How some of the indirect (and more profitable) routes into bitcoin are doing

Written by Ciaran Ryan. Posted in Journalism

Some of these crypto stocks have blown bitcoin away over the last year. From Moneyweb.

Companies that manufacture or support equipment used in bitcoin mining are one way to gain indirect exposure. Image: AdobeStock
Companies that manufacture or support equipment used in bitcoin mining are one way to gain indirect exposure. Image: AdobeStock

The recent crash notwithstanding, bitcoin has been an outstanding investment over the last year, recording a more than 300% price gain over 12 months.

But there were several more profitable ways to ride the bitcoin train, and one of these was to buy listed bitcoin miners. Research from blockchain research group Glassnode shows miners have been hoarding bitcoin at increasing rates as prices surged in the first few months of 2021.

Here is a list of some of the alternative ways to profit from bitcoin and cryptos.

Bitfarms

Bitfarms’s stock price is up 1 076% over the last year, and down 26% since the market peak in May 2021. The company is listed on the Toronto Stock Exchange is involved in bitcoin mining. Results for the first quarter of 2021 shows the company mined 548 bitcoin in the first quarter worth about $32.4 million as of March 31, and added 4 500 mining rigs to its fleet.

Source: Marketwatch.com

Voyager Digital

This stock is up 2 912% over 12 months and down 40% since the peak in May. The company’s platform allows users, either retail or institutional, to place and route trade orders to one or several trading exchanges to buy or sell cryptocurrency assets. Financial results for the December 2020 quarter show assets under management of $1.7 billion and trades per month of more than 70 000.

Source: Marketwatch.com

Hive Blockchain Technologies

This crypto miner is up 838% over 12 months and down 55% since the March peak. In 2020 it mined 2 051 bitcoin, 71 660 Ethereum and 148 796 Ethereum Classic. The surge in the prices of these crypto assets in the first half of 2021, notwithstanding the recent correction, will have pushed up revenue and margins.

Riot Blockchain

This Nasdaq-listed company’s stock price is up 1 225% over 12 months and down 60% since its March peak of $78. The company is involved in bitcoin mining in the US through its wholly-owned Whinstone facility in Texas, and through its hosted mining facilities in New York. It currently has a deployed hash rate (the rate at which bitcoin is successfully mined) capacity of 1.6 EH/s (exahashes, or computations per second, where one exahash is one quintillion hashes per second). This will expand to 2.51 EH/s by the end of June, using about 79.5 megawatts of energy. Riot Blockchain recently announced that it is selling 2.2 million shares of Canadian crypto exchange leader Coinsquare to Mogo in exchange for 2.3 million shares of Mogo.

Source: Marketwatch.com

Hut 8 Mining

This stock is up 300% over 12 months and down 60% since its March peak. It is a bitcoin miner and, like its peers, is steadily accumulating bitcoin as reserves rather than selling into the market to cover operational expenses.

Source: Marketwatch.com

Silvergate Capital

Silvergate Capital is up 559% over 12 months and down 40% since its peak in April. A digital asset bank with nearly $5 billion in crypto-backed deposits, it only went public in 2019. It allows customers to switch between fiat and crypto through its Silvergate Exchange Network. Results for the first quarter show strong growth in transaction volumes through the exchange, though the recent crash in crypto prices will likely impact revenues in the second quarter.

Coinbase

Recently listed Coinbase, the US’s largest crypto broker, earned $771 million in the first quarter of 2021, massively up from the $32 million recorded for the same quarter a year earlier. The stock debuted on the Nasdaq in April at $328 but has been on a slide since then to $223. Investment bank Raymond James recently issued a report valuing the company at $95 a share, well below its current price, based primarily on Coinbase’s vulnerability to competition from companies like Kraken, which is also contemplating a stock exchange listing.

MicroStrategy

MicroStrategy’s stock price is up 316% over 12 months and down 59% since its February peak. The firm and its CEO Michael Saylor have become the corporate face of bitcoin, with Saylor announcing several larger loans to increase the company’s reserve holdings of bitcoin. Saylor has argued persuasively that bitcoin – with its hard cap of 21 million coins in issue – is the perfect antidote to the guaranteed depreciation of the US dollar and other fiat currencies.

Canaan

Canaan is up 350% over 12 months and down 75% since its March peak. It trades on the Nasdaq and is a Chinese-based company that manufactures equipment for bitcoin mining rigs. Though profitability deteriorated in 2020 as a result of Covid-induced supply chain disruptions, the order book for 2021 looks robust.

AMD Micro Devices

AMD Micro Devices is up 50% over 12 months and down 18% since February. It produces computer processes for the gaming community, though many of its products are used to improve the efficiency of bitcoin mining rigs.

Square

Square is the electronic payments company founded by Twitter CEO Jack Dorsey and is reckoned to have about 3% of the $150 billion digital advertising market. Dorsey, like Saylor, is an advocate of bitcoin, and Square has more than 8 000 bitcoin on its balance sheet. Square stocks have since become something of an imperfect proxy for bitcoin (MicroStrategy is more closely correlated).

Source: Marketwatch.com

Mogo

This Canadian fintech company is involved in developing digital financial solutions. Its share price is up 600% over the last 12 months and down 37% since its March peak. In December 2020, it announced that it would invest $1.5 billion in bitcoin, equivalent to about 1.5% of its total assets as of the third quarter of 2020. The company says it will make additional bitcoin investments in 2021. Its MogoCrypto app was launched in 2018 to allow Canadians to buy and sell bitcoin in real-time. Results for the first quarter of 2021 show new member growth of 35% on the previous quarter, which was up 50% on the quarter before that. It announced that it would increase its ownership in Canada’s leading crypto trading platform, Coinsquare, to 37% while retaining a warrant to increase ownership up to 48%.

Source: Marketwatch.com

Tesla

And let’s not ignore Elon Musk and Tesla’s sometimes testy relationship with bitcoin.

Tesla bought $1.5 billion bitcoin in February then sold 10% a short while later at a decent profit, ostensibly to test whether it could be liquidated easily without moving the market.

