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Challenges and opportunities for Pension Funds on Crypto Investments

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Cryptocurrencies have been gaining popularity and legitimacy in the past decade, attracting the attention of investors from various sectors and backgrounds. However, one of the most conservative and risk-averse segments of the investment world, pension funds, have been largely absent from the crypto space. Why is that, and what are the challenges and opportunities for pension funds to enter this new asset class?

Pension funds are long-term investors that manage the retirement savings of millions of people. They have a fiduciary duty to protect and grow their assets, while also meeting their liabilities and obligations to their beneficiaries. Pension funds typically invest in a diversified portfolio of traditional assets, such as stocks, bonds, real estate, and commodities, with a focus on generating stable and predictable returns over time.

Cryptocurrencies, on the other hand, are digital assets that are powered by blockchain technology and operate outside the control of any central authority. They offer several potential benefits for investors, such as high returns, low correlation with other assets, hedge against inflation and currency devaluation, and access to innovative projects and platforms. However, they also come with significant risks and challenges, such as high volatility, regulatory uncertainty, security breaches, fraud, and lack of institutional-grade infrastructure and services.

Given these characteristics, it is not surprising that pension funds have been reluctant to invest in cryptocurrencies. According to a recent survey by CFA Institute, only 2% of institutional investors globally have exposure to crypto assets, and only 6% plan to increase their allocation in the next year. Among the main barriers cited by the respondents were regulatory issues (54%), lack of transparency (47%), volatility (45%), and governance issues (30%).

However, some pension funds have started to explore the crypto space and allocate a small portion of their assets to this emerging asset class. For example, in 2019, two pension funds in Virginia invested in a venture capital fund that focuses on blockchain and crypto-related companies. In 2020, a pension fund in New Zealand invested 5% of its assets in Bitcoin, citing its potential as a store of value in times of crisis. In 2021, a pension fund in Germany announced plans to invest up to 1% of its assets in Bitcoin futures contracts.

These examples show that some pension funds are willing to take on some risk and experiment with crypto investments, as long as they can find reliable and regulated partners that can provide them with the necessary infrastructure and services. Some of these partners include crypto custodians, exchanges, brokers, asset managers, auditors, and consultants that can help pension funds navigate the complex and evolving crypto landscape.

As the crypto industry matures and develops more institutional-grade solutions, more pension funds may join the trend and allocate a small fraction of their portfolios to crypto assets. However, this will likely depend on several factors, such as the regulatory environment, the performance of crypto assets relative to other asset classes, the demand from beneficiaries and stakeholders, and the availability of education and research on crypto investing.

Pension funds stand today on the sidelines of the crypto space, but some are starting to dip their toes into this new asset class. Crypto investments offer both opportunities and challenges for pension funds and require careful due diligence and risk management. As the crypto industry grows and improves its standards and services, more pension funds may consider adding some exposure to crypto assets in their portfolios.

What Nigeria, Africa Can Learn As US Steel Becomes Japanese on Accelerating Destruction and Economic Transformation

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We’re learning that Japan’s Nippon Steel is acquiring US Steel for $14.1 billion after the Pittsburgh-based entity gave up on the heat of steely-fire competition, and put itself up for sale.  This transmutational fading of US Steel is nothing ordinary because of the heritage of this firm.

When you read about the men who built America, this company has a “chapter”.  When the United States overtook the United Kingdom at the end of the 1890s, the Americans wanted a pillar upon which they could scale a virtuoso industrialization vision. Two men – JP Morgan (the banker) and Andrew Carnegie (the industrialist) – decided in 1901 to establish US Steel. The company became a catalyst as America industrialized. Simply, US Steel was a fulcrum of America’s 20th century economic dominance.

When I went to interview at Carnegie Mellon University for a faculty job, the dean took me to a building. He explained how Carnegie designed some campus buildings with a steel roll in mind, just in case if the educational vision fails, he could convert all to a plant. As a faculty, you would see that he created that university in the likeness of his industrialization playbook: tons of technical components. CMU is ranked #1  or #2 in AI, autonomous systems, computer science and computer engineering in US.

By 1917, the largest publicly traded company in the United States was US Steel. It was also the largest company in the world by market cap. Of course, its success began to change its relevance. Yes, fifty years later, in 1967, the largest recorded company in the US was IBM.  Later, it was GE in the early 1980s. Today, we have knowledge companies like Apple and Microsoft running the show.

In all these cases, we can learn of one thing: accelerating destruction. Simply, generations of companies prepare nations for the next phase, and if they succeed, most times, they fade in relevance. When US Steel powered America, its success produced infrastructure companies like IBM  and Intel which then provided automation and computing capabilities for GE across industries. GE organized America in many ways, seeding pillars which enabled modern knowledge firms like Apple and Microsoft to blossom. 

