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Bitcoin and ether slide as China intensifies crackdown on cryptocurrencies

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Bitcoin and ether tumbled Friday, with traders rattled by tough talk out of China.

The price of bitcoin fell nearly 6% to $42,124.73, according to Coin Metrics data. Ether, the second-largest digital currency, dropped 8% to $2,894.36.

It comes after the People’s Bank of China said in a Q&A that all crypto-related activities are illegal. Services offering trading, order matching or derivatives for virtual currencies are strictly prohibited, the PBOC said, while overseas exchanges are also illegal.

Beijing has cracked down sharply on crypto this year. The Chinese government moved to stamp out digital currency mining, the energy-intensive operation that validates transactions and produces new coins. That led to sharp slump in bitcoin’s processing power as miners took their equipment offline.

The PBOC banned banks and non-bank payment institutions like Alibaba affiliate Ant Group from providing services related to virtual currency. In July, authorities told a Beijing-based software company to shut down over its involvement with crypto trading.

Constantine Tsavliris, head of research at crypto data site CryptoCompare, said the harsh rhetoric was likely to result in a “short-term sell-off as negative news presses investors to take a conservative approach.”

“The recent news by China serves as an extension of previous announcements in May regarding a crackdown on cryptocurrency mining and bans on financial and payment institutions from crypto-related services,” Tsavliris told CNBC.

“As a result of the bans, we previously saw a short-term sell-off and a shift in mining away from China, followed by a swift recovery throughout July and August,” added.

Vijay Ayyar, head of Asia Pacific at digital currency exchange Luno, said that while China’s position on crypto was not new, it was enough to pressure the market. Investors had already been unnerved by the U.S. Securities and Exchange Commission taking a tougher line on cryptocurrencies lately, he added.

Coinbase, America’s largest crypto exchange, recently got into a public spat with the SEC. Regulators threatened to sue the company over a product called Lend that would have allowed users to earn interest on their holdings. Coinbase recently decided to drop Lend.

“The Chinese regulators have always been extreme in their views and these comments are not new,” Ayyar told CNBC. “They have said these things many times in the past. But the reaction is interesting purely because we are anyway in a slightly nervous environment for crypto with the recent SEC comments and overall macro environment with the Evergrande news. So any comments of this nature will cause a sell off in risky assets.”

Global markets have been roiled lately by fears of a potential collapse for embattled Chinese property developer Evergrande.

“Overall, we’ve seen this play out many times in the past, with such dips being inorganic and bought up quite quickly especially in environments where crypto is in a bull market cycle,” Ayyar said, referring to China’s crackdown. “Price action wise, as long as we don’t drop below $38,000 on a high time frame basis, we are still in bullish territory.”

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SEC says brokers enticed by payment for order flow are making trading into a game to lure investors

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Rafael Henrique | LightRocket | Getty Images

The Securities and Exchange Commission said online brokerages, enticed to increase revenue through the controversial industry practice of payment for order flow, are turning stock-trading into a game in order to encourage activity from retail investors.

Wall Street’s main regulator on Monday released its highly anticipated report on the GameStop mania earlier this year. The 44-page report detailed how the trading frenzy went down and raised red flags on a number of issues, including the back-end payments that brokerages receive, gamification of trading, as well as disclosures on short sales. But it stopped short of laying blame on a single cause or entity.

“Payment for order flow and the incentives it creates may cause broker-dealers to find novel ways to increase customer trading, including through the use of digital engagement practices,” SEC officials said in the report.

Payment for order flow is one of the largest revenue sources at Robinhood, the millennial-favored stock trading app that raked in a record number of new customers over the past year and went public in August. The practice, though, is under increased scrutiny as many say it has a conflict of interest with brokerages incentivized to send orders to the market-maker that pays them the biggest rebate. SEC chair Gary Gensler had warned that banning this practice is not off the table.

To motivate trading, some brokers including Robinhood made their platforms visually enticing and offer game-like features such as points, rewards, leaderboards and bonuses to increase engagement. Amid criticism, Robinhood got rid of its confetti animation in March.

“Consideration should be given to whether game-like features and celebratory animations that are likely intended to create positive feedback from trading lead investors to trade more than they would otherwise,” the report said.

Still, the SEC review may fall short to some in terms of making concrete recommendations and laying the groundwork for potential changes to U.S. trading practices. The agency also didn’t reach a conclusion as to whether any of the trading — and the restrictions on trading — was manipulative and whether brokerages played by the rules during the mania.

The agency acknowledge that the extreme volatility in meme stocks tested the capacity and resiliency of the markets.

Risk management and transparency

At the height of the mania in January, a band of amateur traders in Reddit’s WallStreetBets forum bid up heavily shorted stocks “to the moon,” creating massive short squeezes in names like GameStop and AMC. The unprecedented volatility backfired on Robinhood, which had to tap credit lines and restrict trading in a list of the short-squeeze names as the central Wall Street clearinghouse at one point mandated a ten-fold increase in the firm’s deposit requirements.

“This episode highlights the integral role clearing plays in risk management for equity trading, but raises questions about the possible effects of acute margin calls on more thinly-capitalized broker-dealers and other means of reducing their risks,” SEC’s report said. “One method to mitigate the systemic risk posed by such entities to the clearinghouse and other participants is to shorten the settlement cycle.”

The SEC also brought up whether more transparency of short selling should be required. Right now, securities lending and borrowing is a relatively opaque system as investors aren’t required to report their bearish bets and the SEC only collects data on how much of a company’s stock is sold short.

“The interplay between shorting and price dynamics is more complex than these narratives would suggest,” SEC officials said in the report. “Improved reporting of short sales would allow regulators to better track these dynamics.”

