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By Steven Scheer

JERUSALEM (Reuters) – Israel’s central bank said on Thursday it was teaming up with the Hong Kong Monetary Authority and the Bank of International Settlements’ (BIS) Innovation Lab to test the feasibility of a central bank digital currency (CBDC) for retail.

The test will be cyber-security secured and in the proposed model, the intermediaries will have no financial exposure from customers holding or transferring CBDC, resulting in reduced risk and costs, the Bank of Israel said.

The so-called Sela project, led by the BIS Innovation Hub’s Hong Kong centre, is planned to begin in the third quarter and findings will be published by the end of the year.

The Bank of Israel has stepped up its research and preparation for the possible issuance of a digital shekel to create a more efficient payments system after first considering issuing a CBDC in late 2017.

“Providing an efficient payment system that will increase competition in the payment market is one of the primary motivations we’ve identified for a possible issuance of a digital shekel – an Israeli CBDC,” Bank of Israel Deputy Governor Andrew Abir said in a statement.

Last month, the bank said that while it had received public support, it had yet to make a final decision on issuing a digital shekel.

The joint project will explore the feasibility of a two-tiered architecture where there is no financial exposure of the intermediaries involved in the transaction, unlike traditional ways of central bank funds being provided to the public via commercial banks.

“This architecture is assumed to have several benefits: less financial risk for the customer, more liquidity, lower costs, increased competition, and wider access,” the Bank of Israel said.

(Reporting by Steven Scheer; Editing by Robert Birsel)

(Reuters) – Russia’s inflation rate may come in close to 14% in 2022, the central bank governor said on Thursday.

Elvira Nabiullina said the pace of price rises, which surged in March following the imposition of Western sanctions, had fallen faster than the central bank’s initial expectations.

Speaking at Russia’s flagship annual economic forum in St. Petersburg, she added that Russia’s economic contraction for 2022 would also be softer than initially feared.

(Reporting by Reuters; Editing by Frank Jack Daniel)

(Reuters) – Cryptocurrency exchange Binance has opened 2,000 positions for hiring, Chief Executive Officer Changpeng Zhao said on Wednesday, a sharp contrast to a slew of job cuts by companies operating in the digital currency space.

“It was not easy saying no to Super bowl ads, stadium naming rights, large sponsor deals a few months ago, but we did. Today, we are hiring for 2000 open positions for #Binance,” Zhao said in a tweet to his 6.4 million followers on the social media app.

Binance did not immediately respond to Reuters request for additional details on the new jobs.

The move by Binance comes amid extreme volatility in the cryptocurrency market as investors are dumping risky assets over fears that soaring inflation would force the U.S. Federal Reserve to aggressively raise interest rates and tip the economy into a recession.

Cryptocurrency exchange Coinbase Global Inc said on Tuesday it would cut about 1,100 jobs, or 18% of its workforce, the latest company preparing to ride out a downturn in the cryptosphere.

BlockFi and Crypto.com have also slashed hundreds of jobs, while Meta Platforms and Intel Corp also tapped the brakes on hiring.

Bitcoin tumbled on Wednesday to a new 18-month low, dragging smaller tokens down with it and spurring a sharp fall in the digital currency market sparked by crypto lender Celsius freezing customer withdrawals.

(Reporting by Mehnaz Yasmin and Noor Zainab Hussain in Bengaluru; Editing by Amy Caren Daniel)

(Reuters) – Short sellers of crypto stocks have clocked about 126% in mark-to-market gains this year, far outpacing those from other sectors, according to financial and analytics firm S3 Partners, amid a risk-off sentiment in the broader equities market.

The downturn in the world’s largest cryptocurrency, bitcoin, which has fallen to $21,229 from its record high of $69,000 hit in November, and other key players such as cryptocurrency exchange operator Coinbase Global has set the stage for what is being termed as the “crypto winter”.

Short sellers, who bet on a stock’s decline, have an average short interest of $3 billion on the sector, according to S3.

In comparison, short sellers’ gains in software and services as well as media and entertainment were at about 50% and 46% so far in 2022.

Shares in Coinbase and software developer Microstrategy Inc have dropped 78.6% and 69% so far this year. Short interest as a percentage of the company’s float stood at 15% for Coinbase and 27.5% for Microstrategy, according to S3.

