>>> NY Post : Kim Kardashian West’s Skims shapewear valued at $1.6 billion

Kim Kardashian West’s Skims shapewear valued at $1.6 billion

Kim Kardashian West’s newest startup just joined her in the billion-dollar club.

The reality TV icon’s Skims shapewear brand says it’s snagged a new batch of private investments valuing it at $1.6 billion. The deal also stands to lift Kardashian West’s coffers on the heels of her being granted billionaire status for the first time this week.

The $154 million fundraising round was led by Thrive Capital, the New York-based venture firm led by Josh Kushner, husband of supermodel Kardashian West pal Karlie Kloss.

The money will help Skims develop new products, move into new categories and explore the expansion of its retail presence around the world, the brand said Friday.

Existing investors Imaginary Ventures and Alliance Consumer Growth also participated in the latest funding round for Skims, which now boasts more than 1 million customers and has sold over 4 million units in less than two years.

Kardashian West is still the brand’s largest shareholder, and she and business partner Jens Grede will keep a majority stake, according to The New York Times, which first reported on the deal.

Skims’ new pricetag appears to lift Kardashian West’s net worth, which Forbes pegged at $1 billion this week as it added her to its annual billionaires list for the first time.

The magazine had conservatively estimated Kardashian West’s stake in Skims to be worth $225 million based on a transaction that valued the brand at “north of $500 million,” or roughly a third of the new valuation.

Skims expects its sales to roughly double to $300 million this year from $145 million in 2020 despite demand for shapewear dropping thanks to a shift toward casual clothes during the coronavirus pandemic, the Times reported.

Skims — which Kardashian West launched as Kimono in 2019 before changing the name amid accusations of cultural appropriation — survived the changing trends by rolling out loungewear and pajamas, according to the paper.

“We’re your basics go-to,” Kardashian West, 40, told the Times, adding, “we’re still able to keep that shapewear core.”

Skims isn’t Kardashian West’s first billion-dollar business. She sold a 20 percent stake in her KKW makeup brand to cosmetics giant Coty for $200 million last June, valuing it at $1 billion. Coty also bought a majority of Kylie Jenner’s eponymous cosmetics line in a 2019 deal valuing it at $1.2 billion.

Kardashian West is reportedly open to selling Skims as long as she could stay involved in its operations.

“I would never want to give up my process,” she told the Times. “I would hope that whoever we partner with in a sale one day would believe in that, too.”

Thrive, which recently raised $2 billion for new investments, has also made investments in buzzy consumer brands Warby Parker and Glossier.

FT : London takes global top spot for luxury home sales

London takes global top spot for luxury home sales
Coronavirus restrictions have not dented demand for super-prime properties in the UK capital

The super-rich bought more homes in London than any other city in the world last year, according to new figures from estate agent Knight Frank, with buyers lured by the weak pound and the end of the UK’s Brexit saga.

Buyers from around the world spent almost $4bn on so-called super-prime properties in the UK capital, which are classified as anything with a price tag of $10m or more. 

That is more than the total spent on super-prime homes in any other city last year, with London leapfrogging Hong Kong and New York, according to Knight Frank. 

Despite travel restrictions and the fact that the UK’s housing market was effectively locked down between March and May 2020, the number of sales above $10m in London last year was up on 2019, with Russian, French and Chinese buyers particularly active.

The influx of money from overseas came as many London residents looked to the suburbs and the countryside in search of more space in the era of homeworking.

“The story all last year was that people were moving out of cities. But quietly there were some big purchases taking place,” said Liam Bailey, global head of research at Knight Frank. 

In all, 201 super-prime properties were sold with an average price of $18.6m. In 31 of those transactions, buyers paid $25m or more.

One of biggest sales of the year was the purchase of a £42m Belgravia mansion by British industrialist Sanjeev Gupta, revealed last month by the Financial Times.

Buyers of $10m-plus homes in London and elsewhere are a narrow, international set, motivated and constrained by entirely different factors to those that move the mainstream housing market. 

Where they choose to buy signals as much about the relative attractiveness of a city’s tax regime or its safety as a place to store wealth as it does about livability.

Despite the pandemic, the $19bn spent on super-prime properties across a dozen cities monitored by Knight Frank last year was just 5 per cent less than the 2019 total.

London’s attractiveness has been burnished by the conclusion of Brexit negotiations and the fact that average prices in the most expensive postcodes are down around 20 per cent from a 2015 peak, said Bailey.

Another large factor driving strong sales was the cheapness of the pound against the dollar and euro, he added. 

Super-prime sales in New York fell 48 per cent last year as wealthy buyers looked to sunnier coastal cities in the US such as Palm Beach, Los Angeles and Miami. 

Trade in Hong Kong, which had the highest number of $10m-plus sales in 2018 and 2019, fell 27 per cent, hit by political uncertainty and tough coronavirus measures, said Bailey.

“There’s still a cachet to a London residence even if you’re not in it for months at a time. If you’re super wealthy you will have a plane, a helicopter, a superyacht and your place in London,” said Nathalie Hirst, a London-focused buying agent whose clients are hunting homes with a budget of up to £100m.

“I had clients predicting doom and gloom, Armageddon, but the property market has carried on,” she said.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Bitcoin and other cryptocurrencies have reached a tipping point, and are increasingly going mainstream

* Cover Story: With Bitcoin’s market value topping $1T—following a 1,000 percent surge in the past year alone—it may be reaching an economic tipping point, with firms such as MS saying investors should add it to their portfolios; “In a climate of fear over inflation and monetary debasement, proponents say that Bitcoin will hold its value more than ‘fiat’ currencies like the dollar, yen, or euro—and eventually, they argue, it will live in harmony with paper currencies in the global economy.”

* Tech Trader: Shares of cloud computing companies rose last year during the pandemic, but they are slowing down as investors move to cheaper stocks with exposure to an expanding economy and accelerating corporate IT spending—and there is growing evidence of companies boosting their outlays for PCs, servers, disk drives, and other tech goods; Hardware stocks, already cheap, are set to rise, and MS analyst Sharon Huberty, who was bullish on this idea six months ago, likes DELL, HPQ, NCR, STX, and AAPL.

