By Lisa Pauline Mattackal and Medha Singh

(Reuters) – A crypto platform’s pledge to amass $10 billion worth of bitcoin to back its own “stablecoin” is firing up the market. It’s part of a wider movement to crown bitcoin as the reserve currency of a new age.

Seoul-based Terraform Labs has so far built up nearly 40,000 bitcoin worth $1.7 billion in a series of purchases via a non-profit affiliate, Luna Foundation Guard, according to publicly available blockchain data.

The spree follows Terraform co-founder Do Kwon’s announcement on Twitter last month https://twitter.com/stablekwon/status/1506278298883706882 that the project would buy the $10 billion worth of bitcoin reserves to underpin TerraUSD, breaking ranks with other large stablecoins – a ballooning class of cryptocurrencies that aim to minimise wild price swings and are typically backed by U.S. dollar reserves.

A stablecoin backed by bitcoin reserves, according to Kwon, “will open a new monetary era of the Bitcoin standard”, referencing the gold standard that formed the backbone of global finance about a century ago.

The acquisitions, and the anticipation of more to come, are supporting the price of bitcoin, with some market players identifying them as a big driver of bitcoin’s climb back towards $48,000 at the end of March. More significant, perhaps, is whether others will follow Terraform’s lead.

“Buying $10 billion worth can move the price in the short term,” said Sid Powell, CEO of Sydney-based crypto lender Maple Finance. “But over the longer period, it’s more what it signals – that bitcoin has been introduced as the hottest form of collateral backing for currencies.”

Yet other market participants cautioned that an ever-closer embrace between bitcoin and stablecoins like TerraUSD could introduce a new risk for crypto markets that raised the prospect of a “death spiral” for investors down the line.

Either way, it’ll be worth watching.

In the short term, too, there are pitfalls.

“There is a danger some people are trying to position long ahead of the buying which could exaggerate a fall if the price starts to retrace,” said Richard Usher, head of OTC trading at crypto firm BCB Group in London, who attributed bitcoin’s gains last month to an improving risk environment.

Vetle Lunde, analyst at Norway-based crypto research firm Arcane Research who is tracking the Terra project purchases, estimates that, to reach an initial $3 billion in reserves, it could eventually hold between 60,000 to 70,000 bitcoin.

That would surpass Tesla’s 43,200 bitcoin https://bitcointreasuries.net, the public company with the second largest bitcoin stockpile behind MicroStrategy.

Terraform Labs didn’t respond to a request for comment.

EARTH AND MOON

Stablecoins are rapidly gaining ground. They’re a common medium of exchange and often used by traders seeking to move funds around and speculate on other cryptocurrencies.

For example, it is much easier to swap tether – the biggest and most mature stablecoin – for bitcoin or other crypto, than it is to swap U.S. dollars for bitcoin.

A year ago, tether’s market cap $44.5 billion, while upstart TerraUSD’s was $1.76 billion. They have since risen about 85% and 850% respectively to stand at $82.3 billion and $16.7 billion, according to CoinMarketCap.

TerraUSD is now the fourth-largest stablecoin and, like its peers, is pegged to the dollar. However, while the likes of Tether and USD Coin have reserves in traditional assets which they say match the value of tokens in circulation, TerraUSD maintains its 1:1 dollar peg through an algorithm that moderates supply and demand in a complex process that involves the use of another balancing token, Luna.

The bitcoin reserves theoretically add another level of reassurance, while keeping the Terra project decentralised.

“Backing it with something as predictable – not from a price perspective but from a rules and governing perspective – as bitcoin brings a lot of confidence to people,” said Matthew Sigel, head of digital assets research at VanEck in New York.

He said he expected other algorithmic stablecoins to follow Terra’s lead and back up their coins with reserves of bitcoin, and even other crypto tokens, if the experiment succeeds.

THE DEATH SPIRAL

However, not all algorithmic stable coins have been stable in the past, with some losing their peg and collapsing in value.

“There is still much work to be done and regulatory uncertainties to overcome regarding algorithmic stablecoins and their resistance to a collapse in contractions, which might cause a so-called ‘death spiral’,” said Carlos Gonzalez Campo, an analyst at 21Shares in Switzerland.

