Posts with «finance» label

Tesla is moving its headquarters to Texas from California

Turns out Tesla isn't just building a factory in Austin, Texas — it's also moving its headquarters to the city from California. Elon Musk has announced the move at the company's most recent annual shareholder meeting, where he also clarified that Tesla still plans to expand production at its California plant by 50 percent. He explained, however, that there's "a limit to how big you can scale in the Bay Area," because house prices are sky high, which means long commutes for workers who have to live elsewhere. 

The move doesn't come entirely as a surprise: Musk previously threatened to move Tesla's headquarters out of California after coronavirus lockdowns forced the company to suspend production in the state. He even called the lockdown orders "fascist" during an earnings call in 2020 and then personally relocated from LA to Austin a few months later. That said, it's worth noting that Tesla is now based in a state where it can't sell its cars to buyers directly, which has been its approach from the beginning, due to pro-dealership laws.

As CNBC notes, Musk moving to Texas means he'd be paying less taxes. The state has no personal income tax, whereas California has some of the largest income tax rates in the country. Further, the state has been offering companies tax breaks to build facilities in the state under the Texas Economic Development Act.

During the meeting, shareholders also voted on proposals to improve company governance. The New York Times said they agreed on most of the proposals aside from a couple that the company opposed, one of which would require the company to publish reports on its efforts to diversify its workplace. Tesla said in a report (PDF) last year that its leadership in the US is still mostly white and male, while its workforce is 79 percent male and 34 percent white overall. Just a few days ago, the company was ordered to pay $137 million in damages to a former Black worker. The plaintiff accused the automaker of turning a blind eye to discrimination and racial abuse while he was working at its plant in Fremont, California. 

Google shuts down Plex banking service less after less than a year

The Google graveyard is getting more crowded. After announcing the Plex mobile-first bank accounts in November last year with Citibank and a few other financial institutions, Google is pulling back from the product. According to the Wall Street Journal, the company is "abandoning plans to pitch bank accounts to its users." 

A Google spokesperson told Engadget that it's "updating our approach to focus primarily on delivering digital enablement for banks and other financial services providers rather than us serving as the provider of these services."

Plex was initially positioned as an easy mobile-first way to open bank accounts, with Google providing the technology and app design and banks and credit providers backing the finances. It sounded more like a way to help institutions that didn't yet have a modern, competent app to team up with Google on one, which might be why major names like Bank of America and Capital One, who already had existing apps, weren't on the list of partners.

According to the Journal, a Citibank spokesperson said it plans to recommend other accounts to people who had already signed up for the Plex waiting list. The publication reports that the waiting list numbered about 400,000 people, and that the pandemic had thrown plans off schedule. The Journal also noted that "As late as this week, several banks were under the impression that the project would still move forward."

Though the Plex branding is going away, Google does appear to want to stick around in the financial services business. The spokesperson said that "We strongly believe that this is the best way for Google to help consumers gain better access to financial services and to help the financial services ecosystem connect more deeply with their customers in a digital environment.”  

It may not a complete abandonment, but Plex joins a long list of other Google products that were cancelled or discontinued, like the Home Max speaker, Clips camera, Google+ and more.

Hitting the Books: How Bitcoin is somehow worth more than the paper it's printed on

Bitcoin and similar blockchain-based cryptos exhibit the same radical divergence from traditional scarcity economics that we first saw when MP3s and Napster cratered physical album sales at the turn of the century. Unlike gold, which derives its value from both its myriad uses in fashion and industry as well as the difficulty involved in extracting it from the Earth, acquiring new Bitcoin is as simple as digitally mining more of the stuff. In his latest book, The Future of Money, Senior Professor of Trade Policy at Cornell University, Eswar S Prasad deftly examines how we collectively assign value to these digital constructs and what that means for the economics of tomorrow.   

Harvard University Press

Copyright © 2021 by the President and Fellows of Harvard College. Used by permission. All rights reserved.

