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Novum Alpha - Daily Analysis 30 June 2021 (10-Minute Read)

Surging confidence in the U.S. economy is helping to buoy markets to fresh highs on confidence that existing vaccines will be able to combat fresh variants of the coronavirus.

 
A wonderful Wednesday to you as markets wind higher in the midweek. 
 

In brief (TL:DR)

 
  • U.S. stocks were up slightly on Tuesday with the blue-chip Dow Jones Industrial Average (+0.03%), S&P 500 (+0.03%) and the tech-centric Nasdaq Composite (+0.19%) edged up on optimism over the U.S. economy. 
  • Asian stocks rose early Wednesday after U.S. shares closed at a record on economic optimism and signs that vaccines can counter a highly infectious coronavirus strain.
  • Benchmark U.S. 10-year Treasuries were steady at 1.47% as traders digested the latest Fed comments (yields fall when bond prices rise).
  • The dollar held an advance.
  • Oil climbed with August 2021 contracts for WTI Crude Oil (Nymex) (+0.67%) at US$73.47. OPEC+ ministers are divided ahead of a key meeting later this week on production policy and traders are betting on supply cuts. 
  • Gold was lower with August 2021 contracts for Gold (Comex) (-0.17%) at US$1,760.60. 
  • Bitcoin (+3.03%) rose to US$35,993 on revelations that Morgan Stanley (+3.35%) bought substantial shares of Grayscale Bitcoin Trust through its various fund products (outflows suggest that investors are looking to hold Bitcoin in anticipation of higher prices). 
 

In today's issue...

 
  1. Facebook Faces Off Antitrust
  2. Not in My Tax Haven 
  3. Morgan Stanley Buys into Grayscale's Bitcoin Trust
 

Market Overview

 
Surging confidence in the U.S. economy is helping to buoy markets to fresh highs on confidence that existing vaccines will be able to combat fresh variants of the coronavirus. 
 
In Asia's morning trading, stocks were higher on optimism on Wall Street with Tokyo's Nikkei 225 (+0.09%), Seoul's Kospi Index (+0.45%), Sydney’s ASX 200 (+0.59%) and Hong Kong's Hang Seng (+0.44%) all up modestly at the open.
 

Did you miss us at the Super Crypto Conference 2021? Watch it here...

 

1. Facebook Faces Off Antitrust

 
  • Facebook (-1.05%) and Big Tech escape the gallows as U.S. courts dismiss antitrust litigation in 46 states 
  • Big Tech likely to continue facing challenges as Biden's nominee for head of the U.S. Federal Trade Commission Lina Khan has Big Tech companies squarely in her crosshairs 
 
One of the bigger risks facing the tech darlings of the pandemic was when the world realized just how dominant they had become and how dependent we all became on their services.
 
And with U.S. President Joe Biden appointing the staunchly anti-monopoly, anti-big firm Lina Khan to head up the Federal Trade Commission, investors held their breath on the prospect that the antitrust researcher would come down on Big Tech with an iron fist.
 
But tech investors may breathe a collective sigh of relief as a federal judge has dismissed antitrust lawsuits against Facebook filed by the U.S. government and most states, a major coup for the social media giant before the cases even got off the ground.
 
According to U.S. District Judge James Boasberg, the Federal Trade Commission’s lawsuit was “legally insufficient” because it failed to plead enough allegations to support the monopolization claims made against Facebook.
 
Boasberg’s ruling has dealt a heavy blow to bipartisan government efforts targeted at Big Tech on allegations that they have monopolized the marketplace, but also serve as a reminder to Khan and her colleagues that legal action against tech companies may be more complicated than anticipated.
 
Khan may have a tough road ahead of her if she intends to bust up Big Tech, especially since these firms offer free, non-traditional products, and can argue that their monopolies ultimately still serve the public good.
 
But Facebook may not be entirely out of the woods yet, with Boasberg also rejecting Facebook’s contention that the FTC couldn’t challenge its Instagram and WhatsApp acquisitions because several years had passed since those deals were completed.
 
While the FTC did allow Facebook to acquire both Instagram and WhatsApp in 2012 and 2014 respectively, it is now alleging that time has demonstrated those deals to be anticompetitive.
 
And therein lies the bigger challenge for Big Tech.
 
For years, startups with innovative new products that had the potential to rival the incumbents were typically swallowed up or run into the ground.
 
And of the Big Tech firms that have obliterated the competition, none is more at risk than perhaps Amazon, which coincidentally Khan has written extensively against, including in a piece that went viral.
 
For now, Big Tech has won the battle, but as was the experience with Microsoft’s antitrust actions in the 1990s, the war will be a long one. 
One of the bigger risks facing the tech darlings of the pandemic was when the world realized just how dominant they had become and how dependent we all became on their services.
 
And with U.S. President Joe Biden appointing the staunchly anti-monopoly, anti-big firm Lina Khan to head up the Federal Trade Commission, investors held their breath on the prospect that the antitrust researcher would come down on Big Tech with an iron fist.
 
But tech investors may breathe a collective sigh of relief as a federal judge has dismissed antitrust lawsuits against Facebook filed by the U.S. government and most states, a major coup for the social media giant before the cases even got off the ground.
 
According to U.S. District Judge James Boasberg, the Federal Trade Commission’s lawsuit was “legally insufficient” because it failed to plead enough allegations to support the monopolization claims made against Facebook.
 