Cointelegraph noted that Musk was again picking up flack, this time from Sygnia CEO Magda Wierzycka, who is quoted as saying: “What we have seen with bitcoin is price manipulation by one very powerful and influential individual.”

To which Musk replied:

“This is inaccurate. Tesla only sold ~10% of holdings to confirm BTC could be liquidated easily without moving market.

“When there’s confirmation of reasonable (~50%) clean energy usage by miners with positive future trend, Tesla will resume allowing Bitcoin transactions.”

Which means bitcoin still accounts for a sizeable (though declining) proportion of Tesla’s reserves. The company just announced the launch of the Tesla Model S Plaid which does an astonishing 0-96.5 km/h in just under two seconds with a range of 400 miles before recharging.

A punt on Tesla is a punt on the remarkable technology behind this new generation of electric vehicles and, to a lesser extent, bitcoin.

Source: Marketwatch.com

Here’s what the coming crypto regulation will look like

Written by Ciaran Ryan. Posted in Journalism

Several laws will have to be amended to bring crypto assets under regulatory scrutiny. From Moneyweb.

New rules for crypto assets. Dado Ruvic, Reuters
New rules for crypto assets. Dado Ruvic, Reuters

A number of laws will have to be amended to bring crypto assets under regulatory scrutiny, and exchanges will be required to enforce anti-money laundering and anti-terrorism laws just as banks and other financial services providers are currently required to do.

A working paper released last week by the Intergovernmental Fintech Working Group (IFWG) on crypto assets proposes changes to a number of laws to bring crypto assets under the law.

Read: SA plans to regulate crypto trading in phased manner

Some of these changes are already in the process of being implemented, while some will take a while longer, says the working paper.

  • Crypto asset service providers (CASPs) will be deemed accountable institutions under the Financial Intelligence Centre Act (FICA), which means they will be held responsible for: customer identification and verification, conducting customer due diligence, keeping customer transaction records, monitoring suspicious behaviour, reporting cash transactions above R25 000 (or the applicable threshold at any given time) and movements in the control of property that might be linked to terrorism.
  • The working group recommends that the SA Reserve Bank’s Financial Surveillance Department (FinSurv) supervises cross-border financial flows in respect of crypto assets and CASPs. This would require the minister of finance to amend Exchange Control Regulation to include crypto assets in the definition of ‘capital’ for the purposes of Exchange Control Regulations.
  • FinSurv should explicitly allow individuals, through an amendment of the Exchange Control Regulations, to purchase crypto assets within their single discretionary allowance (SDA) and the foreign capital allowance (FCA) framework. Under such a scenario, crypto purchases would be limited to R11 million a year – R1 million under the SDA and R10 million under the FCA. This also appears to require banks – some of which have specifically prohibited forex transactions for crypto purchases – to allow individuals to send money abroad for the purchase of cryptos.
  • Crypto asset trading platforms (CATPs) should be allowed to source crypto assets abroad for resale in the local market, subject to specified limits.
  • As an interim measure, the working group recommends that crypto assets be declared a financial product under the Financial Advisory and Intermediary Services (Fais) Act. “This would require CASPs to become licenced intermediaries and provide for the rendering of advice by such entities. This allows for regulatory oversight and will assist in addressing the immediate exploitation of consumers by unscrupulous entities,” says the working paper.

In the medium term, the working group recommends that financial services involving crypto assets be included in the Financial Sector Regulation (FSR) Act, and that “crypto asset-related activities as performed by CASPs be licensed activities and subject to the Conduct of Financial Institutions (CoFI) Bill, as deemed appropriate”.

The FSR Act provides for the overarching legislation, and provides for recognising financial products, financial instruments and financial services that are subject to regulation and supervision, whilst the CoFI Bill focuses on fair customer treatment and specifies how a financial institution should conduct its business in performing regulated financial activities. The CoFI Bill will repeal existing market conduct sectoral laws and replace them with a single conduct framework.

Read:Crypto regulations mean stiffer audit requirements for exchanges

Why regulation is essential for mass adoption of cryptos

Two other priorities identified by the working group are:

  1. Limiting the exposure of prudentially regulated financial institutions and financial market infrastructures to crypto assets to avoid creating financial stability risks. SA will take its lead from the Basel Committee on Banking Supervision, which is currently determining its position on cryptos.
  2. Implementing a monitoring programme for crypto assets.

Top 40 mining profits will hit 18-year high in 2021 – PwC

Written by Ciaran Ryan. Posted in Journalism

On top of a 40% jump in cash on hand in 2020. From Moneyweb.

Shareholders are in for a cash windfall. Image: Bloomberg
Shareholders are in for a cash windfall. Image: Bloomberg

PwC’s Mine 2021 report released this week forecasts mining profits to hit an 18-year high this year. This comes on top of a 15% jump in net profit in 2020 and a 40% surge in cash on hand.

“The Top 40 mining companies have never been in a stronger financial position to make a big, bold pivot towards the future. And the future is already visible today: the world is in the midst of an era-defining transition to a low-carbon, sustainable economy. Eight of the 10 largest economies have set ambitious net-zero targets. Many global companies, including several of the Top 40 miners, have made similar commitments,” says PwC.

A key finding of the Mine 2021 report is that companies embracing ESG (environmental, social and corporate governance standards) outperformed the broader market during the peak of the Covid pandemic. Investors are increasingly drawn to companies that actively embrace ESG policies.

Companies are shifting away from thermal coal towards the green economy, and that’s likely to drive demand for minerals critical to the green economy six-fold by 2040, according to the International Energy Agency. Eight of the world’s 10 biggest economies have committed to achieving net-zero emissions by mid-century, and mining companies are expected to be front and centre in this transformation.

Source: S&P Capital, IQ, MSCI

Companies are looking to drive long-term strategic value by incorporating low-carbon inputs into their products and services, says PwC.

“And many are willing to pay extra to do so. For example, this year the premium for low-carbon aluminium jumped from a relatively small US$10–$15 a metric tonne to highs of US$59 because of a surge in demand for the product in Europe.”

Miners that embed ESG into their strategies are also finding it easier to access capital.

