HSBC bans customers from buying Bitcoin-backer MicroStrategy shares
reuters.com> “HSBC has no appetite for direct exposure to virtual currencies and limited appetite to facilitate products or securities that derive their value from VCs (virtual currencies),” HSBC said in a statement.
But you wouldn't be? This is a product literally called "InvestDirect" where private individuals are buying stocks and assuming all the risk.
If you don't want to offer margin on virtual currency products, more power to you, that is your risk. But if customers are buying with cash, it seems pretty suspect for the bank to claim that is increasing the bank's risk exposure.
Honestly it wouldn't be the worst idea to have a "Net Neutrality" for brokers.
Knowing absolutely nothing about this particular situation I’d be willing to bet this decision is a lingering side effect of HSBC’s most recent (and seemingly perpetual) AML issues. I suspect they’re trying to appear squeaky clean and an action like this is quick, easy to implement operationally, and looks good to regulators who are uneasy about cryptocurrency’s reputation for facilitating criminal activity online.
I don't see how kyc/aml applies to this particular stock over every single other ticker they will happily sell you? There's no difference, they aren't selling cryptocurrency here.
> I don't see how kyc/aml applies to this particular stock over every single other ticker they will happily sell you? There's no difference, they aren't selling cryptocurrency here.
It's the equivalent of security theater. Do something conspicuous that they can spin as having done something about the problem. That serves their purpose regardless of whether it actually does any good or makes any sense.
On top of that, cryptocurrency kind of competes with banks, so they have an excuse to cause trouble for the competition.
Buying or shorting this stock to the tune of billions of dollars might be a good way for a drug dealer to mitigate the currency fluctuation risk to his big pile of illicit bitcoins stashed under his bed.
Easier and cheaper to do with Bitcoin futures
They already have a version of Net Neutrality for brokers: reg NMS.
HSBC are well within their rights to refuse to accept bad orders. HSBC are exposed to specific regulatory risk not shared by US banks. Having a ton of customers go bust because a regulatory change nuked some meme stocks seems undesirable to me. If you don't like it you can always find another broker.
HSBC does a lot money laundry for rich people around the world, and now it is worrying about risks? I don't think so. But it is a telling for potential direction of US government is taking for bitcoin. HSBC is doing many things to please the US government, this may be one of them.
> HSBC does a lot money laundry for rich people around the world, and now it is worrying about risks?
Says a lot about the 'risks' involved with that business model.
> If you don't like it you can find another broker
It's like saying that net neutrality exists, because "if you don't like throttling you can find another ISP"
There are a lot more brokers available than ISPs
Why would an exchange allow a "meme stock"?
MicroStrategy has been around since the 80s hasn't it? I thought they made business intelligence software. They are not some weird company that appeared overnight out of nowhere.
Maybe they have issues with people taking on a margin that they cannot afford? Cryptocurrencies being as volatile as they are shorting them on a margin can result in high losses that HSBC prefers not to be involved with? Just a guess.
Not impossible, but IMO highly unlikely: stocks, especially smaller ones can be way more volatile than any currency with over 1T market value. And you can still buy those on margin.
>you can still buy those on margin
That is absolutely not the case in a categorical sense.
Brokers can and do apply different margin requirements on a stock by stock or customer by customer basis. There's nothing out of the ordinary about a security not being marginable or having increased requirements due to risk assessment.
For example, here is a list of stocks at one broker with particular margin requirements, and it says it "changes frequently":
https://invest.ameritrade.com/cgi-bin/apps/u/MarginReq
Given that there are hundreds starting with "A", I'd assume the entire list is in the thousands, of securities that have individual margin requirements.
I think in fact the ticker GBTC which is a trust that owns Bitcoin isn't marginable.
Note, the page you linked to requires login.
Well, here is a public page (with just GME) that proves the point that they can and do apply requirements to individual stocks, anyway:
https://www.tdameritrade.com/td-ameritrade-trading-restricti...
Here's another with GME and AMC:
https://www.schwab.com/margin-updates
But there are also lots of others you never heard of, that aren't mentioned.
Doesn't the market volume have a multiplicative effect, though? In other words, it's not just volatility, it's volatility x volume. Or something like that.
That's true. Maybe something to do with regulations then? HSBC is already being accused of being involved with money laundering quite a lot. Also, what other coins except BTC have market cap >1T?
I suspect regulation (or fear of impending one) is the likely culprit; but again, not sure. Re: size -- I was including regular fiat currencies, not just digitals.
