Italian And French Regulators Hunting Down Even More Crypto Scams

Alongside these warnings, the AMF has recently approved the first application for an Initial Coin Offering (ICO) within the country. New rules have also …

The top financial regulators of France have recently published a new list. This list consists of investment websites that do not have the proper authorizations to operate within the country itself. This includes various so-called digital asset service providers or DASPs.

The Typical Red Flags

BitcoinFrance was one of the more notable firms that came under the french AMF’s radar, having raised numerous red flags suggesting that it could be an investment scam. In particular, BitcoinFrance claims that its proprietary Bitcoin trading software can be accessed freely by users, but only if they deposit a minimum of $250 into it.

According to the app itself, it trades in various cryptocurrency markets, doing so on their clients’ behalf. It’s claimed that this app will generate earnings of $1,000 per day, claiming that these profits will be added without the need for risk. The AMF warned that these are bread-and-butter hallmarks of a typical financial investment fraud.

Trying To Regulate Crypto In France

The AMF made it clear that a complete list of unauthorized websites are available on its own website. The regulator did make sure to stipulate, however, that these domains may change exceptionally quickly, and that this list isn’t meant to be an exhaustive one.

These warnings come just as Paris is aiming to start policing crypto activities. Alongside these warnings, the AMF has recently approved the first application for an Initial Coin Offering (ICO) within the country. New rules have also been published regarding the licensing of DASPs, with further guidelines presented to firms applying for the license, which should be noted as non-mandatory, at least for now. Furthermore, guidelines were issued out regarding how to inform the regulator about internal cybersecurity practices, as well.

Italy Fighting Fraud Relentlessly

Just across France’s borders, Italy’s securities regulator, CONSOB, has blacklisted another array of crypto and FX-focused brands. This comes as more and more unauthorized parties within the finance space try to push into Italy’s online trading business as offshore brokers. This includes the cryptocurrency sector, which is still a bit of a legal grey area for Italy.

CONSOB stands as one of the most proactive and vigilant regulators within the European sphere, using its new legislative powers to mandate the internet service providers (ISPs) of its country to blacklist sites that the regulator deemed to be fraudulent. The process seems to be working, even if it’s essentially trying to drain a lake with a bucket.

Why the coming foreclosure crisis will look nothing like the last one

… near the catastrophe that it suffered during the Great Recession,” said Ralph McLaughlin, chief economist at Haus, a financial technology company.

During the Great Recession, foreclosure filings spiked. In the first half of 2010, 1.65 million American homes went into foreclosure, according to Attom. In the first half of 2020, barely 165,000 loans were hit with foreclosure actions. Even if defaults rise dramatically, they’ll remain well below the levels seen during the mortgage meltdown.

Bitcoin Is Shaky But Medium-Term Bull Case Intact: On-Chain Analyst

Bitcoin is one of the most known virtual currencies which has gained worldwide publicity. The users or traders of this currency always note that the rate …

Bitcoin is one of the most known virtual currencies which has gained worldwide publicity. The users or traders of this currency always note that the rate is going up with every passing day. This also has attracted the attention of analysts, and they are also quite bullish about the future rate of this currency. One such view has been in trend in the past some days where it is said by an expert that the price of this currency will remain intact in medium-term also which is indeed good news for the virtual currency lovers.

The Bitcoin price is seeing some downside in recent weeks, but analysts are hoping that it will turn around in the near term. Willy Woo, On-chain analyst, says that the mid-term outlook of Bitcoin is bullish even as the price has remained below $10000 for three days consecutively.

The trend for the short term for BTC looks weak as the price slipped from $11462 to about $10000 in a matter of five days. The 12.6% drop was a huge one, and many investors were not anticipating this much volatility in BTC considering its performance in the last few months. Gold has also lost momentum in recent weeks as the US dollar sees some recovery in the market.

Bitcoin price Bitcoin price

How can Bitcoin sustain momentum?

In the opinion of Willy Woo, On-chain local indicators are showing a bullish trend for BTC. This includes Holding activity, network activity and NVT ratio. The NVT signal, for example, identifies the peak value of the market by evaluating the price of BTC against daily transactional value. In the same manner, network activity is also indicating a positive outlook in the medium term for Bitcoin.

