> “HSBC has no appetite for direct exposure to virtual currencies and limited appetite to facilitate products or securities that derive their value from VCs (virtual currencies),” HSBC said in a statement.
But you wouldn't be? This is a product literally called "InvestDirect" where private individuals are buying stocks and assuming all the risk.
If you don't want to offer margin on virtual currency products, more power to you, that is your risk. But if customers are buying with cash, it seems pretty suspect for the bank to claim that is increasing the bank's risk exposure.
Honestly it wouldn't be the worst idea to have a "Net Neutrality" for brokers.
Maybe they have issues with people taking on a margin that they cannot afford? Cryptocurrencies being as volatile as they are shorting them on a margin can result in high losses that HSBC prefers not to be involved with? Just a guess.
Not impossible, but IMO highly unlikely: stocks, especially smaller ones can be way more volatile than any currency with over 1T market value. And you can still buy those on margin.
That's true. Maybe something to do with regulations then? HSBC is already being accused of being involved with money laundering quite a lot.
Also, what other coins except BTC have market cap >1T?
I suspect regulation (or fear of impending one) is the likely culprit; but again, not sure. Re: size -- I was including regular fiat currencies, not just digitals.
That is absolutely not the case in a categorical sense.
Brokers can and do apply different margin requirements on a stock by stock or customer by customer basis. There's nothing out of the ordinary about a security not being marginable or having increased requirements due to risk assessment.
For example, here is a list of stocks at one broker with particular margin requirements, and it says it "changes frequently":
Given that there are hundreds starting with "A", I'd assume the entire list is in the thousands, of securities that have individual margin requirements.
I think in fact the ticker GBTC which is a trust that owns Bitcoin isn't marginable.
Doesn't the market volume have a multiplicative effect, though? In other words, it's not just volatility, it's volatility x volume. Or something like that.
Knowing absolutely nothing about this particular situation I’d be willing to bet this decision is a lingering side effect of HSBC’s most recent (and seemingly perpetual) AML issues. I suspect they’re trying to appear squeaky clean and an action like this is quick, easy to implement operationally, and looks good to regulators who are uneasy about cryptocurrency’s reputation for facilitating criminal activity online.
I don't see how kyc/aml applies to this particular stock over every single other ticker they will happily sell you? There's no difference, they aren't selling cryptocurrency here.
Buying or shorting this stock to the tune of billions of dollars might be a good way for a drug dealer to mitigate the currency fluctuation risk to his big pile of illicit bitcoins stashed under his bed.
> I don't see how kyc/aml applies to this particular stock over every single other ticker they will happily sell you? There's no difference, they aren't selling cryptocurrency here.
It's the equivalent of security theater. Do something conspicuous that they can spin as having done something about the problem. That serves their purpose regardless of whether it actually does any good or makes any sense.
On top of that, cryptocurrency kind of competes with banks, so they have an excuse to cause trouble for the competition.
If they're concerned about exposure, they could simply set the margin trading leverage below 1 (e.g. offering 0.1x leverage so that customers have to post $10 in margin to buy $1 in MicroStrategy shares).
> Are you saying someone would need to post more than the value of the share?
Yes, as an alternative to not allowing the trade.
If the bank considers something highly risky, it makes sense to protect themselves and the customer by making sure they've got some money locked up outside of the trade (a bankrupt customer is no longer a customer, after all). It would basically cap the percentage of net worth that they could put at risk, where they'd need to have $10 set aside for every $1 in the risky position.
There’s no need for a bank to nanny their customers. If you don’t want to book the trade, don’t book it. Going beyond that in some tortured logic to ensure they tie up extra money (possibly incurring unjustified margin calls on other positions) has almost exclusively downsides for HSBC.
They already have a version of Net Neutrality for brokers: reg NMS.
HSBC are well within their rights to refuse to accept bad orders. HSBC are exposed to specific regulatory risk not shared by US banks. Having a ton of customers go bust because a regulatory change nuked some meme stocks seems undesirable to me. If you don't like it you can always find another broker.