I'm pretty sure bitcoin has less volatility than some of the meme stocks (eg. GME or AMC).
Meme stocks cannot be traded on margin by any sensible broker
Are you saying that trading on market sentiment is an invalid trading strategy?
I'm saying that a broker will offer little or no margin on a meme stock
If they're concerned about exposure, they could simply set the margin trading leverage below 1 (e.g. offering 0.1x leverage so that customers have to post $10 in margin to buy $1 in MicroStrategy shares).
Are you saying someone would need to post more than the value of the share?
> Are you saying someone would need to post more than the value of the share?
Yes, as an alternative to not allowing the trade.
If the bank considers something highly risky, it makes sense to protect themselves and the customer by making sure they've got some money locked up outside of the trade (a bankrupt customer is no longer a customer, after all). It would basically cap the percentage of net worth that they could put at risk, where they'd need to have $10 set aside for every $1 in the risky position.
There’s no need for a bank to nanny their customers. If you don’t want to book the trade, don’t book it. Going beyond that in some tortured logic to ensure they tie up extra money (possibly incurring unjustified margin calls on other positions) has almost exclusively downsides for HSBC.
> Honestly it wouldn't be the worst idea to have a "Net Neutrality" for brokers.
and/or we could tokenize securities onto permissionless and decentralised ledgers and stop feeding the intermediaries
note that a ledger with transaction validation rules which enforce KYC can still be permissionless and decentralised
bitcoin isn't "permissioned" just because you need a valid signature to spend an output
> if customers are buying with cash, it seems pretty suspect for the bank to claim that is increasing the bank's risk exposure
Cash trades still expose brokers to volatility due to settlement.
This policy is likely one part regulatory theatre and one part customer selection. Customers buying MicroStrategy stock are unlikely to be lucrative customers for the banking products HSBC hocks.
Yeah if they were worried about settlement risk they could just not release funds/shares until they settle. But that’s probably harder to implement than a blanket ban and they have nothing to gain by catering to the meme shares crowd.
> if they were worried about settlement risk they could just not release funds/shares until they settle
This doesn’t solve the problem of clearing collateral. That said, HSBC is a money centre bank. It isn’t worried about clearing collateral.
The policy is almost certainly a filter. If you’re trading MicroStrategy, you’re probably not a fit for their banking and wealth management services.
Not to get too far in the weeds (as I agree with your point) but why wouldn’t holding the funds/shares until settlement cover the clearing? Especially given they control the order routing and risk systems involved?
They just have appetite for drug and weapons money laundring.
https://www.theguardian.com/business/2012/dec/14/hsbc-money-...
This is one of the reasons that HSBC are so strict now.
this seems to clearly fall under "facilitate" tho.
Is there a good up-to-date resource for understanding the current premium that MSTR has over its BTC holdings? The article says: "MicroStrategy said last week it owns around 91,579 bitcoins. Its holdings, worth around $5.5 billion according to a Reuters calculation, are equal to around 80% of its $6.8 billion market capitalisation."
Naively, this would imply a fairly low premium. But among other things, this doesn't account for fact that Microstrategy took on a lot of debt to buy their bitcoins. Essentially, I'd like to see an updated and more complete analysis like this: https://old.reddit.com/r/microstrategy/comments/ltypps/sell_.... Does such a thing exist?
Next up, they'll have to ban Tesla, Square, Coinbase, Riot, etc. Where will they draw the line?
Pretty much the whole market has exposure to Bitcoin through SP500->Tesla at this point.
Tesla has a market cap of 673.80B at the moment. Their BTC holdings are barely a rounding error.
Which is a problem in itself.
Tesla with a 2% market share in the US, is valued more than Toyota, Volkswagen, Daimler, General Motors, and BMW combined (40% of the domestic market).
Toyota makes about $2,500 profit for every car sold. Tesla would need to make $50,000 per unit sold on average, or basically 100% profit on a Model 3, to justify the market cap.
Personally, I'm with you, I just don't see how Tesla's valuation is justified. Their cars have QC issues and they have very formidable competitors. If I had to buy a car, I'd pick the Porsche Taycan over any Tesla any time of the day (except maybe the Roadster, but it's not out yet).
That said, I have a few friends who bought it's shares and their rationale is that it's a "clean energy play", far bigger than cars and that their brand is going to be as valuable as Apple. Only time will tell I guess, everyone can put their money where their mouth is and shorting Tesla has been a pretty bad proposition so far.
