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PGIM calls cryptocurrency ‘portfolio kryptonite’ but sees opportunities in broader ecosystem

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3 years ago

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PGIM calls cryptocurrency ‘portfolio kryptonite’ but sees opportunities in broader ecosystem

NEWARK, N.J.–(BUSINESS WIRE)–The most recent crypto collapse — largely pushed by poor design of a so-called “stablecoin” — highlights simply one of many many the reason why cryptocurrency is a poor selection for long-term traders, in keeping with PGIM, the $1.4 trillion world funding administration enterprise of Prudential Monetary, Inc. (NYSE: PRU).

In PGIM’s newest Megatrends paper, “Cryptocurrency Investing: Highly effective Diversifier or Portfolio Kryptonite?” dozens of funding professionals from throughout PGIM’s mounted revenue, fairness, actual property, personal debt and options companies dissect the commonest pro-cryptocurrency arguments and discover that direct funding in cryptocurrencies presents little profit to an institutional investor — whereas including appreciable volatility and danger.

“As long-term traders and fiduciaries on behalf of our shoppers, three issues must be true for us so as to add an asset class right into a portfolio: the asset wants a transparent regulatory framework, it must be an efficient retailer of worth, and it must have a predictable correlation with different asset lessons,” says PGIM CEO David Hunt. “Cryptocurrency at present meets none of those three standards. It’s rather more of a hypothesis than an funding.”

The PGIM analysis reveals that cryptocurrency is an unreliable portfolio diversifier and an insufficient safe-haven asset or inflation hedge. Current risk-adjusted returns should not a lot completely different than different asset lessons however with extra frequent and larger drawdowns. Moreover, the unsettled regulatory backdrop and the numerous environmental, social and governance considerations pose vital further headwinds for long-term traders.

“Cryptocurrency could also be a heroic quest to construct a viable, decentralized peer-to-peer fee system, however its pricing is predicated on speculative habits, relatively than a basic thesis round its worth or utility,” says PGIM Head of Thematic Analysis Shehriyar Antia. “Moreover, with little proof to assist it as an efficient inflation hedge or safe-haven asset, we see no motive for cryptocurrencies to be part of institutional portfolios.”

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BUSTING CRYPTOCURRENCY MYTHS

Cryptocurrency shouldn’t be an efficient hedge in opposition to inflation: In 2021, the value of bitcoin and different cryptocurrencies moved with inflation just for a short time earlier than falling sharply. Gold, however, has demonstrated for the reason that Nineteen Seventies that it may be an efficient and dependable inflation hedge.

Bitcoin doesn’t perform as a safe-haven asset: Bitcoin, essentially the most prevalent cryptocurrency, was not a steadying power in early 2020 when world asset costs spiraled downward on account of worldwide COVID-induced shutdowns. It held far much less of its worth than typical safe-haven belongings.

Cryptocurrencies conflict with ESG aims: A single transaction on the bitcoin blockchain is equal to 2 million transactions on the Visa community, or roughly the identical power wanted to energy the typical American dwelling for over two months. From a governance perspective, the anonymity and issue in tracing id of homeowners makes it a most popular medium of trade in illicit exercise — such because the potential for skirting sanctions within the wake of Russia’s invasion of Ukraine.

TANGIBLE OPPORTUNITIES IN BLOCKCHAIN TECHNOLOGY

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“Cryptocurrency will get all of the breathless hype, however it’s the underlying know-how the place we discover essentially the most attention-grabbing funding alternatives,” says Taimur Hyat, chief working officer for PGIM. “Corporations that allow real-world blockchain purposes like clearing and settling transactions, stopping fraud, and tokenizing actual belongings provide considerably larger creation of worth over the following decade. The outdated axiom applies — when there’s a gold rush, put money into shovels and pickaxes.”

Non-public blockchains and good contracts: Distributed ledger know-how and good contracts can revolutionize components of monetary companies, logistics, and provide chain administration, as they get rid of the necessity for counterparty and commerce verification in addition to transaction and report reconciliation.

