Tag: Trading

New Lenders in the Crypto World for those Crypto Companies Seeking Debt

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The crypto lending arena was nearly wiped out during the last major bear market, but is staging a huge comeback, and Cantor Fitzgerald (Cantors)* is trying to satisfy the crypto industry’s hunger for debt. Such lenders range from crypto native firms* to traditional banks and have been putting in place, or are putting in place, the means of providing capital to a whole smorgasbord of crypto market activities.

*Cantor Fitzgerald – is an American financial services firm that was founded in 1945. It specialises in institutional equity, fixed-income sales, trading, and serving the middle market with investment banking services, prime brokerage, and commercial real-estate financing. On March 11th 2025, Cantors announced that Anchorage Digital and Copper.co (“Copper”) will serve as collateral managers and custodians for the firm’s Global Bitcoin Financing.

**Crypto Native Firms – founded with the sole purpose of investing in digital assets and providing investment products in a market previously underserved by traditional asset managers. Native crypto managers have, of course, experience with digital assets and operational nuances.

After the debacle of 2002 and 2003, quite a number of crypto lending companies went bankrupt due to some very dodgy loans, and whilst crypto lending had its heyday in 2021, volume today is still well-short of that mark. Through Q1, Q2, and Q3 of 2024 Bitcoin lending went up by circa 300%, and with speculation in Bitcoin that propelled it above USD 100,000, fervour is spilling over and continuing to fortify the crypto lending sector, and leading the way are the decentralised finance applications.

In March 2025, Cantors started its global Bitcoin financing with an initial capital of US Dollars 2 Million. Elsewhere crypto wealth manager Xapo Bank began offering loans of up to USD 1 Million backed by Bitcoin, and securing a multi-billion US Dollar investment in its crypto lending funds is Blockstream Corp. the Bitcoin software firm. Loans against Bitcoin have been increasing by the month, with investors in the coin looking to utilise this asset as collateral for other investments.

The crypto market has always been heavily reliant on lenders who have provided critical liquidity to trading and other areas over the years, especially in times of volatility. However, the more traditional banks have avoided this market and, due to the uncertainties that surround the regulatory arena, have not lent to market participants. This decision led to the explosion of crypto lenders during the bull market in 2021. Analysts and some industry participants say, since the election of Donald Trump, crypto lending is poised to grow exponentially due to support of regulations that are favourable to the sector.

Indeed, the sector is now seeing increased interest from traditional lenders as they are becoming more comfortable with the current Trump administration and their favourable leanings toward crypto regulation and legislation. Experts suggest that this will lead to loans backed by Bitcoin that will be supported by more sophisticated risk-management and larger balance sheets at the more traditional lending institutions. However, analysts suggest that

crypto lending has returned with a more conservative approach with LTV ratios (Loan To Value) being lower, which translates into lenders reducing their risks requesting borrowers to make larger down payments. Experts advise that crypto natives can reinvent a couple of centuries of lending risks, and if crypto lending is to properly take off, the arena will need experts from outside the crypto industry.

Trump Takes Aim at Chinese Ships with Docking Levies at U.S. Ports

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The new U.S. administration has suggested imposing multi-million U.S. Dollar levies on Chinese ships wishing to dock in ports in the United States. Experts in this arena say that this will disrupt global trade and suggest the fall-out could be more disruptive to global trade than tariffs. An immediate example of this fall-out can be located in Germany where port workers should be loading a first round 16,000 MT of steel piping, bound for a huge Louisiana energy project. However due to the proposed levies, the cargo is now sitting gathering dust in a German warehouse.

This is a nightmare scenario for exporters, importers, and ship owners alike – especially as on this particular Atlantic shipping route, 80% of these ships were all built in China. The owners of the ships are not necessarily Chinese, it is just the ships that were built in China, which are being targeted. In this instance, the shipment of 16,000 MT of steel pipes are looking at a potential levy/surcharge of USD 1–3 Million which means the overall transportation cost could increase by 200%–300%.

