Krypto works without a network

good morning. Nice day yesterday. Shares rise, bonds fall. Everything is normal again. The landing will be soft. Lions will lie down to lambs. Perhaps. Send us an email: robert.armstrong@ft.com and ethan.wu@ft.com.

The cryptocrisy gets your heroic sheet

Here is a drastically simplified presentation of what happened in crypto since we last checked.

a crypto bank, Celsius, with enormous running times congrees and a lean equity cushion broke in when the token prices fell and insoles fled. A hedge fund, Three Arrows Capital, was apparently exposed to every bad bet in crypto, including the failed stable coin terrausd. It is bankrupt. And a number of other crypto companies, including Voyager and Blockfi who had borrowed 3ac or who experience, how frightened investors pull money off.

it all feels a bit predictable. The role of Sam Bankman-Fried, known as SBF, was more surprising as SBF, the 30-year-old CEO of the crypto exchange FTX. He jumped into the breach with emergency loans and took over and said on Wednesday that if necessary, he could raise "a few billion" more. Some call him the central bank of Krypto (an analyst suggests Sam Bankman-Fed) or compare it to John Pierpont Morgan. SBF sounds like a real industrial captain:

We have the responsibility to seriously think about it, to contain infection, even if it doesn't matter to us.

He has done the following recently:

• He acquired Bitvo, a Canadian crypto trading platform, for an unauthorized amount.

• he gave Blockfi, a crypto trade and loan service, a loan factility of $ 400 million in return for a purchase option to buy it for up to $ 2,0 million

• he provided Voyager, another crypto loan, a loan factility of $ 485 million, from which he tapped $ 75 million before he went bankrupt.

You can do it as to whether John Pierpont Morgan's analogy fits. SBF has an obvious interest in containing the infection and keeping the crypto economy going. But the tough fact is that he is not a big support and cannot be.

Bitvo looks like a standard acquisition that is part of the endeavor of FTX to expand into other markets and jurisdiction. This also applies to the Blockfi deal with a rich discount (the company had sought a rating of $ 5 billion a year ago). Voyager is more interesting. On Wednesday, bankruptcy applications showed that a company associated with SBF was also a creditor, debtor and shareholder of Voyager.

"Voyager history makes sense when it comes to self-protection," a well-known crypto manager told Unhedged. "The story of Blockfi makes sense [if it’s just] buy a needy asset. Sam is there to make money. "

But even if this is the beginning and SBF spent billions in the end to support crypto groups, this cannot stop the escape of the dollars. The problem is that Krypto is worth $ 950 billion and its net wealth is perhaps 1 percent of them. Even if he spent his last penny and that of his companies, he could not stop a real rush to the outputs. As the writer Frances Coppola recently argued in Coindesk:

there [isn’t] enough [dollar liquidity] so that everyone can pay out in real dollars. . . The entire crypto industry is therefore practically reserved. . .

If everyone tries to pay cryptocurrencies in increasingly scarce dollars, the prices of the cryptocurrencies quickly fall to the level at which there are enough dollars in the system so that everyone can pay out. . .

If the more scarce money will stay here, how many expect, then the persistent noise shortage will make it impossible to rise again as before.

If at all, the greatest effect of SBF could be purely psychological - create trust with a flood of top -class deals. Maybe the money attracts. Finally, crypto is based on faith. ( ethan wu )

china relies on the stimulus

About a week ago, when we wrote about the upswing of the Chinese stocks, we suggested that Beijing would drive aggressive new economic stimulus programs if his covid-lockdowns gradually let go. It was not a risky forecast, and it has come true on a large scale and in a hurry. This is from the South China Morning Post on Wednesday:

Local governments sold bonds in the record value of 1.94 trillion RMB (289 mrd through public investments last month.

The gold pit in May brings all local emissions to more than RMB5 trillion for the year, reports the SCMP. A few 3.4 trillion RMB of which are convenient bonds that finance the infrastructure. That is 93 percent of the annual quota of the central government for such bonds. In the second half of the year there will probably be a significantly lower emission of special bonds. Oh, wait a minute. From Bloomberg, yesterday:

The Chinese Ministry of Finance is considering allowing local governments to sell special bonds worth 1.5 trillion ($ 220 billion) in the second half of this year, an unprecedented acceleration of infrastructure financing that is aimed at supporting the country's battered economy. . . Previously, the local administrations only started selling the debts on January 1, when the new financial year begins.

that's not all either. This, by Caixin Global on Monday, summarizes two more recently announced economic measures:

The China Development Bank (CDB), the country's largest political lender according to assets, will finance the majority of Beijing's most recent infrastructure stimulus of 300 billion RMB ($ 45 billion), said sources with knowledge of the matter of Caixin. . .

The State Council, China's cabinet, announced the procurement of funds of 300 billion RMB on Thursday and said that the funds would serve as capital for large infrastructure projects or as a bridging financing for projects that are financed by special bonds of local governments. . .

The economic measure in the amount of 300 billion RMB also has an increase in the credit rate of the three political banks by 800 billion RMB, also to support infrastructure investments, which was announced at an executive meeting of the State Council on June 1st

Apart from the already completed sales of infrastructure bonds in record height, the forecast sales of infrastructure bonds above the quota; the infrastructure fund of the development banks; And the increased credit rates of these banks amount to 2.6 trillion RMB - just over 2 percent of the gross domestic product. This is a big impulse at short notice, even if, like almost everyone, the long -term returns of the systems will be low.

Here is odd. Even if the government orders the creation of loans to heroic extent, it deprives the banking system liquidity. Here again Bloomberg:

China's central bank is expected to withdraw cash from the financial system, as a sign that they move towards normalization of monetary policy, since the most important global competitors energetically raise interest rates.

The People’s Bank of China has reduced its daily short -term liquidity operations to 3 billion RMB ($ 447 million) this week, the smallest amount since January 2021. .

"PBOC switches its monetary policy from a crisis mode to normalize," wrote Ming Ming, chief economist at Citic Securities. . .

It looks a little strange to take your monetary policy out of emergency mode (by buying less short-term bonds), while your loan stimulus program changes to the Super Duper emergency mode. I could not find a clear interpretation of what the Chinese authorities are striving for here. The Bloomberg article tackles it:

The smaller than expected [Short-Term Bond Buying Program] could be the central bank's attempt to introduce volatility and reduce the financial leverage on the bond market, wrote the Goldman Sachs Group, including Xinquan Chen, this week. Too low interest rates could also contribute to financial risks due to increasing arbitrage activities in which companies could borrow funds for re-establishment instead of real investments.

The government therefore wants to contain speculation/arbitrage activities by increasing the costs of short-term financing while at the same time boosting the real economy by damming loans. But further debt -financed infrastructure expenditure in a country that probably already has too much infrastructure is used by their own speculative risks. Send an email if you understand this better than I do.

a good reading

to Bojo.