The next generation of largest American companies will feed on the success of Google, Microsoft and Apple. I posit that native and new species of AI companies will rule the markets by 2050.

Bringing it home to Nigeria: Nigeria will not transmute to the next level until companies like Dangote Cement, BUA Foods or new ones (our US Steel) and Glo, MTN  or new ones (our IBM, GE) have done their foundational jobs. Upon their catalytic pillars would Nigeria build a foundation for shared prosperity. But since they have not got the job done, they remain. But if they excel, one day they will fade like US Steel which has done its job and can now retire to Japan!

And by that I mean the old sectors continue to operate, but they do not drive the next conversations. Today, you still need steel companies and the like, but they do not anchor our daily conversations in America because while what they do remain important, they’re not as pioneering as before, to refresh the economy, and set new economic transformational orders. But woo to nations without them, nonetheless. 

Yes, due partly to their market caps and the profit margins, they seem overlooked before market makers, with clear evidence that even though you need them, they cannot be the next big thing as their time has passed. If you doubt that, go and try to acquire Apple (assuming you can do that), and you will see how America will react. But US Steel can go Japanese, and America can live with that reality.

Comment on Feed

Comment 1: I think you may be missing a certain perspective. The companies that are setting the stage for the next set of companies are the banks and the telcos. In the future, banking might not be a service just by itself, it would be as a service, bundled with other services and offered by large non-banking corporations. You might get a similar experience with telcos as well. The companies with the largest market cap at that point will no longer be banks and telcos.

My Response: ” The companies that are setting the stage for the next set of companies are the banks and the telcos” – I do not consider Nigerian banking catalytic because they do not take up big projects like seaports, airports like the American peers do. In my piece, US Steel was co-founded by a banker. Until you can tell me what major project a Nigerian bank has funded in Nigeria (except trade services, import and export), they do not make my analysis. 

So, I do not buy your “The companies that are setting the stage for the next set of companies are the banks and the telcos” because even if a bank has the highest valuation in NGX, it means nothing for Nigeria’s economic transformation, until they start funding catalytic projects.

My response does not mean you cannot be right and myself wrong. But looking at banking today in Nigeria, it is unlikely. A bank funded US Steel (Nigeria’s equivalent is Ajaokuta Steel). Can our banks fund Ajaokuta? The banks have decided how they operate and they have the rights considering our inflation and FX challenges, and there is no path for any bank to fund anything that lasts more than 6 months! If I own a bank, I will not do otherwise in Nigeria!

Protests create an unstable setting for Bangladesh’s General Elections

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Bangladesh is heading to a crucial general election on December 30 amid a tense political atmosphere and widespread allegations of repression and intimidation by the ruling party. The main opposition alliance, led by the Bangladesh Nationalist Party (BNP), has accused the government of cracking down on its activists and supporters, arresting thousands and filing false cases against them. The government has denied the allegations and said it is only enforcing the law and order.

The election is seen as a test of the country’s democracy, which has been marred by violence, corruption and authoritarian tendencies in recent years. The incumbent Prime Minister Sheikh Hasina, who has been in power since 2009, is seeking a third consecutive term. She faces a challenge from Dr. Kamal Hossain, a veteran lawyer and former foreign minister, who is leading the opposition coalition called the Jatiya Oikya Front (National Unity Front).

The opposition has demanded a level playing field for the election, including a neutral caretaker government, a reformed election commission and an end to the digital security act, which critics say curbs freedom of expression and dissent. The government has rejected these demands and said the election will be free and fair under the existing constitutional framework.

The election campaign has been marked by clashes between rival supporters, attacks on opposition candidates and workers, and allegations of vote rigging and manipulation. The opposition has also expressed concern over the role of the military, which has been deployed across the country to maintain law and order. The government has said the military is only assisting the civil administration and will not interfere in the electoral process.

One of the most contentious issues in the 2018 Bangladesh election was the role and influence of the military. The ruling party, the Awami League, claimed that the deployment of army personnel across the country would boost the confidence of voters and ensure a peaceful and fair election.

However, the main opposition party, the Bangladesh Nationalist Party, accused the government of using the army to intimidate and harass its supporters and candidates. The army was also accused of being biased in favor of the Awami League and of interfering in the electoral process. The army deployment lasted for 13 days, from December 29, 2018, to January 10, 2019.