“Shorting crypto stocks may continue to be a profitable trade,” said S3 Partners’ Ihor Dusaniwsky and Matthew Unterman. “Short sellers should not be blamed for near term downward price moves, but they may be an active participant in future rallies.”

There has been $71 million worth of new short selling in crypto stocks so far this month, according to S3 Partners.

(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Vinay Dwivedi)

By John O’Donnell, Huw Jones and Marc Jones

LONDON (Reuters) – A markets sell-off has brought back memories of the euro zone debt crisis more than a decade ago, highlighting divisions that have plagued the currency bloc’s efforts to forge a closer bond.

While the years since the debt crisis have seen the 19 countries in Europe’s euro area centralise and toughen bank controls, many planned economic reforms in Italy and elsewhere were watered down as vast money printing buoyed the economy.

Spurred by fears higher borrowing costs will choke economic growth, the markets rout has exposed cracks in the uneasy alliance which – unlike the United States – is held together largely by the central bank rather than a government with power to tax and spend.

Two events this week expose the fragility of the union: the ECB’s efforts to restore confidence in weaker states facing surging borrowing costs as its debt-buying programme ends, and ministers’ decade-long failure to put the bloc’s savers on a solid footing.

After a rare emergency meeting on Wednesday, the ECB promised fresh measures to temper the market selloff but the lack of a concrete plan to help debt-laden countries like Italy and Greece disappointed some.

This was in sharp contrast to 2012, when then ECB president Mario Draghi tackled a crisis of confidence in the currency’s future with a pledge to do “whatever it takes”, followed by a vast programme of money printing.

Now, however, rocketing prices, triggered by that money printing, as well as soaring energy costs in the wake of Russia’s invasion of Ukraine and pandemic lockdowns in China, makes this feat difficult to repeat.

“It was easy to do whatever it takes when inflation was low,” said Guntram Wolff of think-tank Bruegel, adding that rising prices would push the ECB to reverse course.

“The emergency meeting created a lot of expectations that the ECB cannot ultimately meet,” he said. “Only governments can address the real economic divergence and incomplete set up of the euro zone.”

GRAPHIC: ECB interest rates and balance sheet (https://fingfx.thomsonreuters.com/gfx/mkt/egvbkwrngpq/Pasted%20image%201654781200997.png)

French Finance Minister Bruno Le Maire cautioned against a fragmentation of the bloc, the type of public warning once common but that largely disappeared since vast money printing eased the debt crisis.

Speaking to students in London, Lagarde gave no further clues as to how ECB action could look, talking instead about climate change and the impact of war on global grain supplies.

‘GONE BACKWARDS’

The divisions in the euro zone are likely to come to the fore at a ministers’ meeting later on Thursday to discuss a deadlocked plan to reinforce the bloc’s financial system.

A central pillar of financial crisis reform, the so-called banking union remains mired in debate, with the critical question of region-wide protection of deposits still unresolved.

“We have gone backwards rather than forwards,” said Karel Lannoo of the Centre for European Policy Studies.

“If there is a bank failure, it will be the same as 2008,” he said, adding that individual states rather than the wider bloc would be left to shoulder the burden. “The Draghi period is over.”

The ministers are expected to further delay plans for the single safety net for the bank deposits, long opposed by Germany which did not want to be on the hook for problems elsewhere, prolonging the decade-long push to unify the sector to better withstand crises.

Thomas Huertas, a former alternate chair of the EU’s banking watchdog and now at the Leibniz Institute, said the absence of such a safety net put European banks at a disadvantage to American rivals.

“It is one of those benefits that the person can see and recognise. It’s an important element not only for finance, but I think also of the Union itself,” he added, commenting on the need for cross-border saver protection.

That lack of progress with a banking union, in turn, has weighed on the stocks of Europe’s banks, which have been trailing their U.S. rivals for years.

The ministers’ debate takes place against the backdrop of a rise in Italy’s borrowing costs, exacerbated by the ECB’s plans to raise interest rates and wind down its debt-buying to temper rising prices. Spanish, Portuguese and Greek bonds are under similar pressure.

