💔 The broken bitcoin fund

Give a bank a break, Archegos | L'argent, c'est magnifique |

Hi Reader, here's what you need to know for April 7th in 3:09 minutes.

🍷 A bottle of wine or whiskey could be exactly what you need to keep a clear head when markets get woozy. So join us for our Investing In Wine And Whiskey event on Friday, and raise a glass to this vintage alternative investment. Get your – *hic* – ticket

Today's big stories

  1. Investment bank Credit Suisse revealed a $4.7 billion loss following the collapse of Archegos Capital Management
  2. The world’s biggest bitcoin fund might offer a cheap way to buy into the cryptocurrency – Read Now
  3. Air France-KLM is set to receive almost $5 billion in aid from the French government

Reaction Stations

Reaction Stations

What’s Going On Here?

Every action has an equal and opposite reaction, and this one’s a doozy: investment bank Credit Suisse revealed a $4.7 billion loss following the blow-up of Archegos Capital Management.

What Does This Mean?

If the name “Archegos” rings a bell, it’s because the investment firm hit the headlines last week after dumping its holdings to cover losses from a few ill-advised bets. And since the company had been paying for them by borrowing heavily from the world’s banks, those same banks could now be facing $10 billion worth of losses – almost half of which has fallen on Credit Suisse’s shoulders.

That’s expected to push the firm to a $1 billion loss last quarter, and could help explain why it’s trying to preserve its cash by cutting its dividend and freezing share buybacks. And considering this is the second time in the last few months that the bank’s short-sighted lending has led to big losses, the firm announced it’s replacing the heads of its risk and investment banking departments too. Go figure.

Why Should I Care?

For markets: Watch for banks’ earnings later this month.
Credit Suisse won’t be the only bank with an Archegos-shaped stain on its balance sheet, but at least the sector’s had a strong quarter otherwise. Banks’ trading departments have benefited big from market volatility and record trading volumes, while their investment banking segments have done brisk business from a record number of mergers and acquisitions. Exactly how brisk will become clearer when they report earnings later this month…

The bigger picture: Interest rates take with one hand, give with the other.
Investors might’ve been spooked by rising long-term bond yields last quarter, but banks were much more upbeat about them. See, short-term bond yields stayed relatively flat, and since banks borrow money at short-term rates and lend money at long-term rates, a wider gap between the two means banks were able to pocket more profit (tweet this).

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2. Analyst Take

The World’s Biggest Bitcoin Fund Is Broken

What’s Going On Here?

With a market capitalization of over $35 billion, the Grayscale Bitcoin Trust is the world’s biggest bitcoin investment fund.

And since it’s a good way for institutional investors to get their hands on the crypto, the fund’s shares have consistently traded at a premium relative to bitcoin’s value.

But not any more: the value of the fund sank to a record low relative to its bitcoin investments late last month, and it’s not managed to recover since.

That means Grayscale could be an interesting way for you to invest in bitcoin at a discount, but only if – and this is a big “if” – the fund can bounce back.

That rebound might not depend on bitcoin’s own movements either: buying into a fund meant to replicate an asset doesn’t necessarily mean one-to-one exposure to that asset’s price.

So that’s today’s Insight: if the Grayscale Bitcoin Trust really is a cheap way to buy into bitcoin, and what it’ll take for the fund to bounce back.

Read or listen to the Insight here

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In Case Of Emergency

In Case Of Emergency

What’s Going On Here?

European regulators agreed on Tuesday to let the French government give Air France-KLM almost $5 billion in aid – just what it needs to stay calm in a crisis.

What Does This Mean?

Air France-KLM almost seems bound to run out of money eventually: the airline’s been burning through almost $12 million every day, and international travel isn’t exactly taking off. But thanks to a second rescue package courtesy of the French government, it’s kept the wolf from the door for a while longer.

The bailout does come with some caveats, mind you – namely that Air France-KLM can’t go spending the cash on bonuses, dividends, or share buybacks until the money’s repaid. The French government has its own rules to stick to, agreeing with European legislators that it would cut its stake in the airline – as much as 30% – back to pre-pandemic levels by 2027.

Why Should I Care?

Zooming in: Low-cost airlines have better odds. 
There’s another trade-off Air France-KLM will need to make: the airline has to sell 4% of its Paris-Orly airport time slots to airlines whose aircraft are based there, which doesn’t include many low-cost carriers. They might not be happy about that, but it’s not like they have much competition from the big carriers right now: not only do budget airlines have lower operating costs, they also specialize in leisure travel – a market that’s recovering faster than business flights.

Zooming out: US travel is on the up again. 
Rising coronavirus infections might be ruining European travel, but new analysis found that US travel demand had risen to half 2019’s levels by mid-March – the highest since the pandemic began. It even estimated that US domestic air travel will have fully recovered by early next year, with business and international travel to follow in 2023. That’s a lot quicker than expected, and suggests stimulus checks and vaccine rollouts might already be paying off.

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💬 Quote of the day

“Always be smarter than the people who hire you.”

– Lena Horne (an American dancer, actress, singer, and civil rights activist)
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🌍 Finimize Events

💸 Farewell, cash

A long time from now, you might be looking wistfully off into the distance and thinking back to the days it was normal to hand out paper with kings and presidents printed on them. But not before profiting from the shift: head down to The Surge In Digital Payments, and invest in a sector that’s only going in one direction.

👀 How To Spot The Next Bitcoin: 12pm NYC time, April 7th
💵 The Surge In Digital Payments: 6pm UK time, April 8th
🍷 Investing In Wine And Whiskey: 6pm UK time, April 9th
💆 Control Your Emotions, Control Your Trading: 6pm NZ time, April 12th
😎 Making An Impact With Your Capital: 4pm UK time, April 15th
🔥 The Three Most Important Trading Signals: 6pm UK time, April 20th
👩‍🎨 Are NFTs A Digital Bargain Or Bubble?: 2pm UK time, April 21st
💡 Investing In Small-Medium Cap Stocks: 6pm UK time, April 21st
🏡 The Pros And Cons Of REITs And Real Estate: 1pm UK time, April 22nd
📈 How To Inflation-Proof Your Portfolio: 6pm UK time, April 22nd
🚀 Space: The Final Investment Frontier: 6pm UK time, April 27th
💰 Crowdfunding Club: 1pm NYC time, April 28th
🛢 The Energy Sector’s New Direction: 4pm UK time, April 29th
🔪 How To Cut Through The Spin: 6pm UK time, April 29th
👋 Live Q&A With CEO Max Rofagha: 1.30pm UK time, April 30th

📚 What we're reading

  • Meat is still on the menu (Eater)
  • COVID: not a moral problem (Mother Jones)
  • The answer to your parking dilemmas (Mint)
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