* Trader: “Value stocks, the market’s cheapest, are supposed to do well when the economy improves—and that’s been the case for much of the past six months,” though they depend on economic growth continuing to accelerate, which may be difficult if the rate of growth is peaking.

* Interview: Mary Day, president of the Federal Reserve Bank of San Francisco, talks about when the US economy will revive, why inflation isn’t a problem, and how the US can become more inclusive; She says that if the recent decline in Covid-19 caseloads and hospitalizations continues, and if vaccination rates continue to pick up, by the fall the US should see a rebound in the economy that’s pretty sharp.

* Profile: Shilpa Marda Mehra is the manager of the $3.3B Fidelity Trend Fund, launched in 1958 when trends such as air travel, mass media, and suburbanization were new; Mehra say it isn’t enough for a company to have ties to a significant secular trend, it must also have a strong competitive advantage—be it a powerful brand, technology, network effect, or beneficial regulations (top 10 holdings: AAPL, AMZN, MSFT, GOOGL, MA, TSLA, FB, NVDA, MCHP, ADBE).

* Features: 1) Cautious on CCL, NCLH, RCL: The companies raised a total of about $40B through debt and equity sales during the pandemic, giving them enough cash to ride out the downturn, but the move will cut into investor returns because of higher interest expenses and a sharp increase in shares outstanding, and it is unclear whether travelers—and particularly older ones, an important demographic—will be as eager to go on cruises as they were before the pandemic; 2) Women have borne the brunt of the Covid recession, accounting for 55 percent of net U.S. job losses since February 2020, while millions have reduced work hours or passed on career opportunities, losses that aren’t fully captured in official government statistics—and this diminished engagement could have far-reaching economic consequences, and even dent long-term portfolio returns; 3) Positive on IIVI: A wave of mergers is changing the dynamic in the laser industry, which had been a fragmented group of small players; Industry leader II-VI’s acquisition of COHR is the latest example of consolidation; Investors overreacted to the high price, sending shares down, but the stock should regain the $100 level and continue moving higher from there; 4) More than two dozen public companies now own some cryptocurrencies on their balance sheets, and many more are starting to offer services to people interested in buying Bitcoin or to companies that want to hold it or accept it for payments, and as it goes mainstream, traditional Wall Street firms are trying to update their current systems to offer the same services for crypto that they do for cash; related story offers a range of strategies for investing in Bitcoin without “getting in over your head”; 5) Positive on AFRM: Consumers aren’t shopping the way they used to—they are avoiding credit, and are increasingly likely to shop online with a digital wallet rather than use cash in a store—a shift that is fueling the “buy now, pay later” trend, an area in which Affirm Holdings is the dominant player; 6) Positive on EXAS: The company is among several that are working in the liquid biopsy sector, refining blood tests that can detect many kinds of cancers using a simple draw of blood, which could ultimately represent a major breakthrough in cancer diagnosis, making cancer screening as easy for patients as the routine blood tests of an annual physical.

* Follow-Up: President Biden’s proposed tax increases for corporations could affect companies such as LRCX, AMGN, WU, ILMN, and AAPL, all of which get a large portion of their earnings from overseas markets; Positive on GS: Shares have risen 67 percent since last June, and there’s no reason they can’t continue to go up, given the firm’s strong performance and a surge in trading and deal-making.

* European Trader: Cautious on CS: Despite a tempting price, investors should avoid the bank’s shares for now as it struggles to deal with a range of crises—the latest being the Archegos Capital Management implosion—that began about a year ago, because more challenges could well lie ahead.

* Emerging Markets: Brazil continues to face a host of challenges, including a resurgent coronavirus and political turmoil as a leftist former president prepares to challenge Jair Bolsonaro—all of which means it could be time to buy, according to some portfolio managers, who predict things will start looking better in the country soon.

* Commodities: “After suffering its biggest quarterly loss since 2016, gold stands as one of the few commodities trading lower this year—but prices still have room to run higher even if the global economy continues to recover and the pandemic moves closer to an end.”

* Streetwise: For all the hype about electric cars, investors might think that they were taking over the US market, though market share will be only 3.5 percent this year, up from 2.5 percent last year, according to researcher IHS Markit—yet shares of leaders such as TSLA and GM continue to rise.

FT : South Korean EV battery groups settle high-stakes US dispute

South Korean EV battery groups settle high-stakes US dispute
Disagreement threatened Ford and VW’s plans to build electric automobiles in America

Two of South Korea’s biggest conglomerates have reached a last-minute settlement over a multibillion-dollar intellectual property dispute that had threatened to disrupt Ford and Volkswagen’s plans to build electric vehicles in the US.

The deal struck between the battery-making affiliates of LG and SK comes after the US International Trade Commission in February slapped a 10-year import ban on SK Innovation over allegations from its Korean rival of illegally acquiring sensitive technology.

SK will pay LG Won2tn ($1.8bn) via cash and a running royalty, the companies said in a joint statement on Sunday.

The agreement marks a reprieve for Joe Biden who had until Sunday night to decide whether to make a rare presidential override of an ITC decision to avoid disruptions to the carmakers’ investment plans and protect the jobs of thousands of workers.

Raphael Warnock, the Democratic senator for Georgia who had lobbied the Biden administration and the companies over the dispute, said the resolution would “help keep the local economy moving forward”.

“It has always been clear that the best way to protect workers in Commerce — and the jobs Georgians were promised — is for the companies involved to negotiate a settlement in good faith,” he said.

As part of the deal, the companies also agreed to drop all pending litigation and vowed not to file any lawsuits against each other on this issue for the next 10 years.

The ITC ruling had allowed a grace period to give companies time to switch suppliers. But the industry had argued that the import ban would complicate carmakers’ plans to launch electric vehicles as well as hybrids, and ultimately slow the industry’s transition to environmentally friendly vehicles.