Australia’s Port of Newcastle, the world’s busiest coal export port, recently locked in $318 million in a sustainability-linked loan, which delivers a reduced borrowing rate if the port fulfils its environmental and social commitments.

In another case of cheaper capital being showered on miners committing to ESG policies, Newmont recently announced a US$3 billion sustainability-linked revolving credit facility, which includes a pricing feature based on third-party sustainability measures. The better the company does on ESG, the lower the cost of capital.

According to MSCI ratings, only four of the Top 40 are considered leaders in managing the most significant ESG risks and opportunities. “The rest need to lift their game,” says PwC. “To capture the value that ESG offers, Top 40 miners must focus on two key areas: embedding ESG firmly into strategy and engaging stakeholders.”

The financial position of the Top 40 miners emerged stronger than ever in 2020, and outperformed major market indices, with total market capitalisation rising 64% to $1.46 trillion.

Source: S&P Capital, IQ, PwC analysis

Top 40 revenue was $545 billion (excluding trading) for 2020, up 4% from 2019. Higher prices for gold and iron ore and modest production increases in gold and copper were the main drivers of revenue growth, says PwC.

Copper was the standout performer, contributing $122 billion to group revenue.

“Its higher price points reflected increased demand, which resulted in part from a market shift towards commodities that are valuable in the global transition to a low-carbon future.

“BHP expects the world’s Paris-aligned emissions reduction targets to more than double the demand for copper and quadruple the demand for nickel over the next 30 years.”

If 2020 was a good year for the Top 40, 2021 is shaping up to be a great one, with revenue (excluding trading) forecast to rise 29%. Cash on hand is now up 40% and balance sheets are rock solid.

What will companies do with their cash war chests?

Shareholders are in for a cash windfall, with BHP, Rio Tinto and Fortescue Metals distributing their highest ever dividends for the February 2021 reporting season. Capital expenditure is forecast to expand by 33% this year for expansionary projects and the revival of projects deferred from last year.

An inside look at how MTI managed to prolong an extraordinary losing streak

Written by Ciaran Ryan. Posted in Journalism

It was losing money from the get-go, and had to lie and fabricate trading results to convince investors to climb on board. From Moneyweb.

The liquidators paint a picture of a scamster who had no clue how to close out a Ponzi scheme that had grown beyond his wildest dreams. Image: AdobeStock
The liquidators paint a picture of a scamster who had no clue how to close out a Ponzi scheme that had grown beyond his wildest dreams. Image: AdobeStock

Court papers filed by the liquidators for failed crypto scam Mirror Trading International (MTI) lift the curtain on one of the most extraordinary investment rip-offs in SA’s history.

It was rated the world’s biggest crypto scam of 2020, having roped in $588 million (R7.9 billion) worth of bitcoin in 470 000 transactions, according to the 2021 Crypto Crime Report by Chainalysis.

A data dump by Anonymous ZA puts the number of bitcoin under MTI control at 23 000, worth about R11.5 billion at current prices.

According to the liquidators, about 280 000 investors worldwide were involved.

Bitcoin CEO Johann Steynberg disappeared in December 2020 after the company stopped paying out requests for withdrawals in a bitcoin investment scheme that promised returns of up to 10% a month. These promises turned out to be nothing but smoke. The company was provisionally liquidated in December 2020.

Read:MTI CEO goes AWOL, lawyers pull out (Dec 2020)

MTI does not know if its bitcoin is safe (Dec 2020)

Steynbergs of MTI provisionally sequestrated (Apr 23)

Legal argument will be heard next week in the Western Cape High Court as to whether MTI will be finally liquidated or whether, based on an affidavit filed by 50% shareholder in MTI Clynton Marks, the provisional liquidation order should be set aside on various grounds, including that the terms and conditions of the company make it clear that those investing in the scheme were members of a club, rather than creditors.

Rather than subject MTI to liquidation, there are some within MTI who argue that it should be either placed in business rescue or allowed to reach a compromise with creditors under the Companies Act.

The provisional liquidators argue that it is impossible to rescue a scheme that is unlawful, and they are asking the court to declare MTI a Ponzi scheme, and to have it placed in final liquidation.

The court papers provide fascinating and detailed insight into the inner workings of the company.

The rise and fall of MTI

A report by the Financial Sector Conduct Authority (FSCA), included as part of the liquidators’ door-stopper of a court filing, says there were three periods to MTI’s business:

  1. The first period was a disaster, but it might have been a small disaster had it stopped there. A total of nearly 51 bitcoin were deposited with Belize-based forex broker FXChoice, but 22 or 43% of these were lost by the traders. There was no multi-level marketing involved during this stage. This was to come in the second stage.
  2. The second period was from August 2019 to October 2020 when Steynberg purportedly introduced a computerised trading bot which MTI falsely claimed to have generated exceptional returns averaging more than 10% a month, with only one losing day out of about 200. FXChoice reported to the FSCA that 1 846 bitcoin were deposited with it between January and June 2020, but of this 566 bitcoin (about 30%) were lost. These trading results were completely at odds with the wild claims of success being promoted on social media by MTI. FXChoice subsequently froze the remaining 1 280 bitcoin (recently sold by liquidators for about R1.1 billion) placed on deposit with it by MTI.
  3. The third period, and MTI’s last, was from October to December 2020. Steynberg alleged that all investors’ bitcoin were transferred from FXChoice to a new broker, Trade 300, supposedly operating out of St Kitts in the Caribbean island of Nevis. A total of 16 444 bitcoin was claimed to have been transferred in four lots, but when the FSCA investigated, it concluded that Trade 300 was a fraudulent creation of Steynberg’s and does not exist as a bona fide brokerage.

All MTI investors’ bitcoin are unaccounted for or lost

According to the affidavit filed by lead liquidator Riaan van Rooyen: “Based on evidence provided by Steynberg that the 1 282 bitcoin frozen by FXChoice were not part of MTI’s clients’ bitcoin pool, but belonged to MTI and Steynberg personally, the conclusion is inescapable that all of the bitcoin held by MTI for the purpose of trading on behalf of its clients … appear to be either siphoned away by Mr Steynberg, alternatively depleted by ongoing payments of vast amounts of bitcoin to investors in respect of referral commissions, the binary bonus scheme and the payment of fictitious profits that were declared and credited in favour of clients on their back office accounts (which had to be paid to an investor when he/she withdrew his/her investment).”

