🎙️ Tech Lake City

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Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• Salt Lake City’s push into fintech

• Bitcoin’s ascent despite challenges to BlackRock’s Bitcoin ETF

• The super-rich’s extravagant investments in Japan

All this, and more, in just 5 minutes to read.

CHART(S) OF THE DAY

IN THE NEWS

💰 Salt Lake City’s Fintech Push: Tech Lake City (WSJ)

Remember fintech?

Amid all the hype around artificial intelligence and crypto, Salt Lake City is pushing to become a fintech hub, aka ‘Tech Lake City.’

It’s a throwback move, largely driven by a new education center in the city that aims to produce employees equipped to work in fintech or financial technology.

• Utah’s major city wants to become one of the premier financial-technology hubs in the country, away from more expensive areas such as New York and Silicon Valley.
  

• In January, the University of Utah opened the Stena Center for Financial Technology, offering courses, a minor in the subject, and other opportunities. The center will make available venture capital, office space, and advice from fintech executives.
  

• Large fintech companies, including Brex, Plaid, and SoFi have opened offices in and around Salt Lake City, joining more-established banks and payment companies, such as Goldman Sachs and Visa.

Salt Lake City isn’t alone, as other areas, including Atlanta, Charlotte, West Virginia, and Wyoming, want to become fintech hubs.

What helps Salt Lake City: Low cost of living and a growing talent pool. One company, Divvy, is an expense management platform in the area acquired for $2.5 billion in 2021. It was co-founded by a University of Utah graduate, exactly the kind of local innovation (and outcome) the city desires.

Why it matters:

One investor said he noticed after years of recruiting that many workers excelled in financial regulation, software engineering, or product development. But only some were strong in multiple areas, lacking the combination needed to thrive at developing fintech products and services.

• Mayor Erin Mendenhall is working on a district for innovation downtown that could attract a concentration of biotech and fintech offices and labs.
  

• What’s also key is Utah is home to many so-called industrial loan companies, which enjoy many privileges of traditional banks but can be part of companies whose primary business isn’t banking. That makes Utah a draw for tech companies wanting to break into banking, such as Block, the parent company of Square and Cash App.

Utah also incentivizes companies to move to the state by giving them a refundable tax credit rebate for up to 50% of new state revenues they produce over a set period.

So far, so good: Tech and finance employed more than 180,000 people in the state as of mid-2022, up 18% from five years earlier. Big players like Fidelity Investments will add about 300 technology jobs in the state, and Texas Instruments will add about 800 jobs.

Tight nucleus: Noted one fintech executive in the area: “It is sort of a tight nucleus of a bunch of optimistic folks.”

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🚀 Bitcoin Soars Despite Challenges Facing Bitcoin ETFs (WSJ)

A few weeks back, we covered BlackRock’s application to launch a Bitcoin exchange-traded fund (ETF). We argued it’d be a big deal for the emerging digital asset, providing institutional credibility from the world’s largest investment manager (BlackRock).

• It’d also make it easier for millions of people to invest in Bitcoin without worrying about some sketchy MIT grad and former billionaire stealing their funds (we’re looking at you, Sam Bankman-Fried.)
  

• Many firms have applied to create such an ETF, but all have been denied. Still, BlackRock’s deep pockets, political connections, and track record of successful ETF approvals provide hope that ‘this time might be different.’

Although approval (or rejection) is still pending, Bitcoin’s price is up over 19% in the past month and more than 86% for the year. It seems the “crypto winter” spurred by higher interest rates — which hurt almost all financial assets last year — and the infamous collapse of Sam Bankman-Fried’s crypto exchange FTX is a distant memory.

• And Coinbase, cited as the potential custodian for the Bitcoin underpinning BlackRock’s proposed ETF, has jumped around 40% since BlackRock’s filing on June 15.

Not everyone is convinced: The Wall Street Journal reports that many analysts remain skeptical. Since 2017, the Securities and Exchange Commission (SEC) has blocked all Bitcoin ETF applications due to concerns that trading markets for Bitcoin were vulnerable to fraud and market manipulation.

Why it matters:

In these denials, regulators suggested a “surveillance” agreement was needed between the stock exchange, where the ETF would be listed, and the crypto exchange, where the underlying Bitcoin would be traded, to better detect market manipulators. The platform for Bitcoin trading would need to be “regulated” and “of significant size,” which is where things get tricky.

Up in the air: Given that just last month, the SEC sued Coinbase for failing to register properly as a securities exchange, it’s not clear whether Coinbase will tick the boxes necessary to ensure BlackRock’s ETF is approved.

• Interestingly, despite being a long-time critic of Bitcoin, BlackRock’s CEO Larry Fink compared it to digital gold last week and called it an “international asset.”
  

• Eric Balchunas, a senior ETF analyst at Bloomberg, commented that a “gigantic wad of money” is waiting to flow into a Bitcoin ETF, “especially from financial advisors.” But his team sees the odds of a Bitcoin ETF being approved only at 50% currently.

MORE HEADLINES

👀 Threads tops 100 million users as Twitter traffic is “tanking”

🌎 The world is big enough for the U.S. and China, Janet Yellen says

🤖 How A.I. could be “the biggest wealth creator in history”

😬 Carl Icahn gets breathing room after short-seller attack

🌇 The Super Rich Are Snapping Up Tokyo’s New Ultra-Luxury Homes (Bloomberg)

Foreign investors have long been puzzled by the scarcity of ultra-luxury apartments in Tokyo, given its extravagant shopping options.

However, this trend is shifting as new developments offering stunning views, swimming pools, and round-the-clock valet services are quickly swept up by both local and international buyers.

• Foreign buyers are capitalizing on a weaker yen exchange rate (which means dollars or euros have more purchasing power), driven largely by the country’s comparatively low-interest rates. This also makes loans to buy real estate more affordable, contributing to the changing landscape of Tokyo's luxury real estate market.

Expensive real estate: Average selling prices for new apartments have roughly doubled in the Tokyo area compared to the previous year, as observed in March.

• While price increases have moderated since then, they remained up 60% in April and 48% in May, according to the Real Estate Economic Institute.
  

• “The market here is very much under-supplied. That’s why there’s strong demand. Also, inbound and full reopening of the border helped.” said the head of research at the real estate company Savills.

While Tokyo's housing market continues to surge, it offers more space for your money. Tokyo's luxury apartments are more cost-effective than similar listings in other global cities.

• With a million dollars, a potential buyer can acquire twice the amount of prime real estate space in Tokyo than in other locations like New York, Los Angeles, London, or Paris.

Why it matters:

According to Tokyo-based real estate firms specializing in working with funds and family offices, luxury residential transactions in the city increased by 40% over the past two years.

Flight to safety: The company's high-net-worth clients from Hong Kong, Singapore, and Taiwan seek asset diversification and a haven from escalating geopolitical tensions related to China.

• “The yen is cheaper, and it’s stayed that way, the political climate in China and Hong Kong has a lot of people shifting their money out, and look at the taxes Singapore has put on foreign buyers,” said one real estate CEO.

See you next time!

That's it for today on We Study Markets!

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