Banking

Cryptocurrency prices plunge; Goldman invests $20 million in AML fintech

Receiving Wide Coverage …

Bitcoin’s bad day

“Cryptocurrency markets swung in chaotic trading and related stocks were hit after Chinese regulators signaled a crackdown on the use of digital coins,” the Financial Times reported. “Bitcoin tumbled as much as 30% to a low of $30,101, before clawing back its losses to less than 8%. Other digital coins were also hit by heavy selling, with ethereum, one of the best-performing cryptocurrencies in the past month, losing a quarter of its value before moderating to losses a little over 20%. More than $8.6 billion of positions have been liquidated over the past 24 hours.”

“The sharp moves came after the People’s Bank of China warned financial institutions about accepting cryptocurrencies as payment or offering related services and products, amplifying investor concerns that regulators could tighten oversight of the freewheeling asset class.”

Bitcoin saw its “monthlong slide morph into a frenzied selloff” on Wednesday, The Wall Street Journal said. “Bitcoin, which traded around $7,000 at the beginning of 2020, peaked at $64,829 in mid-April. Since then, it has fallen 41% to $38,390 as of 5 p.m. Wednesday and earlier in the day dropped as low as $30,202.”

“Cryptocurrencies have surged over the past year on a wave of speculative excitement. But the same momentum that drove prices higher is now sending them relentlessly lower.”

The “brutal sell-off sent prices crashing across the board, wiping more than half a trillion dollars off the market,” The Washington Post said.

Wednesday’s selloff “exposes flaws in the argument for bitcoin as a true substitute for sovereign currencies,” the Journal noted. “A high degree of uncertainty as to what bitcoin will be worth in the near future makes it hard to rely on as a medium of exchange: The payment you are taking for a good or service today might not be exchangeable for other goods and services next week at anything near what you thought.”

“Secondly, the fact that a government intervention like this can send values plunging undermines a key plank of the case for cryptocurrencies generally and bitcoin specifically: that they are hedges against the capricious actions of sovereign entities. Having their fortunes depend on the favor of the Chinese Communist Party is hardly what many libertarian crypto evangelists have in mind.”

This WSJ video “explains why the recent shake-ups in the value of bitcoin, dogecoin, ether and other cryptocurrencies may point to obstacles in mainstream acceptance.”

Financial Times

Automated AML

Goldman Sachs “has invested $20 million in British anti-money laundering specialist ComplyAdvantage, betting that the banking industry will plough more money into efforts to combat financial crime. ComplyAdvantage uses machine learning to detect and analyze potential financial crime risks, and says its systems allow firms to do advanced due diligence on customers while reducing their reliance on manual checks. James Hayward, managing director of Goldman Sachs Growth Equity, said the bank had been encouraged to invest after seeing ComplyAdvantage provide services to many of the other start-ups Goldman had invested in.”

Talk is cheap

“The inflation in share prices that has emboldened wannabe buyers” of regional banks “has, of course, made acquisition targets more expensive, too,” discouraging deals from getting past the talking stages.

Reneging?

“Two years after JPMorgan Chase announced it would no longer finance the private prison industry in the U.S., the bank’s asset management arm has disclosed a position in a private prison bond sold last month. Funds tied to the bank have invested $25 million or more in a bond issued by CoreCivic, which runs prisons and detention centers across the U.S. The funds each bought a piece of a recent $450 million bond sold by the company in April.”

Washington Post

Libor lamentation

Bloomberg looks at “why ditching Libor is vexing the financial world.”

Quotable

“Many people have been tempted to invest purely because it has gone up in value and they have a fear of missing out. Bitcoin is a volatile asset, and as we have seen so often in financial markets, boom is almost always followed by bust.” — Rick Eling, investment director at the wealth management firm Quilter, explaining the sharp drop in digital currency prices on Wednesday.


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