Price is a function of supply and demand.
And decentralized demand - e.g. individual investors and institutions to a degree (individuals who give their buy-sell power to an org) - will be more accurately voting at least than say the gullible layperson buying into the Bitcoin hype-MLM; most people buying Tesla stock arguably mostly aren't betting/investing based on nothing - there are many good, valid reasons to see Tesla taking off exponentially and even owning 40%+ of the EV market - and they're optimizing for battery-solar tech and energy business as well.
P.S. I'm not trying to convince anyone here of Tesla's value, I've shared some of my thoughts before, and there are plenty other people who have done a thorough job detailing the ecosystem and its potential.
Overvalued, maybe. But comparing last year production of cars is in my opinion a bad metrics to compare Tesla to other automakers.
First Tesla is growing fast so that $50k will drastically go down in the coming years.
Tesla is more vertically integrated so you have to include the valuation of all the dealerships, parts of their suppliers, the charging network, ...
And third there are the “other” businesses like the battery storage, solar roofs, software revenue, ...
So overall the numbers of cars produced is probably too simplistic to compare them.
Today value isn't about what Tesla does today, its about what people think Tesla will deliver in the future. The numbers and profits per car are basically meaningless. You buy if you think the number will become better not of you think they are awesome now and there isn't much progress possible anymore.
Stock prices do not reflect current profits. Imagine if they did. If tsla was currently 50/share to be inline with your metric. How would you stop people from buying it at 60? Because using your math they will be worth 75+ next year when the other factories come online.
It's supposed to at least correlate with future free cash flow, which it doesn't do either. Sometimes I wonder if quantitative easing and corp tax cuts have distorted the stock market past the point where Benjamin Graham-style theories of value investing have become invalidated.
Sounds like AMZN in 1999
May I ask why are you comparing with ICE automakers? Tesla is much more than that. Wouldn’t your comparison be like only comparing Amazon’s Kindle vertical with the rest of the ebook reader market?
I agree that the valuation is silly.
I don't agree that it's a problem. Why do you think that a silly valuation is a problem?
Comparing their asset balance with the market cap of its stock is complete nonsense.
Tesla has 100% access to the BTCs and other asset it holds but there is no access to the market cap. Its a fictive price tag on all existing shares. People use it to compare companies. The money does not exist anywhere and certainly can not be used by Tesla.
>Comparing their asset balance with the market cap of its stock is complete nonsense.
Ben Graham, one of Warren buffet's mentors, wrote a famous book called the "Intelligent Investor" which has several chapters on doing exactly that.
Think about it...if a company sells $10 billion in stock, the new stock adds $10 billion to their market cap and they get an extra $10 billion in cash which goes on their balance sheet. And likewise, a company can buy back shares and the reduction in marketcap from destroying shares is equal to the amount of cash assets being removed from the balance sheet. There's a link here.
> Comparing their asset balance with the market cap of its stock is complete nonsense
Eh, not really. They’re both stock (as opposed to flow) measures. And one is a subset of the other. That said, crypto as fraction of assets would be a more rigorous metric.
>And one is a subset of the other.
Not alt all. Mark cap is a fictive value. Assets hold by a company aren't fictive and are not part of the market cap at all. Market cap is simply the price of all stocks at the current market price of one.
>crypto as fraction of assets That would make more sense but also would need to include debts.
If Tesla announced it was going to sell all of its BTC tomorrow, would they get 100% of its notional value?
There’s a reason companies list “cash and equivalents” and BTC isn’t included in that line on the balance sheet.
>would they get 100% of its notional value?
depend on the liquidity on that day also they could OTC sell so yes they can probably get the market price. However telling the market fist isnt going to help.
>There’s a reason companies list “cash and equivalents” and BTC isn’t included in that line on the balance sheet.
Yes, the reason is volatility and uncertain liquidity. To compare BTC with cash equivalents you could use volume adjusted price over the last months, that would give a good short term cash value. But long term ofc its impossible to know what it may be worth.
Not quite sure how that's relevant to what I said, namely that assets hold by a company are not comparable to the companies market cap.
> The money does not exist anywhere and certainly can not be used by Tesla.
What exactly is stopping them from borrowing against their shares?
The market cap is calculated from all shares. Tesla obvious does not owe them.
Sure, compared to their market cap, it's small. But it's 1.5B$, a very significant percentage of the cash they have on hand.
It’s a great signal for potential buyers to just leave HSBC and find a better broker.
