WAREHOUSE CEILING | Crypto resurgent, but can it go the distance, and eye-catching transactions at Transaction Capital
Crypto Resurrected, But Can It Go Far?
Up and down and up and down
Worrying as the banking crisis that has erupted in the United States may be, there are some silver linings.
Firstly, there will surely now be a concerted effort to limit inflation, with the hope that interest rates will now begin to fall.
And in a spot of good news for long-suffering motorists, oil prices have already rebounded sharply to levels last seen in late 2021.
For those invested in gold, the yellow metal breached $2,000 an ounce on Monday for the first time in a year, as a move to Credit Suisse at a 60% discount failed to quell fears of a wider banking crisis.
It has also revived the old name – bitcoin. The most resilient of cryptocurrencies has seen a meaningful change in its price trajectory for the first time in a year, hitting nine-month highs on Monday.
No doubt such strong price movements will soon see more and more speculators enter the fray. That said, many investors would be forgiven for feeling a little sheepish about re-entering a relationship with bitcoin. After all, quite a few investments have simply disappeared as the bubble deflated over the past 16 months, leaving crypto diehards with egg on their faces.
Trading above $28,000 at the moment, bitcoin is still a long way from the all-time high of over $69,000 in November 2021.
Balaji Srinivasan, former CTO of crypto exchange Coinbase, has already predicted that bitcoin will reach $1 million within 90 days, fueled by hyperinflation in the United States. (Veteran trader Peter Brandt, meanwhile, has dismissed this as “stupid”.)
Potential investors will have to dig deep to find out whether a bet on crypto this time is based on logic or just wishful thinking.
The transaction’s capital’s transactions
Moral hazards anyway
Transaction Capital, the owner of SA Taxi and WeBuyCars, has seen its shares punished since reporting a slowdown in business, losing around 60% since it flagged a severe trading update on March 13 (although it rebounded 8% on Wednesday).
But also attracting a lot of attention is the fierce share sale of Dovie Trust, linked to CEO David Hurwitz, which sold around 40% of its shares in December. The company says this was above board, having been approved by directors, but given its violent crash, and while it got at least some attention at the time (it became public knowledge), it has raised eyebrows.
Analysts say the headwinds at SA Taxi had been communicated to the market – while everyone could see the Covid-19-inspired supply chain disruptions were beginning to ease for the vehicle market, with consumers left with a wider choice of new vehicle options.
The transaction itself had warned in November during an investor presentation that financial pressure was being felt by consumers across rural and urban geographies, which was of particular concern to the taxi industry, given lower living standards measure (LSM) consumers spend about 40% of their monthly household income on public transport.
Other external factors, such as load reduction, were obviously obvious, and few were harmed.
But still, a halving of the share price suggests surprise. The share price crash has even affected the company’s plans to increase its stake in WeBuyCars, apparently delaying this by at least five months. The pressure is definitely on Transaction Capital, and it will have to be accounted for to shareholders, but according to analysts, it is not unusual for trusts that hold their shares as collateral for loans, nor the sale of shares by investors in general.
In terms of this moral hazard, it appears that there is a risk that directors with equity positions cannot win either way. They may be criticized if they do not own shares in a company, but are then criticized when they do – and sell at what turns out to be the right time. (The transaction noted that the stock sale was required by the trust’s lenders.)
Ultimately, the question should be asked, which would be worse: the CEO has no “skin in the game” or that he has shares, and is then forced to hold onto them regardless of how the outlook looks. The legislation and regulations already exist to prevent and punish insider trading, or manipulation of the market, and until there is proof, like everyone else, CEOs of failing companies should be treated as innocent until proven guilty.
219 million dollars
The amount of loans to executives, board members and major shareholders, and their related interests, in Silicon Valley Bank in the last quarter of 2022, according to Bloomberg. SVB’s loans to insiders therefore tripled from the third quarter, according to government data, which marks a record dollar amount of loans issued to insiders, at least two decades back.
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