Centerfin Collective Weekly

Weekly Update January 13, 2023

Japan beefs up military, SEC sues Gemini and Genesis, Return of the meme stocks?

Japan beefs up military

After announcing the largest military budget increase since World War II in December, this week Japan announced stronger military ties with the US and the UK. While on a tour of G7 allies, Fumio Kishida, Japan’s Prime Minister, announced a new agreement with the United Kingdom that allows for joint military exercises between the two countries. At the same time, the United States announced an expanded military alliance with Japan, allowing for faster coordination in the event of a conflict in Asia. Japan has largely been a pacifist nation since World War II; however, recent tensions in China, Russia, and North Korea have forced them to re-militarize in the event of a conflict. For the US and the UK, strengthening military ties with an ally in the region makes sense in the event of an anticipated conflict between China and Taiwan.

SEC sues Gemini and Genesis

This week the SEC sued both Gemini and Genesis on the basis of selling unregistered securities, in reference to a popular crypto lending product. The action stems from Genesis freezing withdrawals of nearly $1bn of customer funds after the collapse of FTX in November. Gemini and Genesis have been attempting to resolve the matter since. It is disappointing that the SEC took regulatory action AFTER hundreds of thousands of customer deposits were frozen. Gemini was supposedly in talks with the SEC for over a year.  While we strongly believe there is a use case for Bitcoin, a clear regulatory framework has always been lacking. In the meantime, the overhang of regulatory actions against existing actors will remain a major risk.

Return of the meme stocks?

Unlike 2022, the stock market got off to a strong start thus far to begin the new year. While promising, under the surface, we have witnessed the biggest gains come from some of the meme stocks popularized during the irrational exuberance of 2021. Highly speculative stocks such as Carvana, Gamestop, and AMC, rallied strongly to begin the year. While a strong start to the stock market is welcome after a brutal 2022, the performance of meme stocks shows that some of the speculative behavior witnessed in 2021 is still alive and well. If history is a guide, markets generally do not bottom until this type of speculation capitulates. Time will tell.

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