US stocks trade higher on Friday as investors shrug off fresh data showing a surge in inflation.
The Personal Consumption Expenditures price index – a key measure of domestic inflation – gained 0.6% through April, the Commerce Department announced Friday, as American spending rebounded.
The jump is the largest single-month gain since 2008, in line with the median estimate of a 0.6% increase from economists surveyed by Bloomberg.
The PCE index also notched a 3.6% year-over-year gain, surpassing the median estimate of 3.5%
“This report puts the Fed in a really good place, inflation is up, but real yields are still low,” Jamie Cox, managing partner for Harris Financial Group, said in a statement. “This is basically a transitory sweet spot.”
In the digital asset space, trading platform eToro addedtwo decentralized finance tokens, Aave and Yearn.Finance YFI, to its trading offering this week, alongside crypto tokens Compound COMP and Decentraland MANA. DeFi has gained traction amongst crypto investors in recent weeks after having been long overlooked on account of its complex nature.
Digital currencies established by central banks would stoke wider demand for crypto assets, according to an Economist Intelligence Unit study, which comes as central banks including the Federal Reserve have been stepping up work in this area.
59% of study respondents agreed that the launch of digital currencies by official monetary authorities would lift up use of other forms of digital currencies and assets that are not backed by governments. The EIU study, commissioned by crypto exchange platform Crypto.com, posed the question to 200 institutional investor and corporate treasury management officials between February and April.
A central bank digital currency, or CBDC, is a type of central bank liability – like the US dollar – issued in digital form.
Meanwhile, 78% of the institutional and corporate survey takers consider the issuance of CBDCs as necessary to establish a functioning market for new financial instruments, such as digital bonds, to supplement the role of cryptocurrencies.
“If people get used to central bank money that is digital-they have access to central bank money in a digital format-that obviously makes them more comfortable to use other digital currencies,” Henri Arslanian, the crypto leader at PwC, one of the world’s largest auditing and financial services firms, was quoted as saying in the EIU study.
Central banks are “late to the race” in digital adoption but they still carry influence in such matters, the study said.
In Sweden, the central bank in April was moving toward testing with banks a so-called e-krona. The Bahamas became the first country to launch a digital version of its fiat currency with the October 2020 launch of the digital Sand Dollar.
The EIU study found that 74% of respondents believe their countries are or will become cashless.
Bitcoin isn’t a convenient medium of exchange and carries with it other shortcomings. But Nobel Prize-winning economist Paul Krugman has begrudgingly admitted that the cryptocurrency is here to stay.
“BTC isn’t a new innovation; it’s been around since 2009, and in all that time nobody seems to have found any good legal use for it,” wrote Krugman in a string of comments he posted about bitcoin on Twitter on Wednesday.
He continued: “But I’ve given up predicting imminent demise. There always seem to be a new crop of believers. Maybe just think of it as a cult that can survive indefinitely.”
The New York Times opinion columnist has previously called himself a “crypto skeptic” and on Wednesday he outlined what he sees as flaws in bitcoin, the world’s most traded digital currency.
“It’s not a convenient medium of exchange; it’s not a stable store of value; it’s definitely not a unit of account,” he wrote. “Its value rests on the perception that it’s a technologically sophisticated way to protect yourself from the inevitable collapse of fiat money, which is coming one of these days, or maybe one of these centuries. Or, as I say, libertarian derp plus technobabble.”
His comments echoed his July 2018 article in which he said he could be wrong about holding a skeptical view toward cryptos. “But if you want to argue that I’m wrong, please answer the question, what problem does cryptocurrency solve?”
Krugman – who won the Nobel Prize in Economic Sciences in 2008 for his work on international trade theory – posted his comments on Twitter on the same day of a massive selloff in bitcoin and other cryptocurrencies after the People’s Bank of China said digital tokens can’t be used as a payment form by financial institutions.
Bitcoin at its lows fell 31% to around $30,000 on Wednesday before paring losses.
“Shark Tank” investor Kevin O’Leary has allocated 3% of his portfolio to bitcoin and is aiming to bolster sustainability in mining for the world’s largest cryptocurrency.
O’Leary told Yahoo Finance Live in an interview that aired Wednesday that he made the allocation after Canada, where he’s from, and other countries eased restrictions on institutional purchases of bitcoin. Regulators in Canada so far this year have approved the launch of four cryptocurrency exchange-traded funds.
The chairman of O’Shares ETFs, who called bitcoin “garbage” in a May 2019 interview on CNBC, said in March that he would be adding bitcoin to his portfolio partly because he thought of it as a hedge against inflation. He told Yahoo Finance Live that after his announcement he received numerous calls from institutional investors asking if he knew where the coins originated. He warned that “there’s a big problem brewing” in the crypto industry how and where coins are mined.
He said he’s working to make sure every coin he owns is compliant.
“I know the provenance of where my wallet coins were mined now, and that means I’ve had to take equity positions in miners. I’ve had to start investing in them with the covenants in place that I would like to be paid back in a royalty of a clean coin,” O’Leary said.
He also said he’s working on organizing a “council of sustainability” to include corporations and governments that are mining coins responsibly.
Bitcoin is a target of criticism in part because its digital mining process requires a significant amount of energy. Research from Cambridge University shows it uses more energy each year than Sweden and Argentina.
Bitcoin’s fast-growing popularity, increasingly elevated profile in corporate America and swelling market capitalization above $1 trillion have retail and Wall Street investors alike questioning if and when a bitcoin exchange-traded fund can be traded in the US. Those questions are currently before the Securities and Exchange Commission which is being asked in at least nine applications for the green light to launch what could be the first cryptocurrency ETF in the country.