MicroStrategy has been around since the 80s hasn't it? I thought they made business intelligence software. They are not some weird company that appeared overnight out of nowhere.
HSBC does a lot money laundry for rich people around the world, and now it is worrying about risks? I don't think so. But it is a telling for potential direction of US government is taking for bitcoin. HSBC is doing many things to please the US government, this may be one of them.
> if customers are buying with cash, it seems pretty suspect for the bank to claim that is increasing the bank's risk exposure
Cash trades still expose brokers to volatility due to settlement.
This policy is likely one part regulatory theatre and one part customer selection. Customers buying MicroStrategy stock are unlikely to be lucrative customers for the banking products HSBC hocks.
Yeah if they were worried about settlement risk they could just not release funds/shares until they settle. But that’s probably harder to implement than a blanket ban and they have nothing to gain by catering to the meme shares crowd.
Not to get too far in the weeds (as I agree with your point) but why wouldn’t holding the funds/shares until settlement cover the clearing? Especially given they control the order routing and risk systems involved?
>The bank said its policy towards cryptocurrencies had been in place since 2018 and is kept under review. It could not immediately say which countries the ban applied to.
My guess is that it's just some middle manager blindly following directives from 2018 that haven't been updated. I can't think of any other reason why they'd ban it when everyone else is moving in the opposite direction.
They're one of the most bureaucratic and inefficiently ran banks in existence, an absolute nightmare to deal with on every level. Not sure how they're still around, I wish they had been fined into oblivion after they were caught money laundering for narco traffickers.
Is there a good up-to-date resource for understanding the current premium that MSTR has over its BTC holdings? The article says: "MicroStrategy said last week it owns around 91,579 bitcoins. Its holdings, worth around $5.5 billion according to a Reuters calculation, are equal to around 80% of its $6.8 billion market capitalisation."
Naively, this would imply a fairly low premium. But among other things, this doesn't account for fact that Microstrategy took on a lot of debt to buy their bitcoins. Essentially, I'd like to see an updated and more complete analysis like this: https://old.reddit.com/r/microstrategy/comments/ltypps/sell_.... Does such a thing exist?
My bet is that they are afraid of regulators fining them. The multi-billion dollar fines they received over the last few years constitutes a significant portion of their profits and has probably made them hyper-vigilant.
One of the unintended consequences of the Total Information Awareness / financial mass-surveillance AML/KYC movement is banks derisking at the expense of marginalized people and industries:
It seems like it's somebody's job to decide if MicroStrategy can lever up on Bitcoin but it shouldn't be individual brokers' jobs. Banks/brokers need to be neutral infrastructure. Their responsibility for AML should be to report suspicious behavior and no more; let regulators or law enforcement enforce the laws.
Heh. The one that just changed their name recently? I still have a few ways of reasoning that they're wrong, but I feel like they're always right. I've been following since like 2015.
Tesla with a 2% market share in the US, is valued more than Toyota, Volkswagen, Daimler, General Motors, and BMW combined (40% of the domestic market).
Toyota makes about $2,500 profit for every car sold. Tesla would need to make $50,000 per unit sold on average, or basically 100% profit on a Model 3, to justify the market cap.
Personally, I'm with you, I just don't see how Tesla's valuation is justified. Their cars have QC issues and they have very formidable competitors. If I had to buy a car, I'd pick the Porsche Taycan over any Tesla any time of the day (except maybe the Roadster, but it's not out yet).
That said, I have a few friends who bought it's shares and their rationale is that it's a "clean energy play", far bigger than cars and that their brand is going to be as valuable as Apple. Only time will tell I guess, everyone can put their money where their mouth is and shorting Tesla has been a pretty bad proposition so far.