GRAPHIC: Euro zone yields (https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnxnmwpq/Pasted%20image%201655281213512.png)

How Europe responds is being closely watched by bankers and investors.

“So much of what we do is a confidence game,” said Vis Raghavan, CEO of EMEA and Co-Head of Global Investment Banking at JPMorgan. “A lot of what we are seeing is about confidence in policy and achieving an orderly route out of stagflation.”

But with the ECB running out of road to keep investors happy, the ball is back in the court of politicians to act.

“While the ECB could keep markets happy with a bazooka, it’s getting harder to do this in a time when it has to fight inflation,” said Carsten Brzeski, an economist with Dutch bank ING.

“That leaves it up to the governments to finally get their act together in finding a proper union.”

(Writing By John O’Donnell; additional reporting by Leigh Thomas in Paris and Sinead Cruise in London; editing by Emelia Sithole-Matarise)

By Tom Wilson, Gertrude Chavez-Dreyfuss and Hannah Lang

LONDON/NEW YORK (Reuters) – Bitcoin recovered on Wednesday after diving to an 18-month low, buoyed by the U.S. Federal Reserve’s tough stance on inflation even in the midst of a market meltdown this week after crypto lender Celsius froze customer withdrawals.

The world’s largest cryptocurrency fell as much as 7.8% to $20,079.72, its lowest since December 2020. It has lost about 33% against the U.S. dollar since Friday, dropping more than 50% since the beginning of the year. It has slumped about 70% from its record high of $69,000 in November.

Bitcoin was last down 1.31% at $21,669.37.

The digital currency sector has been pummelled this week after Celsius froze withdrawals and transfers between accounts, stoking fears of contagion in markets shaken by the demise of the terraUSD and luna tokens last month.

Cryptocurrencies were buoyed as the S&P 500 rallied after a policy announcement by the Fed to raise interest rates, snapping a five-session losing skid.

The Fed raised its target interest rate by three-quarters of a percentage point, its biggest rate hike since 1994.

Crypto funds saw outflows of $102 million last week, according to digital asset manager CoinShares, citing investors’ anticipation of tighter central bank policy.

The value of the global crypto market has tumbled 70% to under $900 billion from a peak of $2.97 trillion in November, CoinMarketCap data shows.

Graphic: Bitcoin so far in 2022 – https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwbwqapo/Bitcoin%20so%20far%20in%202022.png

“Some parts of the broader crypto ecosystem are facing a rather harsh reckoning,” said Mikkel Morch, executive director at digital asset hedge fund ARK36. “As the reality of the bear market starts to settle in, the hidden leverages and structural weaknesses of projects that only worked when the prices went up are finally brought to light.”

Celsius has hired restructuring lawyers and is looking for possible financing options from investors, the Wall Street Journal reported, citing people familiar with the matter. Celsius is also exploring strategic alternatives including a financial restructuring, it said.

Smaller cryptocurrencies, which tend to move in tandem with bitcoin, also fell. Ether, the second largest token, fell to as low $1,013, the lowest since January 2021, and was last down 1.22% at $1,172.76.

The chaos in the crypto market has spread to other companies, with a number of exchanges slashing workforces.

Major U.S. exchange Coinbase Global Inc said on Tuesday it would cut about 1,100 jobs, or 18% of its workforce. Gemini, another U.S. exchange, said this month it would cut 10% of its workforce.

Still, others continue to hire. Binance, the world’s largest exchange, said it was hiring for 2,000 positions, and U.S. exchange Kraken said it had 500 roles to fill.

“Hunker down,” tweeted Binance CEO Changpeng Zhao.

Crypto hedge fund Three Arrows, facing social media chatter it is facing liquidation issues, said it was committed to working things out.

U.S. crypto broker Genesis also sought to ease investor concerns, saying its balance sheet was strong and its lending business continued to meet client demand despite elevated market volatility.

(Reporting by Tom Wilson in London, Gertrude Chavez-Dreyfuss in New York and Hannah Lang in Washington; Additional reporting by Alun John in Hong Kong; Editing by Jason Neely, Mark Potter and David Gregorio)

SINGAPORE (Reuters) – Software firm MicroStrategy said it has not received a margin call against its bitcoin-backed borrowing on Wednesday, and it has plenty of extra collateral to pledge if necessary.