Germany’s VW and US-based Ford each have contracts to purchase batteries from SKI’s new electric vehicle battery plant in Georgia, where the Korean group has invested $2.6bn. The factory has been touted as the biggest single investment in the southern state’s history, expected to provide 2,600 jobs and clean power for 330,000 vehicle a year, including Ford’s fully electric F-150 truck.

The settlement also marks the latest twist in a years-long battle between two fiercely competitive South Korean chaebol that had become an embarrassment for the government in Seoul.


LG’s battery unit — formerly part of LG Chem but has since been spun off into LG Energy Solution — accused SKI of improperly securing lucrative contracts with the auto manufacturers based on stolen technology.

The ITC suit was launched after failed efforts in local courts.

SKI has contested the allegations and lobbied the White House to overturn the ban.

For its part, LG last month announced investments plans of $4.5bn in the US by 2025, creating more than 10,000 jobs, in a bid to allay fears over disruptions for the import ban on SKI.

The ITC has also lambasted Ford for pursuing its deals with SK despite evidence that it had misappropriated trade secrets.

The South Korean commerce ministry welcomed the decision on Sunday.

Senior officials in Seoul, including Chung Sye-kyun, the country’s prime minister, have for months been heaping pressure on the companies to reach an agreement. However, as recently as March the two sides appeared far apart over a potential settlement figure, with LG executives saying the gap was close to $1bn.

WSJ : U.S. Faces Uphill Climb to Rival China’s Rare-Earth Magnet Industry

U.S. Faces Uphill Climb to Rival China’s Rare-Earth Magnet Industry
West lags China on both supply and processing of materials key to electric cars and wind turbines

Businesses and governments across the West are gearing up to counter China’s dominance in a key component of modern technology: the magnet.

But the dozens of companies jostling for government support will struggle to establish a supply chain to rival China’s rare-earth magnet industry, which has a decadeslong head start and steadfast state support, analysts and executives say.

Powerful magnets made of rare-earth minerals are essential components in electric-vehicle motors, wind turbines and other technology. China mines over 70% of the world’s rare earths and is responsible for 90% of the complex process of turning them into magnets, analysts say. That dominance gives Beijing sway over makers of various fast-growing technologies.

The U.S. government is investing tens of millions of dollars in efforts to mine and process rare earths. President Biden in February signed an executive order directing a review of supply chains for critical materials, including rare earths. His recent infrastructure plan also pledged investment in rare-earth separation projects. Officials in Europe, Canada, Japan and Australia are getting their checkbooks out too.

Yet Western companies are mostly years away from contributing to a stable supply of rare earths, or processing them into separate minerals and turning them into useful products like magnets, analysts say.

“For these minerals to go from a hole in the ground to an electric motor, you need vast skills and expertise, which barely exist out of China,” said Constantine Karayannopoulos, chief executive of Neo Performance Materials ULC, one of a few Western companies able to process rare earths and make magnets.

“Many producers will find it difficult to compete head-to-head against China on price without some level of ongoing government assistance,” he said.

Among those receiving U.S. funding is Rare Element Resources Ltd. , which together with its partner, defense contractor General Atomics, recently secured a $22 million Energy Department grant to process rare earths.

The miner hasn’t received permission to tap its deposit in Wyoming eight years after applying. It paused its application in 2016 when funds were tight.

“It’s not easy,” Chief Executive Randy Scott said of getting a mine up and running.

With its mine yet to be developed, the company said the plan is to process material it collected when testing the quality of its site.

But that stockpile will likely produce just 100 tons of rare earths, Mr. Scott said, equivalent to the weight needed to make magnets for 6,000 Toyota Prius vehicles. Toyota sold almost 2 million electric and hybrid vehicles in 2019.

Should Rare Element Resources get a mining permit, a regular supply of processed rare earths is six to nine years away, Mr. Scott said, given the time it will take to permit, finance and build the mine.

Pini Althaus, the chief executive of USA Rare Earth LLC, wants to establish a U.S. mines-to-magnets supply chain and hopes to take the company public this year.


Some consultants question the quality of USA Rare Earth’s deposit in Texas after a 2019 assessment found ore grades, which measure mineral concentration within earth, of 0.06%. That compares with 3% at rival Rare Element Resources’ site and 7.06% for MP Materials Corp. , which has America’s only producing mine. Mr. Althaus says minerals at his site are among the most valuable of the 17 rare earths, and that it also has lithium and copper.

Consultants also question the feasibility of USA Rare Earth’s plan to have processing and magnet-making facilities up and running next year.

USA Rare Earth bought magnet-manufacturing equipment from Hitachi Ltd. following the Japanese firm’s decision to close down a magnet factory in 2015. The kit currently sits in a warehouse in North Carolina.

Even if his company is successful, Mr. Althaus says the 2,200 metric tons of magnets it plans to produce annually is a fraction of the 408,500 tons in global demand forecast by the end of this decade.

“It will take two decades or tens and tens of billions of dollars [for the West] to get even close to China,” said Mr. Althaus.

A major factor holding back Western companies has been stricter environmental rules. Rare earths, for instance, are often processed from ore that contains radioactive materials, a factor that miners need to focus more attention on, analysts say.

Pensana PLC won approval to mine in Angola, and is now pitching for U.K. government support to process material in Britain but hasn’t said what it will do with the radioactive byproduct. Pensana declined to comment.

Up until the 1980s, the U.S. led the world in mining rare earths and also developed the technology to process these minerals into something usable. In the 1970s, General Motors Co. used them to create a magnet that would last longer in engines.

Western production ebbed amid competition from China and increased environmental regulations.

Currently rare-earth mining and magnet production outside of China relies on a handful of small companies dotted across the globe working on wafer-thin margins—their challenges underscore those that new entrants can expect.

Chinese businesses can produce rare-earth magnets cheaply. Australia’s Lynas Rare Earths Ltd., a rare-earth miner, spends $10 to mine a kilogram of the minerals, versus $7 for most Chinese producers, according to James Kennedy, a consultant. Lynas declined to comment.