And decentralized demand - e.g. individual investors and institutions to a degree (individuals who give their buy-sell power to an org) - will be more accurately voting at least than say the gullible layperson buying into the Bitcoin hype-MLM; most people buying Tesla stock arguably mostly aren't betting/investing based on nothing - there are many good, valid reasons to see Tesla taking off exponentially and even owning 40%+ of the EV market - and they're optimizing for battery-solar tech and energy business as well.
P.S. I'm not trying to convince anyone here of Tesla's value, I've shared some of my thoughts before, and there are plenty other people who have done a thorough job detailing the ecosystem and its potential.
Today value isn't about what Tesla does today, its about what people think Tesla will deliver in the future.
The numbers and profits per car are basically meaningless. You buy if you think the number will become better not of you think they are awesome now and there isn't much progress possible anymore.
Stock prices do not reflect current profits. Imagine if they did. If tsla was currently 50/share to be inline with your metric. How would you stop people from buying it at 60? Because using your math they will be worth 75+ next year when the other factories come online.
It's supposed to at least correlate with future free cash flow, which it doesn't do either. Sometimes I wonder if quantitative easing and corp tax cuts have distorted the stock market past the point where Benjamin Graham-style theories of value investing have become invalidated.
May I ask why are you comparing with ICE automakers? Tesla is much more than that. Wouldn’t your comparison be like only comparing Amazon’s Kindle vertical with the rest of the ebook reader market?
Comparing their asset balance with the market cap of its stock is complete nonsense.
Tesla has 100% access to the BTCs and other asset it holds but there is no access to the market cap. Its a fictive price tag on all existing shares. People use it to compare companies. The money does not exist anywhere and certainly can not be used by Tesla.
> Comparing their asset balance with the market cap of its stock is complete nonsense
Eh, not really. They’re both stock (as opposed to flow) measures. And one is a subset of the other. That said, crypto as fraction of assets would be a more rigorous metric.
Not alt all. Mark cap is a fictive value. Assets hold by a company aren't fictive and are not part of the market cap at all.
Market cap is simply the price of all stocks at the current market price of one.
>crypto as fraction of assets
That would make more sense but also would need to include debts.
depend on the liquidity on that day also they could OTC sell so yes they can probably get the market price. However telling the market fist isnt going to help.
>There’s a reason companies list “cash and equivalents” and BTC isn’t included in that line on the balance sheet.
Yes, the reason is volatility and uncertain liquidity.
To compare BTC with cash equivalents you could use volume adjusted price over the last months, that would give a good short term cash value. But long term ofc its impossible to know what it may be worth.
Not quite sure how that's relevant to what I said, namely that assets hold by a company are not comparable to the companies market cap.
>Comparing their asset balance with the market cap of its stock is complete nonsense.
Ben Graham, one of Warren buffet's mentors, wrote a famous book called the "Intelligent Investor" which has several chapters on doing exactly that.
Think about it...if a company sells $10 billion in stock, the new stock adds $10 billion to their market cap and they get an extra $10 billion in cash which goes on their balance sheet. And likewise, a company can buy back shares and the reduction in marketcap from destroying shares is equal to the amount of cash assets being removed from the balance sheet. There's a link here.
"Better" like Robinhood, which, instead of firmly stating a position in advance, changes its mind day-by-day about which stocks its customers can buy or sell? And which was pretty damn close to going bankrupt earlier this year because it didn't have a sufficient risk management policy?
I guess you and I have different opinions on what makes a "better" broker. I'm in favor of clearly-defined policies that anticipate certain events, which are communicated to all customers far in advance, so customers can make an informed decision whether or not to patronize that particular company. You seem to be happy with firms like IBKR which might decide, mid-day, at the peak of volatility, to lock out its customers from trading certain securities, without any advance notice or warning.
It's not HSBC's role to decide which things are pyramid schemes. SEC is for that, and they have made it very clear that neither Bitcoin or Ethereum are one.
"It's not HSBC's role to decide which things are pyramid schemes."
Yes it is. It's the job of banks to advise on these things.