The arrival of a bitcoin ETF in 2021 would follow this month’s start of trading in shares of Coinbase, the first cryptocurrency exchange to go public, as well as expanding acceptance of bitcoin as payment methods by companies including electric vehicle maker Tesla. Meanwhile, investment bank JP Morgan is preparing to introduce its first bitcoin fund for wealthy clients.
These and other bitcoin developments may signal the increased likelihood that a bitcoin ETF will gain approval, but the SEC has rejected other attempts.
Institutions “are getting in from hedge funds on Wall Street to PayPal, to Venmo, to Visa. So [the SEC] can’t really ignore this because the market is deciding that they want to be involved,” Ian Balina, founder and CEO of Token Metrics, a data-driven cryptocurrency investment research platform, told Insider.
Here are three hurdles and tailwinds that experts say stand in front of the first US bitcoin ETF:
1) Bitcoin volatility
The world’s most widely traded digital asset is well-known for its wild price swings, with gains or losses of 10% during a session not uncommon.
“The SEC has a difficult job balancing the clearly overwhelming desire for the market to have access to BTC via an ETF versus the inherent volatility that the asset class has at this stage in its life cycle,” George McDonaugh, co-founder of digital asset investment firm KR1, told Insider. “Volatility would be one of the major considerations. Bitcoin is very scarce and comparatively still a very young asset class. The volatility should dampen over time but that might be long after the market loses patience waiting for [a bitcoin ETF].”
Liquidity in the bitcoin market had also been a factor under consideration by the SEC.
“I think it’s less of a concern now [than] in the early days … and a lot of that is tied to institutional players coming into and creating depth and breadth in the market,” Matteo Dante Perruccio, president international of Wave Financial, a US-regulated digital asset manager, told Insider. “If it’s 90% retail investors in an asset and you open it up to a bigger universe of retail investors, I think that’s a really hard decision to make as a regulator. But it helps you have substantive institutional investors trading and involved in investing in it.”
“It’s fair to say if you look at the denials for the last several ETFs, you can see that there was concern among several of the commissioners that the bitcoin market was not sufficiently regulated and, in their view, was susceptible to manipulation,” and “when I say that I mean that manipulation would show up in prices,” Amy Doberman, a partner in the securities department at law firm WilmerHale, told Insider.
“I think what you’re going to see with the pending requests for approval is an argument that the market is far more developed than it was four or five years ago and that there’s a lot more price discovery available than there was even just a few years ago so that there will be the ability to reference actual trades and sufficient information to develop accurate prices,” said Doberman.
3) What’s on the SEC’s plate
The US lags behind other countries in approving bitcoin ETFs, with Canada this year approving the first publicly traded bitcoin ETF in North America, the Purpose Bitcoin ETF, as well as ethereum ETFs. Brazilian regulators have reportedly approved two bitcoin ETFs.
“People underestimate the Canadian approval,” said Wave Financial’s Perruccio, characterizing as “close cousins” the SEC’s relationship with the Canadian securities regulator. “The regulators have got to be talking a lot and … you always feel more comfortable in company when you are making these bold decisions,” and Canada’s regulator is considered as well-respected, he said. For a US bitcoin ETF, “I feel like it’s inevitable. It’s no longer ‘if’ but ‘when’ and I think the question of when is probably in 2021. That’s my prediction,” said Perruccio.
While bitcoin ETF applications pile up, the SEC and its new chairman Gary Gensler have a range of other issues they are working on. Gensler, who was confirmed as chairman earlier this month, is seen by some bitcoin ETF proponents as a cryptocurrency advocate stemming in part from his teachings at MIT on the subject.
Gensler “will have to decide what he wants to prioritize,” said Doberman. He’s “obviously very knowledgeable about cryptocurrencies and hopefully will bring an additional level of sophistication and appreciation for the currency to the table,” she said.
While he’s well-versed in the subject of cryptocurrencies, Gensler, who served as a chairman of the Commodity Futures Trading Commission under the Obama administration, will not just wave through bitcoin ETFs applications without scrutiny, said Noah Hamman, CEO of AdvisorShares, a firm that offers actively managed exchange-traded funds through its AdvisorShares Trust.
Gensler will be in the role “of looking at the rules and regs and deciding if either, one, something fits or two, do the rules and regs need to be modified to allow it to fit because it makes sense and it’s the right thing to do,” said Hamman. AdvisorShares does not have a bitcoin ETF filing with the SEC.
Coinbase shares face delisting this week from two European trading venues run by Deutsche Boerse because of a coding error with the cryptocurrency platform.
The shares could be removed from the Xetra trading system and the Frankfurt Stock Exchange by the end of Friday, each said on their Twitter feeds on Wednesday.
Xetra said traded securities must meet various criteria, including having an LEI, or an individual 20-digit identification code.
“When Coinbase commenced trading, a LEI code was mistakenly used for a Coinbase entity that is not attributable to the entity introduced last week (Coinbase Global Inc.). A correct LEI code is a regulatory requirement for admission to trading in Europe,” wrote Xetra. “The only way for Coinbase to resume trading is for the issuer to apply for an LEI,” it said.
Coinbase became tradable on the Frankfurt stock exchange’s trading floor last Wednesday when the company’s direct listing debuted in the US on Nasdaq. Coinbase is the largest cryptocurrency exchange in the US and its going public has been called a milestone for the industry surrounding digital coins, tokens and blockchain technology.
Nasdaq-traded shares of Coinbase were up nearly 2% during Wednesday’s session. The stock reportedly was rated as a buy at Rosenblatt Securities on Wednesday.