[ad_1]
Chinese President Xi Jinping on a screen during an event marking the 100th anniversary of the founding of the Communist Party of China at the Memorial of the First National Congress of the Communist Party of China in Shanghai, China on June 4, 2021 (Aly Song / Reuters)
Welcome to Capital Note, a newsletter on business, finance and economics. On the menu today: the EU attacks Google, China crushes crypto and obstacles to Bitcoin as digital gold. To subscribe to Capital Note, follow this link.
Google survey in the United States
A week after the $ 270 million fine imposed on Google by France for alleged monopoly practices on its advertising platform, the European Commission announced a formal investigation into the company. The Wall Street Journal reports:
The European Commission, the EU’s main antitrust law enforcement official, said on Tuesday that its investigation, which has been informally ongoing since at least 2019, will examine a wide range of allegedly anti-competitive business practices around AlphabetInc. Advertising brokerage and user data sharing units with advertisers on websites and mobile apps, one of the newest areas in antitrust control for the business.
Part of the EU investigation will cover similar ground to a case filed last year against Google by a group of US states led by Texas. Similar areas include Googles allegedly promoting its own ad buying tools in the ad auctions it runs.
There is an argument to be made that Google’s ad exchange requires a regulatory regime similar to that of financial security exchanges. As a broker and seller of advertising space, Google has some pricing power in an opaque market. The Commission statement, however, highlights the conflicting objectives of antitrust: competition law and data protection laws must work together to ensure that display advertising markets function on a proper footing. equality in which all market players protect user privacy in the same way.
Much of Google’s market power comes from the granular data it gleans from users. Restricting access to this data strengthens Google’s market power. On a related note, Apple’s recent privacy reforms that restrict data collection by third-party apps are undoubtedly lowering the competition. As Ben Thompson points out:
The only way to square the circle of the argument that Google and third-party advertisers should have equal access to user data, even if they follow overly broad privacy regulations, is to argue that third-party sites shouldn’t make money from advertising, in the case of the YouTube part, to argue that Google shouldn’t be allowed to make money from any of the top-grossing products. consumption surplus of history.
In other words, there is an inevitable trade-off between privacy and competition in the digital advertising industry. Judging by their rhetoric, regulators want to have their cake and eat it too: a world of increased privacy and increased competition. As antitrust efforts unfold globally, lawmakers will eventually have to pick one of the two as a priority.
China Crypto Clobbers
Bitcoin has lost more than half of its value since April, largely due to a decision by Chinese authorities to regulate the crypto markets:
The original cryptocurrency is down more than 50% from its mid-April high of nearly $ 65,000, leaving it up slightly for the year. This compares to a 12% gain for the S&P 500 since late December. The coin started in 2021 at around $ 29,000 after quadrupling in 2020.
Chart watchers said Bitcoin, which failed to recover $ 40,000 last week, may struggle to find support in the $ 20,000 range after falling below $ 30,000. Yet before Tuesday, Bitcoin had topped $ 30,000 in at least five separate instances this year, but recovered to trade above that level each time.
Elsewhere:
Representatives of Industrial and Commercial Bank of China Ltd., Agricultural Bank of China Ltd. and payment service provider Alipay have received a reminder of rules prohibiting Chinese banks from engaging in crypto-related transactions, according to a central bank statement on Monday.
The latest development is a sign that China will do whatever it takes to fill the gaps left in crypto trading. In May, the Chinese State Council, the country’s cabinet, called for a further crackdown on Bitcoin’s mining and trading activities. . . . Crypto activity disrupts the financial order and also poses risks of criminal activities such as illegal cross-border asset transfers and money laundering, according to the central bank of China statement.
China has been more zealous in cracking down on crypto than many market watchers anticipated: While it began with a ban on Bitcoin mining, the regulatory push has expanded to include the trading and holding cryptocurrencies. Given that approximately 65% of global Bitcoin mining takes place in China, this surge has had a significant effect on the processing power devoted to Bitcoin, and therefore on the functioning of the Bitcoin markets.
While China has hinted at regulation in the past without following through, it looks like this time around it is different.
Around the web
Soho House plans to go public
The group, which changes its name to Membership Collective Group as part of the initial public offering, is targeting a valuation of around $ 3 billion, according to people familiar with the matter.