It is a peculiar position they've taken, they've gone further than I think they'd have to, there's probably some reason for it that won't be very obvious on a non-financial forum.
In related news, the bank will soon be renamed to HFSP Bank, in recognition of the crucial role it plays in reducing the risk of its clients making too much money.
> MicroStrategy said last week it owns around 91,579 bitcoins. Its holdings, worth around $5.5 billion according to a Reuters calculation, are equal to around 80% of its $6.8 billion market capitalisation.
Why would a software company buy this volume of this highly volatile crypto and put it on its balance sheet? Wouldn't the board object?
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But you wouldn't be? This is a product literally called "InvestDirect" where private individuals are buying stocks and assuming all the risk.
If you don't want to offer margin on virtual currency products, more power to you, that is your risk. But if customers are buying with cash, it seems pretty suspect for the bank to claim that is increasing the bank's risk exposure.
Honestly it wouldn't be the worst idea to have a "Net Neutrality" for brokers.
and/or we could tokenize securities onto permissionless and decentralised ledgers and stop feeding the intermediaries
note that a ledger with transaction validation rules which enforce KYC can still be permissionless and decentralised
bitcoin isn't "permissioned" just because you need a valid signature to spend an output
That is absolutely not the case in a categorical sense.
Brokers can and do apply different margin requirements on a stock by stock or customer by customer basis. There's nothing out of the ordinary about a security not being marginable or having increased requirements due to risk assessment.
For example, here is a list of stocks at one broker with particular margin requirements, and it says it "changes frequently":
https://invest.ameritrade.com/cgi-bin/apps/u/MarginReq
Given that there are hundreds starting with "A", I'd assume the entire list is in the thousands, of securities that have individual margin requirements.
I think in fact the ticker GBTC which is a trust that owns Bitcoin isn't marginable.
https://www.tdameritrade.com/td-ameritrade-trading-restricti...
Here's another with GME and AMC:
https://www.schwab.com/margin-updates
But there are also lots of others you never heard of, that aren't mentioned.
It's the equivalent of security theater. Do something conspicuous that they can spin as having done something about the problem. That serves their purpose regardless of whether it actually does any good or makes any sense.
On top of that, cryptocurrency kind of competes with banks, so they have an excuse to cause trouble for the competition.
https://www.theguardian.com/business/2012/dec/14/hsbc-money-...
Yes, as an alternative to not allowing the trade.
If the bank considers something highly risky, it makes sense to protect themselves and the customer by making sure they've got some money locked up outside of the trade (a bankrupt customer is no longer a customer, after all). It would basically cap the percentage of net worth that they could put at risk, where they'd need to have $10 set aside for every $1 in the risky position.
HSBC are well within their rights to refuse to accept bad orders. HSBC are exposed to specific regulatory risk not shared by US banks. Having a ton of customers go bust because a regulatory change nuked some meme stocks seems undesirable to me. If you don't like it you can always find another broker.
It's like saying that net neutrality exists, because "if you don't like throttling you can find another ISP"
Says a lot about the 'risks' involved with that business model.
Cash trades still expose brokers to volatility due to settlement.
This policy is likely one part regulatory theatre and one part customer selection. Customers buying MicroStrategy stock are unlikely to be lucrative customers for the banking products HSBC hocks.
This doesn’t solve the problem of clearing collateral. That said, HSBC is a money centre bank. It isn’t worried about clearing collateral.
The policy is almost certainly a filter. If you’re trading MicroStrategy, you’re probably not a fit for their banking and wealth management services.
My guess is that it's just some middle manager blindly following directives from 2018 that haven't been updated. I can't think of any other reason why they'd ban it when everyone else is moving in the opposite direction.
And I still didn't manage to open my bank account despite filling stuff out online and visiting a branch.
