Philippines to sell $179M in tokenized treasury bonds for the first time

November 16, 2023 Coin Telegraph

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Real-world asset tokenization as a concept has existed for some time. However, in 2023, with the growing interest of institutions, various governments have started experimenting with the idea.

The Philippines Bureau of the Treasury announced it would offer 10 billion pesos ($179 million) of one-year tokenized treasury bonds for the first time after canceling the traditional auction scheduled for Nov. 20.

The Bureau of the Treasury will offer the tokenized bonds to institutional buyers at minimum denominations of 10 million pesos with increments of 1 million pesos. The bonds will be valid for one year and due in November 2024. The final interest rate will be disclosed on the issuance date, according to a report by Bloomberg.

The bonds will be issued by the state-owned Development Bank of the Philippines and the Land Bank of the Philippines.

When asked whether the government is exploring continuous use of tokenized real-world assets and bonds, Deputy Treasurer Erwin Sta said it will “continue to study the technology and test how far we can take it.”

The move by the Philippines to issue tokenized bonds over traditional ones comes amid a growing interest of Asian governments in the tokenized bond market. In February, Hong Kong issued $100 million in tokenized green bonds under its Green Bond Programme. The government used Goldman Sachs’ tokenization protocol to tokenize the bonds with one-year validity.

Another Asian country, Singapore, recently launched a series of pilots on tokenizing real-world assets in partnership with JPMorgan, DBS Bank, BNY Mellon and investment firm Apollo. The United Arab Emirates has also teamed up with HSBC to carry out the tokenization of bonds.

Apart from the growing popularity of blockchain-based real-world asset tokenization in Asia, Israel’s Tel Aviv stock exchange also completed out a proof-of-concept for tokenizing fiat and government bonds.

The tokenization of real-world assets using blockchain technology has gained popularity among governments recently. The trend has also gained momentum fuelled by the interest of financial giants like JPMorgan, HSBC and others.

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Bitcoin futures data highlight investors’ bullish view, but there’s a catch

October 31, 2023 Coin Telegraph

bonds

The stars are lining up for Bitcoin price, but a few major price threats remain in play.

Bitcoin (BTC) price surged by 26.5% in October and several indicators hit a one-year high, including the BTC futures premium and the Grayscale GBTC discount.

For this reason, it's challenging to present a bearish thesis for BTC as data reflects the post-FTX-Alameda Research collapse recovery period and is also influenced by the recent increase in interest rates by the U.S. Federal Reserve.

Despite the positive indicators, Bitcoin price still remains around 50% below its all-time high of $69,900 which was hit in November 2021. In contrast, gold is trading just 4.3% below its $2,070 level from March 2022. This stark difference diminishes the significance of Bitcoin's year-to-date gains of 108% and highlights the fact that Bitcoin's adoption as an alternative hedge is still in its early stages.

Before deciding whether the improvement in Bitcoin futures premium, open interest and the GBTC fund premium signal a return to the norm, or the initial signs of institutional investors' interest, it's essential for investors to analyze the macroeconomic environment.

The U.S. budget issue sparks Bitcoin’s institutional hope

On Oct. 30, the U.S. Treasury announced plans to auction off $1.6 trillion of debt over the next six months. However, the key factor to watch is the size of the auction and the balance between shorter-term Treasury bills and longer-duration notes and bonds, according to CNBC.

Billionaire and Duquesne Capital founder Stanley Druckenmiller criticized Treasury Secretary Janet Yellen's focus on shorter-term debt, calling it "the biggest blunder in the history of the Treasury." This unprecedented increase in the debt rate by the world's largest economy has led Druckenmiller to praise Bitcoin as an alternative store of value.

The surge in Bitcoin futures open interest, reaching its highest level since May 2022 at $15.6 billion, can be attributed to institutional demand driven by inflationary risks in the economy. Notably, the CME has become the second-largest trading venue for Bitcoin derivatives, with $3.5 billion notional of BTC futures.

Moreover, the Bitcoin futures premium, which measures the difference between 2-month contracts and the spot price, has reached its highest level in over a year. These fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are requesting more money to delay settlement.

*Bitcoin 2-month futures annualized premium. Source: Laevitas*

The demand for leveraged BTC long positions has significantly increased, as the futures contract premium jumped from 3.5% to 8.3% on Oct. 31, surpassing the neutral-to-bullish threshold of 5% for the first time in 12 months.

Further bolstering the speculation of institutional demand is Grayscale's GBTC fund discount narrowing the gap to the equivalent underlying BTC holdings. This instrument was trading at a 20.7% discount on Sept. 30 but has since reduced this deficit to 14.9% as investors anticipate a higher likelihood of a spot Bitcoin exchange-traded fund (ETF) approval in the U.S.

Not everything is rosy for Bitcoin, and exchange risks loom

While the data seems undeniably positive for Bitcoin, especially when compared to previous months, investors should take exchange-provided numbers with caution, particularly when dealing with unregulated derivatives contracts.