“This phenomenon refers to a theoretical vicious circle where UST (TerraUSD) contraction leads to LUNA being minted and declining in price, which leads to fear and more UST redemptions,” he said, comparing this to a bank run.

This is what the bitcoin reserve is meant to avoid, but it could also cause wider contagion.

“It’s far better to have some reserve outside of luna because otherwise you’re very exposed to its performance and that can make everything break as we’ve seen with other algorithmic stablecoins,” said Arcane’s Lunde.

“But I’m a bit concerned about the long-term structural effects this may have on luna and on bitcoin. If things really start to break up, and they have 70,000 bitcoin in reserves they want to use to settle the market and maintain the peg, it might have implications for the entire market.”

(The story is updated to correct figure to $3 billion in paragraph 11)

(Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Alun John and Pravin Char)

By Uditha Jayasinghe and Jorgelina do Rosario

COLOMBO/LONDON -Sri Lanka’s central bank said on Tuesday it had become “challenging and impossible” to repay external debt, as it tries to use its dwindling foreign exchange reserves to import essentials like fuel.

The island nation’s reserves have slumped more than two-thirds in the past two years, as tax cuts and the COVID-19 pandemic badly hurt its tourism-dependent economy and exposed the government’s debt-fuelled spending.

Street protests against shortages of fuel, power, food and medicine have gone on for more than a month.

“We need to focus on essential imports and not have to worry about servicing external debt,” Central Bank of Sri Lanka’s governor, P. Nandalal Weerasinghe, told reporters.

“It has come to a point that making debt payments are challenging and impossible.”

Weerasinghe said the suspension of payment would be until the country came to an agreement with creditors and with the support of a loan programme with the International Monetary Fund (IMF). Sri Lanka starts formal talks with the global lender on Monday for emergency loans.

The country has foreign debt payments of around $4 billion due this year, including a $1 billion international sovereign bond maturing in July. A coupon payment of $78 million is due across two of its bonds maturing in 2023 and 2028 on Monday, though there is a 30-day grace period.

“It is a default. This was inevitable,” said Murtaza Jafferjee, the chief executive of brokerage J.B Securities.

“This is a positive for the economy because we were using scarce foreign exchange resources to service our debt when we could not afford to. This will release funds for our own citizens. It was displaced vanity at the cost of our population.”

He said Sri Lanka’s decision covers about $25 billion in bilateral and commercial debt, which includes about $12 billion of international sovereign bonds.

“The memorandum today should pave the way to an IMF program, in our view,” said Milo Gunasinghe at JPMorgan in a note to clients, though warned that political uncertainty remained high.

With the government only having begun the process of selecting advisers for debt talks over the weekend, formal negotiations with creditors might only start once appointments have been made, Gunasinghe added.

BlueBay Asset Management’s senior emerging markets sovereign strategist, Timothy Ash, said the “only surprise is that it took the administration in Colombo so long to come to terms with the reality on the ground”.

“It’s logical to declare a payment moratorium until they work out a programme with the IMF and agree terms with bondholders,” he said.

Sri Lanka’s sovereign dollar-denominated bonds enjoyed healthy gains on Tuesday, with many issues up nearly 2 cents in the dollar, Tradeweb data showed.

Its hard currency bonds mostly trade at deeply distressed levels of just under 40 cents in the dollar while the bond maturing on July 25 last traded at just over 50 cents, according to Refinitiv data.

Governor Weerasinghe said the call on repayment was being taken in good faith, emphasising that the country of 22 million people had never defaulted on its debt payments.

(Writing by Devjyot Ghoshal and Krishna N. Das; Editing by Ed Osmond, Raju Gopalakrishnan and Nick Zieminski)

By Sruthi Shankar and Anisha Sircar

(Reuters) -European shares fell on Tuesday as Deutsche Bank and Commerzbank slumped after a big stake sale, while a U.S. reading on inflation kept aggressive Federal Reserve tightening bets from ramping up.