MicroStrategy borrowed $205 million from crypto bank Silvergate Capital in March, mostly secured against bitcoin. On Tuesday bitcoin’s price briefly dropped below a level company officers had said could trigger extra capital requirements.

“MicroStrategy has not received a ‘margin call’ against our Silvergate loan even as bitcoin prices have fluctuated recently,” the company said in an emailed statement.

“We can always contribute additional bitcoins to maintain the required loan-to-value ratio … even at current prices, we continue to maintain more than sufficient additional unpledged bitcoins to meet our requirements under the loan agreement.”

(Reporting by Tom Westbrook; Editing by Jacqueline Wong)

(Reuters) – Crypto lender Celsius Network LLC has hired restructuring attorneys from law firm Akin Gump Strauss Hauer & Feld LLP to advise on possible solutions for its mounting financial problems, the Wall Street Journal reported https://on.wsj.com/3zDL82U on Tuesday.

Celsius is first looking for possible financing options from investors, but is also exploring other strategic alternatives, including a financial restructuring, the newspaper said, citing people familiar with the matter.

Celsius Network and Akin Gump did not immediately respond to Reuters’ requests for comment.

The crypto lender said on Sunday it was pausing all swaps, transfers and withdrawals between accounts due to extreme market conditions.

The Celsius move triggered a slide across cryptocurrencies, with their value dropping below $1 trillion on Monday for the first time since January 2021.

As of May 17, Celsius had $11.8 billion in assets, its website showed, down by more than half from October, and had processed a total of $8.2 billion worth of loans.

Rival crypto lender Nexo said on Monday it had offered to buy Celsius’ outstanding assets.

(Reporting by Mrinmay Dey in Bengaluru; Editing by Subhranshu Sahu)

By John McCrank

NEW YORK (Reuters) – The Financial Industry Regulatory Authority plans to increase its resources to understand and monitor cryptocurrencies as more of the Wall Street watchdog’s members trade digital assets, Chief Executive Officer Robert Cook said on Tuesday.

“We are already having to be engaged in the space and we think that as a result it’s appropriate for us to bulk up our capabilities there,” Cook said at a trading industry conference.

FINRA has several dozen members that have been approved to trade digital asset securities, as well as members who allow customers to access crypto products, and members with registered representatives who have outside business activities around crypto, Cook said.

The regulator is also developing digital asset verification techniques and is looking at whether it can do cross market surveillance on various blockchains, he said.

Cryptocurrencies prices have dropped sharply in recent weeks, with bitcoin hitting an 18-month low on Tuesday after major crypto lender Celsius Network froze withdrawals and the prospect of sharp U.S. interest rate rises shook the volatile asset class.

Crypto exchange Coinbase Global Inc said on Tuesday it will cut about 1,100 jobs, or 18% of its workforce to ride out the downturn in the cryptosphere. Companies like BlockFi and Crypto.com have also slashed hundreds of jobs, while top firms including Meta Platforms and Intel Corp have tapped the brakes on hiring.

While federal agencies jockey for position to be the primary regulator for digital assets, regardless of the outcome, FINRA will most likely have a role to play, Cook said.

“We’re going to need to be engaged and prepared to have the resources to do that, so anybody who is getting laid off from a crypto platform and wants to work for FINRA, give me a call,” he said.

(Reporting by John McCrank; Editing by Chizu Nomiyama and David Gregorio)

By Tom Westbrook

(Reuters) – MicroStrategy CEO Michael Saylor said on Tuesday the software firm was capable of withstanding volatility in bitcoin prices after the token slumped to levels that triggered fears of possible liquidation on its leveraged position.

MictroStrategy, an aggressive investor in bitcoin, said it borrowed $205 million from crypto bank Silvergate Capital in March, with the three-year loan mostly secured against some 19,466 bitcoins.

If the bitcoin price dropped below about $21,000, it would trigger a “margin call” or demand for extra capital, MicroStrategy President Phong Le said in webcast in May.

Bitcoin fell below that level to $20,816.36 on Tuesday before steadying near $22,000. Typically a margin call is met by providing more capital or liquidating the loan’s collateral.