No audited accounts

The people in charge of MTI had no qualifications for the posts to which they were appointed, according to the liquidators.

Monica Coetzee was appointed by MTI’s marketing executive Cheri Marks, first as a non-executive director, then an executive director. Her background was as an estate agent and legal secretary.

Her starting salary was R15 000 a month, which was later bumped to R40 000, and then one bitcoin a month (currently worth around R500 000), which was paid to her by Steynberg via a service provider called Coin Buyers Club.

Based on the evidence provided by the liquidators, MTI was owned 50-50 by Steynberg and Clynton Marks, who would divvy up 10% of the profits between them every Monday.

Steynberg calculated what the profits were, while expenses were paid from three loan accounts in the name of Steynberg, Clynton Marks and JNX Online (one of Steynberg’s companies). Ledgers obtained under subpoena show MTI owed JNX Online R7.1 million, Clynton Marks R439 530 and Steynberg R549 529.

‘Exclusive control’

Coetzee confirmed during testimony that Steynberg had exclusive management control of MTI’s back-office system.

The accountant, RDK Accountants, requested on numerous occasions the supporting documentation and invoices for payments authorised by Steynberg, but these were never forthcoming. Steynberg was the sole signatory on the MTI bank account.

Each month Steynberg would transfer sufficient bitcoin to Coin Buyers Club to convert to rand and then pay salaries and other expenses.

Steynberg also appears to have been the only person in MTI to deal with both the broker in Belize and the server team in India. He would supply trading results from the broker to the server team for capture into the back-office system.

MTI’s accountant (who joined in August 2020) and other executives were pushing for revenue to be declared, though this never happened.

MTI’s accounts reflected only expenses, and therefore the company was showing a huge loss.

Layers of lies

When Cheri Marks confronted Steynberg about FXChoice’s statement that MTI had made substantial trading losses and that this did not correspond with the trading statements that were posted on the MTI back office, Steynberg told her that FXChoice was lying – because it was upset about losing a big client like MTI and was not happy being bombarded with clients’ queries after the Texas State Security Regulator issued a cease-and-desist order on MTI.

Evidence from FXChoice shows MTI (and presumably Steynberg) was fabricating trading results by redacting losing demo trades to show positive gains, and reporting these as genuine trades.

Steynberg was able to lie and deceive his way through this, and convince his management team that FXChoice was the one that was lying out of jealousy.

Steynberg did not consult MTI management, nor his 50% shareholder Clynton Marks, before allegedly transferring all the bitcoin from FXChoice to Trade 300. “Initially, they were all upset, but accepted Mr Steynberg’s explanation that FXChoice was lying (about the losses made by MTI),” according to Riaan van Rooyen’s affidavit.

Steynberg explained to management that FXChoice had only frozen MTI bitcoin, not the bitcoin of MTI members’ trading pool, which comprised about 10 000 bitcoin in digital wallets, according to Clynton Marks’s affidavit.

First red flag internally

The first red flag for Cheri Marks was when the FSCA put out a statement on December 17, 2020, in which it confirmed to have found information that Steynberg had created Trade 300.

Steynberg convinced his management team that Trade 300 was an unregulated broker and that would avoid the risk of funds being frozen in the future. The management team accepted this explanation.

“I pause to note that it is clear that Cheri Marks is not (and never was) prepared to accept the obvious and uncontroversial reality that Mr Steynberg ran a fraudulent scheme of gigantic proportions,” deposes Van Rooyen.

The liquidators express their frustration with the MTI management team and their lack of suspicion and scepticism at the ever-changing narrative spun by Steynberg who, they aver, was treated as a godlike figure.

Too big to handle …

The liquidators’ court filings, which include the FSCA report and supporting transcripts of interviews with Steynberg and others involved in the scam, paint a picture of a scamster who was prepared to wing it but who had no real clue how to close out a Ponzi scheme that had grown beyond his wildest dreams.

The developer of the automated trading bot, a Keith Badenhhorst, gave testimony to the effect that he was involved in the early development of a trading bot, but had virtually nothing to do with MTI for several years. This contradicted Steynberg’s testimony.

What is extraordinary about this story is that the FSCA first warned the public in August 2020 to get their money out of MTI.

Despite this, the number of investors shot from about 60 000 to some 280 000, and that says something about the marketing acumen of the people behind MTI.

They convinced investors that the FSCA, the banks and the “mainstream” were out to shut them down because they had a system that could deliver financial freedom to the ordinary man and woman.

One word explains this extraordinary growth in membership, says Van Rooyen: “Covid.”

Anglo’s coal spin-off Thungela debuts on JSE at R25

Written by Ciaran Ryan. Posted in Journalism

After short-seller Boatman Capital issued a report valuing Thungela at zero, due largely to what it says are underestimated rehabilitation costs. From Moneyweb.

Anglo says the regulations on which the Boatman report apparently draws its conclusion are ‘far from being finalised’. Image: VisMedia via Bloomberg News
Anglo says the regulations on which the Boatman report apparently draws its conclusion are ‘far from being finalised’. Image: VisMedia via Bloomberg News

Anglo American officially stepped out of the coal business on Monday when it spun off its remaining thermal coal assets into Thungela Resources, which debuted on the JSE at R25 a share.

Anglo investors received one Thungela share for every 10 Anglo shares held. Thungela holds 90% of Anglo’s thermal coal operations in SA, with the remaining 10% held collectively by employees and a community partnership.

Thungela listed with a net cash balance of R2.5 billion, with Anglo providing contingent capital support until the end of 2022 to offset any drop in coal prices, up to a maximum of $100 million in 2021 and $170 million in 2022.

The SA coal business produced 16.5 million tonnes (mt) of export coal and 12.4mt of domestic coal from seven coal mines with life spans of between three and 11 years. Cash costs were $38/t FOB (free on board) per saleable tonne and $51/t per export saleable tonne, placing the mines in the second quartile of the global energy adjusted seaborne cost curve, according to an analysis by Deutsche Bank. Exports account for about 80% of revenue.

