Sam Bankman-Fried, the 29-year-old crypto billionaire, has said that bitcoin could dramatically cut down on its energy use without killing off the cryptocurrency or setting back the industry.
He also revealed that special purpose acquisition companies, or SPACs, have been queuing up to take his FTX crypto exchange public, speaking in an interview with Bloomberg.
The computing process that secures and “mines” bitcoin has been criticized for using vast amounts of energy. Bitcoin enthusiasts have pushed back hard, saying detractors are blowing the problem out of proportion.
But Bankman-Fried told Bloomberg that bitcoiners need to take the issue seriously. “It’s not at all reasonable for bitcoin forces to decry it as sort of a witch hunt to bring up this question, because there is substantial energy usage happening because of bitcoin mining right now,” he said.
Bankman-Fried, who founded and is now chief executive of FTX, said he’s been approached by a number of SPACs about taking the crypto derivatives exchange public. SPACs are blank-check companies that raise money on the stock market and then find a target company to merge with.
He said FTX was one of the few “plausible exciting targets” for SPACs in the crypto world.
Bankman-Fried said the exchange does not have concrete plans, but said: “If we did want to go public via [a] SPAC, I don’t think finding the SPAC would be the limiting factor.”
Legendary investor Jeremy Grantham said US stocks are hugely overpriced, predicted copper prices should shoot higher in the coming years, and that he had an “overprivileged” lockdown in an interview at the Morningstar Investment Conference Australia this week.
The cofounder of asset management firm GMO also ripped into the major oil companies, saying they’re too cynical to engage with. And the 82-year-old said the SPAC boom and the Nasdaq had probably peaked.
Here are the 14 best quotes from the interview.
On the investing landscape
1. “The developed world is merely overpriced, no big deal on its own, but the US is heroically overpriced, and emerging markets is actually fairly cheap… I have complete confidence that if you bought the intersection, cheap emerging market stocks, that you would get a perfectly handsome 10- or 20-year return. And I am pretty darn confident that you will not get a handsome ten-year return from say the S&P 500 or Nasdaq.”
2. “[The] Nasdaq has, by the way, peaked quite a long time ago, two months ago…. This time, my guess is the super SPACs peaked in January, the Nasdaq peaked in February. And maybe in a few months, the termites will get to the rest of the market.”
3. “The super crazies are really anything to do with electrification. EVs, for sure, Tesla is the king of that group, [and] they’re down 30%. The SPAC index is down 30%, the last 10 SPACs having announced a deal are now [trading at] less than the $10 that they do these deals at.”
4. “There is no way copper will not rise hugely from here because of the electrification of everything. And that goes for cobalt, that goes for lithium. And all of the metals except iron and aluminum are really scarce… You have to be reconciled in the long run for a different world of commodity prices.”
On dangers for markets
5. “The higher an asset price is, the lower the return. So having high-priced assets is great for retirees, old folks like me selling off my assets. But for everybody else, it means you compound your wealth more slowly… So I welcome lower asset prices, which I’m confident will come.”
6. “It won’t take bad news. It won’t take a thoroughly bad economy to start bringing this market down. It will take a perfectly good economy and perfectly optimistic outlook, but a little less than it used to be a week ago, a month ago.” – Grantham also spoke of “pessimism termites” that would start to eat away at investor confidence.
7. “You look around and you find that real estate is suddenly pretty bubbly in almost every interesting market in the world… You can’t keep an asset class like housing, where the house doesn’t change, and you’re just marking it up in real terms year after year. Eventually, there’ll be a day of reckoning.”
8. “Don’t pull a Japan. Japan had the biggest bubble in history in land and real estate, bigger than the South Sea Bubble in my opinion. It also had the biggest equity bubble of any advanced country. [Now] 32 years later their land is not back to where it was in 1989 and their stock market is not back in nominal dollars to where it was in 1989. And that’s a perfect example, as the higher you go, the longer and greater the fall.”
9. “We had a totally overprivileged existence. We’re down in beautiful countryside with 50 acres of our own of woodland… And I did quite a lot more research than normal because I wasn’t wasting my time on airplanes. So my carbon footprint was magnificent, and I was reduced to worrying about rather small things like amortizing my tie supply. If I could wear three at a time, I would.”
On the oil companies
10. “The oil industry ran a deliberate campaign of obfuscation, political propaganda, to deliberately mislead the world… That should be criminal. It certainly has had a very damaging effect… It’s cost the world perhaps as much as 10 years of progress on climate change action and government support and sensible regulation.”
11. “I think engagement for the routine concerns [with companies over climate change] is the way to go… But with oil companies, I think they’re simply too cynical and too clever for engagement to count.”
On value investing and venture capital
12. “[Value investing] has had a brutal 11 years. It was the worst 10 years in history for value versus growth. And then last year was by far the worst single year. So you had the worst decade followed by the worst single year… We’ve had a lot of problems over the last 11 years.”
13. “American capitalism seems to me past its prime, a little fat and happy, not aggressive enough. There’s only half the number of people working for firms [that are] one and two years old than there were in 1975. So we’re losing some of our dynamism.”