The U.S. interest rate has surged to 5.25%, and exchange risks have escalated post-FTX, making the 8.6% Bitcoin futures premium less bullish. For comparison, the CME Bitcoin annualized premium stands at 6.8%, while Comex gold futures trade at a 5.5% premium, and CME's S&P 500 futures trade at 4.9% above spot prices.

The Bitcoin futures premium, in the broader context, is not excessively high, especially considering that Bloomberg analysts give a 95% chance of approval for a Bitcoin spot ETF. Investors are also mindful of the general risks in cryptocurrency markets, as highlighted by U.S. Senator Cynthia Lummis's call for the Justice Department to take "swift action" against Binance and Tether.

The approval of a spot Bitcoin ETF could trigger sell pressure from GBTC holders. Part of the $21.4 billion in GBTC holdings will finally be able to exit their positions at par after years of limitations imposed by Grayscale's administration and exorbitant 2% yearly fees. In essence, the positive data and performance of Bitcoin reflect a return to the mean rather than excessive optimism.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Bitfinex Securities announces tokenized bond

October 25, 2023 Coin Telegraph

bitfinex

Paolo Ardoino, Bitfinex chief technology officer and incoming Tether CEO, said the “exciting” initiative marks the beginning of a new era in capital raising.

Bitfinex Securities, a platform focused on listing real-world tokenized securities, has announced its first tokenized bond that will be listed in November. The new tokenized bond called ALT2611 is a 36-month, 10% coupon bond denominated in Tether (USDT) and issued by Mikro Kapital, a global leader in microfinance.

Bitfinex Securities said the tokenized bond ALT2611 will acquire risks associated with the debt and equity of microfinance organizations, small financial institutions, leasing companies and banks, in Italy, Romania, Moldova, and other developing nations along the Silk Road.

Bitfinex Chief Technology Officer Paolo Ardoino called the first tokenized bond on the securities platform the beginning of a new era for capital raises “through deep liquid markets and stock/fond markets.”

Exciting!
This is the first bond listed on Bitfinex Securities. A new era for capital raises through deep liquid markets and stock/fond markets has begun.

Furthermore $USDt will become the underlying denomination asset of this new financial ecosystem.

And yes. It leverages… https://t.co/ekXj3gY7Xj
— Paolo Ardoino (@paoloardoino) October 25, 2023

The Bitfinex Securities platform is intended to help raise capital for issuers looking to list their tokenized securities on a public exchange. The platform offers access to a range of financial instruments, most notably blockchain-based bonds and stocks, as well as investment funds.

Businesses can use Bitfinex Securities to list their tokenized securities directly on the exchange or to facilitate the trading of the securities through the capital-raising platform. Businesses can allow their products to be transacted on exchanges and between wallets using the same or comparable technology as cryptocurrencies by tokenizing their goods, such as debt and equity securities.

Securities are financial instruments that can be traded and converted into other currencies in both public and private markets. There are basically three categories of securities namely debt, such as loans that must be repaid on a regular basis; hybrids, a mix of elements of debt and equity; and equity, which grants ownership rights to holders.

Bitfinex said the tokenized bond will start trading at the price of 100 USDT with a minimum investment amount of 125,000 USDT. The security distribution will begin within one week after the completion of the capital raise with a 3-year maturity period from the day of issuance. The securities bond will be governed by and construed in accordance with the law of the Grand Duchy of Luxembourg.

According to the official announcement Mikro Kapital will issue 100,000 securitized tokens of ALT2611 with the aim of raising 10,000,000.00000000 USDT. ALT2611 is not offered or made available to U.S. citizens or persons present in the U.S. or any other jurisdiction where the offer or sale would be unlawful.

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Hong Kong regulator eyes tokenization for bond market improvement: Report

August 25, 2023 Coin Telegraph

Bond Investments

The monetary authority in Hong Kong released a report on its study Project Evergreen which looked at the highs and lows of recent bond tokenization activity.

The Hong Kong Monetary Authority (HKMA) released a report on Aug. 25 detailing the findings of its Project Evergreen study which analyzed the market impact of bond tokenization.

In a 24-page overview, the Hong Kong regulator laid out use cases, benefits and any challenges faced during the study. The concluding sentiment being that tokenization provides improvement for the bond market.

Eddie Yue, the chief executive of the HKMA, said the study highlighted the potential of deploying distributed ledger technology (DLT) to real capital markets transactions with the current legal framework existing in Hong Kong.

“It also showed the potential in DLT to enhance efficiency, liquidity and transparency in bond markets.”

Some of the primary efficiencies of bond tokenization revealed through the study were the ability to go paperless and eliminate the need for a physical global certificate - saving both hours and errors, the ability to interact between various parties on a common DLT platform and enhanced transparency through real-time data synchronization.

