cryptocurrency

Powell calls for regulations on digital currencies

Business

Elizabeth McLaughlin, Editor

Header Image: The Washington Times

On Wednesday, March 23, Federal Reserve Chairman Jerome Powell discussed the need for consumer protection when it comes to digital currencies. The Bank for International Settlements, an organization that includes central bankers from around the world, organized the panel at which Powell spoke. There are two kinds of new technologies that Powell is concerned with: stablecoins and central bank digital currencies.

The former are a kind of cryptocurrency tied to a commodity or the dollar; the latter are government-issued digital forms of currencies, like the U.S. dollar. Back in Jan., the Fed released a study on stablecoins that identifies the form of currency as “a possible breakthrough innovation in the future of payments.” The Fed understands that stablecoins have the potential to significantly impact the banking system, both on traditional banking and credit provision. As for digital currencies, the Fed is researching the topic but has not decided whether to issue their own.

Although Powell did not provide much detail as to the content of these regulations, he did say that these digital transactions should be regulated the same as other transactions executed by banks. Powell is particularly concerned with the perceived lack of consumer awareness of the risk associated with cryptocurrency: many popular investments lack government protection of losses. The rate of adult Americans who invest in cryptocurrency is 16 percent and it seems that the hype is only growing, meaning that more Americans are going to be exposed to unregulated risk by investing in crypto in the coming years. That is, however, unless the government develops more robust laws and regulations concerning digital currencies.

Besides personal loss and privacy concerns, Powell discussed how cryptocurrency assets have been used for “illicit activity,” such as money laundering. On top of that, Sen. Elizabeth Warren has expressed concern regarding crypto use and evading sanctions on Russia.

Warren and Charlie meet in sunny California

Business

Michael D’Angelo, Staff

Vintage Value Investing

Pictured above is Berkshire Hathaway’s chairman and CEO Warren Buffet and Executive Vice Chairman Charlie Munger. Both men practice a value investing strategy and have created impressive returns for their shareholders.

Over the weekend, Berkshire Hathaway held their annual shareholder meeting in Los Angeles, California. For the first time ever in the company’s long history, they held a shareholder meeting outside of Omaha, Nebraska. The meeting was headed by Berkshire’s executive staff, CEO and Chairman Warren Buffet and Executive Vice Chairman Charlie Munger. 

Both Buffett and Munger are hailed as some of the greatest investors of all time. They believe in a value investing strategy influenced by the principles of Benjamin Graham. Graham is most famous for developing the Margin of Safety principle and for writing the finance classic “The Intelligent Investor.” In addition, they are greatly influenced by the strategies of Phil Fisher, the author of “Common Stocks and Uncommon Profits” who famously believed the best time to sell a stock is never. Buffett and Munger emphasize a long-term investing strategy with an emphasis of finding “cheap” companies that appear to be trading below book value in the market. They own portions of great American corporations like Coca-Cola, Apple, Bank of America, Verizon and American Express.             

At the meeting, Buffett and Munger fielded and answered various questions. With their growing age, they confirmed their eventual successor: Greg Abel, a current Vice Chairman, will take over as CEO and direct operations. Buffet emphasized his belief around stock picking for the average investor. He stated, “I do not think the average person can pick stocks.” His suggestion, instead, was to diversify into American equities and purchase a fund which follows the performance of the S&P 500. Buffet has made this point plenty of times in the past. 

Both Buffett and Munger took jabs at the recent rise in SPACs and believe more people are turning to the market in a gambling-like sense. Buffet even went as far as calling SPACs an “exaggerated form of gambling.” A SPAC is a company that raises money through an initial public offering (IPO) with no commercial operations to acquire another existing company. They grew in popularity in 2020 as both a speculative investment and a way for companies to raise capital. 