Current data from the USTR (Office of the US Trade Representative), reveals that China now produces in excess of 50% of the world’s cargo ships by tonnage, (5% in 1999), with Korea and Japan accounting for most of the remaining cargo ship building. In 2024, shipyards in this arena accounted for 0.01% of cargo ships built, thus experts have surmised that this levy madness on Chinese-built ships can only help the long-held aim of the USTR in reviving the US merchant shipbuilding industry, a sleeping giant if there ever was one.

On Monday, 24th March 2025, a hearing begins in Washington D.C. into the ramifications of this trade levy, with representatives from industries from all corners of the world. They will explain to the hearing that these proposals are more damaging than Trump tariffs because of the severe threat to supply chains and, as a result, would severely disrupt global trade, dwarfing the results of any trade tariffs. Furthermore, some carriers have announced that not only will the increase in costs be passed on, but will pull out of docking at smaller ports which, of course, will suffer from the downturn in business.

Analysts suggest that, in theory, these levies could generate between USD 40–52 Billion for the United States. However many U.S. companies are worried as there are escalating tariffs on Chinese goods, aluminium, and steel, plus there are reciprocal tariffs due on 2nd April 2025. However, analysts point to the obvious downside, where U.S. businesses (especially the farming industry) and ultimately the U.S. consumer will come under pressure, raising prices throughout the United States, and threatening jobs across the board.

However, the revival of the U.S. shipping industry is definitely in the sights of President Donald Trump and has now been cast as part of National Security as per the issue of the draft document “Make Shipbuilding Great Again”. Once again, it is felt that President Trump will put pressure on allies to do the same or they will face penalties as well. It is feared the allies are currently not happy being treated like second-rate citizens, so this outcome will be interesting to see. Everyone involved in the United States appears to agree that U.S. shipbuilders cannot compete on an even playing field due to unfair production and market practices by the Chinese.

However some major U.S. carriers have advised if the full implementation of this draft document is achieved, it could put them out of business. There is hope that some of the proposals will be watered down, but if not one veteran in the maritime transportation industry advised that these proposals will be like an “Apocalypse for the trade”. Furthermore, due to lack of domestic production, the “Louisiana Energy Gateway” project (slated to deliver the next generation of LNG – Liquid Natural Gas a Trump favourite), still needs 16,000 MT of steel piping.

Major US Investment Banks are Recalibrating and Pulling Back from China

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Once upon a time China was regarded as one of the major centres for the expansion of investment banking, with many of these banks viewing China as one of the crown jewels within their portfolios. Today, with the United States applying more tariffs and restrictions on the country, the China economy is reeling from huge losses in the property sector; the economy which conservatively speaking has been sluggish, has put the brakes on deal flows. As a result, many global investment banks are rethinking their “China Strategy” and pulling back from the USD67 Trillion financial services market.

A number of analysts confirm that back in December 2024 a number of US Investment Banks conferred with the US Treasury regarding the rules and regulations as to how their clients may comply with investing in China. It is understood that many of these executives left the meeting with less understanding of the situation and many with more questions than answers. Experts suggest the bankers needed to understand the rules and guidelines concerning investing in those Chinese companies by their clients, which pose potential national security risks. Furthermore, which reporting requirements were needed and which deals would now qualify under the new rules.

So as these institutions pull back from China, the recipients of their largesse seem to be according to experts, Japan and India who are not filling the large investment hole that leaving China has produced. Indeed, many of these international investment houses and banks have reduced staff or as some analysts put it “pared to the bone” to levels that just meet the minimum staffing requirements by the Chinese financial regulators allowing these companies to operate in their jurisdiction. Despite numerous financial stimuli, many bank bosses are sceptical that there will be any decent improvement in China’s economic prospects.

Some experts point to November 2020 as the point where global confidence in China began to decrease. In that month, the Ant Group controlled by Jack Ma were just about to issue their IPO (Initial Public Offering), which at the time would have been the world’s largest, in the amount of USD35 Billion in Shanghai and Hong Kong. However, instead of marking what would have been a high point in China’s booming business sector, the Chinese authorities pulled the IPO at the last minute. Experts confirmed this action by the Chinese authorities marked the start of China’s war on private companies/enterprise, and the beginning of declining global confidence in China which also sabotaged Hong Kong’s standing as a major funding centre for Chinese companies.