Founded by British entrepreneur Nick Jones and backed by American billionaire Ron Burkle, the hotel group has become a hangout for celebrities ranging from Damien Hirst to Prince Harry. It intends to open 18 new sites by the end of 2023, in addition to the 28 it already has, according to a filing on Monday with the U.S. Securities and Exchange Commission. Its long-term plan is to open between three and five new sites each year.
Free market
According to Bloomberg Intelligence, MercadoLibres e-commerce revenue grew 90% in 2020 as Covid accelerated the transition to online shopping. The number of buyers in its marketplace increased 40% to 65 million in the 12 months ended March 31. We have moved forward three to five years, depending on the country, explains Marcos Galperin, co-founder and CEO of the company. There is no turning back.
If MercadoLibre is changing the way Latin Americans shop, investors seem even more excited to change the way they pay. Payment volume at MercadoPago, the company’s financial tech arm, grew 75% last year, to $ 50 billion, as merchants incorporated the ability to pay through smartphone apps or QR codes. . The company has also more than doubled the portfolio of its credit activities. In 2018, Goldman Sachs Group Inc. estimated that 40% of MercadoLibres’s value came from its financial services business; today it is 60%.
Random walk
Zach Pandl of Goldman Sachs argues for Bitcoin as digital gold:
To understand bitcoin, it’s best to start with gold. Gold performs a unique function in the global financial system. It is both a useful commodity and a store of value like money. However, unlike conventional monetary media, it is not issued by a government and does not denote any transaction of goods or assets. Indeed, gold serves as an alternative relief monetary instrument for the unfavorable states of the world when investors are unsure of the safety of conventional assets or of fiat money in general (for example due to the risk of inflation. or confiscation). In foreign exchange markets, gold behaves like an inverted currency: its price tends to fall when the fundamentals of major currencies improve, and tends to rise when the fundamentals of major currencies deteriorate. Over time, the most important factor in nominal exchange rates is the relative inflation rate between two economies. Because gold has a near-fixed supply, its face value tends to rise in step with inflation in major markets. These correlation and store of value properties allow gold to play a very useful diversification role in portfolios.
When inflation accelerated in the mid-20th century and investors looked for options to protect the true value of their assets, gold was the natural choice. Back then, major currencies were linked to gold via the US dollar via the Bretton Woods gold exchange standard and, before the Great Depression, most currencies, as well as most US Treasury bills. , were directly backed by gold. The US government provided an official dollar price for gold, which changed only twice in the nearly two centuries between the 1790s and the 1970s. During the 1960s, under the standard of Gold exchange, trading in gold above its official price was the clearest way to observe the depreciating pressure on the US dollar. In short, for much of the postwar period, there was a close association between the price of gold, the stability of the currency, and the real value of silver, making it the cover against inflation evident for portfolios.
After Nixon severed the link between the dollar and gold in 1971, the link between gold and silver was severed. The end of the gold standard made the use of gold as an economic hedge rather arbitrary:
This is where bitcoin comes in. Any alternative medium should be secure, private, have a fixed or quasi-fixed offer and be transferable, ideally outside the traditional payment system. In our modern globalized society, where a significant part of social interactions and commerce takes place online (especially among young people), it may also be necessary to be digital. But, more importantly, it would have to have the potential for widespread social adoption. Anything can be money, as long as it has it. Bitcoin is therefore a plausible alternative value carrier to gold and, at present, the best candidate among cryptocurrencies with a similar structure due to its wider social adoption (i.e. its Mark).
The volatility that makes Bitcoin exciting is also a significant barrier to its use as a store of value:
At equilibrium, a store of value as volatile as bitcoin would not be very useful. But cryptocurrencies are in their infancy; it is best to view today’s prices as reflecting some likelihood that bitcoin or some other coin / token could be adopted more in the future, at which point its price could be extremely high. Therefore, small changes in these probabilities can cause high price volatility today. Bitcoin investors are speculating that it will eventually gain acceptance almost universally as a non-sovereign currency, with high returns (and high volatility) along the way.
– DT
To subscribe to Capital Note, follow this link.
[ad_2]
picture credit