The pan-European STOXX 600 index fell 0.3%, paring some losses from earlier in the day, with healthcare stocks leading losses, and banks among the worst hit.

Deutsche Bank and Commerzbank fell 9.4% and 8.5%, respectively, after an undisclosed investor sold stakes of more than 5% in Germany’s top lenders.

The appetite for shares firmed slightly from earlier in the day after U.S. data showed consumer prices in the world’s largest economy rose largely in line with estimates, pushing U.S. Treasury yields lower. [US/]

After a strong rebound from March lows, the STOXX 600 has been stuck in a range on worries about the fallout of the Ukraine war, aggressive rate hikes by the Federal Reserve to tame inflation and rising coronavirus cases in China.

“That sinking feeling hit European shares amid concerns that inflationary pressures are still mounting and growing evidence that consumer confidence is suffering amid the cost of living squeeze,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“The increasingly entrenched Ukraine conflict has already sent commodity prices soaring… The sanctions screw expected to be turned tighter on Russia, and the European Union is thought to be inching closer towards agreeing a Russian oil embargo,” she said, adding that the associated supply fears were pushing up crude prices.

Oil & gas stocks gained 1.3% as crude prices rose after falling below $100 a barrel in the previous session. [O/R]

U.S. quarterly earnings season is set to begin this week with Wall Street banks. In Europe, the reporting season will kick into high gear later this month, with analysts’ predicting a 19.9% rise in profit for STOXX 600 companies, as per Refinitiv data.

Italian defence group Leonardo rose 2.7% as Deutsche Bank upgraded the stock to “buy” on expectations of higher defence spending in the company’s main markets.

Nokia slipped 1.4% after Pekka Lundmark, chief executive officer of the telecoms equipment maker, told Reuters the firm is pulling out of the Russian market.

German investor sentiment fell by less than expected in April, a survey showed, as a decline in inflation expectations gave some cause for hope about the outlook for Europe’s largest economy.

(Reporting by Sruthi Shankar and Anisha Sircar in Bengaluru; Editing by Arun Koyyur and Mike Harrison)

By Asha Sistla

(Reuters) – Gold advanced more than 1% on Tuesday as Treasury yields eased after U.S. inflation data drove expectations that the Federal Reserve may not need to be as aggressive in tightening policy in the longer term.

Spot gold XAU= rose 1% to $1,972.76 per ounce by 11:33 a.m. ET (1532 GMT), hitting its highest in nearly a month. U.S. gold futures GCv1 rose 1.5% to $1,977.70.

The benchmark 10-year U.S. yield slipped after inflation data showed an acceleration in March, but less than many market participants had expected. USD/ US/ (Full Story)

“The report provides some optimism that inflation could be peaking here. … That might help the Fed be a little bit less aggressive and tightening policy down the road,” said Edward Moya, senior market analyst with OANDA.

But Moya added that “this doesn’t change anything over the short term,” with the Fed still expected to raise interest rates by a hefty 50 basis points next month to tame inflation.

While gold is considered a safe haven as consumer prices rise, higher interest rates increase the opportunity cost of holding zero-yield bullion.

But the likelihood of aggressive policy measures has also sparked concerns the Fed may make a policy error and cause a recession, in turn bolstering safe-haven gold, analysts said. .N

Gold continued to find support from developments surrounding Ukraine, with Russian troops massing for a new offensive. (Full Story) (Full Story)

Palladium XPD= fell 2% to $2,383.23 per ounce on profit-taking, after hitting its highest since March 24 at $2,550.58 on Monday following the suspension of trading of the metal sourced from key producer Russia in the London hub.

Platinum XPT= inched 0.2% lower to $979.09. (Full Story)

The suspension of the Russian refiners could exacerbate near-term palladium supply tightness, Standard Chartered analysts said in a note, predicting volatile prices in the coming weeks.

Spot silver XAG= rose 1.9% to $25.55 per ounce.

(Reporting by Asha Sistla in Bengaluru; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)

(Reuters) -A spike in demand for electric vehicles (EV) in the global markets is encouraging automakers such Tesla Inc, Volkswagen and Stellantis NV to secure raw materials needed for making batteries.

