Ever-volatile bitcoin is embraced by Wall Street

This June 17, 2014 file photo taken in Washington, DC shows bitcoin medals. (AFP / KAREN BLEIER)
Updated 30 November 2017
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Ever-volatile bitcoin is embraced by Wall Street

NEW YORK: Bitcoin’s stratospheric rise this week follows the digital currency’s embrace by mainstream trading platforms and is seen by some in finance as normal growing pains often experienced by innovative technologies.
After starting the year at around $1,000, bitcoin, which first appeared in 2008, on Wednesday surged as high as $11,434 before promptly falling 15 percent. Near 1700 GMT Thursday, the virtual currency stood at $9,420.
Nasdaq is the latest major financial market to reportedly planning to launch a bitcoin futures exchange next year, although the exact timing is unclear. The Chicago Mercantile Exchange and the Chicago Board Options Exchange announced plans to offer bitcoin trading in the next few months.
Brokerage firm Cantor Fitzgerald also is looking to begin trading bitcoin derivatives on an exchange it owns.
“The asset class is not going away,” Cantor Fitzgerald chief executive Shawn Matthews told the Wall Street Journal.
“If you look at the next level, it will be the institutions coming in and being larger participants in the marketplace, especially as liquidity gets better.”
The exchanges will trade bitcoin derivatives, not the currency itself, including futures, which set prices for a commodity or financial instrument at a future date.
“The listing of bitcoin products by derivative markets is a major indirect endorsement that this thing is here to stay,” said David Yermack, a finance professor at New York University, adding that the markets will attract new investors who bet that bitcoin will fall in value.
Yermack, who teaches a course on bitcoin and cryptocurrencies, is closely watching the development of blockchain, the underlying technology behind bitcoin.
Bitcoin has been propelled by the rising prominence of blockchain, which leading banks increasingly view as being at the heart of financial technology, Yermack said.
Still, “it is hard to come up with an explanation for why (bitcoin) has been driven by a factor of 10 since the start of the year,” Yermack told AFP.
“It is just mind blowing.”
The embrace of bitcoin by mainstream exchanges has aided the digital currency’s image after it was once associated with drug dealing and money laundering. It also was viewed as risky because it is not regulated or backed by a central bank.
“The biggest problem the banks have faced has been the regulatory uncertainty,” said Lou Kerner, a self-described crypto “evangelist.”
The announcements by the CME and others “addresses it for that particular kind of assets,” he said.
Kerner, who believes bitcoin eventually will become more valuable than gold, batted away talk that the cryptocurrency is overvalued.
“You can find a lot of people to tell you it’s a bubble, and that is what they said at $100, at $1,000, at $10,000, but that does not really add anything to the dialogue,” he said.
Jeff Currie, head of commodities research at Goldman Sachs, also views bitcoin as comparable to gold, likening its creation through sophisticated computer technology to metals mining.
“Bitcoin is a commodity, not much different than gold,” he said Wednesday on Bloomberg Television. “I don’t see why there is all this hostility to it, because it fits the same as many other commodities.’
But a key problem facing bitcoin is its limited liquidity, he said, with total market value globally of $170 billion compared with the $8.3 trillion gold market.
“If you give bitcoin decades to grow and it becomes as big as gold, which I am not trying to forecast ... then the volatility would come down,” he said.


Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

Updated 23 April 2019
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Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

  • The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios
  • SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year

RIYADH: Saudi Real Estate Refinance Co. (SRC), modelled on US mortgage finance firm Fannie Mae, aims to issue up to 4 billion riyals ($1.07 billion) of long-term sukuk this year, its chief executive said on Tuesday.

The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios from mortgage financing companies and banks to boost the Kingdom’s secondary mortgage market.

SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year, Fabrice Susini told Reuters in an interview.

“Our strategy is clearly to tap the market twice this year,” he said. “We are really looking at probably issuing something between ... 2 and 4 billion riyal that we may be issuing in two tranches.

He said SRC was looking at sukuk in the 10 to 15-year range, to help minimize refinancing risks. “Generally speaking we are trying to issue as long as possible,” Susini said.

He said the company was assessing whether it could also issue bonds in currencies other than the local riyal.

In March, SRC completed a 750 million riyal sukuk issue with multiple tenors, under a program that allows it to issue up to 11 billion riyals of local currency denominated Islamic bonds.

“The rule of the game for us is, like many projects across the Kingdom, attract liquidity from foreign investors,” Susini said.

He said SRC had spent 1.2 billion riyals from its balance sheet buying mortgages from local mortgage financing companies and provided liquidity to these firms.

It has also signed initial accords with several commercial banks to acquire housing mortgage portfolios.

Saudi Arabia’s housing ministry is targeting the mortgage market to reach a total value of 502 billion riyals by 2020 from around 300 billion riyals now.

The government wants to increase activity in the real estate market as it moves to revitalize the economy and is taking steps to reform the sector as part of its 2030 reform plan.

It has been working with developers and local banks to counter a shortage of affordable housing — one of the country’s biggest social and economic problems. Saudi Arabia wants 60 percent of its nationals to own homes by 2020, up from 47 percent in 2016.

The size of real estate financing relative to its gross domestic product is 5 percent in Saudi Arabia compared to 69 percent in the United States, 74 percent in the United Kingdom and 43 pct in Canada, the housing ministry has said.

“The goal of SRC in this market was to make sure that we will be able to refinance at least around 10 percent of the market in 2020, and 20 percent of the market by 2028,” Susini told Reuters.