It was unclear if the price moves had any consequences for MicroStrategy, or if the firm already provided more bitcoin or cash to secure the loan. The company did not respond to requests for comment.

MicroStrategy had “anticipated volatility and structured its balance sheet so that it could continue to #HODL through adversity,” Chief Executive Officer Saylor said in a tweet on Tuesday.

A spokesperson for Silvergate declined requests from Reuters for comment.

MicroStrategy shares rose 6% and Silvergate gained 3% on Tuesday, following 25% and 17% tumble on Monday in line with a pullback in crypto assets.

MicroStrategy’s Le said in May that the firm had 95,643 “unencumbered bitcoin” that it could use as extra collateral. Based on bitcoin’s last traded price of $22,254, the value of those coins was $2.1 billion.

“We could contribute more bitcoin to the collateral package, so … we don’t get into a situation of a margin call,” he had said.

Mark Palmer, head of digital asset research at BTIG, downplayed the risk of a margin call forcing MicroStrategy to trim its holdings. “We see no circumstance in which MicroStrategy is going to need to sell any of its bitcoin holdings,” he said.

(Reporting by Tom Westbrook in Singapore and Medha Singh in Bengaluru; Editing by Arun Koyyur and Maju Samuel)

By Tom Wilson, Elizabeth Howcroft and Hannah Lang

LONDON/WASHINGTON (Reuters) – Bitcoin steadied on Tuesday after earlier hitting a new 18-month low, as major crypto lender Celsius Network’s freezing of withdrawals and the prospect of sharp U.S. interest rate rises shook the volatile asset class.

Bitcoin clawed its way to positive territory after much as 7.3% overnight to $20,816, its lowest since Dec. 2020. It was last hovering around $22,470.

The world’s largest cryptocurrency fell 15% on Monday, its sharpest one-day drop since March 2020. It has shed about half its value this year and over 20% since Friday alone. Since its record high of $69,000 in November, it has slumped nearly 70%.

Citing “extreme” market conditions, New Jersey-based Celsius said this week that it had frozen withdrawals and transfers between accounts “to stabilise liquidity and operations while we take steps to preserve and protect assets.”

The move, combined with expectations of sharper U.S. Federal Reserve interest rate hikes after high U.S. inflation data last week, pushed the value of the crypto market under $1 trillion for the first time since January 2021.

Most crypto market-watchers were pessimistic on bitcoin’s immediate prospects.

“With the broader risk sentiment firmly negative the sellers have had it all their own way for a few days,” said Richard Usher at crypto firm BCB Group. “It will take a shift in the overall risk sentiment to turn the price around significantly.”

Bitcoin’s slump is likely to have ramifications for other companies exposed to the crypto market.

On Tuesday, cryptocurrency exchange Coinbase Global Inc said it would slash 18% of its workforce, or about 1,100 jobs, as part of efforts to rein in costs amid volatile market conditions.

U.S. software firm MicroStrategy Inc – a major backer of bitcoin – said last month a drop below $21,000 would trigger a demand for extra capital against a loan secured by some of its bitcoin holdings.

That could see it stake more bitcoin against the loan or trigger the sale of some of its vast holdings. The company did not immediately respond to a request for comment outside business hours.

MicroStrategy and Coinbase both fell more than 5.5% in premarket trading on Tuesday as the decline in bitcoin roiled crypto-related stocks, but were up 8.11% and 0.27% respectively by the afternoon.

No. 2 token ether also recovered somewhat after losing as much as 10% to $1,075, a fresh 15-month low. Ether is down 75% from its record high of $4,869, hit in November.

(Graphic- bitcoin chart: https://fingfx.thomsonreuters.com/gfx/mkt/myvmnrmbapr/bitcoin%20chart.JPG)

‘PANIC’

Celsius, which had around $11.8 billion in assets, offers interest-bearing products to customers who deposit crypto at its platform. It then lends out coins to earn a return.

“The market is now panicking about the impact and contagion if Celsius becomes insolvent,” wrote Singapore fund manager QCP Capital in a note.

Crypto investors were already rattled by the collapse of the TerraUSD and luna tokens in May which were shortly followed by Tether, the world’s largest stablecoin, briefly breaking its 1:1 peg with the dollar.