Additionally, it allows for atomic DvP settlements for bond transfers and encourages end-to-end DLT adoption.

Yue also pointed out the shortcomings of the experiment saying that the tokenization of bonds is still in its “infancy.” He said prior to mass adoption, many challenges would have to be overcome.

“As more financial institutions come up with their own tokenization solutions," he said. "It will be crucial to consider how different solutions can connect and interact with each other as well as conventional systems to avoid fragmentation.”

“Existing legal and regulatory regimes may also need to be fine-tuned to keep up with – and facilitate – technology adoption.”

This report comes as Hong Kong has been gradually shifting towards positioning itself as a hub for crypto and decentralized finance activity. Hundreds of firms have reportedly been lining up for a Hong Kong crypto license.

On July 27, Hong Kong announced it is collaborating with Saudi Arabia on tokens and payments.

Magazine: Real reason for China’s war on crypto, 3AC judge’s embarrassing mistake: Asia Express

Buffett and Ackman take opposing sides on Treasury yields — What does it mean for Bitcoin?

August 7, 2023 Coin Telegraph

ackman

Two investment moguls are betting on different directions for inflation and Treasury yields, with potentially negative impacts on Bitcoin.

Warren Buffett and Bill Ackman are two of the most successful investors in the world, but they have taken opposing views on the bond market in recent months.

Only one can be right. Billionaire investor Bill Ackman says he is shorting US Treasuries. if long-term inflation is 3% not 2%, the 30y Treasury yield could rise to 5.5%. In contrast, Warren Buffett has announced buying positions in 10y US Treasuries. Shorting US 10y bonds seems… pic.twitter.com/X2zSPzJ91Y
— Holger Zschaepitz (@Schuldensuehner) August 5, 2023

Buffett has been buying short-term Treasury bills, while Ackman has been shorting long-term Treasury bonds. Could both of these investors be right?

Buffett is the chairman and CEO of Berkshire Hathaway, one of the world’s largest investment holding companies. Buffett’s worth is estimated to be over $100 billion. Ackman is an American hedge fund manager, activist investor and the founder and CEO of Pershing Square Capital Management, a hedge fund with over $20 billion in assets under management.

*U.S. Treasury 1-year yield vs. 20-year yield. Source: TradingView and Cointelegraph*

There is the possibility that short-term and long-term interest rates will move in different directions. For example, if the Federal Reserve raises short-term rates in an effort to combat inflation, long-term rates could fall. This would be good for Buffett, who is buying short-term bonds, but bad for Ackman, who is shorting long-term bonds.

Another possibility is that Buffett and Ackman are simply taking different views on the risk of inflation. Buffett believes that inflation is not a major threat and that short-term Treasury bills offer a safe haven from market volatility. Ackman, on the other hand, believes that inflation is a serious risk and that long-term Treasury bonds are overvalued.

Buffett and Ackman will both probably get what they want

There is a possibility that Buffett and Ackman are both right, at least in the short term, meaning it is possible that both short-term rates and long-term rates rise. This would happen if the Federal Reserve raises interest rates in an effort to combat inflation but the market does not believe that the Fed will be able to raise rates enough to significantly slow down inflation.

In this scenario, Buffett would benefit from his short-term Treasury bill investment, while Ackman would benefit from his short position on long-term Treasury bonds. This possibility is supported by the fact that the correlation between bond and stock prices has neared a record high in recent months.

*S&P 500 correlation to the U.S. 10-year Treasury yield (50 days). Source: TradingView*

This means that as bond prices fall, stock prices are likely to rise, likely because investors are selling bonds and buying stocks in anticipation of higher interest rates.

When geniuses fail — Could both investors be wrong?

Of course, it is also possible that both Buffett and Ackman will be wrong. That is, it is possible that short-term and long-term rates will move in the same direction. This would happen if the market believes that the Fed will be able to raise rates enough to significantly slow down inflation. In this scenario, both Buffett and Ackman would likely lose money on their respective investments.

Only time will tell how this debate will play out, and there is no easy answer to the question of who is right. Investors should consider the different investment strategies that Buffett and Ackman use. Buffett is a value investor, while Ackman is a short-seller. These different strategies could also have a significant impact on the performance of their respective investments.

What about the impact on crypto markets?

The U.S. Treasury curve, specifically the spread between the one-year and 20-year note, has significant implications for the broader financial ecosystem, which can indirectly influence the sentiment of Bitcoin (BTC) investors.

A steepening curve, where long-term rates rise faster than short-term rates, often signals expectations of future economic growth and the possibility of rising inflation. In this environment — if both Buffett and Ackman are wrong — Bitcoin could be touted as a hedge against inflation, boosting its attractiveness.

For Bitcoin investors, a flattening curve — meaning both Buffett and Ackman are right — indicates concerns about future economic growth and increased uncertainty and volatility in traditional markets. This would push investors to reduce exposure to cryptocurrencies given that most consider it a speculative asset.