"Better" like Robinhood, which, instead of firmly stating a position in advance, changes its mind day-by-day about which stocks its customers can buy or sell? And which was pretty damn close to going bankrupt earlier this year because it didn't have a sufficient risk management policy?
Interactive Brokers and Saxo are good options for example in UK. I think RobinHood is US only, but US has more professional brokers as well.
I guess you and I have different opinions on what makes a "better" broker. I'm in favor of clearly-defined policies that anticipate certain events, which are communicated to all customers far in advance, so customers can make an informed decision whether or not to patronize that particular company. You seem to be happy with firms like IBKR which might decide, mid-day, at the peak of volatility, to lock out its customers from trading certain securities, without any advance notice or warning.
https://www.investopedia.com/robinhood-latest-broker-to-rest...
I think it wasn't them who decided but the clearing house. Right now HSBC itself did the banning.
If you don't like the situation, you can just buy the underlying asset (Bitcoin) and hold it in a cold wallet (I'm doing that).
>The bank said its policy towards cryptocurrencies had been in place since 2018 and is kept under review. It could not immediately say which countries the ban applied to.
My guess is that it's just some middle manager blindly following directives from 2018 that haven't been updated. I can't think of any other reason why they'd ban it when everyone else is moving in the opposite direction.
They're one of the most bureaucratic and inefficiently ran banks in existence, an absolute nightmare to deal with on every level. Not sure how they're still around, I wish they had been fined into oblivion after they were caught money laundering for narco traffickers.
Tried to open a bank account with them for a promo. So. Much. Paper.
And I still didn't manage to open my bank account despite filling stuff out online and visiting a branch.
My bet is that they are afraid of regulators fining them. The multi-billion dollar fines they received over the last few years constitutes a significant portion of their profits and has probably made them hyper-vigilant.
One of the unintended consequences of the Total Information Awareness / financial mass-surveillance AML/KYC movement is banks derisking at the expense of marginalized people and industries:
https://www.reddit.com/r/MakerDAO/comments/de0sys/kyc_is_abs...
It seems like it's somebody's job to decide if MicroStrategy can lever up on Bitcoin but it shouldn't be individual brokers' jobs. Banks/brokers need to be neutral infrastructure. Their responsibility for AML should be to report suspicious behavior and no more; let regulators or law enforcement enforce the laws.
In related news, the bank will soon be renamed to HFSP Bank, in recognition of the crucial role it plays in reducing the risk of its clients making too much money.
You can get a nice hoodie with the new HFSP logo here:
https://www.koined.store/collections/out-and-about/products/...
Isn’t HSBC the bank that has been caught money laundering for criminals over and over again?
Is that even allowed by law/regulators?
> MicroStrategy said last week it owns around 91,579 bitcoins. Its holdings, worth around $5.5 billion according to a Reuters calculation, are equal to around 80% of its $6.8 billion market capitalisation.
Why would a software company buy this volume of this highly volatile crypto and put it on its balance sheet? Wouldn't the board object?
Banks are zeroes.
I am with you brother. If there is an argument for bitcoin, this is it. Large banks that impose their own priorities over that of their customers.
Very interesting seeing this here, I see this on Twitter mainly from a specific account.
Heh. The one that just changed their name recently? I still have a few ways of reasoning that they're wrong, but I feel like they're always right. I've been following since like 2015.
Indeed. I wonder how it'll go for the next few years. Feels like 2013, 2017 these days.
Yeah it's crazy. They've become so bullish on it the past 6 months, it's ridiculous. Are you?
Not sure. I feel like I've seen this situation play out before. Parabolic spikes of activity then drops.
I'm sure they'll also ban customers from buying Tesla... /s
I wonder if they let you buy GBTC, ETHE, or LTCN.
or CME bitcoin futures
That makes it sounds as if it's a bad thing. Instead read it like “HSBC bans customers from buying pyramid-scheme-backer MicroStrategy shares”.
It's not HSBC's role to decide which things are pyramid schemes. SEC is for that, and they have made it very clear that neither Bitcoin or Ethereum are one.
"It's not HSBC's role to decide which things are pyramid schemes."
Yes it is. It's the job of banks to advise on these things.
It is a peculiar position they've taken, they've gone further than I think they'd have to, there's probably some reason for it that won't be very obvious on a non-financial forum.
This seems extremely shortsighted.
Really you couldn't make it up considering the criminal activities this bank has been involved in most recently in Latin America