Interestingly, analysts advise that some Wall Street banks consider China a long-term bet with one senior banker suggesting that there could be double digit growth in 2025, but experts suggest that his peers disagree, and China may take years to achieve this figure. However, let’s not forget Hong Kong where many US banks have successfully made significant profits from Greater China, which has historically accounted for a significant share of any earnings. Last week February 10th – 14th 2025 bankers were encouraged by a rebound in Chinese Stocks in Hong Kong (they hit a three year high), this on the back of China participating and maybe becoming a major player in the AI artificial intelligence sector.

However, all eyes are on the US administration and whether or not they will increase tariffs on imports from China having already levied a 10% charge and what will be China’s reaction and the overspill into their already problematic economy. Elsewhere on the tariff front, the recent bombshell of more tariffs announced on Tuesday 18th February 2025 by Donald Trump where he intends to impose levies of 25% on the importation of auto parts, semiconductors, and pharmaceuticals as early as 2nd April 2025. President Trump did not specify what countries he had in mind, but currently Germany seems to be on the cards. 

The big question is will the president hold true to his pre-election promises or will he, like Canada and Mexico, use tariffs as a club to beat countries into agreeing to other demands. However, he has promised tariffs to put “America First” so whatever happens, 2025 may see an all-out trade war with the world and especially consumers are in for a fairly bumpy ride.

European Union Looking to Avoid a Trade War with the United States

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Ever since Donald Trump was re-elected to the White House on Monday 20th January 2025, the European Union has been preparing counter measures to the new president’s tariffs, which would mark the beginning of a trade war with the United States. However, with President Trump pulling his tariffs at the last minute with both Canada and Mexico*, the EU has become emboldened and feel that they can come to a negotiated agreement with the Trump administration regarding tariffs.

*Canada and Mexico – Tariffs of 25% on goods from both counties were due to begin on Tuesday 4th February 2025, but after conversations between Donald Trump and the President of Mexico Claudia Sheinbaum followed by a conversation with the Prime Minister of Canada Justin Trudeau, President Trump delayed tariffs for one month. Both the leaders of Canada and Mexico agreed to up the ante in fighting migration and the flow of fentanyl into the United States, key demands by the US administration to avoid tariffs.

However, there is, according to person(s) close to the EU’s executive arm in charge of trading, a major stumbling block with the EU’s strategy as they have been unable to establish decent contacts within the new administration, with some key posts still awaiting senate confirmation. Furthermore in March, the exports of steel and aluminium will be discussed, and the EU will look to avoid conflict on this matter which has been brewing for some time. The Eu will also wish to get agreements with the new administration and avoid tariffs, especially as recent increased rhetoric from President Trump aimed directly at the European Union said that due to large trade deficits with the eurozone means that tariffs are definitely on their way.

In view of President Trump’s remarks the President of the European Union Ursula von der Leyen said” When targeted unfairly and arbitrarily, the European Union will respond firmly”. However, what the EU has to take into account is that the angst that President Trump has towards the bloc goes back a long way, so getting agreements on tariffs may prove a lot more difficult.

Furthermore, Germany’s Chancellor Olaf Scholz is currently making a habit of dissing President Trump, plus his pre-election remarks making it quite clear he was voting for Kamala Harris for the White House, will not exactly endear himself to the new president. Germany will also be in President Trump’s crosshairs as they have a massive trade surplus with the USA of in excess of USD 63.3 Billion as of close of business 2023.

Experts are suggesting that if indeed President Trump announces tariffs on the European Union the response may initially be muted along the lines of the Chinese who announced retaliatory tariffs on imports of US oil and Energy among other levies, but which amounted to less than USD 5 Billion. The word on the street is that the EU may feel that President Trump is using tariffs as a diplomatic club or hammer to get his own way on his policies (e.g. Canada and Mexico).

The EU may well have to increase their Defence/NATO spending, an ongoing demand from President Trump, and make concessions regarding the Russia/Ukraine war. No doubt policymakers are well aware of these demands and only time will tell if indeed the USA and the European Union can come to an agreement on tariffs, but with the bloc suffering from a deepening economic and political malaise, President Trump may well hold the winning hand. It must be remembered that at the recent World Economic Forum in Davos the President of the United States was quoted as saying “the EU treats us very very unfairly, very badly”, so Europe has been forewarned.