High costs mean even the most successful Western companies barely break even.

Near Liverpool, England, Less Common Metals Ltd. takes processed rare earths and turns them into the metals that are then made into magnets. Up to 90% of revenue goes to pay for the costs of raw materials, LCM says.

“Our other costs and our returns are all in that 10%, how can you survive doing this in the West?” said Ian Higgins, the company’s managing director.

A basic rare-earth magnet is 20% cheaper from China than Europe, according to Clarence Martin, whose Michigan-based company, Eypex Corp., supplies Chinese magnets to U.S. car makers.

Mr. Martin said he’d welcome the ability to diversify his supply out of China.

“But it will be quite a while before a meaningful shift in our supply chain occurs,” he said.

WSJ : Medline Industries Explores Sale

Medline Industries Explores Sale
A deal could value medical-supply company at as much as $30 billion

Medline Industries Inc. is exploring a sale that could value the big medical-supply company at as much as $30 billion and mark the latest in a recent string of large leveraged-buyout bids.

The family-owned company has hired Goldman Sachs GS -0.10% Group Inc. to run the process, according to people familiar with the matter. There is no guarantee the company will ultimately be sold. The process is at an early stage, the people said, with some adding that an IPO or minority investment is also a possibility.

Northfield, Ill.-based Medline is likely to attract private-equity bidders, partly because industry players could struggle to swallow such a big rival, the people said.

Blackstone Group Inc., BX 0.20% KKR KKR -0.54% & Co. and Carlyle Group Inc. CG 0.16% are among those expected to consider bids, some of the people said, and they could ultimately partner up given the size of the deal.

The possible deal is the latest sign of a renaissance under way for large leveraged buyouts, which largely disappeared in the wake of the financial crisis as firms eschewed pairing up and taking on the mountains of debt such deals require. With risk tolerance rising broadly and private-equity investors sitting on mountains of unspent cash, the firms have been testing the waters lately on megabuyouts again, including at Royal KPN KKPNY -2.03% NV and Toshiba Corp. TOSYY 0.58%

Medline manufactures and distributes medical equipment and supplies used in hospitals, surgery centers, acute-care and other medical facilities in over 125 countries. It had $17.5 billion in annual sales, according to its website.

The company’s products include surgical gowns, examination gloves and diagnostic equipment used in medical settings as well as a few consumer-facing brands such as Curad bandages. The company says its drapes and gowns are used in eight million procedures in the U.S. a year.

Founded in 1966 by brothers James and Jon Mills, the company’s roots date to 1910 when their grandfather, A.L. Mills, started sewing butcher aprons in Chicago. He was approached by nuns who worked at a nearby hospital and he offered to help them with sewing surgeons’ gowns and nurses’ uniforms, according to the website.

The company went public in 1972, but the Mills brothers bought back the shares five years later after concluding investors were undervaluing it.

James Mills, who served for many years as Medline’s CEO, died in 2019. His son Charlie took over as CEO in 1997 and currently holds the position.

WSJ : Coinbase’s Lofty Valuation Might Erode as Crypto Markets Mature

Coinbase’s Lofty Valuation Might Erode as Crypto Markets Mature
Cryptocurrency giant, which runs largest U.S. bitcoin exchange, plans to go public Wednesday

Cryptocurrency giant Coinbase Global Inc. is gearing up for what investors expect to be a blockbuster stock-market debut, though doubts persist about its lofty valuation.

Coinbase plans to go public Wednesday through a direct listing on the Nasdaq Stock Market. The company, which runs the largest U.S. exchange for bitcoin and other digital currencies, could achieve a bigger market capitalization than any of the world’s traditional exchange operators. But it faces a number of threats, including competition in the fast-evolving cryptocurrency industry, that could undermine its stock price in the long run.

Based on the price of Coinbase shares in private-market trading earlier this year, the company is worth $91.5 billion on a fully diluted basis, securities filings show. And Coinbase reached that valuation even before releasing blowout results for the first quarter, when it benefited from a huge rally in the price of bitcoin.

During the first three months of 2021, Coinbase attracted 13 million new users and estimated it generated earnings of $730 million to $800 million on revenue of $1.8 billion. Even at the lower end of that earnings range, that’s more than twice its profit for all of last year.

The conundrum facing investors is whether those results are a harbinger of what’s to come, or just a blip. Coinbase is valued at nearly 90 times its trailing 12-month earnings, based on the lower end of its first-quarter estimate. By comparison, Intercontinental Exchange Inc., owner of the New York Stock Exchange, has a multiple of about 31, while Nasdaq Inc. is trading at about 27 times its trailing 12-month earnings.

Coinbase makes money by collecting fees when its users buy or sell cryptocurrencies. Although it doesn’t place bets on bitcoin directly, the company’s share price could suffer if bitcoin crashes, leading to a slump in its trading volumes.

Bitcoin was recently trading at around $58,000, up from about $7,000 a year ago, partly due to growing interest by hedge funds and other institutional investors. But it also has a history of extreme volatility. At the end of 2017, for example, bitcoin neared $20,000. A month later, it had crashed to around half that value.

Some investors and crypto-industry executives say Coinbase has another major vulnerability: its dependence on transaction fees, which are likely to come under pressure from cheaper competitors as the cryptocurrency market matures.

Last year, 96% of Coinbase’s net revenue came from transaction fees. The company charges hefty fees compared with other crypto exchanges. A small investor looking to buy $100 of bitcoin at the prevailing market price would pay about $3.49 in fees on Coinbase, and potentially more with some payment methods like debit cards. At Kraken, a rival exchange, the same investor would pay $1.50. At Bitstamp, another competitor, the cost would be 50 cents.

Of course, such fees might seem insignificant to investors hoping to score a fortune if bitcoin’s meteoric rise continues.

“Retail investors are paying much more than they need to,” said Scott Knudsen, chief executive of Cove Markets, a startup that makes software for crypto traders. “But the question is, do they really care?”