At a conference held in Scotland in March 2018, then Bank of England governor Mark Carney observed that “the prices of many cryptocurrencies have exhibited the classic hallmarks of bubbles including new paradigm justifications, broadening retail enthusiasm and extrapolative price expectations reliant in part on finding the greater fool.” The last phrase in his statement was an allusion to the period of seemingly ever-rising real estate prices during the US housing boom of the early to mid-2000s. High and rising real estate valuations seemed to be based on the notion that all it took to make money from a house purchased at inflated prices was to find just one buyer—an even greater fool than oneself—willing to pay an even higher price.

Carney’s speech came on the heels of another by Agustín Carstens, head of the Bank for International Settlements; he described Bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster.” Skeptics, including central bankers and academics, correctly note Bitcoin’s extremely volatile prices and the periodic price collapses it has experienced. Indeed, from an economist’s perspective, there is no logical reason Bitcoin should be priced beyond its value in providing an anonymous payment mechanism, let alone the sort of value it commands. Yet, even as it has shed all pretense of being an effective medium of exchange, Bitcoin has maintained the faith of its adherents. It seems not just to persevere but has become an increasingly prized store of value—or perhaps more accurately, an attractive speculative asset (at least as this book is being written—this could all change in a moment). What accounts for this?

To address this question, we must first consider what gives a financial asset, tangible or not, economic value. For one thing, an asset represents a claim on future goods and services. Owning a share of stock or debt issued by a firm is a claim on the firm’s future earnings, which in turn is based on its ability to create real products or services that have monetary value. The same is true for real estate, which yields real services to homeowners or renters that can be monetized. Owning a government bond is in principle a claim on future government revenues, which could come from taxes or other sources.

Gold is dif­ferent. It has an intrinsic value based on its industrial use, and it is also used in jewelry (and tooth fillings). But its market value seems far greater than its intrinsic value based on these uses. It appears that gold derives its value mainly from scarcity rather than its usefulness or any claim it offers of a future flow of goods and services. Scarcity by itself is clearly not enough; there has to be enough demand for an asset as well. Such demand could hang on a thread as slender as a collective belief in the market value of the asset—if you think there are other people who value gold as much as you do and enough people feel the same way, gold has value.

So is Bitcoin just a digital version of gold, with its value determined mainly by its scarcity? The limit of twenty-one million bitcoins is hardcoded into the algorithm, making it scarce by construction. But there still needs to be demand for it, as even Bitcoin cannot escape the basic laws of market economics, especially the determination of prices based on supply and demand. Such demand could of course be purely speculative in nature, as seems to be the case now that Bitcoin is not working well as a medium of exchange.

It does take copious amounts of computing power and electricity to mine Bitcoin, and unfortunately, computers and electricity have to be paid for in real money—which is still represented by fiat currencies. It has been argued that Bitcoin’s baseline price is determined by this mining cost. One research company estimated the electricity cost of mining one bitcoin in the United States to be about $4,800 in 2018. Another company estimated the overall break-even cost of mining a bitcoin in 2018 at $8,000, suggesting that this constituted a floor for its price. But this is hardly reasonable logic. Just because something takes a lot of resources to produce is not enough to create demand for it and, therefore, to justify its price.

Bitcoin devotees, needless to say, have an answer for this; given the technologically inclined nature of this community, it had to be a quantitative model. The model, if it can be called that, uses the ratio of the existing stock relative to the flow of new units as an anchor for the price.

Consider gold. The total stock of gold that exists in the world (above ground) is estimated at about 185,000 metric tons. Roughly 3,000 tons of gold are mined each year, which amounts to about 1.6 percent of the existing stock. Thus, the stock-to-flow ratio is about sixty. It would take that many years for annual gold production, assuming it continues at the average rate, to reproduce the existing stock. For silver, this ratio is about twenty-two. The logic of this pricing model appears to be that even doubling the annual rate of gold or silver production would leave their stock-to-flow ratios high, in which case they would remain viable stores of value with high prices. The physical constraints on supply—ramping up mining operations would take a long time—mean there is little risk of a surge in supply knocking down prices of the existing stock. By contrast, for other less precious commodities, including metals such as copper and platinum, the existing stock is equal to or lower than annual production. Thus, as soon as the price begins rising, production can be ramped up, preventing large price hikes. With these commodities, prices are more closely tied to values based on industrial and other practical uses.