Subsequent-generation securitization: The tokenization of actual property and infrastructure belongings may considerably scale back prices from transactions and servicing, improve liquidity, simplify transactions, improve worth transparency, and permit extra granular portfolio building.

The infrastructure and ecosystem supporting blockchains and future central financial institution digital currencies: Collateral innovation in areas equivalent to fraud prevention, regulatory compliance and different key enablers of the broader crypto ecosystem has the potential to generate engaging returns for homeowners of the businesses that present these companies.

To study extra, learn “Cryptocurrency Investing: Highly effective Diversifier or Portfolio Kryptonite?” the newest in PGIM’s Megatrends analysis sequence.

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ABOUT PGIM

PGIM, the worldwide asset administration enterprise of Prudential Monetary, Inc. (NYSE: PRU), ranks among the many high 10 largest asset managers on the earth1 with greater than $1.4 trillion in belongings beneath administration as of March 31, 2022. With places of work in 17 nations, PGIM’s companies provide a spread of funding options for retail and institutional traders all over the world throughout a broad vary of asset lessons, together with public mounted revenue, personal mounted revenue, basic fairness, quantitative fairness, actual property and options. For extra details about PGIM, go to pgim.com.

Prudential Monetary, Inc. (PFI) of the US shouldn’t be affiliated in any method with Prudential plc, integrated in the UK, or with Prudential Assurance Firm, a subsidiary of M&G plc, integrated in the UK. For extra data please go to information.prudential.com.

1 Prudential Monetary, Inc. (PFI) is the tenth largest funding supervisor (out of 477 corporations surveyed) by way of world belongings beneath administration based mostly on Pensions & Investments’ Prime Cash Managers listing printed on Could 31, 2021. This rating represents world belongings beneath administration by PFI as of Dec. 31, 2020.

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Crypto

The Company Behind the World's Third-Largest Cryptocurrency Just Invested $775 Million in This Little Company Taking on YouTube and AWS | The Motley Fool

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6 hours ago

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December 28, 2024

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The Company Behind the World's Third-Largest Cryptocurrency Just Invested 5 Million in This Little Company Taking on YouTube and AWS | The Motley Fool

Shares of technology company Rumble (RUM -6.39%) are at 52-week highs as of this writing, having jumped roughly 300% in value since lows set back in January. And much of its leap is thanks to a massive $775 million investment from the investment arm of Tether Limited, the company behind the cryptocurrency stablecoin Tether (USDT -0.04%).

Tether is the third-largest cryptocurrency in the world by market capitalization. As of this writing, the market cap is almost $140 billion, which trails only Bitcoin and Ethereum. But Tether isn’t like these other two cryptocurrencies; it’s a stablecoin.

A stablecoin intends to have a 1-to-1 price correlation with something else. For example, a U.S. dollar stablecoin should always be worth $1. It’s for people who want to explore the world of cryptocurrency without the volatility. Simply explained, they deposit $1 and Tether issues one new stablecoin worth $1.

According to Tether, it had about $125 billion in reserves as of Sept. 30 (its market cap was $119 billion at the time). Most of these reserves are in U.S. Treasury bills. It needs to hold these reserves in case people want to redeem their stablecoins for dollars. But Tether is able to make money for itself with these massive reserves in the meantime.

Tether CEO Paolo Ardoino recently said it’s on pace to earn $10 billion in net profit in 2024, which is an astounding amount for any company, let alone a cryptocurrency company. And the company doesn’t simply rake in these profits, but rather it invests its money from time to time, which is what it’s doing with Rumble.

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Why the market is excited about Tether’s investment in Rumble

Rumble turned heads when it went public in 2022 because this little company has big ambitions. The company intends to build internet infrastructure that’s free from censorship and it hopes to compete with Alphabet‘s video streaming platform, YouTube; Amazon‘s cloud computing service, AWS; social media platforms; and more.

The problem is that Rumble can’t simply wish all of this into existence — it takes money. And when ambitions are this high, it costs a lot of money to build. Unsurprisingly, the company had a net loss of $116 million in 2023 and has already lost another $102 million in the first three quarters of 2024.