Coinbase’s rivals are betting that crypto investors will become more fee-conscious over time. They note that fees in other markets gradually came down as competition mounted and, in some cases, the fees charged by intermediaries came under regulatory scrutiny. In stocks, for instance, commissions charged by brokerages like Charles Schwab Corp. declined from more than $40 a trade in the 1980s to zero today.

“As we’ve seen in every other asset class, the more people pay attention to the fees they’re paying, the more pressure comes on those margins, and eventually those fees come down,” said Matt Trudeau, chief operating officer of crypto-exchange operator ErisX.

Coinbase has amassed 56 million users thanks to its prominent brand and trusted reputation in an industry notorious for cyber breaches, theft and fraud. It is especially popular with crypto newbies, thanks to the user-friendly app it developed at a time when bitcoin was little known outside a few enthusiasts.

The company says it is diversifying into other businesses—like storing digital assets for institutional investors—to protect its position even if competition forces it to cut fees. “We anticipate fee pressure to emerge over time,” Coinbase said in a February regulatory filing. “Our strategy is to maintain our position as a trusted brand in the crypto space and develop new products to enhance our customer value proposition and offset the effects of any future fee pressure.”

William Quigley, managing director at blockchain-investment firm Magnetic, says he worries that Coinbase could end up like AOL, the early internet success story that fell behind more innovative rivals. Coinbase’s core business faces threats from newcomers like decentralized crypto exchanges, which allow trading at a fraction of the cost of established exchanges, as well as payments giants PayPal Holdings Inc. and Square Inc., which are also making inroads into crypto, he said.

“Its bread-and-butter business is being eaten by much larger, more experienced, bigger-market-cap companies that have efficiencies built in and have massively larger consumer bases,” said Mr. Quigley. “So in a price war, Coinbase is devastated.”

Still, executives like Coinbase CEO and co-founder Brian Armstrong believe the world is on the cusp of broad adoption of digital currencies, and the company’s fans say Coinbase is well-positioned to profit from the shift.

“Margins are definitely going to come under pressure, but they’re in a market where it is my strong belief that it will grow 10 or 100 times what it is today,” said Dave Weisberger, chief executive of CoinRoutes, which builds algorithmic trading software for the crypto markets. “The Coinbase play is that they will have a big slice of that.”

Barrons Cover Story : Bitcoin Is Making a Splash. Is It Safe for Investors to Te

Bitcoin Is Making a Splash. Is It Safe for Investors to Test the Waters?

Most of us like the dollar. It has lasted for centuries, survived two world wars, the Great Depression, and a siege by inflation. It works pretty well as a de facto global currency. Do we really need a purely digital alternative—one that isn’t backed by the Federal Reserve, lives only on a computer network, consumes vast quantities of electricity, and has no intrinsic value?

That profile describes Bitcoin, of course, and it is having a moment.

With Bitcoin’s market value topping $1 trillion—following a 1,000% surge in the past year alone—it may be reaching an economic tipping point. Brokerages such as Morgan Stanley (ticker: MS) say that investors should add it to their portfolios. Companies like Tesla (TSLA) and MassMutual have bought large sums. A few taps on your phone can plop it in a digital wallet on PayPal (PYPL), where it can be converted to cash to make a purchase. If you’d like to trade it, Square (SQ) and Robinhood will oblige. Bitcoin debit cards are coming from Visa (V) and Coinbase Global.

Yet if you’re wondering what Bitcoin is—and whether you should own it—you’re not alone. Bitcoin and other cryptocurrencies aren’t intuitively grasped—they’re “mined” from a digital storage depot and pumped into circulation through a decentralized computer network called a blockchain. Prices for Bitcoin, which sits atop an expanding crypto ecosystem, may be rising as retail and institutional investors snap up relatively thin supplies. In a climate of fear over inflation and monetary debasement, proponents say that Bitcoin will hold its value more than “fiat” currencies like the dollar, yen, or euro. Eventually, they argue, it will live in harmony with paper currencies in the global economy.

While the Bitcoin genie may be out of the bottle, it’s far from omnipresent. Obstacles include technological hurdles, price instability, taxation policies, and governments that don’t want a freewheeling digital token usurping their monetary policies or financial regulations. Illicit uses of Bitcoin, including money laundering and tax evasion, abound. Authoritarian governments have already cracked down. China, for instance, has become a leader in blockchain technology and mining, but Bitcoin itself poses a threat: Beijing has banned banks and other financial firms from transacting in it, and shut down domestic crypto exchanges. Beijing is now rolling out a digital yuan, controlled by its central bank, partly to try and offset Bitcoin’s appeal.

Another hurdle for Bitcoin is finding ways to mine it without turning it into another global smokestack. The global Bitcoin network now emits 60 million tons of carbon dioxide into the atmosphere annually, roughly equivalent to countries such as Greece, estimates BofA Securities. Some analysts argue that most Bitcoin is mined with clean energy such as wind and solar. But reporting on Bitcoin energy consumption relies on questionable assumptions about electricity generation and usage. And as the price rises and trading volume increases, so does the environmental toll; BofA estimates that every $1 billion of inflow into Bitcoin is like putting 1.2 million cars on the road (and not the Tesla kind).

Perhaps the most vexing question is whether it’s a trillion-dollar bubble. Bitcoin’s market value has pushed it past that of Mastercard (MA), Home Depot (HD), and Exxon Mobil (XOM) combined. Cryptos overall are worth the entire high-yield bond market, according to Morgan Stanley. Yet Bitcoin acts more like a thinly traded stock than a liquid large-cap; most of the Bitcoin that has been mined is owned by long-term HODLers—or those who “hold on for dear life”—and doesn’t actually circulate, and the price may be inflated by large purchases. Indeed, 95% of all the Bitcoins is controlled by 2.4% of the accounts, according to BofA, and 20% of the supply may be sitting in lost or stranded digital wallets, according Chainalysis.

“How bubbly is this market? I think it’s very bubbly,” says Carmen Reinhart, chief economist of the World Bank. “It may not take any melodrama in a thin market to reverse most or all of the price gains. It’s not like the Treasury market. We have to expect huge price volatility in Bitcoin.”