Valuations

Liberium estimates a valuation range of £2.30-£4.90 (R43-R93) a share, with value being driven by handsome dividend yields of 10-22%.

SBG Securities valued the shares at R33.

Deutsche values the group’s equity at $600-$900 million (R8-R12 billion).

Short-seller Boatman Capital released a report prior to the listing, arguing that there will be immediate pressure on Thungela’s share price once it lists. It expects the volume of sellers to exceed demand because of under-funded environmental liabilities that will increase once new environmental laws are introduced in SA.

Other factors weighing on the share price are investor migration, as Anglo shareholders received Thungela whether they wanted them or not.

Many may choose to exit the shares due to the associated risks, while investors remain wary of assets exposed to greenhouse gases. Boatman Capital also suggests Thungela may have overstated demand from Asia for its coal.

Why ‘zero’

Boatman argues that National Environment Management Authority (Nema) regulations could bump up environmental costs for Thungela nearly three times to R18.8 billion as opposed to the R6.45 billion provisioned by the company. On this basis it comes to a valuation of “less than zero” for the company.

“Putting it all together, we find the valuation of Thungela to be below zero,” says the Boatman report.

“We appreciate that any one adjustment is subject to debate but we prefer to be ‘roughly right rather than precisely wrong’ so cannot reach a valuation other than zero.”

Analysis contains ‘basic errors’ says Anglo

Anglo American replies that the Boatman analysis contains some basic errors, such as confusing metallurgical and thermal coal forecasts, and misreading the impact of new Nema regulations on environmental liabilities going forward.

“The provision of R6.45 billion on Thungela’s balance sheet is over and above the regulatory guidance for miners in South Africa, is in accordance with IFRS (International Financial Reporting Standards) and audited, and consistent with the provisioning norms within the industry,” says Anglo in response to the Boatman report.

“The basis for provisioning under SA’s draft Nema regulations simply does not accurately reflect the actual or likely sums needed to discharge such liabilities.

“It is precisely because these sums are considered to be artificial, and arbitrarily inflated, that the draft has remained under review since 2015.

“This is an industry-wide matter in SA, so the regulations on which the Boatman report apparently draws its conclusion are far from being finalised.”

Stratum to Sars: You’re not getting your hands on our customer information

Written by Ciaran Ryan. Posted in Journalism

‘We don’t even ask our customers their names.’ From Moneyweb.

Operations like Stratum present a conundrum for the authorities. Image: Chris Ratcliffe, Bloomberg
Operations like Stratum present a conundrum for the authorities. Image: Chris Ratcliffe, Bloomberg

Crypto investment company Stratum – operating out of Brazil, SA, Asia and the UK – says it will definitely not be handing over sensitive customer information to the South African Revenue Service (Sars) should it be asked.

This follows a statement released this week by the three largest exchanges in SA – Luno, AltCoinTrader and VALR – that they had been asked to hand over information on certain customers by Sars.

The supposed purpose of collecting the information is risk analysis, “which will inform the need for future action with respect to crypto assets,” according to a joint statement released by the three exchanges this week.

‘Zero chance’

Stratum founder Rocelo Lopes tells Moneyweb there is absolutely “zero chance” of Sars getting its hands on any of its customer information.

“We purposely structured our international operations in anticipation that this day might arrive,” he says.

“We are an entire crypto-to-crypto organisation, set up to ensure we do not hold sensitive information such as bank account details of our clients, in keeping with the highest global standards of privacy of information.”

Stratum’s SA lead, Carmen Potgieter, adds: “Our head office is in Hong Kong, and we have no relationships with any of the banks that can be disrupted, so if you want to be a client of ours, then you are of course welcome provided you already own crypto.

“We avoid any fiat on-ramps that can be attacked by regulators or banks,” she says.

“That is a key foundation of crypto. Our philosophy from the very beginning is that your cryptos should remain anonymous, which is what was intended at the birth of bitcoin and the blockchain.”

Colourful character

Lopes is a colourful character in the crypto world, often jumping on webinars sporting T-shirts you wouldn’t want your children to see. ‘Fork the banks’ is one of his milder slogans.

Stratum customers need only provide an email (supplying your name is optional), and the company refuses to perform the Know Your Customer (KYC) routine on clients. This sets it apart from other operators in this space.

Lopes previously told Moneyweb that should Hong Kong decide to clamp down on cryptos, the company would find a new jurisdiction that was more sympathetic to cryptos.

Rebellion asset

Says Potgieter: “Cryptos were born as a rebellion against a broken financial system, so it is against our philosophy to pretend we are just another add-on to a financial system that is intent on spying, detailing and gathering information about our customers.

“That is not our purpose and we refuse to do that. Not because we want to encourage criminality, but we do not wish to be agents for law enforcement or tax authorities either.

“They must do their jobs but we will not get involved. Nor are we obliged to.”

Operations like Stratum present a conundrum for authorities. Though it operates in SA, it falls under Hong Kong jurisdiction and technology places it beyond the reach of any national authority.

Stratum offers a bundled investment spread across 14 of the largest cryptos, an advanced wallet where customers can earn interest on their cryptos and earn tokens as loyalty rewards, and an Over-The-Counter (OTC) desk for those who want to purchase large volumes of cryptos.

Revenues at 60-70% of pre-Covid level for informal sector entrepreneurs

Written by Ciaran Ryan. Posted in Journalism

And they face growing competition from newly displaced formal sector workers. From Moneyweb.

The sector supports millions, including the poorest of the poor who rely on a mix of social grants and whatever they can make on their own. Image: Moneyweb
The sector supports millions, including the poorest of the poor who rely on a mix of social grants and whatever they can make on their own. Image: Moneyweb

SA’s informal sector is the last stop saloon for those who have lost their jobs in the formal sector or are simply unable to find formal sector work.

Research by the Development Microfinance Association (DMA), an umbrella body for several microfinance organisations with a combined clientele of 580 000 outstanding loans, shows R3.1 billion for small business and low-cost housing loans in the 12 months to March 2021.