Following are some of the deals major automakers have announced with suppliers and miners:

TESLA 01-Mar-2022Core Lithium will supply up to 110,000 dry metric tonnes of Spodumene concentrate, a chief source of lithium, over four years, starting in the second half of 2023, from an Australian project.

01-Nov-2021

China’s Ganfeng Lithium Co will supply battery-grade lithium for three years starting 2022. Volumes were not disclosed. Ganfeng is the third largest lithium supplier in the world. 22-July-2021 Australia’s BHP Group will supply nickel from BHP’s plants in Western Australia. Quantities, timing not disclosed.

VOLKSWAGEN

08-Dec-2021

Vulcan Energy Resources will provide lithium hydroxide for five years starting in 2026. Vulcan extracts lithium from geothermal sources in Germany’s Upper Rhine Valley region.

08-Dec-2021 Belgian chemical firm Umicore will supply cathode materials for VW European battery cell factories under a joint venture with the carmaker. It will start production in 2025 with 20 gigawatt hours (GWh) for VW’s plant in Salzgitter, Germany.

STELLANTIS NV

29-Nov-2021Preliminary deal with Vulcan Energy Resources for lithium produced using geothermal energy from Germany. Over five years starting in 2026, Vulcan will supply between 81,000 and 99,000 tonnes of battery-grade lithium hydroxide.

RENAULT SA 21-Nov-2021

Vulcan Energy Resources will supply 26,000 to 32,000 metric tonnes of battery-grade lithium chemicals for initial six-year starting 2026. 08-Oct-2021

MoU with Terrafame, a Finnish nickel and cobalt miner, to supply nickel sulphate. Quantities and timeline not disclosed. (t.ly/iRZm)

TOYOTA MOTOR CORP

04-Oct-2021

BHP Group Ltd will supply nickel sulphate from Western Australia to a battery-making joint venture between Toyota Motor and Panasonic. Details were not disclosed.

GENERAL MOTORS

12-April-2022

Miner Glencore PLC will supply cobalt, secured from its Murrin Murrin operation in Australia, to be used in GM’s Ultium battery cathodes, which powers the Chevrolet Silverado EV, GMC Hummer EV and Cadillac Lyriq vehicles. Details were not disclosed.

02-Jul-2021

GM will make a “multimillion-dollar investment” in and help develop Controlled Thermal Resources (CTR) Ltd’s Hell’s Kitchen geothermal brine project near California’s Salton Sea. The project could be producing 60,000 tonnes of lithium – enough to make roughly 6 million EVs – by mid-2024.

FORD

11-Apr-2022

Ford will buy lithium from a Lake Resources NL facility in Argentina. The carmaker aims to purchase 25,000 tonnes annually of the white metal from Lake’s Kachi project in northern Argentina.

22-Sept-2021

Partners with startup Redwood Materials to form a “closed loop” or circular supply chain for electric vehicle batteries, from raw materials to recycling.

(Reporting by Nilanjana Basu, Yuvraj Malik and Kannaki Deka in Bengaluru; Editing by Shinjini Ganguli and Sriraj Kalluvila)

By Satoshi Sugiyama and Maki Shiraki

TOKYO – Japan’s Honda Motor Co Ltd plans to spend $64 billion on research and development over the next decade, the company said on Tuesday, laying out an ambitious target to roll out 30 electric vehicle models globally by 2030.

Its goals include producing some 2 million electric vehicles a year by 2030, aiming to gain share in the fast-growing market for electric vehicles, led by Tesla Inc, while Japanese automakers risk falling behind European and U.S. rivals.

“As far as resource investments over the next 10 years go, we’re going to invest about 8 trillion yen in research and development expenses,” said Honda Chief Executive Toshihiro Mibe, referring to the equivalent to $64 billion.

Honda said it wanted to establish a dedicated electric vehicle production line in North America, where it will also procure Ultium batteries from General Motors Co.

It is also considering a separate joint venture company for battery production there, aside from its GM partnership.

