LedgerX Bets on BTC Options

6a017c3181d077970b01b8d0859819970c

LedgerX has quietly listed bitcoin financial contracts: swap and options. After touting a trading volume of $1 million, LedgerX now offers hedge funds, family offices, sovereign wealth funds, and others a way to play bitcoin. Of the two instruments, the bitcoin options may be the most popular among institutional investors.

As the name implies, day ahead swaps last only one day. The swap buyer agrees to pay today for tomorrow’s delivery of bitcoin by the swap seller. If the price of bitcoin increases after one day, then money is made by the swap buyer; money is lost if the prices decrease. While called day ahead swaps, these financial contracts act more like commodity futures.

With a futures contract, the seller agrees to deliver goods at a future date and the buyer promises to pay an agreed upon price. In addition, swap agreement usually required a swap of payments between the buyer and seller. With the day ahead swaps, the buyer makes a payment, but seller’s obligation is satisfied with the physical delivery of bitcoin. Cash-settled bitcoin futures are planned to be listed by the Chicago Board of Exchange.

Bitcoin options maybe more important for investors. Options provide the buyer with the right, but not the obligation, to either purchase or sell an asset from the option seller. With equity options, the option buyer has the right to sell (put) or buy (call) stock from the option seller at specified price during an exercise period. For the right to put or call an asset, the option buyer pays the option seller a premium.

Option allows investors to bet on price swings. For example, you think Apple price will not rise this year, so you sell and collect a premium for a call option. The call option give the holder the right to purchase Apple stock from you at $160 per share. If Apple’s price increase to say $200, the option is exercised, but if not then the seller gets to keep the option premium. If you think Apple will go up, then you would sell a put option.

So replace equity with bitcoin, and you can see how options can be used by institutional funds to trade crypto-prices.

 

Another Way to Own Ether

fC8UCibN.png

XBT Provider comes along with another way to own ether, indirectly. After its success with bitcoin, this week XBT introduced a pair of exchange traded notes based upon the ether cryptocurrency. The ether notes join two bitcoin ones and will which traded outside the US on the Nasdaq Stockholm Exchange.

Exchange traded notes are debt and instead paying an interest rate, the rate paid is based on something else, such as the price change of bitcoin or ether. For example, assume you spend $10,000 in exchange for the note and later ether’s price increases 10%, then your investment is now worth $11,000.

Exchange traded notes are common in the US for about ten years. When issued by an investment banks, such as Barclays, Credit Suisse, Goldman Sachs, and others, the bank takes your money and promise to pay you later when the notes are due. Between then and now, the exchange traded notes trade likes stocks and hopely the market price tracks the underlying value of the asset.

XBT’s exchange traded notes are different than the US variety. First, the ether notes have no maturity date, but instead are open ended. Secondly, the note are hedged. This means that when XBT takes your money from the ether note sale and they then purchased an equivalent amount of ether, so your notes are backed; this often does not happen with a US issued exchange traded notes.

Given custody and other issues associated with a direct cryptocurrency investment, synthetic crypto-products may be beneficial for both retail and institutional investors. 

Disclaimer

This post is for educational purposes only and should not be used for investment purposes.

A Not So Passive Crypto-Fund

1-d0LAMHWy1EpE6il-9nS6oA@2x

Bitwise Asset Management’s new crypto-fund steals much from Wall Street, unfortunately. After analogizing crypto-currencies to equities, Bitwise introduced to accredited investors a passive product called the Bitwise HOLD 10 Private Index Fund. And like traditional hedge funds, the the HOLD 10 could be tax inefficient for investors.

As the name implies, the Hold 10 will hold ten crypto-currencies.  Bitcoin and ethereum make up the majority or approximately 75% of the index. Eight remaining currencies, including Litecoin and Ripple, make up the rest of the index. The Private Index supposedly makes crypto-currencies investing as simple as using an equity index, such as the S & P 500, for investing in stocks.

Hold 10 investors will only be charged fees of 2%-3% and not the 20% of profits associated with traditional hedge funds. Hedge funds use leverage to be either long and short assets, such as stocks or bonds. Using active management, hedge fund managers trade often to make outsize gains for investors and ultimately for themselves. The active trading also produces lots of taxable income for hedge fund investors.

The Private Index of ten crypto-currencies is rebalanced monthly. As such, each month some currencies would be sold and others purchased to keep the index inline. In addition, the rebalancing may occur more often than not given the volatility and price swings in crypto-currencies.

So while the Hold 10 may be a passive investment strategy, it could have the same trading activity as hedge funds or other equity investments. Per its website, the Hold 10 fund is structured as a pass-through entity, like many hedge funds. That means Hold 10 investors own a slice of the fund’s assets and a slice of any potential taxable gains from rebalancing.

Disclaimer

This post is for educational purposes only and should not be used for investment purposes.

 

Long and Short of Bitcoin (ETF)

opengraph

Proshares’ bitcoin ETF application is the latest to come before the SEC. Now other bitcoin ETF applications have come and gone, including one from the Winklevoss brothers.

What’s important here is that Proshares’ application is for both a long and short bitcoin ETF.  The latter means that retail investors would able to bet against the direction of bitcoin.

Rather than own actual bitcoin, Proshares is investing in bitcoin futures; an approach also used by VanEck and Rex. Futures are financial contracts between two parties calling for the delivery and payment of goods at a time in the future.

Futures allow market participants to shift price risk and also act as substitutes for real assets, such as bitcoin in this case.

Any “synthetic” bitcoin ETF depends the listing and trading of bitcoin futures. The Chicago Board of Exchange announced the listing of bitcoin futures later this year or early next year. This is why the Van Eck was pulled, in part, because no bitcoin futures currently trade.

