close up of coins

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Just read this (Skyscrapers Too Pricey for Bankers Are Full of Crypto Startups) on Bloomberg and it’s another clear sign of where money has been going and I’ll comment more as I go through relevant bits of the article.

Crypto exchanges and investment funds are leasing space in several of the most prestigious buildings in Hong Kong, home to the highest rents anywhere. Companies from BitMEX to Diginex Ltd. have signed up for a combined 72,000 square feet (6,690 square meters) of grade A space in Central and Causeway Bay this year, according to Colliers International Inc.

The important thing here is that rent is a cost to any firm and space is space. The fact that crypto firms are renting space at prices that investment banks think is expensive is a red flag to me. It’s obvious that these funds have either so much money thrown at them that they can afford to splurge on prime office space or they are severely optimistic about the kind of money they are going to bring in.

Interestingly enough,

Colliers said all five leases were signed after Bitcoin peaked in December and then nosedived. These days, $1.3 million will get you approximately five floors in New York’s One World Trade Center.

It’s interesting that the commitment to space came right at the (most recent?) top for bitcoin prices. The jury’s still out whether bitcoin prices will return to those levels and even if they do, the question is when?

The article also points out that the traditional big spenders are moving away from such spaces.

Not even some of the city’s more traditional tenants like investment banks are prepared to stomach such stratospheric rents.

Goldman Sachs, meanwhile, is relocating its people in The Center in Central to Lee Gardens Three in Causeway Bay after the lease ends. That will save about 30 percent on rent, local media reported in April. The investment bank will however retain its headquarters in Central’s Cheung Kong Center.

It could be a hangover from the Global Financial Crisis (GFC) but it’s pretty obvious that the new money is in crypto and that new money didn’t experience first-hand the horrors of the GFC when credit was scarce.

Once again, I’m not saying that a crash in these asset classes is imminent or that a crash in those asset classes will cause a systemic collapse. What I’m saying is that this pursuit of prime real estate is a clear sign that:

  • New money has/is flowing to crypto.
  • Investors in crypto are pretty optimistic.
  • Credit is loose.
  • The system as a whole is more optimistic than pessimistic.
  • Cashflow constraints haven’t hit yet.
  • I wouldn’t want to be anywhere near crypto or moonshots right now.

Now, the main question is whether crypto firms are already regretting their decision to rent prime office space or whether they still have their rose-tinted glasses on?