As the price of BTC has dropped from $12000, several data points indicate a bullish trend in the midterm. One interesting thing about the market activity is that the network activity has remained pretty stable even as the price of BTC fell nearly 20% from the year high levels.

Willy Woo said that the price of BTC might not have bottomed, but he is bullish about the next few weeks. He says that when you are playing the big swings, this is not a bad time to buy back BTC and go long for the medium term.

Many traders are closely observing the $9650 as this is the gap between CME Bitcoin futures market and other exchanges. This gap forms when CME closes during the weekend, and it has been steady since July. Once this gap is filled, it can lead to further bullish trends in the market, according to many traders.

Willy Woo also has a similar opinion on this gap, and he says that longs can get filled with solid liquidity at such gaps. He added that the big players in the derivatives exchange have the capacity to fill such gaps with strong liquidity and give a further boost to BTC shortly.

However, some traders are concerned with the high NVT ratio of the BTC. When this ratio remained Higher than 70 earlier, it had made a local top. This time around, the NVT is still close to 81.5, and this is a matter of concern for some traders.

Su Zhu, CEO of Three Arrows Capital, says that the probability of BTC moving to $100K is more likely than BTC declining to $5000. The amount of liquidity at $8800 levels on Bitfinex is giving a huge boost to the positive sentiment. Considering such indicators, many people are expecting levels close to $8800 as this can offer huge support for the next bullish trend.

Earlier in March, the price of BTC had declined 50%, and this is unlikely to happen shortly as the BTC has defended $10000 for a long time now. It has added many new investors in the recent past, and most of them are likely to add to their positions if they see any further downside. This can give it good momentum in short to medium term in the market.

Apart from this, even the Fibonacci levels are indicating good support for the BTC in the near term. While the immediate support comes in the range of $9665 levels, the near term support is somewhere around the $8100 mark. On the other hand, if both these levels are broken due to market conditions, the long term support is close to $7000 and most analysts expect that this will be the near term bottom for BTC if it comes to this level in this downtrend.

However, things may not go so bad if the CME gap is filled in the vicinity of $10000. In that situation, most traders expect some near term resistance near the $10400 levels for the BTC. If the price of BTC manages to hold this level for at least a few weeks, there is a good chance that it may even cross the previous high of $12500 in the upcoming months. Once this level is reached, the big bull rally will begin, and not many people are clear about what levels it can reach in the future.

The recent pandemic has triggered huge losses for various economies around the world. Given this situation, the dollar value is likely to get affected due to a stream of stimulus packages announced by the government. After the November presidential elections, the US may announce a host of big stimulus packages to boost the economy. All these conditions are providing a boost to the cryptocurrencies indirectly as they are weakening the currency value by offering stimulus.

However, governments have little choice in this situation. In this situation, most people look forward to investing in BTC and other cryptocurrencies that are not controlled by governments. This will be the future of international currency, and Bitcoin has a good chance of becoming the leader in the race. Once the previous high of $12500 is taken out, a new bull rally is likely to get triggered that can further boost the demand for BTC in the market.

Is Investing in Bitcoin a Safe Haven Like Gold?

Bitcoin is Not Like ICOs. We have emphatically stated over the years that the crypto-initial-coin-offering-token garbage that was being touted by nearly …

“The market seems overheated but it may just be getting started – proceed with cautious optimism,” is the sort of shite you’ll often hear pundits say. These sorts of wishy-washy statements tell you absolutely nothing useful, but since the pundits need to say something, they try to avoid speaking with conviction so you can’t call them on it later.

Then there are those who are overly confident in their convictions. “I’m more bullish now than I was before,” Chamath Palihapitiya told TechCrunch in an article yesterday which announced his fourth SPAC vehicle. He believes that investors have no choice but to be in equities because the risk-free rate is nearing zero. Given he’s one of the main men behind all this SPAC nonsense, he kind of has to be bullish, but he does raise a good point.

If you’re sitting on a whole bunch of cash right now, where’s a good place to put it? The Fed just said they won’t be raising interest rates for another three years at least. Many of us don’t share Mr. Palihapitiya’s optimism because of things like an upcoming U.S. election, or the global impact of “the Rona” which remains to be seen. What’s a safe haven to park cash in?