Naively, this would imply a fairly low premium. But among other things, this doesn't account for fact that Microstrategy took on a lot of debt to buy their bitcoins. Essentially, I'd like to see an updated and more complete analysis like this: https://old.reddit.com/r/microstrategy/comments/ltypps/sell_.... Does such a thing exist?
One of the unintended consequences of the Total Information Awareness / financial mass-surveillance AML/KYC movement is banks derisking at the expense of marginalized people and industries:
https://www.reddit.com/r/MakerDAO/comments/de0sys/kyc_is_abs...
Pretty much the whole market has exposure to Bitcoin through SP500->Tesla at this point.
Tesla with a 2% market share in the US, is valued more than Toyota, Volkswagen, Daimler, General Motors, and BMW combined (40% of the domestic market).
Toyota makes about $2,500 profit for every car sold. Tesla would need to make $50,000 per unit sold on average, or basically 100% profit on a Model 3, to justify the market cap.
That said, I have a few friends who bought it's shares and their rationale is that it's a "clean energy play", far bigger than cars and that their brand is going to be as valuable as Apple. Only time will tell I guess, everyone can put their money where their mouth is and shorting Tesla has been a pretty bad proposition so far.
P.S. I'm not trying to convince anyone here of Tesla's value, I've shared some of my thoughts before, and there are plenty other people who have done a thorough job detailing the ecosystem and its potential.
First Tesla is growing fast so that $50k will drastically go down in the coming years.
Tesla is more vertically integrated so you have to include the valuation of all the dealerships, parts of their suppliers, the charging network, ...
And third there are the “other” businesses like the battery storage, solar roofs, software revenue, ...
So overall the numbers of cars produced is probably too simplistic to compare them.
I don't agree that it's a problem. Why do you think that a silly valuation is a problem?
Tesla has 100% access to the BTCs and other asset it holds but there is no access to the market cap. Its a fictive price tag on all existing shares. People use it to compare companies. The money does not exist anywhere and certainly can not be used by Tesla.
What exactly is stopping them from borrowing against their shares?
Eh, not really. They’re both stock (as opposed to flow) measures. And one is a subset of the other. That said, crypto as fraction of assets would be a more rigorous metric.
Not alt all. Mark cap is a fictive value. Assets hold by a company aren't fictive and are not part of the market cap at all. Market cap is simply the price of all stocks at the current market price of one.
>crypto as fraction of assets That would make more sense but also would need to include debts.
There’s a reason companies list “cash and equivalents” and BTC isn’t included in that line on the balance sheet.
depend on the liquidity on that day also they could OTC sell so yes they can probably get the market price. However telling the market fist isnt going to help.
>There’s a reason companies list “cash and equivalents” and BTC isn’t included in that line on the balance sheet.
Yes, the reason is volatility and uncertain liquidity. To compare BTC with cash equivalents you could use volume adjusted price over the last months, that would give a good short term cash value. But long term ofc its impossible to know what it may be worth.
Not quite sure how that's relevant to what I said, namely that assets hold by a company are not comparable to the companies market cap.
Ben Graham, one of Warren buffet's mentors, wrote a famous book called the "Intelligent Investor" which has several chapters on doing exactly that.
Think about it...if a company sells $10 billion in stock, the new stock adds $10 billion to their market cap and they get an extra $10 billion in cash which goes on their balance sheet. And likewise, a company can buy back shares and the reduction in marketcap from destroying shares is equal to the amount of cash assets being removed from the balance sheet. There's a link here.
https://www.investopedia.com/robinhood-latest-broker-to-rest...
If you don't like the situation, you can just buy the underlying asset (Bitcoin) and hold it in a cold wallet (I'm doing that).
Yes it is. It's the job of banks to advise on these things.
It is a peculiar position they've taken, they've gone further than I think they'd have to, there's probably some reason for it that won't be very obvious on a non-financial forum.
https://www.koined.store/collections/out-and-about/products/...
Why would a software company buy this volume of this highly volatile crypto and put it on its balance sheet? Wouldn't the board object?