In 2017 the stock of Bitcoin that had been mined was estimated to be around twenty-five times larger than that of the new coins produced in that year. This is high but still less than half of the stock-to-flow ratio for gold. Around 2022, Bitcoin’s stock-to-flow ratio is expected to overtake that for gold. Thus, if one accepts this logic, the price of Bitcoin must eventually rise.

This valuation is built entirely on a fragile foundation of faith. As one influential Bitcoin blogger puts it: “Bitcoin is the first scarce digital object the world has ever seen. . . . Surely this digital scarcity has value.” This blogger makes profuse allusions, which are echoed on most websites and chat boards frequented by Bitcoin adherents, to how Bitcoin and gold are analogous: “It is [the] consistently low rate of supply of gold that is the fundamental reason it has maintained its monetary role throughout human history. The high stock-to-flow ratio of gold makes it the commodity with the lowest price elasticity of supply.” Fiat money and other cryptocurrencies that have no supply cap, no Proof of Work consensus protocol, and no need of large amounts of computing power to keep operating are seen as less likely to retain value because their supplies are not constrained and can be influenced by the government or small groups of individuals or stakeholders.

Clearly, logic and reason are not important underpinnings of Bitcoin valuations. And it is hard to argue, as I have learned, with a twenty-fiveyear-old who bought his first bitcoin at $400, then kept buying, and now views every dip in Bitcoin prices as a buying opportunity to add to his stash. But, as an economist, one does worry for that young man (whom I sat next to at a conference in January 2019 and with whom I ended up having a long and heated discussion) and others who have bet their life savings on Bitcoin and other cryptocurrencies. Then again, with the price of Bitcoin where it is in April 2021, perhaps my time would have been better spent in the past few years acquiring some bitcoin rather than laboring on this book.

China's central bank says cryptocurrency transactions are illegal

China is continuing to push forward in its cryptocurrency crackdown. The People’s Bank of China says crypto transactions are illegal and called for a formal ban. It cited concerns about national security and the safety of residents' assets.

The bank claims cryptocurrencies aren’t fiat currency and can’t be circulated, as Bloomberg reports. Any transactions involving crypto are now deemed to be criminal financial activity. The bank told financial and internet companies to stop allowing crypto trades on their platforms. Foreign exchanges are banned from providing services to Chinese residents too. 

The rise of crypto has invoked an increase in “money laundering, illegal fund-raising, fraud, pyramid schemes and other illegal and criminal activities,” the bank said. It said those appearing to violate the rules will be “investigated for criminal liability.”

Several agencies in the country are working together to clamp down on crypto use. The National Development and Reform Commission is looking to put a halt to crypto mining, as TechCrunch notes. The Sichuan local government banned crypto mining in June, prompting some miners to leave the country.

The price of Bitcoin dropped from around $45,000 to approximately $41,500 following the central bank's announcement.

Ford invests $50 million in an EV battery recycling company

Ford has announced a partnership with Redwood Materials to recycle electric vehicle batteries. The automaker is investing $50 million in the startup, whose co-founder and CEO is Tesla's former chief technology officer JB Straubel. Redwood, which also recycles batteries for e-bike company Specialized, will use the funds to expand its manufacturing facilities.

The companies say the deal will make EVs more sustainable and affordable by bringing the battery supply chain closer to home. They plan to increase battery production in the US, something the Biden administration is looking to do to reduce dependency on imports from countries such as China.

Recycling batteries in a closed loop will help reduce costs and benefit the environment, as Ford will rely less on imports and the mining of raw materials. Redwood claims it can recover 95 percent of elements such as nickel, cobalt, lithium and copper on average using its recycling technology. The company reuses those materials to make anode copper foil and cathode active materials for new batteries.