After listing, there must be enough market participants – traders, hedge funds, institutional investors, or coin exchanges – that want part of the action.

And without enough interest, there will be very little contracts trading and lots of illiquidity. This may be why the CME, the other Chicago futures exchange, decided at this time not to launch bitcoin futures.

An active market for bitcoin futures would help draw more institutional investors into the cryptocurrency space.

Retail investors would also benefit by being able to bet against bitcoin. Currently, the only way to short bitcoin is through a margin account on a coin exchange such as Kraken or Poloniex. A “short” bitcoin ETF, similar to Proshares other inverse products, would make shorting less costly and more accessible to retail investors.

 

Snap Grows By Acquisitions

social-lg_large

Snap spent cash of $206 million on acquisitions during the quarter ended June 30, 2017. Most of the cash – $196 million – went towards the acquisition of Zenly SAS which was instrumental in the launch of Snapchat’s social mapping feature. 

In addition, Snap will also pay $17 million in “future employment services”. So in the end, Snap will eventually pay $213 million for Zenly SAS.  Snap also made the purchase of $10 million for part of an undisclosed “social advertising software company” that was added to the Snapchat platform.

Another reported Snap acquisition did not closed until after the end of quarter. In recent SEC filings, Snap disclosed it paid $132 million in cash for advertising technology company, Placed, in July 2017. With the Placed acquisition, Snap still has $2.8 billion in cash and marketable securities.

Snap’s penchant for all-cash deals still leaves lots of dry powder for growing, at least, through acquisitions.

 

Facebook Buys More Class A

2000px-Facebook_icon.svg

If you are counting, Facebook just bought more shares this quarter; in fact $150 million more of its Class A shares, per the most recent statement of cash flows.

That’s in addition to the $278 million in shares repurchased in the first quarter. Still, Facebook is far away from completing the $6 billion stock repurchase plan announced last fall.

Facebook surprisingly retired all the repurchased Class A shares making it impossible to reissue the shares for future acquisitions. Voting stock, like the Class A shares, is attractive since it can minimize the tax bill due in acquisitions.

Often founders selling out their appreciated stock in an acquisition would rather receive voting stock rather than cash to delay any tax bill.

 

 

Reconsidering Altaba

download(1).png

It’s time to reconsider Altaba. Back in June, Yahoo became Altaba, relocated to New York City, and hired new Chief Executive Officer, Thomas J. McInerney. Yahoo is no longer a real business, but a registered investment company with a depressed stock price, that still may be worth something.  

If you own Altaba stock, then you own a collection of investments: lots of Alibaba, some Yahoo Japan, patents, and cash. And for various reasons, Altaba’s stock price does not reflect the value of its underlying assets and causes the stock to trade at a discount. New management knows this and told shareholders what it wants to do, but there is not much they really can do.

Altaba’s discount exists mainly due to the tax bill that would be incurred if the Yahoo Japan and Alibaba investments were sold. That tax bill may decrease if tax rates change under a Trump Tax plan. If capital gain tax rates come down, then the discount would narrow, and Altbaba shares would appreciate.  Given the uncertainty, some Fools say stay away from the stock.

Even without Trump, Altaba stock price could eventually appreciate if Alibaba merged with Altaba. In this scenario, Altaba shareholders would receive Alibaba stock, tax-free, in exchange for their Altaba shares. A merger of Alibaba with Altaba is one way of getting rid of the tax bill currently depressing the Altaba stock price.  

So if you currently own Altaba, may the best thing is to hold on?

 

Blue Apron’s Bad Recipe

As it soon goes public, Blue Apron needs more online sales to meet investors’ growth appetite. New York-based Blue Apron currently sales its meal-kits in 48 states that reach 99% of the US population, as disclosed in its recent regulatory filing.

Much like early Amazon, Blue Apron has the advantage of selling meal-kits without collecting sales tax, but that could change. In the ten states where it has a physical presence, Blue Apron must collect sales taxes from its customers.

Amazon, in its beginning, did everything to dodge collecting sales tax from customers to maintain competitively low prices. Blue Apron collects sales tax in states where it has offices or distribution centers, such as New York and Texas.

Blue Apron may need to collect sales tax if it expands operations into more states. Additionally, the S-1 warns that Congress could require companies to collect sales tax on Internet Sales.

Besides rising food prices, potential investors should consider the impact of sales tax on Blue Apron’s bottom line.

Vision Fund Goes to India?

Softbank incorporated SB Investment Holdings, Ltd. in England on May 11, 2017. What’s notable is the company was first called SVF India Holdings (UK) as of May 15th when the name changed to the current one.  

Once decoded, the old name, SVP India Holdings, hints at the Vision Fund’s future plans.

First, SVF is an abbreviation for the Softbank Vision Fund. Secondly, India may be another place for investment besides the developed countries such as the United States and United Kingdom.

It may also be Softbank’s intentions to contribute some or all of its existing India investments – Ola, Snapdeal, Paytm – to the Vision Fund.

No: Twitter Remains the Same

twitter-square-logo.png

Twitter shareholders just voted against studying the feasibility of turning Twitter into a company owned by its users rather than investors.

At Twitter’s shareholder meeting, held on May 22nd, shareholders considered Proposal No. 4 to investigate whether Twitter should be reorganized as something else, such as a cooperative or an employee owned company.

Citing the Green Bay Packers, REI, and the Associated Press as examples, the site, buytwitter.org, thought the change would make Twitter more “democratic”.

Unfortunately for buytwitter.org, in this election, 323,830,975 Twitter shareholders were against the proposal while 15,978,718 were in favor.