Trade Tariffs 2025 – Trump Lives up to his Election Promises, However…….

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On Saturday February 1st, 2025, President Donald Trump announced sweeping tariffs on imports of goods from China, Mexico, and Canada, with China being hit with 10% above current tariffs and Mexico and Canada being hit with 25% tariffs. Some experts warned that such moves by the US administration could see the start of a trade war that could reignite inflation and negatively impact global growth. The president of the NFTC (National Foreign Trade Council) said that this move “threatened to raise the cost of everything from avocado’s to automobiles” and he hoped a resolution between America, Canada, and Mexico, could be quickly found.

Donald Trump signed three executive orders imposing said tariffs with a starting date of Tuesday 4th February 2025. The announcement and subsequent executive orders made good on President Trump’s promises during the election campaign despite repeated warnings from renown economists and analysts who advised that a trade war with Mexico and Canada (USA’s top trade partners) would erode growth both globally and in the United States with the result being increased prices for both companies and consumers.

However, before Monday the 3rd of February ticked round President Trump had already dialled back his plans for tariffs to start on Tuesday 4th February 2025, having announced a month’s respite for Mexico. President Trump confirmed that during a telephone call with the President of Mexico Claudia Sheinbaum, she confirmed that she would send 10,000 troops to the border to help combat illegal immigration and the flow on fentanyl, which is a key Trump demand to avoid tariffs.

Similarly, on Monday 3rd February 2025, the Prime Minister of Canada Justin Trudeau announced that President Trump had abandoned the February 4th deadline for tariffs, and like Mexico had agreed to a one month delay providing he took tougher measures to combat drug trafficking and illegal migration across their shared border. The concessions President Trump received from Prime minister Trudeau is the appointment of a new Fentanyl Czar, listing cartels as terrorists and in a joint venture with the United States, create a new strike force that will combat money laundering, organised crime, and drug trafficking.

In the meantime, China’s response to President Trump’s imposition of tariffs, has been to introduce their own tariffs on a number of US goods and targeting a small number of US companies. On Tuesday 4th February 2025, China announced an imposition of a 15% levy (under USD5 Billion) on imports of US energy and a 10% levy on US oil and agricultural equipment. The Chinese government also targeted PVH Corp (owner of Tommy Hilfiger, Calvin Klein, Olga and True) and Illumina Inc (a gene sequencing company) putting them on a blacklist.

The Chinese government also imposed stricter controls on the exports of critical metals such as tungsten, used in defence, aviation, and electronic industries. Experts suggest that this is a muted response designed to avoid an all out trade war, but enough to show President Trump that China can hit America where it hurts. The American President wishes to speak to President Xi before their tariffs and export controls take effect on 10th February 2025, perhaps another reason why China held back on an all-out response.

Elsewhere, President Trump suggested that the eurozone (European Union) could be next in line for tariffs and could happen “pretty soon”. He went on to say that “they don’t take our farm products, they don’t take our cars, they take almost nothing, and we take everything from them. Millions of cars, tremendous amounts of food and farm products”. The European Union initially condemned President Trump for initiating tariffs and advised they will respond in kind if they become a target.

Conclusion

Throughout President Trump’s election campaign the slogan has been “America First”, “Tariffs”, he even said tariffs is his favourite word. Before Donald Trump became President and after he became President he trumpeted tariffs, tariffs, tariffs. We shall bring factories back to America, create more jobs, lower taxes for everyone are the words that have been put forth to the American people. However, is President Trump using tariffs as a diplomatic club to get his way in other areas such as with Mexico and Canada. We shall see what will happen with the United Kingdom and the European Union, but for those American voters waiting on tariffs, they could be sorely disappointed.

What is Basis Trading and How Does it Affect the Treasury Bond Market?