Ford announced the financial backing as part of its plan to invest over $30 billion in electrification by the end of 2025. The company recently said it would spend another $250 million to ramp up production of the in-demand F-150 Lightning EV.

In May, Ford revealed plans to make EV batteries at BlueOvalSK plants in North America by the middle of this decade. BlueOvalSK is a joint venture Ford plans to form with SK Innovation, pending approval.

US probe into Binance reportedly expands to investigate insider trading

Binance is apparently facing more pressure from regulators over possible abuses at its cryptocurrency exchange. Bloombergsources said US officials have expanded their probe of Binance to include possible insider trading and market manipulation. The company hasn't been accused of wrongdoing, but Commodity Futures Trading Commission investigators have reportedly inquired with potential witnesses about issues like the location of Binance servers (and thus whether the US can pursue any cases).

The commission had previously launched an investigation into the sales of derivatives tied to cryptocurrencies. It's reportedly looking for internal Binance data that might show sales of those derivatives to American customers, breaking regulations that forbid those sales without registrations. The Internal Revenue Service and Justice Department are also probing possible money laundering on the exchange.

There are no guarantees of action. The CFTC and Justice Department have supposedly been investigating Binance for months, and any decisions might take a while longer.

Not surprisingly, Binance said it was above-board. A spokesperson told Bloomberg the exchange had a "zero-tolerance" approach to insider trades as well as ethical codes and security guidelines to prevent those actions. The company added that it fires offenders at a bare minimum. The CFTC has declined to comment.

The heightened scrutiny of Binance, if accurate, would come as part of a larger US crackdown on cryptocurrencies. Officials are concerned the lack of consumer protections (including regulation) might hurt customers who sign up for services expecting the same safeguards they have with conventional money. In this case, the focus is on accountability — insider trading could wreck valuable investments and erode trust in Binance and other crypto exchanges.

NFT marketplace admits employee used insider information to buy collectibles

One of the largest marketplaces for trading NFTs has found itself embroiled in controversy. In a blog post spotted by The Block, OpenSea admitted on Wednesday that one of its employees, Nate Chastain, had purchased NFTs he knew the company had planned to feature predominantly on its platform.

Hey @opensea why does it appear @natechastain has a few secret wallets that appears to buy your front page drops before they are listed, then sells them shortly after the front-page-hype spike for profits, and then tumbles them back to his main wallet with his punk on it?

— Zuwu🟩 👻🎃🦇 (@ZuwuTV) September 14, 2021

The admission came after a Twitter user named Zuwu accused Chastain this week of using secret Ethereum wallets to buy front-page NFT drops before they were available for the public to purchase, and then later selling them at a profit following the inevitable spike in interest.

OpenSea called the incident “incredibly disappointing,” and said it’s investigating what happened. “We want to be clear that this behavior does not represent our values as a team,” the company stated. “We are taking this very seriously and are conducting an immediate and thorough review of this incident so that we have a full understanding of the facts and additional steps we need to take.”

I just wanted to secure one of these before they all disappeared tbh

— Nate Chastain (natec.eth) (@natechastain) August 3, 2021

The company notes it has already implemented two new policies to prevent incidents like this from happening in the future. Moving forward, OpenSea employees aren’t allowed to buy or sell from collections and creators while they’re being promoted. They’re also prohibited from using confidential information to buy and sell NFTs on OpenSea and elsewhere.

Understandably, the incident has caused quite a stir among the company's customers, with some likening Chastain’s behavior to insider trading. More than anything, the episode highlights just how much of a wild west the NFT market is at the moment. According to an analysis by business law firm McMillan, there are currently no laws in either the US or Canada that regulate the sales of NFTs. This incident may push the Securities and Exchange Commission to change that. 