Bad loan write-offs, however, have hit an all-time high of 4-5%, according to Evans Maphenduka, DMA’s executive coordinator.

“We’ve also seen a deterioration in on-time collection rates, which were at about 99% before the Covid lockdowns, to the current rate of about 88%.”

These are loans, usually, just a few thousand rands, extended to micro-entrepreneurs for the purchase of stock and other essentials.

Also keeping an eye on the state of its membership is the Small Enterprise Foundation (SEF), which was founded in 1992 and has extended more than R12.5 billion in small loans to informal sector operators across the country, creating more than 200 000 jobs in the process.

Covid devastation 

Colin Rice, social performance manager at the SEF, says most members went into complete shutdown at the start of the Covid lockdowns between March and May 2020, but have since resumed operations, albeit at reduced capacity.

A recent survey of SEF members gives a glimpse into the devastation caused by the lockdowns.

The informal sector is a giant safety net that supports somewhere between 2.5-3 million people directly, probably more, and millions more family members. These are the poorest of the poor, relying on a mix of social grants from the state and whatever supplementary income they can make in the informal sector.

This is perhaps the most invisible segment of the SA economy, given the difficulties of measuring and tracking activity among those who operate below the radar of officialdom. Many of those operating in this sector do not want to be hounded by Sars or any of the alphabet soup of agencies supposedly set up for their benefit.

We now have a better idea of conditions in the informal sector, thanks to the work of organisations such as the DMA and the SEF.

Not depending on the state

When the Covid lockdowns were imposed in March 2020, the Department of Small Business Development offered financial relief to micro-entrepreneurs, provided they obtain permits to operate from the local municipalities and register with SA Revenue Services (Sars), the Companies and Intellectual Properties Commission (CIPC), and for the payment of unemployment insurance for workers.

The take-up of the government’s Covid financial assistance was miserable.

A 2020 survey by the SEF among its members found just 12% willing to formalise their businesses in return for cash assistance. The vast majority decided to tough it out without government largesse.

Maphenduka says members businesses that did not register with CIPC, Sars and UIF have not received any Covid business support from the government.

“This has robbed the microenterprise owners of the help and support they would have received if they were recognised as legitimate and treated like in other developing countries by the government. It has further made it difficult for the Development Micro Finance Institutions (DMFIs) to access government grants to further subsidise client costs.”

Read:Covid-19 loan guarantee scheme to ‘oil’ SA economy – Mboweni (Apr 2020)

Demand for Covid-19 Loan Guarantee Scheme ‘remains below expectations’ (Feb 3)

SA’s Covid-19 Loan Guarantee Scheme ‘largely dead’ – Intellidex (Feb 22)

Could not operate 

Adds John de Wit, CEO of the SEF: “These Covid lockdowns hit out members particularly hard. In the initial two months, only those with permits from the local municipalities, such as spaza shops, were able to operate.

“When the lockdown restrictions were eased, our members started to operate once again, but our survey data tells us that conditions have not returned to pre-Covid levels. Activity is improving but revenue among these micro-entrepreneurs is at best 60-70% of pre-Covid levels.”

South Africans ply their trade in the informal sector, a loose and broad term meaning virtually anyone making a living outside of formal employment.

This can cover street vendors, hair stylists operating from home or makeshift premises, spaza shop operators, garbage collectors, those renting rooms in their homes, taverners, taxi operators, domestic workers and gardeners, to name a few.

The SEF provides micro-loans to informal sector entrepreneurs across the country, and has disbursed R2.1 billion in the last 12 months, and more than R12.5 billion to some 650 000 entrepreneurs, most of them women, since it was launched in 1992.

Write-offs double 

De Wit says one way to measure the impact of the Covid lockdowns on micro-entrepreneurs is to look at SEF’s bad debt ratio.

“In a normal year, we would write off 1% to 1.5% of our outstanding book due to bad debts. This year, that figure is closer to 3% which is still quite low by normal banking standards, but it tells us that our clients are feeling pain.”

This is slightly below the 4-5% write-offs reported by DMA members. Several microfinance organisations granted borrowers a repayment holiday at the start of the lockdowns and, while the pace of loan repayments has picked up in recent months, entrepreneurs are still left with a backlog that has to be serviced.

These microfinance organisations have succeeded where banks and government bodies have failed.

Borrowers are introduced by existing and trusted clients, which serves as the first line of credit defence. They are then allocated to a cell of five or six other borrowers. Every member of the cell undertakes to cover the loan repayments of the others. This peer pressure keeps cell members honest and ensures loans are recovered.

These organisations target not just the poor, but the ultra-poor: those who live below the poverty line.

Rice says one of the biggest challenges faced by micro-entrepreneurs – quite apart from the lockdown – is the increased competition that comes with more people losing their jobs as a result of lockdowns.

“Not only is there less cash going around, but there is also more competition from informal traders for that cash. Some 25-30% of our members say they are selling different items or have moved locations. Some have started selling from home, and have changed product lines – for example, to selling face masks and sanitisers, to respond to the changing market dynamics.”

Sars turns on the heat, asks crypto exchanges for certain customers’ information

Written by Ciaran Ryan. Posted in Journalism

AltCoinTrader, Luno, and VALR say they have been approached by Sars for information on a small number of customers. From Moneyweb.

Image: AdobeStock
Image: AdobeStock

SA’s three largest crypto exchanges – AltCoinTrader, Luno, and VALR – say they have been approached by the SA Revenue Service (Sars) as part of a tax risk assessment exercise on SA residents involved in “the mining, speculation and/or investment in crypto assets”.

In 2018 Sars released a media statement entitled ‘Sars stance on the tax treatment of cryptocurrencies’ in which it remined taxpayers to declare all cryptocurrency-related taxable income during the year such income was received or accrued.

In a joint statement released on Monday, the three largest crypto exchanges in the country say they have been approached by Sars for information on a “selection of customers in terms of Section 46 of the Tax Administration Act, 2011″.

“Sars has confirmed that the primary purpose of collecting this information is for risk analysis, which will inform the need for future action with respect to crypto assets,” they add.