But give Rumble some credit. The chart below shows its outstanding share count with the orange line. Ignore the brief spike shortly after it went public (the accounting of these things can get temporarily distorted upon going public). The chart shows that, to date, management hasn’t been raising money by diluting shareholders with stock offerings. It also hasn’t been taking on debt.

RUM Total Long Term Debt (Quarterly) data by YCharts

To the contrary, Rumble has been funding its growth with cash on hand. And I believe that’s the right move. After all, the company got its cash from its shareholders in the first place. These shareholders expect it to achieve its long-term vision by actually using this cash.

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However, Rumble is still burning cash at a fast pace and investors were getting worried about liquidity. The stock consequently skyrocketed when Tether announced its massive investment because the fears regarding liquidity were alleviated.

There are reasons for optimism with Rumble. In the third quarter of 2024, the company had 67 million monthly active users — that’s nothing to sneeze at. Granted, that’s down from its user base of 71 million in the third quarter of 2022. But it’s a large, engaged user base nonetheless.

The challenge has been growing revenue by getting advertisers to buy into Rumble’s potential. As CEO Chris Pavlovski lamented on the Q3 earnings call, “How much longer can brand advertisers ignore more than half the country?”

Rumble does have a premium subscription service that makes up for lack of interest from advertisers. But ad revenue is still important to the company and Pavlovski’s question is an admission that this is an ongoing headwind for the business. And, unfortunately, it’s impossible to know how much longer it will be before advertising demand picks up.

The good news for Rumble’s shareholders is that however long it is, it now has a longer runway than it had before thanks to the infusion of cash from Tether. While there are still a lot of moving pieces here and more details with the transaction that are worth knowing, the main takeaway is that Rumble has more time than it had before. And when it comes to investing, more time is almost always a good thing.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jon Quast has positions in Ethereum. The Motley Fool has positions in and recommends Alphabet, Amazon, Bitcoin, and Ethereum. The Motley Fool has a disclosure policy.

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Crypto

Terraform Labs co-founder Do Kwon will face fraud charges in the US | TechCrunch

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15 hours ago

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December 27, 2024

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Terraform Labs co-founder Do Kwon will face fraud charges in the US | TechCrunch

Do Kwon, the co-founder of collapsed cryptocurrency startup Terraform Labs, will be extradited from Montenegro to the U.S. to face federal fraud charges, as first reported by Bloomberg.

Kwon faces charges in both the U.S. and South Korea; Terraform Labs’ TerraUSD and Luna cryptocurrencies crashed in 2022, causing investors to lose over $40 billion.

Terraform and Kwon were found personally liable for fraud following a civil trial on U.S. Securities and Exchange Commission allegations in April. Terraform agreed to pay $4.5 billion to settle the case with the SEC.

Kwon was arrested in March 2023 at the airport in Podgorica, the Montenegrin capital, while preparing to board a flight to Dubai. It’s unclear when Montenegro plans on releasing Kwon to the U.S. and whether the government’s latest decision supersedes its order in August to extradite Kwon to South Korea.

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Here's a heartwarming holiday crypto story (no, seriously)

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1 day ago

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December 27, 2024

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Here's a heartwarming holiday crypto story (no, seriously)

In a true Christmas miracle, a viral crypto stunt actually seems to be doing some good in the world.

Siqi Chen, an investor and startup founder, took to X on Christmas Eve to share a GoFundMe campaign he created to fund research into a rare brain tumor afflicting his 5-year-old daughter. His daughter, Mira, was diagnosed in September with adamantinomatous craniopharyngioma — a benign tumor that is usually not fatal but causes severe side effects. 

Chen said the family is working with Dr. Todd Hankinson at the University of Colorado on treatments to slow the tumor’s growth. Because this cancer is so rare, he said, research is sparse and funding is lacking. “this christmas, i am humbly asking for your help to support dr. hankinson’s research,” he tweeted.