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Basis trading is a financial trading strategy regarding the purchase of a particular financial instrument or security (in this case Treasury Bonds) or commodity, and the sale of its related derivative. In this example, it is the purchase of a Treasury Bond and the sale of its related futures contract. In the treasury market, the trade is centred on the price differential between treasury bonds and their associated futures contracts.

From time to time, due to heavy purchasing of Treasury bond futures by insurance companies, institutional investors and pension funds*, the bond futures price rises above the price of the underlying bond. Once this price differential is in place hedge funds take advantage of this price differential and will buy Treasury bonds and at the same time sell corresponding Treasury futures. The upshot of this trade is that by selling the higher priced bonds in one market and buying the cheaper priced bonds in another market, the hedge funds can profit from the price differential. 

*Purchasing Treasury Bond Futures – Asset managers instead of buying actual Treasury bonds quite often prefer to buy futures because there is less upfront cash to pay. 

However, the profits from these trades are very small, and therefore heavy borrowing is required in order to make them more lucrative. Sometimes when there are unexpected episodes or events, this can quite often lead to market volatility leading to potential tragic consequences for the trade leaving the trader no option but to straight away unload all their holdings. This form of arbitrage*, as mentioned previously, requires heavy borrowing, and hedge funds usually borrow from the Repo Market**. It is normal for hedge funds to offer their Treasury bonds as collateral, as the normal practice is to roll-over these loans on a daily basis. Experts advise that these trades can be quite risky due to the amount of leverage involved (on average USD50 for every USD1 invested so 50 times leverage), plus a big reliance on short-term borrowings. 

*Arbitrage – the simultaneous buying and selling of currencies, commodities or securities in different markets or in derivative forms in order to take advantage of the differing prices of the same asset.

**Repo (Repurchase Agreement) Market – In this market money market funds, banks and others lend short-term capital against government securities, in this case US Treasury Bonds. Basically, in this transaction a borrower temporarily lends a security to a lender for cash with an agreement to buy it back in the future at a predetermined price. Ownership of the security does not change hands in a repo transaction.

When the Treasuries market experiences volatility, it can increase the cost of the trade thereby negating profitability, so hedge funds must very quickly unwind their trades in order to repay their loans thereby increasing volatility in an already volatile market.  Such fluctuations can see liquidity drying up and a decrease in the availability of buyers. In such instances* the Treasuries market can literally seize up, and with Treasury bonds being so fundamental to the credit market (and they are risk-free), the US Federal Reserve has had to intervene when the normal functioning of the market has become impaired. 

*Onset of the CoronaVirus – Back in 2020 when the Covid-19 appeared the huge volatility in the markets prompted margin calls in Treasury bond futures, amplifying funding problems in the repo market. Simultaneously, Treasury bond holdings were being dumped by foreign central banks in order to prop their own currencies with US Dollars. This prompted cash bonds to underperform their futures counterparts which is the opposite of the conditions needed for the basis trade to make a profit. It was never fully understood how much basis trading contributed to the turmoil in the market, but the rapid unwinding of positions by hedge funds certainly increased volatility. The upshot was the Federal Reserve promised to buy trillions of dollars of Treasury Bonds to keep markets running smoothly whilst providing the repo market with emergency funding. 

Basis trading subsided after the 2020 debacle but returned in early 2023 due the Federal Reserve monetary tightening policies by raising interest rates a record eleven times in eighteen months, which pushed up yields on 10 year Treasury bonds to circa 5%. On the demand side, this yield (highest since 2007) once again attracted large institutional buyers to buy futures, and on the supply side the Federal Reserve has increased sales of bonds to fund the US Government deficits, which has put downward price pressure on cash bonds. Therefore there is now a sufficient gap between the price of cash bonds and futures to have basis traders up and running again.

Financial watchdogs and authorities are unhappy over these trades, specifically because they are highly leveraged, and the fact that they are direct from one party to another. This means regulation is difficult, plus hedge funds themselves have much less regulation than banks. To this end, the Bank for International Settlements (BIS), the Bank of England and the Federal Reserve have called for closer monitoring of basis trades. Indeed the US Securities and Exchange Commission (SEC) finalised a rule in May of this year (starting June 2024)requiring all private funds to report sudden large losses, margin increases and any other significant changes.

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