Ether cryptocurrency, a victim of blockchain success

Ether has slid 20 percent in value, taking a further hit from comments made by Vitalik Buterin, co-founder of Ethereum, which powers the cryptocurrency. (AFP)
Updated 23 September 2018
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Ether cryptocurrency, a victim of blockchain success

  • Ether has slid 20 percent in value, taking a further hit from comments made by Vitalik Buterin, co-founder of Ethereum, which powers the cryptocurrency
  • Buterin has previously spoken about ‘scalability’ probably being the number one challenge facing the sector

LONDON: For all the attention afforded bitcoin, it is its rival ether that is hitting the headlines, with the popularity of its blockchain technology Ethereum driving concerns that have sent investors fleeing.
Virtual currencies have struggled across the board this month after US investment banking giant Goldman Sachs pulled back from its plans to open a trading desk for bitcoin, damaging sentiment for the entire sector.
Ether has slid 20 percent in value, taking a further hit from comments made by Vitalik Buterin, co-founder of Ethereum, which powers the cryptocurrency.
Earlier this month, the 24-year-old Russian-Canadian programmer told Bloomberg that “the (Ethereum) blockchain space is getting to the point where there’s a ceiling in sight.”
A blockchain is essentially a ledger for recording transactions, which is both open to all who use it but extremely secure, and has enabled the rise of cryptocurrency trading.
A multimillionaire thanks to Ethereum, Buterin has previously spoken about “scalability” probably being the number one challenge facing the sector.
Unlike bitcoin’s blockchain, which carries out transactions involving only the cryptocurrency, Ethereum can host different virtual tokens and also enable certain digital applications and so-called smart contracts.
Such programs can for example automatically trigger payments without the use of a third party when pre-defined conditions are met, such as winning a sports bet.
Ethereum is also home to two-thirds of initial coin offerings (ICOs), essentially a fundraising tool for companies which issue the tokens against cryptocurrencies much like issuing shares on a stock market.
An explosion in the number of ICOs in 2017, two years after ether’s launch, resulted in the cryptocurrency’s price rocketing 160 times in value over a 12-month period.
The craze surrounding ICOs has also caused congestion to Ethereum’s network, contributing to ether’s price collapse beginning in January.
“The more it’s demanded, the more likely you are to clog the network,” said Jerome de Tychey, president of Asseth, an association promoting the use of Ethereum.
A clogged Ethereum results in higher charges for clients wanting their transactions prioritized — and average fees briefly hit a record $5.50 in July according to bitinfocharts.com. Generally, though, fees fluctuate around a few cents.
Delays to a planned overhaul of Ethereum’s scalability have meanwhile likely discouraged some investors from using the blockchain, according to de Tychey.
Naeem Aslam, an analyst at traders Think Markets, said Buterin “isn’t doing the job which he is supposed to do” — that is, to make companies “trust the technology and provide them (with) what they need.”
The plunge in the value of ether has indeed been dramatic. Since the start of August, it has lost more than half its value.
Going back to May, the drop is 75 percent, with the total value of the virtual currency tumbling to about $23 billion from $82.5 billion.
Yet the huge drop has only taken ether back to its value of a little over a year ago, at some $220 for one token.
Another factor weighing on ether’s price has been the success of ICOs. The companies which raised funding in ether with ICOs now need to sell to them to cover operating expenses in fiat currencies.
According to sector analysts Diar the companies that raised funding before the price boom at the end of last year have sold off some 20 percent of their ether holdings since April, weighing on its price.


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

Updated 30 min 23 sec ago
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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.