Some of you may be thinking gold, or the Swiss Franc, but the world’s leading thematic ETF provider thinks that bitcoin – ” the most compelling monetary asset to emerge since gold ” – is a good place to park cash.

Bitcoin is Not Like ICOs

We have emphatically stated over the years that the crypto-initial-coin-offering-token garbage that was being touted by nearly everyone wasn’t an asset class, nor was it an IPO replacement. Why? Because none of those tokens gave you equity exposure. Essentially, you were buying coupons to spend on a product or service that hadn’t been built yet. It was about as bad an idea as it sounds.

Credit: We’re not sure who the genius was but we owe them a round

The same morons who couldn’t use common sense to figure out they were being fleeced by the whole ICO debacle have now moved on to their next money-making scheme – day trading over at Robinhood. If you decided to burn your money instead, the joules put off by the fire would be of more value than what you’d end up with as a “day trader.”

Then there’s bitcoin, the original gangster of cryptocurrencies.

Bitcoin – The New Gold

This is where some people immediately get turned off because they don’t understand how bitcoin works. It’s okay, we don’t either, but we do know the basics.

Blockchain is an infallible ledger that tracks who owns something of value. In the case of bitcoin, we use blockchain to track which wallets are holding bitcoins and how much. A bitcoin is simply digital money which holds value using the same illusion that gives paper money its value.

That’s about the extent we’re going to discuss the technical details. What we’re here to talk about are the two recently released white papers by ARK Invest analyst Yassine Elmandjra which make the case for investing in bitcoin. We’ve pored through all 48 pages of his research so you don’t have to. Here’s what we found.

ARK Invest’s Bitcoin Thesis

In 2009, the Internet birthed Bitcoin, the full ramifications of which are not well understood. Institutions have all the power and that can be bad. The idea of trust-based institutions is falling short. It gets pretty philosophical from there, and some of the usual arguments you hear from gold bugs are presented.

Credit: ARK Invest

In short, the first white paper pontificates about how the current financial systems around the globe have problems that bitcoin can solve. If you’re the type of person who enjoys reading about economics, you might give the first white paper a read, but we’re more interested in the second white paper – Bitcoin as an Investment.

Often informed by incorrect assumptions, mainstream media has cast doubt on Bitcoin’s viability during the last 10 years while institutional investors have begun to research it as the birth of a new asset class.

Credit” ARK Invest

Investing in Bitcoin

If bitcoin followed the path of any other emerging technology, then it would be slowly crawling up Gartner’s “slope of enlightenment” right now as institutions start to realize they missed out on a whole lot of returns. The below two charts show how earlier adopters created some serious wealth if they HODL’d, and yearly returns have been consistent thus far.

Credit: ARK Invest

While past performance is never an indicator of future performance, ARK believes there’s a whole lot more room for growth as institutions start to see bitcoin as an asset class. Consequently, they propose a $140,000 price target by 2025 – a return of about +1,200% based on today’s prices. Some use cases that could drive bitcoin to those price levels or even higher include:

  • Bitcoin as a global settlement network
  • Bitcoin as protection against the seizure of assets
  • Bitcoin as digital gold
  • Bitcoin as a catalyst for currency demonetization in emerging markets

In other words, there are many use cases for bitcoin that could drive the value up. Ultimately, ARK believes bitcoin should be seen as an alternative asset class, which means you should allocate some of your assets to it.

Bitcoin as an Asset Class

When a financial advisor tells you to allocate your wealth across property, fixed income, and stocks, that’s called “strategic asset allocation.” Real estate, bonds, stocks, gold, and cash are all asset classes. You decide what percentage of your wealth is allocated to each of them. ARK is suggesting that bitcoin is another asset class that you allocate some money towards.

ARK then goes on to talk about how bitcoin is negatively correlated to other popular asset classes, the same appeal that many other alternative asset classes offer. Frankly, it’s a whole lot more fun to invest in wine or art than it is in bitcoin, but point taken. The idea is that when all hell is breaking loose in the markets, and your 401K is down -30% in one week, alternative assets such as wine, art, or bitcoin remain unfazed. In the case of Vinovest, you can even choose to drink the wine, and temporarily forget about all those paper losses you shouldn’t be worrying about in the first place.

