| | | | | | | Presented By NetJets | | | | Axios Markets | | By Sam Ro ·Aug 11, 2021 | | Today's newsletter is 1,319 words, 5 minutes. 💸 of the day: $462 billion, the trading volume on Coinbase in Q2. | | | | | | 1 big thing: Crypto's next chapter |  | | | Illustration: Shoshana Gordon/Axios | | | | Bitcoin is becoming part of the dollar-based financial system it once sought to displace, Axios Capital author Felix Salmon writes. Why it matters: Cryptocurrency is beloved by people who want to transact outside the reach of any government. But it's gotten mainstream enough that politicians and regulators want to co-opt it and bring it squarely within their own fields of influence — even using it to help pay for an infrastructure bill. The big picture: As crypto assets have grown to be worth well over $1 trillion, investors and financiers have increasingly wanted to get involved in the space — without taking any kind of legal risk. - They've been aggressively pushing for regulatory clarity, and often see their expensive compliance departments as a comparative advantage, differentiating them from the early true believers.
- Regulation, however, would defeat much of the original purpose behind the desire to create a cryptocurrency in the first place — the dream of being able to create a store of value that's untouched by government interference.
Context: When bitcoin first arrived on the scene, there was a chance governments would crush it, prosecuting anyone who used it. - Bitcoiners dreamed instead that it would thrive under the benign neglect of the government. While egregious fraud might be prosecuted, they mostly just wanted to be left alone.
- They got their way, in some form or another, for many years. But those days are coming to an end, and we're now clearly at the beginning of the end of cryptocurrency as an anarcho-libertarian Utopia.
- Cryptocurrency's future may be an integral part of the existing financial system, regulated just as much as any other financial product.
Driving the news: SEC chair Gary Gensler — who previously taught a course on cryptocurrencies at MIT — gave an important speech last week laying out a maximalist vision for the degree to which his agency can and should regulate the asset class. How it works: A more regulated system would help solve problems like the difficulty of buying a home using the proceeds of crypto sales, or customers of NBA TopShot being unable to transfer their money to banks including JPMorgan and Wells Fargo. The bottom line: The majority of crypto activity continues to take place outside the U.S., often in unregulated (and very risky) venues. But when the U.S. wants to regulate global financial activity, it generally finds it very easy to do so. Go deeper |     | | | | | | 2. Catch up quick | | Senate Democrats passed their $3.5 trillion budget resolution. (Axios) Coinbase profits surged as the cryptocurrency exchange benefited from volatile trading. (CNBC) Electric vehicle startup Rivian Automotive is in talks to invest $5 billion to build a factory in Texas. (Bloomberg) | | | | | | | | 3. Another earnings season record |  FactSet; Chart: Axios Visuals America's biggest companies have achieved record-high profit margins despite rising input costs. Why it matters: Raw materials inflation and wage hikes have had almost no noticeable effect on corporate earnings. Still, analysts warn it may just be a matter of time before those costs catch up with margins. By the numbers: S&P 500 companies are reporting an average net profit margin — net income as a percentage of revenue — of 13.0% in the second quarter, according to data compiled by FactSet through Friday. - This is the highest profit margin since FactSet began tracking the metric in 2008.
What they're saying: "Despite some rising costs, for many companies, margins are up because pandemic-related cost savings are being reflected on financial statements before things like wage inflation," Saira Malik, Nuveen CIO of global equities, tells Axios. - In other words, companies are doing more with a lot less. This is called operating leverage, a phenomenon where expenses aren't rising hand in hand with sales.
- They're also passing some of those costs to their customers as they've enjoyed "ample pricing power," notes Lori Calvasina, RBC Capital Markets head of U.S. equity strategy.
What to watch: These rising costs are expected to catch up to some companies. - "For many companies, the benefit of cost cuts during the pandemic are currently reflected on financial statements while inflation — wage inflation being a big component — will have a lagged effect on company financials," Malik says.