‘Obliged to comply’

“VALR takes the privacy and protection of our customer data very seriously,” says Farzam Ehsani, co-founder and CEO of VALR.com.

“We are also committed to being compliant with the laws and regulations that govern our business. We have engaged with Sars to express our concern for the privacy of the data of our customers and we have also sought legal advice on our obligation to comply with Sars’s request.

“The conclusion of our legal advice is that per Section 46 of the Tax Administration Act, along with other cryptocurrency exchanges, we are obliged to provide the information requested by Sars.”

Working with Sars to limit the scope

Adds Marius Reitz, general manager for Africa at Luno: “Luno does not share customer information with Sars on a routine or ongoing basis. More generally, and as described in Luno’s privacy policy, we will only share customer data with law enforcement and other regulatory authorities when we are required by law to do so.

“Luno has carefully reviewed the Sars request, taken legal advice on our obligation to comply with it, and worked with Sars to ensure that its scope is limited to the greatest extent possible.

“We are, however, required by law to comply with the request, which is made under Section 46 of the Tax Administration Act.”

Says Richard de Sousa, CEO of AltCoinTrader: “AltCoinTrader has always strived to protect our customers’ privacy and provide the necessary tools to enable compliance.

“In order for the industry as a whole to experience growth, exchanges and industry players are obliged to cooperate with regulator.

“AltCoinTrader has taken legal counsel to ensure that all information requested by regulators is within our legal obligation.”

Cryptocurrency platforms are not yet required to provide customers with tax certificates. In their joint statement issued on Monday, AltCoinTrader, Luno and VALR say they all provide the ability for customers to download their transaction history to prepare any tax declarations that are required.

As exhaustion hits bitcoin price, institutional demand returns

Written by Ciaran Ryan. Posted in Journalism

Institutional flows are picking up after a brutal sell-off in May. From Moneyweb.

Longer term holders of bitcoin tend to be less spooked by these sharp drops in price. Image: Chris Ratcliff, Bloomberg
Longer term holders of bitcoin tend to be less spooked by these sharp drops in price. Image: Chris Ratcliff, Bloomberg

Bitcoin is testing support at $35 000 after a brutal sell-off over the last three weeks. Prices are down 40% since the second week in May, though there are signs of institutional support returning, according to an analysis by blockchain research group Glassnode.

Source: Glassnode

One way to measure institutional demand is to look at inflows to Grayscale Bitcoin Trust (ticker symbol GBTC), which is a way for institutional investors to gain exposure to bitcoin via a traditional security rather than buying it directly. Grayscale Bitcoin Trust takes care of safe storage and custody issues, with much clearer tax guidance and governance oversight.

GBTC typically trades at a premium or a discount to the bitcoin spot price, giving an indication of the strength of institutional support.

Source: Glassnode

In January, GBTC saw inflows of almost 50 000 bitcoin (BTC) while GBTC traded at a premium of 10-20% to spot. That premium disappeared in February and by early May had turned into a discount of -21%. The discount has narrowed to -3.8% in recent days, suggesting that institutional interest has risen as bitcoin prices have fallen.

Another reason for Grayscale’s disappearing discount to spot: the launch of a competitor in the form of Osprey Bitcoin Trust (ticker symbol OBTC), which promises lower costs at 0.49% than Grayscale (2%). Osprey is also more accessible in that it can be purchased inside an existing brokerage or retirement account.

More competition is likely after the Chicago Board of Exchange has started the review process for the first bitcoin exchange-traded fund (ETF) in the US (there are several ETFs already listed in Canada).

Osprey founder Greg King told Seeking Alpha that he is not concerned about bitcoin’s famed volatility, noting that whenever BTC cracks a previous all-time high (as it did last year by climbing through $20 000), the average subsequent return is 900% – suggesting we are still in a bull market that has plenty more to run.

A notable trend in the last few months is the quantity of bitcoin moving from illiquid to liquid, as bitcoin were moved to exchanges (a signal of intention to sell or use as collateral for loans, margin trading and other uses). This should, however, be weighed against a remarkable rate of accumulation over the last two years, as bitcoin moved from weak to stronger hands. The sell-off in May was accompanied by a jump in illiquid coins coming back into circulation, after a year of steadily declining exchange liquidity, as shown in the graph below.

Source: Glassnode

“On the exchange front, there was a huge deleveraging in derivatives markets which created a cascade of market selling, margin calls and liquidations. From the $27.4 billion peak in futures open interest set in mid-April, over 60% of open interest has been cleared from the books,” says Glassnode.

Demand for stablecoins (pegged 1:1 with fiat currencies such as the US dollar) shot up during the sell-off, which is indicative of investors parking crypto profits in more stable alternative investments with a view to re-entering the market once crypto prices have stablised. The fact they are parked in stablecoins rather than fiat currencies suggests a pent-up demand to re-enter the crypto markets at lower levels.

An analysis of long-term holders (bitcoin held for a year or more) shows these tend to accumulate during bear markets, with increased selling on any relief rallies. This is something that Glassnode says is a potential to watch for in any rally in bitcoin prices in the coming months.

The market now stands on a knife edge, with unrealised profits and losses held by long-term investors slipping under water. New arrivals to bitcoin in the last few months are suffering the greatest pain, while longer term investors tend to be less spooked by these sharp drops in price, having lived through them before.

A peek into the future of central bank digital currencies

Written by Ciaran Ryan. Posted in Journalism

The SA Reserve Bank is looking into digital currencies for the retail sector, but what will this future look like? Dystopia or financial liberation? From Moneyweb.

The rules around privacy, confidentiality and anti-money laundering measures will need input from all parties. Image: Shutterstock
The rules around privacy, confidentiality and anti-money laundering measures will need input from all parties. Image: Shutterstock

For a peek into the future of money, take a look at what is happening in China.

Earlier this month the Chinese government reiterated its hostility to bitcoin mining while the Central Bank of China ramped up plans to roll out the digital yuan.

The idea behind the digital yuan is to replace cash (which fewer people want to handle post-Covid), clamp down on cash-related crimes, and improve the convenience and costs of transacting.