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Carl Icahn says the market over the long run will certainly ‘hit the wall’ because of money printing

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Longtime activist investor Carl Icahn said Monday that the U.S. markets could see major challenges over the long term in the face of excessive money supply and rising inflation.

“In the long run we are certainly going to hit the wall,” Icahn said Monday on CNBC’s “Fast Money Halftime Report.” “I really think there will be a crisis the way we are going, the way we are printing money, the way we are going into inflation. If you look around you, you see inflation all around you and I don’t know how you deal with that in the long term.”

The Federal Reserve and Congress have unleased trillions of dollars in stimulus to rescue the economy from the Covid-19 pandemic. The central bank’s balance sheet swelled by more than $3 trillion amid its open-ended quantitative easing program, while the government has allocated over $5 trillion in stimulus to support Americans through the health crisis.

Icahn was adamant about not making a market timing call, but he believes one day over the long term the markets will pay the price for these policies.

On the back of these unprecedented stimulus programs, the S&P 500 has rapidly wiped out the pandemic-induced losses and rebounded to a new high. The equity benchmark is up more than 19% in 2021, sitting just 1.4% below its all-time high reached early September.

The massive money supply has partly contributed to rising price pressures in the economy. Inflation ran at a fresh 30-year high in August amid supply chain disruptions and extraordinarily strong demand.

The core personal consumption expenditures price index, which excludes food and energy costs and is the Fed’s preferred measure of inflation, increased 0.3% for the month and was up 3.6% from a year ago.

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N26 triples valuation to $9 billion, now worth more than Commerzbank

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N26’s logo seen displayed on a smartphone.

Rafael Henrique | SOPA Images | LightRocket via Getty Images

LONDON — German digital bank N26 said on Tuesday it has raised $900 million in a new funding round that values the firm at $9 billion.

That’s nearly three times N26’s valuation in its last private fundraising round and means it’s now worth slightly more than Commerzbank, Germany’s second-largest lender. Frankfurt-listed Commerzbank has a market cap of 7.6 billion euros ($8.8 billion).

N26, which counts billionaires Peter Thiel and Li Ka-Shing as investors, raised the fresh cash from Third Point, the hedge fund led by U.S. billionaire investor Dan Loeb, and Coatue, while Dragoneer also invested.

Founded in 2013, N26 is one of several start-ups in Europe seeking to challenge established banks with app-based checking accounts and little to no fees. Competitors include Revolut, which was recently valued at $33 billion, and Monzo.

Maximilian Tayenthal, N26’s founder and co-CEO, said the company plans to spend the extra cash on hiring 1,000 people globally and on launching new features like cryptocurrency trading.

“We want to bring in more people with a focus on product, technology and security,” Tayenthal told CNBC in an interview.

IPO ambitions

N26 now has 7 million customers across Europe and the U.S. and is on track to process $90 billion in transactions this year. The company recently acquired a banking license in Brazil, with a team of 40 employees already on the ground in São Paulo. N26 expects to roll out its app publicly in the country within the next year, Tayenthal said.

N26 now has enough “financial leeway” to prepare for an initial public offering, Tayenthal said, adding that he expects the firm to be “structurally IPO-ready” within the next 12 to 18 months.

“We have no hurry to go public,” Tayenthal said. “With increasing profitability, the kind of money we are raising right now, it really takes away any time pressure.”

With plenty of money available in private equity markets, many tech companies are opting to stay private for longer. Stripe, for example, raised funds at a $95 billion valuation earlier this year, making it one of the most valuable start-ups in the U.S.

Several European fintechs have managed to reach multibillion-dollar valuations amid surging investment activity. Revolut was recently valued at $33 billion in a funding round led by SoftBank, for example.

However, some investors have expressed concern about their ability to make a profit.

N26 is still loss-making, racking up losses of 216.9 million euros in 2019. Its European business lost 110 million euros in 2020, down from 165 million a year earlier. Tayenthal said N26 isn’t under pressure from investors to make a profit anytime soon.

Growing pains

Like other fintech companies, N26 has dealt with growing pains lately. The firm faced outcry from staff at its Berlin office last year, who at the time said that trust in management was at an “all-time low.”

Meanwhile, N26 was fined $5 million by BaFin, Germany’s financial services regulator, for being late to submit suspicious activity reports that are used by authorities to investigate money laundering.

On Tuesday, the bank said it had reached an agreement with BaFin to limit how many customers it onboards each month to a maximum of 50,000 to 70,000. The watchdog is expected to publish the decision in an upcoming order, N26 said.

Tayenthal warned the move is likely to slow N26’s growth significantly in the short term.

“For a couple of months, it will be material to the business,” he said.

As for work culture, Tayenthal says the firm has worked to improve employee representation at the company over the past year. The company has also begun to foster a shift toward flexible work during the Covid-19 pandemic, he added.

“We were actually very strong believers in having everyone in the office as much as possible. We are moving away from that,” Tayenthal said.

“There [are] obviously certain roles where you need to be in the office more regularly. And we also believe in bringing people together occasionally, but we are going to move to a more flexible model.”

N26 isn’t the only fintech embracing remote work. Revolut has said it will allow employees to work overseas for up to 60 days a year. Such moves are in contrast with major Wall Street banks like JPMorgan and Goldman Sachs, which are encouraging workers to return to the office. Some big European lenders are taking a more flexible approach.

N26 said it would expand its staff equity ownership scheme to cover all employees. Germany last year unveiled plans to reform its rules on employee stock options, a typical perk at many tech start-ups.

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