Crypto has reached the tipping point, says Fidelity's Tom Jessop

Fidelity's Tom Jessop on what the company has learned from accepting Bitcoin in its company cafeteria, how traditional financial firms have reached a tipping point into grudging acceptance of crypto, and why that matters.
Other economists argue that while Bitcoin is an innovative technology with compelling uses, it lacks any intrinsic value to support its price. “Bitcoin is simply a word,” says Willem Buiter, the former chief economist for the European Bank for Reconstruction and Development. “It’s not something you can eat or touch, use as a consumer or producer for manufacturing.” Even gold, the closest analogy, has uses for jewelry and manufacturing. Worries about inflation and paper currencies losing value are legitimate, he says, and investors may want a hedge. “I’m just arguing that Bitcoin isn’t it. It’s purely a speculative bubble.”

What is Bitcoin? The story starts with Satoshi Nakamoto, a mysterious figure—or group—who developed a digital currency that anyone could send and receive through a decentralized computer network. Transactions are validated and recorded by independently operated computers, known as miners, who compete to solve cryptographic puzzles, known as “proof of work” (hence the term cryptocurrency).

The miner who solves the puzzle first shares the results across the network. Other miners verify if the solution is correct, and once a consensus is reached, transactions are bundled together in digital “blocks” and added to an electronic record, or ledger, called a blockchain, which no one controls and anyone can see.

In return for running the network, miners earn newly minted Bitcoin and a share of transaction fees. The higher the price, the more profitable mining can be, depending on electricity costs and computing power.

To transact in Bitcoin, you’ll need to open an account through an exchange or app, and store it in a digital wallet. Companies like PayPal and Square have made it a snap to buy through their apps; Coinbase is another popular platform for custody and trading.

The beauty of the system, launched in 2009, arises from a few key features. One is decentralization: No person or authority controls the blockchain. Transactions are recorded only after all of the computer nodes, operating independently, prove their validity—enhancing security over ledgers overseen by humans. Indeed, it would take a massive mining hack to alter the blockchain, which is improbable but not impossible. As a peer-to-peer network, the system offers pseudo-anonymity, though transactions and accounts are traceable.

Bitcoin’s scarcity is also a key attraction. The global supply can never exceed 21 million Bitcoins, according to the system’s design. About 18.6 million have been created through mining. But the amount of new Bitcoin that’s issued is designed to halve every four years. New coins are now minted at a rate of 6.25 every 10 minutes, indicating that the mint will run dry in the year 2140.


Racks of Bitcoin mining machines line the shelves at a server farm in China.
Gilles Sabrie/The New York Times/Redux
While Bitcoin has kicked around for more than a decade, it’s now rapidly going mainstream. Trading in Bitcoin futures and related stocks is gaining momentum as Wall Street and financial-technology companies invent new ways for investors to gain exposure. Banks, brokerages, exchanges, and advisory firms are building the infrastructure to turn Bitcoin into an asset like stocks or bonds, anticipating that it will work its way into 401(k)s and other retirement accounts. Fidelity Investments, VanEck, and other fund sponsors are trying to persuade regulators to approve a Bitcoin exchange-traded fund, following Canada’s approval of Bitcoin ETFs.

One of the most anticipated public offerings this year is Coinbase. Gearing up to go public in mid-April through a direct listing, the crypto exchange may be worth $100 billion, roughly the combined market value of the Nasdaq, Cboe Global Market, and the Intercontinental Exchange, parent of the New York Stock Exchange.

Bitcoin is also getting votes of legitimacy from some influential investors. Elon Musk bought $1.5 billion for Tesla’s treasury. Hedge fund icons Paul Tudor Jones and Stanley Druckenmiller have invested. Howard Marks, co-chairman of Oaktree Capital Management, wrote recently that his skepticism about Bitcoin “has not borne out,” adding that his son “thankfully owns a meaningful amount for our family.” A representative for Oaktree declined to comment.

Whether this will all crash isn’t known, of course, which may explain some reticence to discussing it publicly. Indeed, a variety of factors could take the wind out of Bitcoin.

For one, there’s competition. Bitcoin is one of thousands of cryptocurrencies, many of them “forked” off the Bitcoin blockchain. Ether, on the Ethereum network, offers some advantages. The currency can be programmed with “smart contracts,” meaning that transactions between parties can include conditions: a shipment of goods from China to the U.S. might cross the ocean at a preset GPS coordinate, for instance, at which point the goods may change ownership, along with a chunk of ether.

Central banks are also eying digital currencies built on blockchain technology. China’s move to create a digital yuan may be the first of several central-bank digital currencies. CBDCs are pegged to paper currencies and would fluctuate with standard exchange rates; they wouldn’t be a substitute for Bitcoin and other cryptos that function independently of central authorities. But they could compete against cryptos as a medium of exchange, used for international money transfers, for instance, potentially at lower costs.

“ Governments aren’t going to sit on their hands forever in the face of methodologies where transactions can’t easily be detected. ” — Kenneth Rogoff
The Bitcoin network itself is rather slow, handling just 14,000 transactions per hour, compared with 236 million for Visa’s network, according to BofA. Efforts are under way to accelerate Bitcoin processing with second layers of processing, including new “lightning” protocols, but it’s still far behind card networks and automated clearing houses, or ACHs.

People transact in dollars, yen, and euros, which are stable, widely accepted, and woven into the financial fabric. Bitcoin’s volatility makes it unsuitable for large-scale purchases or contracts, and rising transaction fees create economic friction. Selling your Bitcoin to buy something may also be a taxable event, since the Internal Revenue Service classifies Bitcoin as property, not a currency.

Its quasi-legality might eventually be its undoing, says Harvard economist Kenneth Rogoff, author of The Curse of Cash. Governments throughout history have consistently quashed challenges to their currencies and monetary policies, he says. Bitcoin poses a threat because it can also be used for criminal activity and may be tough for law enforcement to monitor. “I view the financial innovation as very promising,” Rogoff says, “but governments aren’t going to sit on their hands forever in the face of methodologies where transactions can’t easily be detected.”

