China, Cryptocurrencies and JPMorgan

App maker Meitu becomes the first Chinese company to start integrating cryptocurrencies into its fund management. Cryptocurrency Services and Apps are getting a lot of attention in 2021 and some of them even offer coupon codes, you can check out which companies do at CryptoCoupons.

The reason here is also the concern about the devaluation of fiat currencies. Meanwhile, a list of Bitcoin treasuries shows how many Bitcoins are already in company portfolios.

Now it’s China. After MicroStrategy and Tesla in the U.S. and SynBiotic in Germany added Bitcoin to their portfolios, a company from China is now following suit: App maker Meitu, which is best known for its AI-powered image and video editing. Meitu’s apps, according to the startup’s slogan, let “everyone become beautiful the easy way.”

Now, the Cayman Islands-registered and Hong Kong-based company has announced it has added both Bitcoins and Ether to its portfolio: “The Group has purchased 15,000 units of Ether and 379.1214267 units of Bitcoin (“BTC”) on March 5, 2021. The total amount of these two cryptocurrencies is approximately USD 22.1 million and USD 17.9 million, respectively.”

The purchase took place in accordance with the “Cryptocurrency Investment Plan” approved by the Board of Directors and from cash reserves. In the press release (in Chinese, but decently translatable by Google), Meitu is delightfully transparent in disclosing its motives: It believes, in principle, “that blockchain technology has the potential to revolutionize existing financial and technology industries, much like the mobile Internet has upended the PC Internet and many other offline industries.” The early stage that the “blockchain industry” is currently in, he said, leaves “plenty of room for appreciation.”

Like other companies before it, Meitu is also motivated by central bank monetary policy. The “allocation of a portion of cash reserves to cryptocurrencies” is intended to diversify the risks that “cash in fund management” injects due to “devaluation pressure from a significant increase in the money supply.”

But why Bitcoin – and why Ethereum? The company provides information about that in great detail as well. Meitu also wants to use the move to, above all, “demonstrate accepting technological innovation, preparing to enter the blockchain industry.” Ethereum in particular is of interest to Meitu because of the large number of dApps, which is why the group of companies is currently looking into integrating Ethereum applications into “various overseas businesses.” The purchase of Ether serves as an entry point into this industry – and to already have enough gas on hand for testing and applications.

Bitcoin, on the other hand, Meitu is buying primarily because of the scarcity of the asset and its high acceptance in global commerce and finance. In the background is the devaluation pressure on fiat currencies due to the increase in the money supply. With Bitcoin, Meitu explicitly protects itself against this risk.

China cryptoFundamentally, Meitu is benefiting from a global trend: Even more conservative institutions such as insurance companies (MassMutual in the U.S., for example) are starting to invest in cryptocurrencies, while exchange-listed companies are buying cryptocurrency “as part of their fund management” and asset managers are investing in Bitcoin. At the same time, more banks are offering custody and trading services around cryptocurrencies, while regulators are allowing cryptocurrencies more widely.

Collin Wu, a knowledgeable observer of the Chinese crypto scene, comments on the move, some euphoric, some cautious. “It’s possible that more Chinese companies will be motivated by this to also buy Bitcoins to boost their share prices. But it also puts them at risk of being banned by the Chinese government.” In addition, Wu reminds us that Cai Wensheng, the founder of Meitu, is no stranger to the scene: he is an investor in the exchange OKEx and issued several ICOs in 2017, such as the token MEC, whose price fell to zero after a hack.

Even as the shifting of portions of cash reserves into cryptocurrencies among companies continues to proliferate, it is still primarily driven by enthusiasts – companies or entrepreneurs who come directly from or have close contact with the crypto industry. Nothing illustrates this better than the website Bitcoin Treasuries, which can be translated as “bitcoin treasuries.”

The site lists all the companies that are known to have included Bitcoin in their portfolios. These are currently 46 companies that together hold 1,365,481, representing 6.5 percent of all Bitcoins ever available, or just over 62 billion euros (at today’s price).