Boasberg’s ruling has dealt a heavy blow to bipartisan government efforts targeted at Big Tech on allegations that they have monopolized the marketplace, but also serve as a reminder to Khan and her colleagues that legal action against tech companies may be more complicated than anticipated.
 
Khan may have a tough road ahead of her if she intends to bust up Big Tech, especially since these firms offer free, non-traditional products, and can argue that their monopolies ultimately still serve the public good.
 
But Facebook may not be entirely out of the woods yet, with Boasberg also rejecting Facebook’s contention that the FTC couldn’t challenge its Instagram and WhatsApp acquisitions because several years had passed since those deals were completed.
 
While the FTC did allow Facebook to acquire both Instagram and WhatsApp in 2012 and 2014 respectively, it is now alleging that time has demonstrated those deals to be anticompetitive.
 
And therein lies the bigger challenge for Big Tech.
 
For years, startups with innovative new products that had the potential to rival the incumbents were typically swallowed up or run into the ground.
 
And of the Big Tech firms that have obliterated the competition, none is more at risk than perhaps Amazon (+0.12%), which coincidentally Khan has written extensively against, including in a piece that went viral.
 
For now, Big Tech has won the battle, but as was the experience with Microsoft’s antitrust actions in the 1990s, the war will be a long one.  
 

Did you miss us at the Super Crypto Conference 2021? Watch it here...

 

2. Not in My Tax Haven

 
  • G7 leaders agree in principle to global minimum tax of 15% 
  • Tall order for other countries to subscribe to a global minimum tax, especially since the developing world attracts foreign direct invest 
 
A powerplant provides plenty of public good, provided it’s not in your backyard.
 
Similarly, countries are free to tax if they want to, but to have those taxes imposed within their borders is a different story altogether.
 
And for countries across the world, the idea of harmonizing a global tax structure is anathema to their very revenue generation models.
 
For years, savvy companies and individuals have navigated the global tax system to their advantage, booking costs in high tax jurisdictions and booking revenues offshore, a strategy that has been particularly exploited by technology firms that have limited physical assets (if any).
 
But western countries, home to many of the tech firms which are most tax savvy and whose goods and services cross borders with impunity, have had enough.
 
Although G7 leaders have struck a deal on a harmonized global tax structure, China, India, eastern European countries as well as developing nations have all raised objections to the proposal.
 
Tax havens and investment hubs such as Ireland, Switzerland and many island locales in the Caribbean have all refused to sign up to the G7 deal, making it at best a Pyrrhic victory for G7 leaders, who are rifling the couch cushions looking for cash to cater for their massive fiscal stimulus packages in response to the pandemic.
 
Some would-be signatories are asking for carve-outs, but the Biden administration has made it clear that any deal would require clear benefits for U.S. coffers and companies in order to be passed by Congress.
 
The proposed global minimum tax rate is currently 15%, but given how countries typically attract investment dollars by providing preferential taxes, developing countries especially may be reluctant to budge.
 
Either way, the G7 and other rich nations appear determined to fix their national balance sheets through one tax or another.  
 
 

3. Morgan Stanley Buys into Grayscale's Bitcoin Trust

 

  • Morgan Stanley creates even more institutional pathways for investors to gain Bitcoin exposure 
  • Increasing number of Wall Street firms offering their richest clients exposure to Bitcoin, the nascent asset class 
 
One of the world’s largest banks, Morgan Stanley (+3.35%) has purchased some 28,289 shares of Grayscale Bitcoin Trust, through its Europe Opportunity Fund, according to a regulatory filing.
 
As more of Wall Street starts coming into the cryptocurrency sphere, investors are demanding the institutional protections that they are used to and are willing to pay a premium to secure them.
 
In April, Morgan Stanley allowed a handful of its funds to invest directly in Bitcoin through cash settled futures on CME (-0.89%) as well as through Grayscale Bitcoin Trust, one of the only institutional pathways to Bitcoin exposure in the U.S., short of a Bitcoin ETF.
 
According to earlier SEC filings, each Morgan Stanley fund approved to invest in Bitcoin may invest as much as 25% of assets in Bitcoin.
 
Earlier this year, Morgan Stanley debuted Bitcoin investment fund products for high net worth clients and started recruiting both cryptocurrency and blockchain analysts to beef up its investment ranks.
 
Morgan Stanley joins a growing list of Wall Street firms that are either stepping into or have plunged headlong into the cryptocurrency space.
 
Goldman Sachs (+1.06%) has set up its own desk to explore cryptocurrency trading and while some banks like HSBC will not touch cryptocurrencies, others like Singapore’s DBS Bank (+2.16%)  have already setup their own cryptocurrency exchanges.
 
But investors hopeful for a U.S. Bitcoin ETF may have to wait a little longer as the U.S. Securities and Exchange Commission has delayed a decision on approving a VanEck application for a Bitcoin ETF pending further public comment.
 
The SEC remains concerned about Bitcoin’s susceptibility to manipulation and the lack of regulatory oversight, especially when it comes to money laundering.
 
Nonetheless, with G7 leaders agreeing in-principle on a global minimum tax and the Biden administration making it clear that gains on cryptocurrency investments are taxable, the economic incentives to provide a clear regulatory framework and a potentially substantial source of fresh tax revenues whether through a U.S. Bitcoin ETF or such other regulated structure is strong. 
 

What can Digital Assets do for you?

 
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Jun 30, 2021

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