulemaking as a result of the deregulatory agenda trickling down from the White House that was also felt at other prudential agencies, including a nearly complete sidelining of the Consumer Financial Protection Bureau.

Clayton has been active since his departure, joining not only the board of One River Asset Management but also private equity shop Apollo Global Management APO , getting involved in many of the investments his commission failed to take action on, or worse, actively tried to weaken.

It does not take much to upset the public when it comes to the actions of former public officials, with concerns that those who wrote regulations are likely to have the most intimate understanding of the loopholes, creating an unfair market advantage.

Pritchard expects the majority of outrage at the latest instance of the oft-maligned revolving door to be “the usual suspects,” specifically naming Senator Elizabeth Warren, the founder of the aforementioned CFPB as part of the Dodd-Frank Act.

The crypto craze is not the only area where Clayton has seemingly switched allegiances since leaving the commission.

In the early days of the meme stock frenzy that took Reddit and Robinhood by storm and eventually would become associated with Gamestop GME and AMC, investors pumped up the price of Hertz. The rental car company had filed for Chapter 11 bankruptcy and when they attempted to capitalize on the groundswell of stock purchases by issuing more shares, the commission under Clayton put a stop to it.

While Pritchard described much of Clayton’s tenure at the commission as “low profile” he said the Hertz move was uncharacteristically aggressive.

Last November, just six months after that saga, Apollo Capital Management affiliate Athene USA, where Clayton now serves on the board of directors, offered financing to Hertz to the tune of $4 billion that was confirmed in bankruptcy court later that month.

Pritchard points out that the SEC chairman’s salary being under $200,000 means that they need to find income after their tenure. He is skeptical what regulations can change this reality and stop the next Jay Clayton from taking similar sources of income after their tenure is finished, even with rules around cooling off periods as they currently exist.

Jay Clayton and Apollo Capital Management chose not to comment on this story and One River Asset Management did not respond to requests for comment.

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First Approved Brazilian Bitcoin ETF Seeks To Raise 500 Million BRL ($90,000,000 USD)

Last week, Brazilian-based QR Capital received approval from the Brazilian Securities and Exchange Commission (CVM) to list an exchange-traded fund (ETF) composed solely of bitcoin (BTC), on the São Paulo-based B3 Stock Exchange. The ETF is the first 100 percent BTC exchange-traded fund to be approved anywhere in Latin America, and the fourth to be approved in the G-20 countries. The first three were approved last month in Canada. 

The U.S. still does not allow crypto ETFs to trade on national stock exchanges. 

The QR Capital ETF is slated to begin trading in June and, when it does, the ETF will be open to any Brazilian citizen, as well as international investors, who have an account with a broker dealer affiliated with B3, says QR Capital Founder and CEO Fernando Carvalho. 

More than 4,000,000 Brazilians currently have access to the B3 stock exchange, says Carvalho. It is anticipated that the demand for the ETF will be staggering. 

For the first time, Brazilians investors will be able to participate in a fully BTC-regulated investment vehicle. Unlike the U.S. and many other countries, crypto exchanges are not specifically regulated in Brazil. 

Further, the QR Capital ETF is the only Brazilian investment fund that is invested 100 percent in BTC. All other investment funds open to small investors are constrained by Brazilian law to hold a maximum of 20 percent of crypto currencies. 

Carvalho expects that demand will also come from international investors. 

“The approval of the ETF in Brazil is significant,” says Rosine Kadamani, a Sao Paulo-based regulatory attorney and member of the Global Future Council of Cryptocurrencies at the World Economic Forum, “because now there will be another option for investing in bitcoin in a regulated environment.” It will be easy, says Kadamani, like purchasing shares of stock. Easy and less costly than the current options. 

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ETFs are funds designed to follow the price variation of an underlying asset or index and, therefore, are said to be passively managed. In other funds, like ordinary equity funds, management picks and chooses investments to find the best market opportunities. According to Kadamani, “the management fee of an actively-managed fund can be 1-2% or more. But the administrative fee for an ETF is much less, around 0.5%.”

She also thinks the time is right for a Brazilian ETF. 

Kadamani explains that Brazil has younger, less developed capital markets than the U.S, and that Brazilians have traditionally invested in high interest State-issued bonds, which ensured high returns with low risk. But that is changing with a significant reduction in the interest rates. “There is a move to the capital markets, and the approval of the ETF could be a pivotal moment, especially when combined with the growing number of Brazilian companies going public” says Kadamani.

Next comes the work of putting the fund together and acquiring the bitcoin.

With approval from the CVM in hand, QR Capital has begun their primary raise, says Carvalho. He anticipates the raise will yield 500 million BRL or about 90 million USD over the next several weeks.  

According to Carvalho, QR Capital will buy spot assets in regulated exchanges abroad in the open market. The ETF will rely on the CME CF Bitcoin Real Time Index (BRTI), a global standard for pricing BTC.

Carvalho says the challenge will be to replicate the index price. 

“We have regulatory restrictions on where we can trade BTC. We can only exchange BTC with regulated partners.” This helps to ensure that the BTC held by the fund is beyond reproach. “The KYC/AML requirements guarantee the security and origin of the BTC,” Carvalho says.  

“I suspect the U.S. regulators are watching closely, and will be learning from this ETF approval and subsequent trading (as well as the recent approvals in Canada),” says Lewis Cohen, Founder of DLx Law. As more time passes and these products prove themselves to be safe and popular, the SEC will have greater comfort with ETFs and other crypto-related investment products, he added. 

In considering how the bitcoin will be custodied, Carvalho relates that QR Capital will rely on their international partners, BitGo and Coinbase Custody, based in the U.S. This is what they currently use for the three QR Capital hedge funds that invest in BTC.

Annemarie Tierney, former SEC regulator and blockchain strategy consultant, notes the irony in a Brazilian ETF custodying digital assets with U.S. custodians, while the U.S. Securities and Exchange Commission has yet to approve a national stock exchange listing for a crypto ETF, despite multiple attempts. She says, “the growing regulatory acceptance for publicly traded crypto ETFs in other jurisdictions highlights the competitive disadvantage facing issuers seeking to launch a similar product in the U.S. public markets.”

Carvalho serves as the regional ambassador to the Global Blockchain Business Council (GBBC) which issued its GSMI mapping initiative last fall. The GSMI analyzes the current blockchain landscape and summarizes blockchain related legislation from 185 jurisdictions.  According to Carvalho, this type of resource has been helpful in demonstrating the global movement towards developing a regulatory infrastructure for crypto currency and blockchain tech. The GBBC enables greater interactions between regulators globally which cannot be underestimated, says Carvalho.

Looking ahead, Carvalho suggests that the bitcoin ETF is a “game changer” because it provides important access to legacy markets and allows individuals to invest securely without having to be concerned about securing their private key or having technical knowledge about how to keep their private keys safe. Carvalho expects bitcoin ETFs to spread to other jurisdictions.  

Tierney agrees with this assessment. She believes it’s just a matter of time before the SEC follows suit. She offers, “the market is hopeful that with a new administration, the SEC will provide detailed guidance on what is needed to obtain approval and move forward to allow public crypto-ETF listings.”

Carvalho opines that the current cycle of demand for bitcoin is different from that of 2017, where there was a sharp price increase and then a plummet. These days, the price of bitcoin continues to climb (with small fluctuations) due to increased demand from institutional investors and corporations buying BTC for their treasuries, says Carvalho. 

“There is still more room to grow. It is early days for the integration of BTC into the legacy capital market structure,” Carvalho says

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