What kind of companies are we talking about? We have already reported on MicroStrategy, Tesla, Square and Meitu; SynBiotic is not on the list because the size of the investment is not known. Without a doubt, there is likely to be a significant number of unreported cases. Otherwise, the companies included in the list come almost exclusively from the crypto sector. Investor companies or funds are very broadly represented, and in some cases you can also find exchanges, foundations such as Tezos, or debtor companies such as Mt. Gox.

By the way, from Germany only Bitcoin Group SE can be found in the list, which holds 2269 Bitcoins with an equivalent value of more than 100 million euros on its wallets today. According to a recent press release, the total cryptocurrency holdings of Bitcoin Group have already reached more than 170 million euros.

JPMorgan files crypto stock basket

JPMorgan files crypto stock basketThe largest bank in the U.S., JPMorgan Chase, is filing a new financial product with the U.S. Securities and Exchange Commission that will allow investors to participate indirectly in the crypto market: A basket of shares of companies involved in crypto. Among them are obvious stocks, but also surprising ones.

JPMorgan Chase’s relationship with bitcoin and crypto is not entirely straightforward. The largest bank in the U.S. has been dithering around in this regard for the past few months, sometimes sending positive, sometimes cautionary signals. Somehow it was clear that something was up – but not what.

That question has now been answered. JPMorgan will not currently allow its customers to directly buy or hold cryptocurrencies. Instead, the bank wants to launch a financial product that lets investors participate in the crypto market through conventional products: A basket of shares of 11 companies that, according to the filing with the U.S. Securities and Exchange Commission, “engage in a business related, directly or indirectly, to cryptocurrencies or other digital assets, which may be based on bitcoin holdings, cryptocurrency technologies, mining products, digital payments or bitcoin trading.”

Stock weightings are based in part on exposure to bitcoin, correlation to bitcoin price, and liquidity of the stocks. In this way, four companies make up 68 percent of the basket: MicroStrategy at 20 percent and Square at 18 percent should come as no surprise – both companies hold significant amounts of Bitcoins, especially MicroStrategy, and Square benefits from the cryptocurrency’s success as a seller of Bitcoins in CashApp. With 15 percent, Riot Blockchain, a company of North American miners, follows, as well as – and here it becomes surprising: the graphics card manufacturer Nvidia.

Actually clear: Mining cryptocurrencies such as Ethereum, Litecoin, Dash or Dogecoin contributes decisively to the demand of Nvidia’s graphics cards. To better organize the strong demand, Nvidia recently throttled the mining performance of gaming graphics cards and announced cards made specifically for mining. Accordingly, Nvidia’s share price also mirrors, at least in part, the price performance of Bitcoin and other cryptocurrencies.

In contrast, the competitor AMD, whose graphics cards are also used for mining, is only represented with five percent in the share basket. TSM (Taiwan Semiconductor Manufacturing), the foundry from which most mining chips originate, both on graphics cards and in Asics, accounts for another five percent. This stock, by the way, is the only one the basket uses to cover bitcoin miner manufacturing. Whether it actually makes sense to put such a large portion of the basket – Riot, Nvidia, AMD and TSM – on mining is questionable. After all, bitcoin mining revenue is steadily declining, while Ethereum plans to move to proof of stake, making cryptocurrencies mined by graphics cards more likely to descend into a niche. Nvidia and AMD’s exposure to mining could come to an end more quickly than JPMorgan analysts expect, much to the delight of gamers.

The other stocks in the basket are in finance. PayPal is there with 10 percent, which is a surprisingly strong assessment of the importance of cryptocurrencies for the payment service provider’s business. Four percent each goes to Intercontinental Exchange, the parent company of Bakkt, the New York-based issuer of 1-day bitcoin futures, and CME, the Chicago exchange that also trades bitcoin futures. At just two percent, mail-order company Overstock, which has long been involved with Bitcoin, and California-based “crypto bank” Silvergate Capital, which bundles dollar transactions for investors and exchanges, form the smallest weights in the share basket.