According to some reports, at least 12 people were killed in election-related violence, despite the presence of security forces. The role of the military in Bangladesh’s politics has been a source of controversy and instability for decades, as the country has experienced several military coups and periods of martial law since its independence in 1971. The 2018 election raised questions about the extent of civilian control over the military and the prospects for democratic consolidation in Bangladesh.

The 2023 election comes at a time when Bangladesh is facing several challenges, such as the Rohingya refugee crisis, the economic impact of the Covid-19 pandemic, and the growing threat of Islamist extremism. The outcome of the election will have significant implications for the country’s stability, development and regional relations.

The role of the military in Bangladesh’s politics has been a source of controversy and instability for decades, as the country has witnessed several military coups and periods of martial law since its independence in 1971. The 2018 election raised questions about the extent of civilian control over the military and the prospects for democratic consolidation in Bangladesh.

The implications of the military’s role in the 2018 election were manifold. On one hand, it could be seen as a positive sign that the military did not intervene directly or overtly to overthrow or undermine the elected government, as it had done in the past.

This could indicate a degree of respect for constitutional norms and democratic institutions, and a recognition of the legitimacy and popularity of the Awami League. On the other hand, it could also be seen as a negative sign that the military still wielded considerable power and influence over the political process, and that it acted as a de facto ally of the ruling party, rather than a neutral arbiter.

This could undermine the credibility and fairness of the election and erode public trust and confidence in the democratic system. Moreover, it could create resentment and frustration among the opposition and its supporters, and fuel political polarization and violence. The military’s role in the 2018 election could also have implications for Bangladesh’s development and security.

On one hand, it could contribute to maintaining stability and order in a volatile and complex region, and to supporting the government’s efforts to achieve economic growth and social progress. On the other hand, it could also hamper the development of a vibrant and pluralistic civil society and limit the space for dissent and dialogue among different political actors.

Furthermore, it could also pose challenges for Bangladesh’s relations with its neighbors and allies, especially India and the United States, who have expressed concerns about the state of democracy and human rights in Bangladesh.

As the year comes to an end, Bangladesh faces a critical moment in its history. The country will hold a general election on December 30, which could determine its future direction and stability. However, the election campaign has been marred by violence, arrests, and allegations of repression and intimidation by the ruling party.

US SEC is taking ‘new look’ at Spot Bitcoin ETF proposals – Gary Gensler

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The US Securities and Exchange Commission (SEC) is reconsidering its stance on spot bitcoin exchange-traded funds (ETFs), according to its chair Gary Gensler. In a recent interview with Bloomberg, Gensler said that the SEC is taking a “new look” at the proposals for spot bitcoin ETFs, which would track the price of the cryptocurrency directly, rather than through futures contracts or other derivatives.

Gensler’s comments suggest that the SEC may be more open to approving spot bitcoin ETFs, which have been repeatedly rejected by the regulator in the past due to concerns over market manipulation, fraud, and lack of transparency. The SEC has only approved bitcoin futures ETFs so far, which are based on contracts traded on regulated exchanges such as the Chicago Mercantile Exchange (CME).

But what is the difference between spot bitcoin ETFs and futures bitcoin ETFs? A spot bitcoin ETF would allow investors to buy and sell shares that represent the actual bitcoin held by the fund, while a futures bitcoin ETF would allow investors to buy and sell shares that represent contracts that bet on the future price of bitcoin. A spot bitcoin ETF would reflect the current market price of bitcoin, while a futures bitcoin ETF would reflect the expected future price of bitcoin.

Spot bitcoin ETFs are seen as a more convenient and cost-effective way for investors to gain exposure to bitcoin, without having to deal with the technical and security challenges of buying and storing the cryptocurrency directly. However, spot bitcoin ETFs also face more regulatory hurdles and risks, as they would require the SEC to approve the underlying bitcoin market, which is largely unregulated and prone to manipulation, fraud, and hacking.

However, Gensler also cautioned that the SEC still has high standards for any spot bitcoin ETFs that seek its approval. He said that the SEC would need to see robust oversight and surveillance of the underlying bitcoin market, as well as adequate investor protection and disclosure. He also said that the SEC would consider the environmental impact of bitcoin mining, which consumes a large amount of energy and generates greenhouse gas emissions.

Gensler’s remarks come amid growing demand and interest for spot bitcoin ETFs from investors and industry players. Several firms, including Fidelity, VanEck, and Valkyrie, have filed applications for spot bitcoin ETFs with the SEC, hoping to tap into the growing popularity and adoption of the cryptocurrency.

Spot bitcoin ETFs are seen as a more convenient and cost-effective way for investors to gain exposure to bitcoin, without having to deal with the technical and security challenges of buying and storing the cryptocurrency directly.