The US may crack down on 'stable' cryptocurrencies

Stablecoins are ostensibly safer than regular cryptocurrency thanks to their ties to less volatile assets, but US regulators apparently aren't convinced. Bloombergsources hear the Treasury Department and other federal agencies are close to a possible crackdown on stablecoins through a review from the Financial Stability Oversight Council. Officials are reportedly concerned the digital money is largely unregulated and could ultimately destabilize the financial system, not protect it.

A presidential Working Group on Financial Markets is believed to be most concerned about Tether. The cryptocurrency's operators said they stabilize their funds by holding large amounts of corporate debt. That could be vulnerable to "chaotic investor runs" if cryptocurrency values tank, according to Bloomberg.

While a firm decision isn't expected until December, when the Working Group is believed to be issuing recommendations, there's reportedly a "consensus" in favor of an Oversight Council review. If that happens, the council could label stablecoins as threats that warrant strict regulation. Numerous cryptocurrencies could be forced to change their business models or even shut down.

As it stands, stablecoins are at risk from government competition. The Federal Reserve is exploring the possibility of launching a central bank cryptocurrency. Such a move could render private options moot in the US — there wouldn't be much point to them if there was an official, potentially more reliable equivalent. Whatever happens, it's safe to say the existing stablecoin market might not last long as-is if a review goes forward.

US-Canadian gets 11 years for laundering money for a North Korean hacking group

A dual US-Canadian national has been sentenced to 140 months in prison for laundering tens of millions of dollars, including funds stolen from a bank by a North Korean hacking group. Ghaleb Alaumary from Mississauga, Ontario pleaded guilty to two counts of conspiracy to commit money laundering. According to the US Department of Justice, Alaumary used spoofed emails to trick a university in Canada in the first case. The emails, which looked like they were from a construction company working on a major building project for the university, asked for payment amounting to US$9.4 million. 

After the university wired the money to accounts controlled by Alaumary and his co-conspirators, he worked with various people across the US and elsewhere to launder the funds through various financial institutions. He also had people impersonating wealthy bankers go to Texas to get personally identifiable information from victims and then use that to steal hundreds of thousands of dollars from their accounts. 

The second case is wider in scope and involves receiving funds from cyber-heists and fraud schemes. Those funds include money from a North Korean-perpetrated cyber-heist on a Maltese bank in 2019. He also received funds stolen from banks in India and Pakistan, companies in the United States and the UK, individuals in the US and a professional soccer club in the UK. Alaumary laundered the funds he received via cash withdrawals, wire transfers and cryptocurrency purchases.

Acting US Attorney David H. Estes for the Southern District of Georgia said in a statement:

"This defendant served as an integral conduit in a network of cybercriminals who siphoned tens of millions of dollars from multiple entities and institutions across the globe. He laundered money for a rogue nation and some of the world’s worst cybercriminals, and he managed a team of co-conspirators who helped to line the pockets and digital wallets of thieves."

In addition to being sentenced for more than 11 years in prison, Alaumary was also ordered to pay $30 million in restitution to victims.

PayPal acquires buy now, pay later provider Paidy

PayPal is continuing its push into buy-now-pay-later (BNPL) services with the acquisition of Japanese company Paidy for 300 billion yen ($2.7 billion), Bloomberg has reported. That represents its second largest acquisition to date after the $4 billion dollar purchase of online coupon aggregator Honey

BNPL services let users divide purchases into multiple payments with paying any interest. Instead, PayPal and other providers make money by charging fees to merchants when a consumer buys a product, much as credit card providers do. PayPal's move follows Jack Dorsey's Square much larger acquisition of Australian BNPL firm AfterPay for $29 billion. 

Paidy differs from other BNPL firms in that it allows Japanese consumers to purchase items online and then pay them off in person at local convenience stores. PayPal doesn't currently offer a BNPL service in Japan, so the acquisition will help it break into that market. 

“Paidy pioneered buy-now-pay-later solutions tailored to the Japanese market,” said PayPal Japan chief Peter Kenevan. “Combining Paidy’s brand, capabilities and talented team with PayPal’s expertise, resources and global scale will create a strong foundation to accelerate our momentum in this strategically important market.”