Another obstacle, less widely discussed, may be Bitcoin’s rising environmental toll. Bitcoin’s annualized energy consumption has surged to 135 terawatt hours, doubling in the past year, according to the Cambridge Bitcoin Electricity Consumption Index. That is more electricity than countries such as Sweden or Ukraine consume in a year.

Some, or perhaps most, of that electricity may be generated by renewable resources such as wind, solar, hydro, and geothermal activity. Much of the world’s mining takes place in China (65%), along with Iceland, Canada, and other countries with relatively inexpensive energy. Indeed, renewables account for 73% of the energy mix in the mining network, according to CoinShares, a Bitcoin asset manager.

But the math looks fuzzy. In China, miners migrate seasonally: They set up shop in regions where hydro is cheap and plentiful in the summer and then decamp as the generators produce less, packing up for places like Inner Mongolia, where electricity comes largely from coal. But how much mining is actually generated by renewables isn’t known. “Mining in China is predominately renewable, but it’s very difficult to get exact numbers,” says Christopher Bendiksen, head of research at CoinShares.

Even if mining is relatively green in China, it’s far less clean in other hubs, including Kazakhstan and Iran. The industrial opportunity cost to all of the energy consumed by Bitcoin isn’t known—though electricity isn’t entirely fungible across regions. And as the price rises, the electricity toll does, too. If the price were to reach $1 million, up from $58,000, Bitcoin would become the world’s fifth-largest carbon emitter, passing Japan, according to BofA.

Bitcoin’s proponents don’t view any of these issues as deal breakers. For one thing, crypto momentum is now self-perpetuating. The higher the price, the more capital gets pumped into developing a financial ecosystem that can handle larger transactions and broaden the appeal to institutions. Bitcoin has become the North Star of the crypto universe, says Citigroup, which also views it at a tipping point.

Custody services, security, and liquidity still aren’t close to mainstream finance, but they’re improving as firms like BNY Mellon and Fidelity get involved. Bitcoin exchanges have become more secure, following several large-scale hacks and thefts. Over-the-counter trading desks can handle large order sizes, while prime brokerages—used by institutions—are providing best-execution practices and obtaining insurance against theft. Derivatives trading is also flourishing, creating more liquidity for exposure. The system is becoming “increasingly professionalized,” says Citi.

Bitcoin may never become legal tender—but it could continue working its way into the system, assuming the financial police can keep tabs on it. Bank regulators don’t want to stifle innovative blockchain technology, saying in January that banks could participate in blockchain networks and use “stablecoins,” or digital tokens that can smooth transfers between crypto and standard currencies. Stablecoins such as USD Coin are collateralized at a 1-to-1 ratio with a standard currency. Some $20 billion in stablecoins are now in circulation.

Even if Bitcoin doesn’t take off as a transaction currency, it could gain appeal as an alternative asset. As digital gold, it may already be pressuring prices for the real yellow metal. One way to value Bitcoin is in relation to the total gold held by the private sector, which amounts to about $2.5 trillion. By that measure, one Bitcoin should be worth $146,000, according to J.P. Morgan, nearly triple the current price.

Proponents argue that Bitcoin could work better than gold as a hedge against inflation. Morgan Stanley wrote recently that a 2.5% position in crypto could improve portfolio returns. But its benefits hinge on correlations to assets like stocks and bonds. And its correlation to cyclical assets appears to be rising as it goes mainstream, wrote J.P. Morgan.

Rival cryptos could coexist. Investors could hold Bitcoin as an investment or inflation hedge, while using other, more-stable cryptos as a transaction currency. Ether may be better for transactions as a programmable currency, but it’s less appealing as a store of value, partly because it’s scarcity isn’t known. “No one can tell you how many ether exist, and the Ethereum network changes all the time,” says Adam Pokornicky, a Bitcoin entrepreneur and registered investment advisor for digital assets.

Even those who say that Bitcoin is a bubble think it’s likely to stay. The World Bank’s Reinhart points out that Bitcoin’s price is being fueled by several trends: the search for yield, government stimulus payments, demographic shifts, and technology. Some are long-term trends. And while we might not think of using Bitcoin as a substitute for the dollar in the U.S., it’s far more appealing in places like Lebanon, Nigeria, and Venezuela, which have unstable currencies, hyperinflation, or potential for savings to be confiscated. “If you live in a country with capital controls, where you have uncertainty about the future of the currency, that is the heart of the story,” she says.

Rogoff agrees: “There are always going to be pockets of the world where it can be used,” he says, though he adds that “current valuations go far beyond those end uses.”

Worried about inflation or the dollar losing value? Some advisors still say it’s best to avoid Bitcoin. Mike Klein, an advisor to high-net-worth clients with Baird, recommends commodities, real estate, and the stock market itself—assets that would gain value in an inflationary climate. “If you want an asset that isn’t correlated with anything but speculation, this is it,” he says.

Indeed, while stocks follow earnings and bonds track interest rates, Bitcoin’s prices may simply be supported by the belief that it will one day give the dollar a strong run. In other words, there’s no good reason to buy, unless you think the price is going up.

BArrons : Credit Suisse’s Crises Are Slamming the Stock. Stay Away.

Credit Suisse’s Crises Are Slamming the Stock. Stay Away.

It’s too soon to wade into the shares of Credit Suisse Group. The stock has plunged as the Geneva-based bank struggles with the latest in a series of crises that began a year ago. But tempting as the stock price may now be, more challenges could well lie ahead.

Credit Suisse (ticker: CS) had hoped to assure investors that its recent CHF 4.4 billion ($4.7 billion) hit from exposure to hedge fund Archegos Capital Management would be the end of the troubles.

But the April 6 announcement has done little to steady the share price, which has tumbled 21% over the past month to CHF 10.13. Over the past three years, it has fallen by 35.4%, compared to a 36% gain at rival JPMorgan Chase (JPM) and a 44% increase at Morgan Stanley (MS).