ARK’s analyst then goes on to talk about how institutions are still kicking the tires with bitcoin. The sell-side wants to make bitcoin products, and the buy-side wants to invest in bitcoin, but is there enough trading volume to support the whole thing? He then uses the term “de minimis,” and we quickly add it to our own vocabulary of words that make us sound more knowledgeable than we actually are.

In order to gauge how much bitcoin we ought to allocate our wealth to, he then whips out some Modern Portfolio Theory, sprinkles it with a bit of Sharpe Ratio, and finishes the whole thing off some Efficient Frontier charts. The verdict? Depending on your tolerance for risk, allocate anywhere between 0.03% and 25.78% of your wealth to bitcoin. He then moves on to talk about what’s on our minds most these days – risk.

Bitcoin Risks

The first risk involves custody. How do you go about buying bitcoin, and how can you make sure your investment is secure? While this isn’t really a problem for retail investors, institutions are subject to different rules. Then there’s regulation, the exact same thing that makes bitcoin so appealing. Rules can change. Finally, institutions could step in and muck things up.

There’s also another piece ARK put out which addresses concerns raised by investors. For example, we never liked the fact that whenever the bitcoin community disagrees on something, they “fork” it, creating another instance of bitcoin.

  • Bitcoin is too volatile – You don’t understand bitcoin. Its volatility actually highlights its credibility. Besides, it will become less volatile over time.
  • Bitcoin is a bubble – It has a potential to play the role of global money so you could argue it’s only getting started.
  • Bitcoin will lose value to “forks” and copycats – The value can’t be replicated by software alone.
  • Bitcoin is for criminals – It’s also censorship-resistant.
  • Bitcoin wastes too much energy – No more than gold or the entire banking system.

What To Do?

ARK’s influence needs to be taken into account here. They have the ears of everyone on Wall Street right now as their marketing prowess and a certain amount of serendipity have resulted in their leadership position in thematic ETFs. If ARK tells institutions that bitcoin is where they need to be, it almost becomes a self-fulfilling prophecy.

For retail investors or small family offices without the resources to research this domain any further than what ARK has already provided, you need to decide if you want exposure to this asset class. If ultra-high net worth individuals allocate 4% of their assets to art, there’s no reason not to do the same with bitcoin. It just becomes another uncorrelated alternative asset class to consider, albeit one that’s liquid and transparent.

While our dividend growth stock portfolio gives us an income stream that grows every year to outpace inflation, alternative assets such as gold, wine, and art, don’t produce any income streams. These are all asset classes that you should allocate money to as a defensive maneuver with a five-year (at least) time horizon.

So, is bitcoin better than gold? Gold bugs will argue that holding physical gold is the safest way to protect wealth as opposed to buying a gold ETF like GLD. True, but you need to consider things like storage and liquidity. Since gold and bitcoin have a correlation of 0.24, they’re nothing like each other when it comes to returns. The similarity is that one of these asset classes is used by institutional investors right now as a flight to quality while the other isn’t – at least not yet.

Credit: ARK Invest

Conclusion

The full ramifications of bitcoin are not well understood, and Buffett tells us to not invest in things we don’t understand. The institutions that would be responsible for driving the bull cases for bitcoin are still kicking the tires. ARK believes that you can front-run their eventual capitulation to bitcoin.

If you’re thinking about allocating a small percentage of your assets to bitcoin, there’s a right and a wrong way to do that. In a coming piece, we’ll look at the best way to invest in bitcoin, no matter how much you decide to allocate.

Tech stocks are volatile investments during the best of times. Here at Nanalyze, we complement our tech holdings with a dividend growth strategy that performs extremely well during recessions. Find out which 30 dividend growth stocks we’re holding in our report – Quantigence – A Dividend Growth Investing Strategy – freely available to Nanalyze Premium Subscribers.

Solar Capital: Solid 9.5% Dividend Yield

Wall Street analysts have a very bullish rating for the stock and a price … Dividend on these equity securities decreased by 30% in Q2, compared to …

Investment Thesis

Solar Capital (SLRC) showed resilience during the pandemic. The company’s portfolio had ZERO non-performing loans in FQ2.

