Short selling and hedge fund founder Carson Block made a name for himself over a decade ago by shorting questionable companies.
Block, the boss and chief investment officer of Muddy Waters Capital, sat down at Barron’s Live It was held earlier this month to discuss how he approaches positions he wants to short, ESG issues, shorting Chinese companies, and other topics. In particular, our conversation has also turned to cryptocurrencies.
“For me, it’s not a real asset class,” he said. “In the sense of not having much intrinsic value. Almost entirely tulips. I understand that the value of can skyrocket.”
Nonetheless, traditional finance, or tradfi, traders and fund managers are dipping their toes. Cryptocurrencies are fragmented — price differentials can widen between trading platforms and regulatory scrutiny can vary by jurisdiction, which is why arbitrage loves to exploit gaps like that of opportunities for traders.
“Can you make money punting cryptocurrencies? Of course you can. I’m not saying you can’t. To me, it seems like another bubble.”
Block’s views mirror those of hedge fund adviser Patrick Galli. said in July As for crypto, “As long as the market remains inefficient and volatile and we can trade it, we have an opportunity.”
“There are investors who like this idea and see it as an inefficient market, and they want to touch it,” said Gurley, co-founder of London hedge fund advisor Sussex Partners. “Because an inefficient market is usually equal to alpha.”
So how does Block, one of the world’s most famous short sellers, play in this market? By looking for scams.
“When you have that kind of ruckus, all that attention, all of a sudden money pouring into the universe, there are a lot of bad actors out there, regardless of the fundamentals, and a lot of things you want to short. How can we think about what cryptocurrency will look like in 10, 20 years from now…there are still a lot of villains in this space.”
Was the “merge” important?
The Ethereum merge was a blast. This was a software upgrade that increased trust in the cryptocurrency environment while moving from so-called Proof of Work to Proof of Stake. Under Proof of Work, Ethereum was protected by miners, high-consumption processes that consume a lot of power. The network is currently secured by stakers (Ether holders who lock their tokens).of the market yawned.
read Why “The Merge” Matters to Institutional Investors
This is because the merge was a “news-selling event,” said Julio Moreno, Senior Analyst at Cryptoquant. told MarketWatchIn other words, in anticipation of the event, traders have priced Ether higher over the past few months. “Then sell orders started to rise as traders/holders tried to hedge before the merger.”
Macro factors quickly took over and all cryptocurrencies fell on September 19th. Gary Gensler is the one that touches the hearts of crypto traders the most. The Federal Reserve chairman has suggested that a merger could turn digital currencies into securities in the eyes of regulators, much like stocks, bonds and all other major asset classes.
Cryptocurrencies and intermediaries that allow owners to “stake” their coins are likely to pass the so-called Howey test, used by courts to determine whether an asset is a security. Find out if investors expect to profit from the work of third parties.
“From a coin perspective … this is another indication that investors expect profits based on the efforts of others under the Howey test,” said Gensler. stated on September 15th.
If Ethereum were to be securitized, “ETH would likely face unbearably high fines, could be delisted from 90% of centralized exchanges, and lose user base and price. It will cause irreparable damage to both sides,” said Serhii Zhdanov, CEO of cryptocurrency exchange EXMO. told MarketWatch. Oh.
Biden’s crypto play
The U.S. Treasury Department recently announced request for comments, is calling on “concerned members of the public” to provide input on the illicit financial and national security risks associated with digital assets.of request It is part of the agency’s mission under President Joe Biden’s March plan to study the development of the crypto industry and its evolution. Risks to consumers and the financial system.
The process “demonstrates that the Treasury Department takes public engagement very seriously…from a risk lens, not a risk and opportunity lens,” says financial technology and risk advisory firm Capitol. Alex Zerden, principal of Peak Strategies and former Treasury Department official, said. Officials in the Obama and Trump administrations wall street journal.
The Treasury Department then said it would decide how the feedback would be reflected in the final policy.
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To contact the author of this story with feedback or news, email Trista Kelly