Credit Suisse’s losses from the implosion of Archegos raise nagging questions about what risk-management crisis may lurk around the corner.

The bank also has written down $450 million on investments in collapsed hedge fund York Capital, paid $680 million in litigation costs from crisis-era mortgage bonds, and got caught up in alleged fraud at German payments firm Wirecard. The full extent of losses related to its funds linked to collapsed supply-chain finance firm Greensill Capital have yet to be revealed, but JPMorgan analysts estimate a $2 billion hit, although some of this will be passed to clients.

Some analysts think the stock has further to fall. Eoin Mullany, an analyst at Berenberg, has a price target of CHF 9.50. JPMorgan analyst Kian Abouhossein says the bank could go into “capital preservation mode” that would restrain growth.

The bank has a market value of CHF 24.3 billion and employs 48,700. It fetches a multiple of six times this year’s expected earnings and is valued at a 30% discount to its peers. Credit Suisse trades at 0.6 times tangible book value. The bank posted an annual pre-tax profit of CHF 3.5 billion in 2020, down 27% from the prior year. Annual revenues were CHF 22.3 billion, flat from 2019.

The bank was first rocked last March, when then-CEO Tidjane Thiam departed in the wake of revelations of corporate spying on senior employees.

Thomas Gottstein, who took over the helm, has said the losses related to Archegos were “unacceptable,” adding that it was “fully committed to addressing these situations” and “serious lessons will be learned.” The bank declined to comment to Barron’s.

Gottstein told the Financial Times in December that he wanted to start the new year with a “clean slate.” Instead, he’s been forced to unravel many of the changes he put in place within months of taking the top job.

Investment banking chief Brian Chin, and chief risk and compliance officer Lara Warner have left just months after Gottstein installed them as part of sweeping changes. A plan to repurchase up to CHF 1.5 billion in shares this year, announced in January, was also put on ice.

“The tapering of dividends and buybacks, although needed, will only further frustrate shareholders,” says KBW analyst Thomas Hallett.

Gottstein may be in a precarious position himself. António Horta-Osório, the former boss of U.K. lender Lloyds Banking Group, arrives as Credit Suisse’s chairman this month and may have his own ideas about strategy.

A 50% surge in investment bank revenue and improved earnings across its prized wealth management unit has dampened the impact of Archegos. The bank is set to post a CHF 900 million first-quarter loss, showing good underlying performance.

Gottstein will be keen to avoid any further missteps, which could eventually lead to overall changes at the bank.

Barrons : Brazil’s Market May Be Hitting a Bottom. Why It Might Be a Good Time t

Brazil’s Market May Be Hitting a Bottom. Why It Might Be a Good Time to Buy.


Things look pretty bad for Brazil. The so-called Manaus variant has brought coronavirus back with a vengeance. And Lula is loose. Leftist ex-president Luiz Inacio Lula da Silva stepped out of jail last month after courts essentially annulled his corruption conviction, and looks set to challenge incumbent Jair Bolsonaro in October 2022.

All of which means it may be time to buy. “I’d be surprised if things are not looking better a month from now,” says Verena Wachnitz, a portfolio manager for Latin American equities at T. Rowe Price.

The iShares MSCI Brazil exchange-traded fund (ticker: EWZ) has fallen 7% this year, while global emerging markets advanced 5%. That makes Brazil the third-cheapest emerging market after Russia and Turkey with an average price/earnings ratio of 9.2, calculates Alex Altmann, head of equity trading strategy at Citi. “Assuming that virus cases once again appear to be peaking, Brazil begins to look quite interesting,” he says.

That assumption is reasonable, adds Malcolm Dorson, Latin American portfolio manager at Mirae Global Asset Investments. Bolsonaro’s noisy virus skepticism delayed Brazil’s vaccination launch. But an underrated national health service can rapidly accelerate. “The system can handle 2 million shots a day,” he says. (They are at around 600,000 now.) “That’s the best in all emerging markets.”

The Bolsonaro-Lula fireworks have distracted from quieter political progress. Congress rather deftly compromised between pandemic stimulus and longer-term debt worries, Wachnitz says. It extended the so-called coronavoucher program of cash transfers for four months in exchange for more rigorous fiscal controls going forward.

The central bank hiked interest rates by 0.75 percentage points on March 1, after flirting with negative real rates. That should bolster a currency that has slid 5% this year even as prices for Brazil’s commodity exports rallied, says Tony Volpon, a former central bank governor and now chief strategist at WHG in São Paulo. “The real effective exchange rate is its cheapest since 2002, when we had a political crisis and no reserves,” he says. “Now we have $300 billion.”

Volpon is also relaxed about Lula, who held power from 2003-2011, getting another shot at age 76. “Lula was really a center-left [Bill] Clinton-[Tony] Blair kind of guy,” he says. “Brazil achieved its investment-grade rating under Lula.”

Brazil’s market offers various strategies for betting on recovery. Dorson favors steady, established consumer names like pharmacy chain Raia Drogasil (RADL3. Brazil) and department store operator Lojas Renner (LREN3.Brazil). Both stocks have held about even through the first quarter selloff.

The country is rich in fallen tech angels that could bounce on improved global or local sentiment. Payments providers Stone (STNE) and Pagseguro Digital (PAGS) have both lost a quarter of their value since mid-February. E-merchant MercadoLibre (MELI) and Locaweb (LWSA.Brazil), the Go Daddy of Latin America, have crashed almost as hard.

State-owned oil champion Petroleo Brasileiro (PBR) is an idiosyncratic recovery bet. The company’s shares have plunged 23% since Feb. 22, when Bolsonaro fired its CEO for daring to raise fuel prices in line with crude oil. Crude has held steady near three-year highs since then.

Brazil is a volatile place where good news might not last long. Bolsonaro could respond to the Lula challenge by “going populist” and blowing out the budget, Dorson says. Election fever, and spending, is likely to grip the nation by this time next year. But a lot of bad news is priced in.