Celsius’s move to suspend withdrawals has raised fresh questions about regulatory oversight of such crypto-lending platforms.

On Tuesday, U.S. Securities and Exchange Commission chair Gary Gensler told an event that such platforms were operating akin to banks, and questioned how they could offer such large returns.

“I caution the public. If it seems too good to be true, it just may well be,” he added.

(Reporting by Tom Wilson and Elizabeth Howcroft in London, additional reporting by Sujata Rao in London, Alun John in Hong Kong and Katanga Johnson and Hannah Lang in Washington; Editing by Muralikumar Anantharaman, Emelia Sithole-Matarise, Michelle Price, Chizu Nomiyama and Nick Zieminski)

LONDON (Reuters) – El Salvador’s bet on bitcoin was slashed on Tuesday by half as the more than $100 million in the country’s publicly disclosed purchases dropped more than 50% in value.

The 10 purchases announced by President Nayib Bukele via Twitter have a market value of just over $51 million, with the biggest single trade – 420 coins at more than $59,000 per coin – down almost 63%.

Bukele has said on Twitter at least four times that El Salvador has bought a “dip”, a term used by traders to mean they took advantage of a price dislocation that resets for a quick gain.

One of the “dips” Bukele said El Salvador bought was 420 coins for more than $59,000 each in late October, a total of almost $25 million that is now worth $9.5 million.

The government didn’t respond to a request for comment on the value of its bitcoin portfolio.

(Graphic: El Salvador publicly reported bitcoin purchases, balance El Salvador publicly reported bitcoin purchases, balance- https://graphics.reuters.com/ELSALVADOR-BITCOIN/PURCHASES/akpezrzrzvr/chart.png)

The amounts, both the investment and the loss, are only a fraction of the $3.65 billion that the Central America nation held in foreign exchange reserves as of last month, according to credit rating agency DBRS Morningstar.

The country has $7.65 billion in marketable debt outstanding according to Refinitiv data. An $800 million payment is due in January, on a bond that is trading at 73.5 cents on the dollar and yielding 67.6%.

“Bondholders are no wiser on how bond payments will be made,” Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities, said in a note on Tuesday.

“The monthly fiscal data do not yet show an obvious trend shift, with the pace of spending less than revenue growth, but not yet enough to markedly reduce the structural fiscal deficit.”

(Reporting by Rodrigo Campos in London and Nelson Rentería in San Salvador)

MILAN (Reuters) – Swiss bank UBS is working to offer digital services that allow customers to buy real assets, but would advise them to stay away from crypto assets based purely on algorithms, Chief Executive Ralph Hamers said on Tuesday.

“If you would go to any digital application of real assets, like money, we can help you and that is what we’re creating,” he told a student conference on financial education in Milan.

UBS offers clients the “tokenisation” of gold, he said.

“You can buy crypto gold through UBS … in two minutes you have the gold on your App but we make sure we have the gold in our safe.”

However, “if you really want to go into the crypto world where it’s literally only determined through algorithms, that’s not where, at least for the moment, I see a role for us other than advising you not to do it.”

(Reporting by Valentina Za; Editing by Keith Weir)

By Nivedita Balu

(Reuters) – Coinbase Global Inc will cut about 1,100 jobs, or 18% of its workforce, the cryptocurrency exchange said on Tuesday, the latest company preparing to ride out a downturn in the cryptosphere.

The cryptocurrency market has been roiled by extreme volatility as investors dumped risky assets on fears that higher inflation readings would force the U.S. Federal Reserve to turn more aggressive in raising interest rates and tip the economy into a recession.

“We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter, and could last for an extended period,” Chief Executive Officer Brian Armstrong said in a blogpost.

Bitcoin, the world’s largest cryptocurrency, tumbled as much as 14% on Monday after crypto lender Celsius Network froze withdrawals and transfers.

Armstrong said employees would receive an email informing them if they had been affected, without giving further details.

Coinbase had earlier this month said it would extend a hiring freeze and rescind a number of accepted offers to deal with current macroeconomic conditions.

The company’s shares fell about 5% in early trading, set to add to their roughly 80% tumble this year.