14. “But there is one thing where the US is still exceptional and that is venture capital. And venture capital is really attracting the best people these days. They don’t go to Goldman Sachs to write algorithms. They go into venture capital or to start a new firm, and they should.”
Chamath Palihapitiya filed for four blank-check companies on Wednesday along with a new partner, according to paperwork registered with the Securities and Exchange Commission.
The latest additions build on his roster of 6 special-purpose acquisition companies already raised, yielding more than $1 billion.
The four new SPACs are launched under a partnership between Palihapitiya’s venture firm Social Capital and hedge fund Suvretta Capital Management. One of Suvretta’s core investing strategies is to identify companies that are disruptive to the healthcare sector.
The companies may initially pursue a combination target in any industry as part of its proposed business strategy, filings state. Each SPAC is seeking to raise $200 million with ultimate specific focuses within the biotech industry: neurology, oncology, organs, and immunology.
They are each named Social Capital Suvretta Holdings Corp., distinguished by the Roman numerals I, II, III, and IV. The tech billionaire has said he plans to eventually do 26 SPAC deals, one for every letter of the alphabet.
Palihapitiya will serve as CEO and chairman, while Suvretta’s healthcare portfolio manager, Kishen Mehta, will serve as president.
“Our company unites scientists, physicians, entrepreneurs and biotechnology-oriented investors around a shared vision of identifying and investing in innovative and agile biotechnology companies,” the filing stated.
The SPACs, which carry the ticker symbols DNAA, DNAB, DNAC, and DNAD, are expected to trade on the Nasdaq.
Suvretta, founded in 2011 by former Soros fund manager Aaron Cowen, is dedicated to three investing strategies. One of these is its healthcare-focused unit Averill, set up in March 2020.
“You can’t keep an asset class like housing, where the house doesn’t change, and you’re just marking it up in real terms year after year,” Grantham said. “Eventually there’ll be a day of reckoning.”
Grantham, one of the most famous investors in cheap or “value” stocks, also said the SPAC market appeared to have been a bubble that has popped.
He said an index of SPACs – blank-check companies that go public before finding a target to merge with – was down sharply from its all-time high while many of the shell entities were trading below their initial price.
He said the Nasdaq had probably also peaked in February. On Wednesday, the tech-laden stock index was about 3% off its all-time high, reached in April.
Grantham is a prominent bear, or someone who believes prices are about to fall. Many investors have come to discount his pronouncements given that stocks have consistently hit all-time highs over the past year.
Grantham continued his bearish theme at the Morningstar conference, saying that “pessimism termites” might “get to the rest of the market” in a few months. He said there were signs of craziness, particularly in the sky-high prices of electric-vehicle stocks such as Tesla.
“We’ve turned the pressure up and up, more money, more moral hazard, and here we are at the peak,” he said.
Following the late-March leverage unwind, banks are exhibiting more caution when extending leverage to hedge funds and family offices, according to the report. Less leverage has forced hedge funds to rethink their strategy when investing in SPACs, according to the report.
Hedge funds would often employ leverage to buy SPACs at the $10 offering price, and then immediately sell any pops to get out early and lock-in gains. That leverage would significantly help juice returns for hedge funds.
A senior banker who works on SPAC deals told the Financial Times, “A lot of the return profile for hedge funds is derived from the leverage they employ. It was a gravy train when it was levered.”
Now, less leverage being offered to hedge funds in the wake of the Archegos fiasco has coincided with a significant drop in SPAC IPO listings. Over the past month, just 13 SPACs listed, compared to 110 SPAC listings in March.
“We are seeing it in the price action where securities are trading below par because banks are not offering leverage as freely as they did and it’s now more expensive,” Matthew Simpson of Wealthspring Capital told the Financial Times.
An analysis of Refinitiv data by the Financial Times found that 80% of SPACs that are still in search of a deal are now trading below the $10 level, which is often the IPO price for the blank-check firms.
“All the rocket fuel has come out of these things. If hedge funds were allowed to lever up, hedge funds would be levering up to buy all the SPACs trading under $10,” Matthew Tuttle of Tuttle Capital Management told the Financial Times.
But the unwind of leverage being offered to hedge funds isn’t the only reason why few SPACs have gone public in recent months. Increased regulatory scrutiny of SPACs and an unwind in the high-growth tech trade have certainly contributed to a decline in SPAC offerings.
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Acorns, the investing app Ashton Kutcher is obsessed with, announced plans to go public via SPAC yesterday in a deal valued at $2+ billion.
If Robinhood is your cool cousin who made $50k on her GameStop stock, Acorns is your quiet uncle who owns a profitable pet food business in the suburbs. Acorns doesn’t allow its 6.8+ million users to buy or sell individual stocks. Instead, it helps them build balanced portfolios for the long term via its signature service, which deposits users’ spare change into index funds.
“Acorns will be on the right side of history,” CEO Noah Kerner told the WSJ. “We are not a grow-at-all-costs company.”