His online fundraiser raised more than $233,000 of its $300,000 goal in two days. But the most heartwarming part had nothing to do with GoFundMe.

Late in the evening on Christmas Day, Chen took to X again — this time in surprise. 

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“uh so some random guy 20 minutes [ago] made a SOL memecoin called $MIRA to help with research fundraising and sent me half the entire supply and it’s now worth like $400K and i literally don’t know what to do,” he wrote.

The memecoin — internet parlance for a cryptocurrency created on a lark, often based on a joke — skyrocketed in value as crypto enthusiasts traded it among themselves. Chen started selling off small portions of his holding Wednesday evening, promising to donate 100% of the proceeds to Hankinson’s laboratory. “CAN SOME PLEASE EXPLAIN HOW THIS MAGIC INTERNET MONEY WORKS I AM LOSING MY MIND,” he wrote less than half an hour after his initial tweet, when the value of his holdings soared to nearly $6 million. 

Chen continued tweeting his disbelief as the value soared to $11 million, then $14.7 million, then $18.8 million. By Thursday morning, he had sold enough of the token to send at least $1 million to Hankinson’s lab, he said. “yi, mira and i are so unbelievably grateful to you all — each and every one of you,” he wrote. “christmas magic was made real this year thanks to all of you. forever grateful.”

Perhaps no one was more surprised than Hankinson, who learned of the memecoin Thursday morning via excited texts from friends and coworkers. “This entire area of the world — Bitcoin and NFTs and stuff — I do not know a single thing about it,” he told The Standard. “So when all this stuff started going on, I was like, ‘What?’” 

Hankinson said he has studied adamantinomatous craniopharyngioma for more than 15 years, and his lab is the only one in North America dedicated to its treatment. He said funding is hard to come by both because the condition is rare — fewer than two in a million people are diagnosed with AC every year — and because it does not grow as aggressively as some other tumors. Still, he said, the side effects can be devastating: stunted growth; vision impairment; and difficulty regulating hunger, thirst, and temperature.

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If the Chen family did contribute $1 million, he said, it would be by far the largest donation the lab has ever received.

“Even if it ends up being a small fraction of what people have talked about, it would still be a complete game changer for the scale on which we can do things and the sophistication with which we do things,” he said. “This would be the most insane Christmas gift our research has ever gotten.”

Hankinson and Chen weren’t the only ones surprised by the use of a memecoin to fund medical research. These trend-based tokens are primarily known as risky, volatile investments — more of a gag than a serious asset. (The creators of a memecoin tied to Hailey Welch, better known as the “Hawk Tuah” Girl, are being sued by investors after its value dropped 95% in a single day.) They are sometimes used in crypto scams known as “rug pulls,” in which founders create a token, convince people to invest in it, then rapidly sell all their holdings.

Chen said repeatedly on Twitter that he was trying to avoid a “rug pull” situation by selling off his holdings in the “MIRA” coin slowly. He said Thursday that he would sell $1,000 worth of the token every 10 minutes until it runs out. Still, the value of the coin has dropped significantly from its overnight high. 

That crash — coupled with the fact that early sellers of the coin likely made a tidy profit — made some observers uneasy. But Chen said he didn’t mind.

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“if you made a lot of money, i’m genuinely happy for you — but please consider donating some of your profits to hankinson lab,” he tweeted. “if you lost a lot of money, i’m very sorry —  but magic internet money is magic internet money.”

Chen is a well-regarded figure in Silicon Valley who founded and sold two startups and worked at several others before his current venture, a finance software company called Runway. Among those responding to his tweets were Reddit co-founder Alexis Ohanian, Sequoia partner Shaun Maguire, and X CEO Linda Yaccarino.

In a Twitter Space on Wednesday night, Chen explained that his daughter initially presented with a headache, which he and his wife thought little about until they brought her to a pediatrician who suggested an MRI. Doctors have since placed Mira on an arthritis medication that could slow the growth of the tumor, and they are weighing the benefits of surgery. “Our strategy right now is just to try everything we can to buy as much time as possible,” he said.

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