The crypto market meltdown has forced companies like BlockFi and Crypto.com to slash hundreds of jobs, while top firms including Meta Platforms and Intel Corp have also tapped the brakes on hiring.

Coinbase had ramped up hiring when the crypto market scaled new highs during the pandemic, growing headcount by nearly four times in just five quarters.

“This level of headcount growth over five quarters was too ambitious, especially given that the company has lived through a crypto winter and knows how regularly volatile this market can be,” KBW analyst Kyle Voigt said in a note to clients on Monday.

Coinbase expects to incur about $40 million to $45 million in total restructuring expenses, largely related to employee severance and other termination benefits.

(Reporting by Nivedita Balu and Chavi Mehta in Bengaluru; Editing by Amy Caren Daniel and Sriraj Kalluvila)

WASHINGTON (Reuters) – U.S. Securities and Exchange Commission (SEC) Gary Gensler said on Tuesday that investors should beware of promised returns from crypto lending platforms and products that seem “too good to be true.”

The Wall Street watchdog’s comments come a day after the world’s largest cryptocurrency fell 15% on Monday, its sharpest one-day drop since March 2020.

“We’ve seen again that lending platforms are operating a little like banks. They’re saying to investors ‘Give us your crypto. We’ll give you a big return 7% or 4.5% return.’ How does somebody offer (such large percentage of returns) in the market today and not give a lot of disclosure?” Gensler said during an industry event.

“I caution the public. If it seems too good to be true, it just may well be too good to be true.”

(Reporting by Katanga Johnson in Washington; Editing by Chizu Nomiyama)

By Huw Jones

LONDON (Reuters) – European Union financial services chief Mairead McGuinness on Tuesday urged the bloc’s lawmakers to agree on bank capital rules to keep the sector resilient as it emerges from the pandemic and markets fragment due to war in Ukraine.

The EU is approving a law to implement capital requirements agreed at the global Basel Committee of banking regulators, but intends to deviate from some of the Basel norms for exposures to residential real estate and unrated companies.

The European Central Bank, which regulates top euro zone lenders, has opposed the deviations, but McGuinness said they would be temporary to give banks time to increase capital levels, if need be, before they comply in full.

“Some say the temporary deviations should not be in or be permanent, and whether we can find a compromise I am not so sure,” she told the European Parliament, which has joint say with EU states on the draft law.

“We need to find a compromise to show the European banking system is strong and fit for the future. We are not shying away from implementation, but are giving our banks time to adjust and I think that is quite legitimate,” McGuinness said.

She also urged parliament’s economic affairs committee to reach a deal with EU states before the end of June on her draft law to regulate crypto markets.

The fall in crypto prices and problems at crypto companies like Celsius Network show the need for rules to protect consumers and keep markets stable, McGuinness said.

The EU is also split over her proposal to ban payment for order flow, or wholesale market makers paying brokers for stock orders, a step the United States is also considering.

A committee member urged McGuinness to go further and ban inducements across financial markets generally.

“When I listen to stakeholders, many of them would say do not ban inducements and perhaps the issue is around visibility and transparency. I am certain the status quo is not the way we should proceed,” McGuinness said.

(Reporting by Huw Jones; editing by Jason Neely)

By Lisa Pauline Mattackal and Medha Singh

(Reuters) – The crypto market’s a hot mess, leaving many investors struggling to turn a buck. Enter the arbitrageurs.

Bitcoin and other cryptocurrencies have either been shackled to ranges or in decline since January, leaving your regular buy-and-hold investor with little option but to sell or to wait for the elusive rally.

One class of seasoned investors is faring better, though: the arbitrageurs, players such as hedge funds who thrive on exploiting price differences between different geographies and exchanges.

“In May when the market collapsed, we made money. We are up 40 basis points for the month,” said Anatoly Crachilov, co-founder and CEO of Nickel Digital Asset Management in London, referring to their arbitrage strategy.

“Arb trading” involves buying an asset in a cheaper venue and simultaneously selling it elsewhere where it’s quoted at a premium, in theory pocketing the difference while being neutral on the asset.

It’s certainly not for everyone, and requires the kind of access to multiple markets and exchanges, and often the algorithms, that only serious players like sophisticated hedge funds can secure to make it a profitable endeavour.