It’s also been suggested that the digital yuan would give China the upper hand in its trade war with the US, and remove the risk of its SWIFT international bank transactions being wiretapped by the US, as whistleblower Edward Snowden claimed.

Too much (personal) info

Free societies should be wary of China’s motives in introducing a digital yuan.

China may be the most surveilled society in history, using millions of facial recognition cameras to track citizens. It then integrates this with big data analysis and artificial intelligence to come up with a “social score” for every Chinese citizen.

It introduced the social credit scoring system in 2014, issuing demerit points for bad behaviour such as playing loud music, eating on rapid transit systems, violating traffic rules and jaywalking. You can win points back by donating blood, completing volunteer hours or saying nice things about the government on social media.

Add a digital yuan into this stew and the surveillance capabilities are truly terrifying. The Central Bank of China will be able to track citizens’ purchases in real time.

“The digital yuan is both programmable and trackable, giving the Chinese government enormous control over the economy. Not only will Chinese policymakers know every consumer choice made in the economy, but they could also directly affect spending behaviour by making the currency expirable by a certain date,” said Boris Schlossberg, MD of forex at BK Asset Management, according to Bitcoin.com.

Schlossberg adds that this policy objective will backfire, driving more people into cryptos that are outside the reach of authorities.

Though more than 50 central banks around the world are at various stages in researching or planning the introduction of digital currencies, China is way out in front – notwithstanding its hostility to bitcoin.

Bitcoin is the antithesis of central bank digital currencies (CBDCs) – it is decentralised, secure, anti-inflationary and proven itself over 11 years to be a decent, if volatile, store of value.

Read: It’s better to be first on digital currencies

Moves in SA

The South African Reserve Bank (Sarb) recently announced that it is commencing a feasibility study for a general-purpose retail CBDC.

“The Sarb has embarked on a study to investigate the feasibility, desirability and appropriateness of a CBDC as electronic legal tender, for general-purpose retail use, complementary to cash,” says the Reserve Bank in a statement.

“A retail CBDC can be defined as a digital form of cash aimed at providing the best attributes of both cash and electronic payments.

“The objective of the feasibility study is to consider how the issuance of a general-purpose CBDC will feed into the Sarb’s policy position and mandate.”

The study will focus on the issuance of a domestic CBDC that can be used by consumers in SA for general retail purposes.

‘Essential’ for financial inclusion

Sonny Fisher, founder of blockchain company Forus Holdings, argues that CBDCs are essential to achieving digital financial inclusion.

One objective is to replace paper money with digital cash, which should make a significant leap into the promised age of financial inclusion, while reducing the costs of paper issuance, as well as the risks and social impacts.

“We are, however, mindful of the fact that the introduction of digital money poses the potential for the state to intrude on our private lives,” says Fisher.

“This is why the rules around privacy, confidentiality and anti-money laundering measures need input from the entire ecosystem. A failure to address these realities will pose a significant risk to the adoption of digital money.”

Economic impacts

What about the impact of digital money on money supply and inflation?

The tiny Marshall Islands in the Pacific Ocean last year announced the launch of the Marshallese Sovereign (SOV), a digital currency operating on the Algorand blockchain in parallel with the islands’ main currency, the US dollar. The SOV money supply growth is fixed algorithmically at 4% a year to prevent inflation. This percentage growth in money supply cannot be altered by the whims of politicians or budgetary emergencies.

Fisher says the perception that CBDCs or digital money will be able to impact money supply is a misnomer. “Retail currency, both cash and deposits, make up a tiny portion of the money supply. In fact the introduction of a single digital store of value that is interchangeable, will reduce the amount of capital banks, retailers, fintech providers and money transfer agents need to tie up in expensive liquidity pools.

“The introduction of digital currency is guaranteed to increase per capita GDP and stimulate growth among SMEs.”

Sarb study

The Sarb feasibility study will include practical experimentation across different emerging technology platforms, taking into account a variety of factors, including policy, regulatory, security and risk management implications.

“It should be noted that while the CBDC feasibility study is different from [another Sarb-led project called] Project Khokha, which focuses on the settlement of high-value transactions between commercial banks and other stakeholders at the wholesale level, it is expected that the two studies will result in better policy alignment and coordination.”

Trade-off

Monica Singer, SA lead for blockchain company Consensys, says technology always poses a trade-off between added convenience and the potential for official abuse. In the case of CBDCs, protections can and must be put in place to protect privacy and security of citizens.

“For example, the Bank of China proposes tracking all digital yuan transactions of any size. A far more preferable approach is to emulate the Digital Dollar project of the US, which says any transaction below $10 000 should remain private, similar to the use of cash and the KYC [Know Your Customer] requirements.

“With the adoption of a CBDC, the cost of issuing banknotes and coins can be reduced, along with the risk of hijacks that take place on the vans transporting cash and the bombing of ATMs.

“The use of blockchain technology can ensure that taxes are collected in real-time and the complete audit trail is available,” says Singer.

“The Reserve Bank will be able to distribute universal basic income and social grants on a real-time basis, should this be the policy of the government of the day.”

Cooperation

Singer says the implementation of a CBDC should be done in cooperation with the private sector. “It is in the national interest and it requires the public good to be the paramount criteria over the profits that are generated by third party intermediaries. As new payment rails are being created, the citizens should be free to choose what type of money they will want to use. I hope that there will not be wall gardens between the different currencies and a free flow is allowed in the future across borders.

Read: Cryptocurrency banking potential in Africa

“Programmable money will ensure that these funds that are distributed real time directly into the wallets of citizens that qualify or students will ensure that those funds are programmed to be used only for the purpose that they are intended to be used. This is possible because of smart contract functionality in the internet of value, which is Ethereum.”

The ideal role for a central bank is as overseer of the CBDC platform and its governance.

“The banks and other institutions can be the ones interacting with the public to open up e-wallets,” adds Singer.

“I would also like to see that CBDCs are interoperable with other CBDCs so that they are transferable across borders peer-to-peer, no matter where people live. CBDCs should also be interchangeable with other forms of money like cryptocurrencies, stablecoins and the many private coins that will be issued in the future by financial institutions and other private entities like Facebook [with its stablecoin Diem], or fintechs.”