Go deeper | | | | | | | | A message from NetJets | | Guaranteed access to your favorite destinations | | |  | | | | NetJets owns and operates the largest, most diverse fleet of private jets in the world. With access to 760+ aircraft reaching 5,000+ airports across the world, safe and reliable travel has never been easier. Find the perfect aircraft for you. | | | | | | 4. One-on-one with MoneyGram CEO Alex Holmes |  | | | Alex Holmes; Photo: MoneyGram | | | | "Nothing ever reverts back to the mean, it just continues to progress forward. [Pandemic] shifts are becoming permanent." The pandemic's acceleration of all things digital could not be more clear to MoneyGram CEO Alex Holmes, Axios' Kate Marino writes. - Holmes oversees a global money transfer business that operates in 200 countries. The company's digital transactions skyrocketed 44% year over year in Q2 2021, on top of what it described as "astounding" 106% digital transaction growth in Q2 2020.
Of note: Even older folks are adapting to digital more quickly than Holmes expected. What he's saying: "The pandemic has definitely unlocked and really pushed the thinking on innovation, and it's really forcing this permanent shift around consumer behavior. Whereas before, I think people were kind of moving in and out [of using digital services], now I think they're really shifting forward," he says. - Consumers didn't want to touch germ-ridden cash, demanded convenient, simpler noncash solutions, and companies complied.
Between the lines: Part of digital expansion means getting comfortable with cryptocurrency, and all the regulatory compliance that crypto services entail. Holmes says it's as simple — or as complicated — as applying the same identity, data collection and anti-money laundering standards that MoneyGram already employs for transactions in other currencies. Details: MoneyGram has partnered with Coinme to allow customers to load cash into, or out of, bitcoin wallets using MoneyGram's mobile payments platform. - "We try not to hold crypto on our balance sheet, we try not to be long investors in crypto," Holmes says.
State of play: "We've been so proactive with regulators. You have to stay in front of regulation, you have to participate in regulation, you have to comply with regulation." - "What's been fascinating is that we've had more trouble working with some of our partners in the retail space, around their willingness to participate in [crypto-related services] than we've seen pushback from banks" or regulators, he adds.
- "So many storefronts ... don't want any part of it, because of the perceived regulation challenge," he says.
The bottom line: "Pushing the envelope around how money moves across borders, and how can we use cryptocurrency and blockchain to accelerate that and make it cheaper, faster, better ... is really exciting." | | | | |  | | | | If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. | | | | | | | | 5. The €180 billion of negative-yielding debt from U.S. companies |  | | | Illustration: Sarah Grillo/Axios | | | | Investors are getting negative yields on €180 billion worth of bonds issued by dozens of America's largest corporations, including some that are junk-rated, Felix writes. Why it matters: The European Central Bank has lowered interest rates so far into negative territory that investors can get a significant pick-up in yield even when buying at negative yields. There's speculative value to these bonds too — once they've broken the zero bound, yields can always fall further, meaning a bond bought at a negative yield can still be sold at a profit. How it works: Many American companies issue what's known as reverse-Yankee bonds — where they borrow in euros rather than dollars. AT&T has €13.6 billion ($16 billion) of such bonds trading at negative yields, with companies such as IBM, Apple and Procter & Gamble not far behind, according to S&P Global Ratings. By the numbers: Apple's €1.4 billion bond maturing next year trades at 101.89, for a yield of -0.5%. Its 2029 euro-denominated bond trades at -0.03%. GE, which carries a credit rating of BBB+, has a bond trading at -0.21%. - Colfax Corp., a junk-rated manufacturer of medical devices with a rating of BB, has a negative-yielding €350 million bond due in 2025.
- Between the lines: Negative yields are also found on some bonds issued by American companies in Swiss francs.
The bottom line: Very few U.S. companies actually try to issue bonds at negative yields. In euros, it's only happened once, from Colgate-Palmolive in 2019. Once debt starts trading, however, it regularly gets bid up to levels above the total amount of principal and interest outstanding. | | | | | | | | A message from NetJets | | Connecting you to what matters most | | |  | | | | No lengthy layovers, security screenings, and baggage claim. Continue your workday in-flight, visit multiple destinations in one day — and still get home in time for dinner. Here's how: NetJets will get you there. Learn more about the benefits of NetJets. | | |  | | It'll help you deliver employee communications more effectively. | | | | | | Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here.
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