Yet for investors who meet the bar, it’s proving attractive.

Such “market neutral” funds have become the most common strategy among crypto hedge funds, making up nearly a third of all currently active crypto funds, according to PwC’s annual global crypto hedge fund report published last week.

K2 Trading Partners said its high-frequency trading crypto arbitrage fund, which is algorithmically driven, had returned about 1% this year through to the end of May, even as bitcoin slumped 31% in the same period.

Meanwhile Stack Funds’ long/short trading fund with exposure in liquid cryptocurrencies saw its single biggest monthly loss of about 30% in May, while its arbitrage-focused fund shed 0.2%.

YOUR FUNDS FROZEN

While arbitrage has long been a popular strategy in many markets, the young crypto sector lends itself to the approach as it boasts several hundred exchanges across a world with inconsistent regulation, according to participants.

Hugo Xavier, CEO of K2 Trading Partners, said arb trading benefited from a lack of interconnectivity among crypto exchanges: “That’s good because you have different prices and that creates arbitrage opportunities.”

For instance, bitcoin was trading at $27,493 on Coinbase on Monday, versus $28,067 on Bisq. Bitcoin is down 44% this year, and at December 2020 lows.

Yet market watchers also point to the possible pitfalls, including technical snafus on exchanges slowing or freezing-up transactions, potentially robbing arb traders of their edge. Some lightly regulated venues in smaller countries, which offer many good arb opportunities, pose extra risks.

“It’s normal for an exchange go offline,” Xavier added. “Your funds can be frozen for some reason.”

STRESS SITUATIONS

Price discrepancies have typically arisen because of the less experienced retail traders who make up the bulk of crypto trades, particularly in the derivatives market. And, while arbitrage strategies are direction-neutral, they tend to perform better when bullish markets attract more retail participation.

“Of course, you want to have retail traders on the same exchange that you are when you’re doing arbitration because you will have less smart money. When there’s a bullish market, retail volume comes back,” Xavier said.

“If the markets are moving sideways or going down, retail traders cool off. Opportunities are fewer because most of people there are market makers and they are efficient.”

Markus Thielen, chief investment officer at Singapore-based digital asset manager IDEG said that there had been a shift in recent months, with arbitrage opportunities mostly appearing during “market stress situations”.

“So the market structure has fundamentally changed on the arb side,” he said, adding their arb strategy generated returns of 2% in the last eight weeks.

Yet Katryna Hanush, director of business development at London-based crypto market maker Wintermute, said arb trading ultimately had a limited shelf life because inconsistent pricing across different exchanges was bad for investors.

“As more institutional players come into the space, the arb opportunities will be eliminated.”

(Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Vidya Ranganathan and Pravin Char)

SAN SALVADOR (Reuters) – El Salvador’s Finance Minister Alejandro Zelaya on Monday dismissed concerns that a sharp drop in the value of bitcoin could hurt the Central American nation’s fiscal health.

El Salvador last September became the first country to make bitcoin a legal tender, alongside the U.S. dollar, despite criticism by the International Monetary Fund and credit agencies.

“When they tell me that the fiscal risk for El Salvador because of Bitcoin is really high, the only thing I can do is smile,” Zelaya said at a press conference. “The fiscal risk is extremely minimal.”

Since last September, El Salvador’s government has purchased 2,301 units of the cryptocurrency, which fell on Monday to its lowest value since 2020.

Zelaya cited an earlier estimate from Deutsche Welles that the country’s bitcoin portfolio had lost some $40 million in value.

“Forty million dollars does not even represent 0.5% of our national general budget,” he said.

Bitcoin’s value has dropped some 50% since it became legal tender in the country.

(Reporting by Nelson Renteria; Writing by Brendan O’Boyle; Editing by Richard Pullin)

(Reuters) – Bitcoin dropped 12.1% to $23,366 at 2002 GMT on Monday, losing $3,218.95 from its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is down 51.6% from the year’s high of $48,234 on March 28.

Ether, the coin linked to the ethereum blockchain network, dropped 13.62 % to $1,237.72 on Monday, losing $195.18 from its previous close.

(Reporting by Shubhendu Deshmukh in Bengaluru; Editing by Maju Samuel)