The quality of SLRC’s portfolio will enable the company to maintain its dividend distributions, which currently yield an eye-watering 9.5%.

SLRC is trading at a 19% discount on NAV, opening an opportunity for 17% capital appreciation, augmenting the 9.5% annual dividend yield.

Portfolio Quality

SLRC portfolio performed well during the pandemic. The company had ZERO non-performing loans as of June 30th, 2020. This is a result of a careful approach to investing that won Wall Street admiration. Wall Street analysts have a very bullish rating for the stock and a price target of $18.22 per share.

SLRC’s $1.4 billion investment portfolio is composed of 108 companies in 27 different industries, providing valued diversification. Almost all of SLRC’s debt investments are senior secured loans, enhancing portfolio quality.

Moody’s rating maintained its investment grade rating for the company during lockdown, which is a testimony on management prowess and portfolio quality.

Dividend Sustainability

SLRC has an uninterrupted record of dividend hikes since 2014. SLRC’s management stated last month that it plans to maintain its dividend payments at current levels. The outstanding investment portfolio will enable the company to achieve its dividend distribution plans.

Having said that, temporary disruptions in earnings pushed SLRC’s payout ratio above 100%, driving some investors to question the sustainability of future distributions. Below is an analysis of these factors to assess the risks related to dividend continuity.

Reasons for lower revenue in Q2

  1. Smaller investment portfolio
  2. Lower interest rates on debt securities
  3. Lower dividend yields on equity securities

Smaller Investment Portfolio: SLRC’s portfolio shrank $105 million at cost ($135 million at fair value) in the six months ending June 30th, 2020. This was a result debt pre-payments on behalf of some portfolio companies looking to refinance their debt. SLRC is gradually restoring its investment portfolio by new investment originations. In the three months ending June 2020, SLRC invested $61 million in 14 new portfolio companies. With almost half a billion in cash, the company will have no problem replacing investments it lost recently.

Source: SLRC financial statements

Lower interest rates on debt securities: 77% of SLRC’s debt investments are tied to LIBOR. In response to the COVID pandemic, the Fed ventured on a wide scale monetary stimulus that lowered interest rates. Last week, the Fed chairman signaled that interest rates will remain close to the zero bound until 2023.

While these developments are recent, the low interest rate environment is yesterday’s news. Historically, the effect of low Fed rates on the US middle market rates has been soft. SLRC’s weighted average yield in Q2 was 9.9%, compared to 10.6% in Q1.

Moreover, many of SLRC debt securities have interest floors, thus minimizing the impact of lower LIBOR.

Lower yields on equity investments: SLRC holds 23% of its investments in the form of equity securities. Dividend on these equity securities decreased by 30% in Q2, compared to the same quarter last year.

As economic activity returns to normal, SLRC’s portfolio companies will bring their dividend distribution up closer to their pre-pandemic levels.

Insider Ownership

Currently, SLRC insiders own 7% of the shares outstanding. The management team increased buying at the start of the market rout in March. This demonstrates the management’s confidence in the company.

Discount on NAV

Reported NAV as of June 30th, 2020 is $20.11 per share. The stock is trading at a 19% discount of NAV ( price $16.37). Below is the historical NAV-Price gap. If NAV-GAP returns to normal levels of 4.5%, then the price will be 19.2, opening an opportunity for 17% capital appreciation.

Source: Author’s estimates. Data from SLRC financial statements

Risks

SLRC has about half a billion in cash. While this cash will help the company grow its portfolio, the company faces competition from other lenders in the US middle market. This might make it difficult for the company to deploy its capital in investments that meet the management’s criteria.

Moreover, SLRC’s investments are non-investment grade and carry a significant amount of risks. The company implements covenants, collateral, and stringent due diligence in choosing its investments to minimize these risks. Still, the risks inherent in the company’s operations can’t be ignored.

Summary

Temporary disruptions in earnings are spooking investors, pushing SLRC below its average NAV/Price, and opening an opportunity for long-term investors to lock in a 9.5% dividend yield with 17% capital gain potential.

Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This is not investment advice. Please consult an investment advisor before trading in the stock market.