Last week Honda said it and GM would develop a series of lower-priced electric vehicles based on a new joint platform, expanding on plans for GM to begin building two electric SUVs for Honda starting in 2024.

The push towards electric vehicles has prompted it to hunt for partners to optimise costs and share technology.

“This puts them in good company with a lot of other makers that have made big battery announcements … ultimately the world is going to leave internal combustion engines behind,” said Christopher Richter, an analyst at CLSA.

“Given their size, I am glad they are cooperating with General Motors.”

The bulk of the 8-trillion-yen investment is earmarked for electrification and software technologies. That includes about 43 billion yen on a demonstration line for production of solid-state batteries, targeted to start in spring 2024.

HYBRID ‘WEAPON’

Honda and other Japanese automakers have long said that even as they go electric, they will not give up on older, hybrid technology.

Proponents of hybrids point to the many markets, especially in emerging countries, where the infrastructure to support battery electric vehicles will be a long time coming.

“By no means is this the end of hybrids and the replacement of all hybrids with EVs,” Mibe told the presentation.

“We will develop our current hybrids and use them as a weapon in our business.”

Honda’s plan to make 2 million EVs annually was within expectations, said analyst Seiji Sugiura of Tokai Tokyo Research Institute.

This is because Toyota Motor Corp has already targeted sales of 3.5 million such vehicles by 2030 and Nissan Motor Co has aims for half its cars to be electric by the end of the decade.

Just a year into the job, Honda boss Mibe has already made a number of bold pronouncements.

In March, the company said it would team with Sony Corp to develop and sell electric vehicles, aiming to start selling the first model in 2025.

Last year he unveiled a 2040 target for electric and fuel cell vehicles to make up all of global sales.

Shares of Honda finished down 0.2% on Tuesday, outperforming the Nikkei 225 index, which fell 1.8%.

($1=125.4400 yen)

(Reporting by Satoshi Sugiyama and Maki Shiraki; Editing by Edwina Gibbs and Clarence Fernandez)

By David Lawder

WASHINGTON – The COVID-19 pandemic wreaked havoc on global supply chains but new International Monetary Fund research shows that more diversification of source countries and inputs can significantly reduce the economic drag from supply disruptions.

In an analytical chapter of its forthcoming World Economic Outlook, IMF researchers said that countries experienced larger declines of goods imports, and GDP, in the first half of 2020 when trading partners imposed strict COVID-19 lockdowns.

Such declines revealed the vulnerabilities of value chains optimized for maximum efficiency and have prompted governments to call for more production to be brought home.

“Dismantling global value chains is not the answer. More diversification, not less, improves resilience,” the researchers wrote in a blog post accompanying the chapter.

Simulating a lockdown akin to those in China in early 2020, the researchers said by that reducing labor supply by 25% in a single large supplier of intermediate components, the average economy’s output fell by around 0.8%.

But with higher diversification among source countries, the decline would be reduced by about half, to about 0.4%.

Even in scenarios where there are shocks to multiple countries, high source diversification reduces the level of GDP decline by about 5%.

But in a largely global lockdown such as the first four months of the COVID-19 pandemic, high diversification provides almost no diversification among downside risks.

The IMF researchers said that the benefits of increased geographical diversification raise questions about national policies aimed at “reshoring” production to domestic sources, such as the Made In-China 2025 program, the Make in India initiative and the U.S. Innovation and Competition Act of 2021.

“The evidence from a modeling approach suggests that resilience to cross-border supply shocks can be increased with greater input source diversification (using more foreign inputs) and greater input substitutability (across suppliers), although the benefits are smaller if shocks are more widespread and correlated across countries,” the IMF said.

Substitutions can also be achieved through greater production flexibility, the IMF said, such as when electric vehicle maker Tesla responded to a semiconductor shortage by rewriting software in its cars to use alternative chips. It also cited General Motors’ moves to replace 95% of the unique chips it uses with more standardized microcontrollers.

The IMF recommended governments prioritize improving vaccine access to end the pandemic as soon as possible, to improve trade logistics through better infrastructure and reduce trade barriers.

(Reporting by David Lawder; Editing by Sam Holmes)