The SEC has not yet made a decision on any of the pending spot bitcoin ETF applications, but it is expected to do so in the coming months. The SEC has set a deadline of February 14, 2024, to approve or deny VanEck’s spot bitcoin ETF proposal, which was filed in March 2023.

The SEC has also extended its review period for Fidelity’s spot bitcoin ETF proposal, which was filed in May 2023, until January 26, 2024. The SEC has not yet announced a timeline for Valkyrie’s spot bitcoin ETF proposal, which was filed in July 2023.

DTCC closes deal to Buy Securrency Amid Fresh Venture Funds for BTC/ETH based projects

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The Depository Trust & Clearing Corporation (DTCC), a leading provider of post-trade infrastructure and services, announced today that it has completed the acquisition of Securrency, a blockchain-based fintech company that offers a suite of tools for digital asset issuance, compliance, and trading.

The deal, which was first announced in October 2023, marks a significant milestone for the integration of traditional finance and crypto markets, as DTCC aims to leverage Securrency’s technology to enhance its existing offerings and create new solutions for its clients.

Securrency is known for its patented Compliance Aware Token (CAT) framework, which enables the creation of smart securities that can automatically enforce regulatory rules and contractual obligations across different jurisdictions and platforms. Securrency also offers a decentralized exchange (DEX) platform that allows users to trade digital assets with low latency, high liquidity, and minimal fees.

By acquiring Securrency, DTCC hopes to expand its capabilities in the digital asset space and offer more value-added services to its customers, such as tokenization, custody, settlement, and reporting. DTCC also plans to collaborate with Securrency to develop new products and standards for the emerging crypto industry, such as interoperability protocols, identity solutions, and governance models.

“Securrency is a pioneer in the digital asset space, and we are thrilled to welcome them to the DTCC family. This acquisition will enable us to accelerate our innovation agenda and deliver cutting-edge solutions that meet the evolving needs of our clients and the market,” said Michael Bodson, President and CEO of DTCC.

“DTCC is a trusted leader in the global financial system, and we are honored to join forces with them. Together, we will leverage our complementary strengths and expertise to create a more efficient, secure, and inclusive financial ecosystem for the benefit of all stakeholders,” said Dan Doney, Co-Founder and CEO of Securrency.

DTCC’s clients include banks, broker-dealers, asset managers, mutual funds, hedge funds, insurance companies, and other financial institutions that participate in the U.S. and global capital markets. DTCC processes over $2 quadrillion worth of securities transactions annually and provides clearing, settlement, risk management, and data services for various asset classes.

Bitcoin, Ethereum-based projects see fresh venture Funds.

In this week’s funding wrap, we take a look at some of the latest investments in the crypto space, focusing on Bitcoin and Ethereum-based projects. These projects aim to provide innovative solutions for various use cases, such as decentralized finance, gaming, identity, and scalability.

Chainflip, a cross-chain liquidity protocol that enables fast and secure swaps between any blockchain, raised $6 million in a seed round led by Framework Ventures and ParaFi Capital. Other investors include CoinFund, Delphi Digital, Maven 11, and KR1. Chainflip plans to launch its mainnet in Q1 2024 and integrate with Bitcoin, Ethereum, Polkadot, Cosmos, and Avalanche.

Immutable, a layer-2 scaling solution for Ethereum-based NFTs and gaming, raised $60 million in a Series B round led by BITKRAFT Ventures and King River Capital. Other investors include Prosus Ventures, Galaxy Interactive, Fabric Ventures, Alameda Research, and AirTree Ventures. Immutable claims to offer zero gas fees, instant trades, and carbon neutral NFTs.

Magic, a passwordless authentication platform that leverages blockchain technology and decentralized identity standards, raised $27 million in a Series A round led by Northzone. Other investors include Tiger Global, Volt Capital, CoinFund, Digital Currency Group, and Placeholder. Magic aims to provide a seamless and secure login experience for web3 and web2 applications.

StarkWare, a scalability and privacy solution for Ethereum using zero-knowledge proofs, raised $50 million in a Series B round led by Sequoia Capital. Other investors include Paradigm, Founders Fund, Wing Venture Capital, DCVC, Scalar Capital, and Semantic Ventures. StarkWare powers several projects in the DeFi space, such as dYdX, Immutable X, and DeversiFi.

Wintermute, a crypto market maker that provides liquidity for spot and derivatives exchanges, raised $20 million in a Series B round led by Lightspeed Venture Partners. Other investors include Pantera Capital, Sino Global Capital, Kenetic Capital, Rockaway Blockchain Fund, and Hack VC. Wintermute plans to expand its team and product offerings, as well as explore new markets and regions.