Zoom out on SPACs: So far in 2021, SPACs have raised $17 billion more than 2020’s total haul. But even the biggest name in SPACs, Chamath Palihapitiya, wants more oversight of the process.
He might not have to wait long. SEC Chairman Gary Gensler said yesterday that the agency is beefing up resources to look into the SPAC boom, which many fintechs like Acorns have taken advantage of.
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But the Bloomberg report didn’t drive the same surge in Social Capital Hedosophia Holdings Corp. VI on Wednesday that it might have a few months ago when SPACs were all the rage on Wall Street. The SPAC vehicle was down 2% in Wednesday trades, signalling that investors might not be impressed with the potential deal.
The SPAC market has deflated following a peak in the first quarter of 2021. Few issuances have gone public since April, when the SEC signaled that it would increase regulatory scrutiny on the IPO vehicles, and SPAC stocks have cratered, with the Defiance Next Gen SPAC ETF down nearly 30% since its February peak.
The boom in special-purpose acquisition companies, or SPACs, may have slowed of late, but it could still drive $900 billion of dealmaking over the next two years, according to Goldman Sachs.
“We estimate $129 billion of SPAC capital is currently searching for a target,” Goldman analysts, led by David Kostin, said in a note on Wednesday.
“In spite of the issuance slowdown and sell-off, SPACs could drive a total of $900 billion in M&A enterprise value in the coming 24 months.” Enterprise value is the total value of a company, including its market capitalization, cash and debt.
A record 277 blank-check companies issued shares in the first quarter, raising $91 billion from investors. It helped power the strongest first quarter for dealmaking in 40 years, topping even the dotcom bubble of 2000.
A SPAC is an entity that exists solely to list on the stock exchange to raise money, in the hope of finding and merging with a target company to take it public. They can be incredibly lucrative for early supporters, and offer companies a less onerous and costly way of listing on the stock exchange.
On April 13, Asian ride-hailing company Grab agreed to go public through a $40 billion merger with the Altimeter Growth Corp SPAC. Trading platform eToro will also list through a $10 billion SPAC deal.
But the SPAC boom has slowed in recent weeks. Just six new SPACs have come to market so far in the second quarter, Goldman said, compared to 55 at the same point in the first 3 months of the year.
Goldman said signals from US regulators that they are concerned about various aspects of the SPAC frenzy, including the reporting, accounting and governance of SPACs, has been the key factor weighing on the market.
Nonetheless, there were 394 SPACs seeking companies to take public as of Wednesday, with $129 billion of equity capital, Goldman said.
The bank’s estimate that blank-check companies could drive $900 billion in dealmaking over the coming years assumed active SPACs find targets and close deals, and that future acquisitions are structurally similar to transactions announced so far in 2021.
Goldman Sachs itself has been a key driver of the SPAC boom. The blank-check phenomenon helped power record investment banking revenues in the first quarter.
A continued rise to record highs in the stock market has some worried that a bubble is forming as valuations appear stretched and rising inflation seems imminent.
But according to a Thursday note from JPMorgan, there is no bubble to be found in the broader stock market. High expectations for historic economic growth amid a reopening of the US economy supports the move higher in stocks, according to the bank, which expects US GDP growth of 6.3% for 2021.
But within certain sectors, there does appear to be pockets of froth that are likely experiencing a bubble, JPMorgan said. These are sectors that “have more than tripled in price over a short period of time,” the bank explained.
These are the five sectors of the stock market that appear to be in a bubble, according to JPMorgan.
1. Clean Energy
Anything related to ESG has seen a boom in prices as investors continue to gravitate towards sustainable investing. Clean energy is one sector that comes top of mind to investors that are looking to invest in a green future, and the top holdings in the iShares Clean Energy ETF represent companies in the fuel cell and wind energy space.
Since its pandemic low last year, the ETF rallied as much as 324% in less than a year, meeting JPMorgan’s criteria for a potential bubble.
Bill Gates said he believes companies have “flipped” from staying private too long to going public too soon, in an interview with CNBC on Friday.
The billionaire Microsoft co-founder added that he will be avoiding “low quality” special purpose acquisition companies (SPACs) that have flooded the market and sticking with “higher quality” options.
Gates sat down with CNBC’s Becky Quick and former US Treasury Secretary Hank Paulson to discuss his climate-related work for the economic club of New York on Friday. In the interview, the billionaire philanthropist was asked about the rise of SPACs and whether or not they would be a benefit to “green” startups.
Gates emphasized the capital intensive nature of climate change solutions and green companies and said that if investors are willing to take the risk, cash from capital markets would allow “green product companies” to “improve their balance sheet and get capital for projects because the markets are saying this is important.”
On the other hand, Gates warned about the risks in early-stage investments, saying, “you’ve got to make sure your disclosure about the risks is really extreme.”
He also noted that “we’ve kind of flipped from a world where companies would probably stay private too long, to now where, unless you’re tasteful, some of these companies may be going public too soon.”
Gates added that “there will be quality companies that SPAC,” but emphasized there will also be “low-quality companies” that choose to take advantage of the SPAC boom. Gates said he will be looking to stay involved in the only higher-quality offerings.