To add to the sense of increased gambling in the markets, Buffett and Munger stated their opinions about online trading app Robinhood. They both said the app encourages gambling due to the easy access of speculative call and put options. Munger even called the app shameful. In the past, they criticized Robinhood’s selling of order flow data and commission free trades. An executive from Robinhood responded by saying “the people are tired of the Buffets and Mungers of the world acting like they are the only oracles of investing.” The most controversial statement of the weekend was when Munger took a strong jab at cryptocurrency. He went so far as to say Bitcoin’s success is disgusting and contrary to the interests of civilization. In the past he has called Bitcoin “worthless artificial gold.” 

The meeting concluded and many people took an opportunity to analyze both Buffet and Munger’s statements. Both men have led Berkshire for decades with expectational investment returns and their statements may prove important for investors looking for guidance. 

Currency of the future or tulip bulb of the past: will crypto continue to boom or will it bust?

Business

Michael D’Angelo, Staff

Gadgets 360

Pictured above is Tesla CEO, Elon Musk. In late March, Musk announced via Twitter that Tesla cars may be bought with bitcoin and any bitcoin Tesla receives as revenue will not be converted to fiat currency.

All the recent rage in the financial markets is related to cryptocurrency. It appears almost daily one can see a crypto-related news headline. Just two weeks ago a “meme” cryptocurrency known as dogecoin reached an all-time high, netting some traders thousands of dollars. In addition, just yesterday, Tesla announced they sold $272 million worth of bitcoin (BTC) during the first quarter. 

Cryptocurrency is defined as an unregulated digital currency that uses an online ledger to track ownership to buy and sell goods. An idea of unregulated digital currency drives the enthusiasm behind crypto and many investors view the currency as digital cash that cannot be traced. The most popular cryptocurrency is Bitcoin. Bitcoin utilizes complex blockchain technology to track ownership and manage trading. Some investors see Bitcoin as a store of value and an alternative to physical gold while others view it solely as currency to buy and sell goods. 

Bitcoin has grown tremendously since its inception in 2009 and has experienced widespread interest since last March when the pandemic and stay-at-home orders forced millions into lockdown. Much of Bitcoin’s rise is attributed to retail investors, but institutional investors are involved with the commodity. Big-name financial companies and fintech players like Square and MicroStrategy have used cash to purchase bitcoin. Even asset management fund Fidelity has jumped in and intends to release an ETF to track BTC benchmarks. Bitcoin’s market cap is currently valued at over $1 trillion. 

Tesla’s CEO, Elon Musk, has spoken countless times about cryptocurrency and his company’s offer to accept Bitcoin as payment for their cars. In February of 2021, Tesla bought $1.5 billion of Bitcoin. They stated in SEC filings that the purpose of the purchase was to gain a better return on their cash, but they did warn investors of the price volatility involved with the purchase. According to Tesla’s Q1 earnings report, total revenue grew year-over-year by 74 percent. Tesla’s GAAP net income reached $438 million while non-GAAP net income was over $1 billion. Also, Tesla reported more deliveries of their car products. Musk made the Bitcoin purchase to emphasize the liquidity involved with the coin. 

As cryptocurrency becomes more widespread, regulators and government officials are left scratching their heads. They must decide how to regulate the crypto market. India had a ban on cryptocurrency which has been reversed in March of this year. Turkey has banned cryptocurrency. Back home in the United States, Bitcoin faces some regulation by organizations like the SEC, the Fed and the CFTC. The IRS taxes Bitcoin and other cryptocurrencies as property. Janet Yellen, the current Treasury Secretary, believes Bitcoin is an “extremely inefficient” way to conduct monetary transactions. Overall, many regulators are going to have to find an agreement and decide how to regulate the coin. 

As Bitcoin grows in popularity and many people look to the future, we must be cautious of the recent rapid rise in its price and remember the history of financial booms and busts. Bitcoin and the cryptocurrency market have the potential to fully take over our lives. Bitcoin can be as useful as the American dollar in the next few decades or can be remembered like the tulip bulb of 1637.