Why #GetOffZero Gets Sensible Investors To Look Seriously At Improbable Bitcoin Based Solutions


TLDR We used to think of positive interest rates like the law of gravity or the law of supply and demand – immutable. Yet negative interest rates is a very real phenomenon/problem today. In this topsy turvy world, even sensible  investors look seriously at improbable bitcoin based solutions. (The hashtag should be #getoffnegative but that is not getting traction like #getoffzero).

This update to The Blockchain Economy digital book covers:

  • Why sensible people pay to lend their money


  • Gold and the hope you are wrong story


  • The other obvious solutions look jaded at end of everything bubble


  • The improbable Bitcoin solution


  • Context & References

Why sensible people pay to lend their money

Paying money to lend money (aka Negative Interest Rates) is crazy. So why do sensible investors do this? The answer is simple. They aim to avoid a worse problem. 

With Negative Interest Rates you are guaranteed to lose a little. You do this to avoid the risk of losing a lot in some other asset.

The more secure the currency, the higher the interest rate that the Central Bank controlling that currency can charge. For example, the Swiss National Bank (SNB), caretakers of the famously stable Swiss Franc, can charge a premium for the right to lend them money. If you pay 1% a year, you will only lose 1% a year. if you earn 15% interest on a currency depreciating by 17% you do worse.

Gold and the hope you are wrong story

One investor suggests an allocation to Gold but in the hope that Gold price goes down. His logic is that if you allocate say 10% to Gold and it goes up 2x, that is probably because 90% of your assets have declined a lot. You can paint a scenario where Gold is valuable but Bitcoin is worthless (eg if there is no Internet or electricity) but that scenario is so awful that you hope it is wrong (even if you have some physical gold just in case).

Bitcoin has no obvious parallels as an asset class. Bitcoin is a bit like a currency and a bit like a commodity and a bit like a stock – yet different from all of them. If you want an analogy, Bitcoin is like gold but a) before gold had a long history of value and b) with a fixed hard limit to how much could ever be mined. Imagine somebody pitching gold before gold had an established monetary value and you come close to understanding Bitcoin by analogy.

Gold and Bitcoin are both anti-fragile bets. If the current macro story ends badly, both will do well. Gold is definitely a hope you are wrong story. Bitcoin is more nuanced.  A scenario where Bitcoin goes up 100x is likely to be scary and disruptive and bad for many assets, but there is also a hopeful scenario where Bitcoin gives people greater sovereignty over their data and other assets.

The other obvious solutions look jaded at the end of the “everything bubble”

The simplest way to avoid paying a bank to take your money on loan is to loan money to a Government or a Corporate. The more stable the Government or Corporate, the lower the interest rate. You also avoid bank counterparty risk. So risk-off capital floods into sovereign and corporate bonds. What happens when excess capital flows into an asset type – yes, you get bubbles and that means returns go down and risk goes up. So the bond workaround is not a good one.

Equities at the end of the everything bubble seem dangerous, valuations are high and highly dependent on central banks. 

Hard assets also suffer from the storage cost problem. For physical goods this is a very real issue; think of vintage cars, wine, art etc. There is the additional shelf life problem as any wine lover knows who has opened an old wine that got better as decades went by and then suddenly was “off” ie horrible to drink and worthless. 

So, looking at the alternatives to Bitcoin, none are looking that good at this stage of the cycle. One veteran investor was asked to come up with reasonably priced assets to buy. The best he could come up with was that labor is undervalued vs capital. 

That lack of obvious alternatives is pushing some investors to look at the improbable Bitcoin solution.

The improbable Bitcoin solution

Investors are like detectives, on the hunt for truth – preferably contrarian truth. The most famous fictional detective,  Sherlock Holmes says:

“When you have eliminated the impossible, whatever remains, however improbable, must be the truth”.

The improbable Bitcoin solution has 3 parts to it:

  • Safe low cost storage. This is a tough problem, but with such a big prize motivating so many upstarts and incumbents it will be fixed. It should be possible to deliver this at low cost as Bitcoin is a digital product; this is not like storing vintage cars/wine/paintings.
  • Allocation. You place an anti-fragile with maybe 1% of your capital into Bitcoin. If the everything bubble ends badly for other assets, Bitcoin will do well. If you lose 40% on 99% of your capital, you will need a 40x return on Bitcoin. That is feasible if there really is that level of disruption to legacy finance. As some wealthy people enjoy comparing themselves to other wealthy folks, that Bitcoin win will get them bragging rights on their yacht (as well as more yachts for sale at bargain prices). 
  • Use Bitcoin as collateral. Lombard loans have been a tool of the wealthy for a long time. A lombard loan (or lombard credit) is a type of secured loan, in which the entire loan amount is secured by a deposit at the bank that is providing the loan. Lombard loans can be secured by money held in bank accounts, life insurance policies, securities (like stocks or bonds) or other assets. For more go here. Today, Bitcoin would be considered far too risky for lombard loans and most legacy finance won’t offer Bitcoin deposits. This leaves the market open to upstarts. If it is an asset, it can be used as collateral. The only calculation is collateral to loan % and that is based on volatility; so Bitcoin as collateral is still an emerging story.

No investment is without risk. Bitcoin has risk. That is why 1% allocation is what some investors/advisers suggest. AIl risk is comparative. If other assets look risky, maybe that 1% allocations to Bitcoin starts to look a bit more sensible.

Context & References

Why Bitcoin Is Surprisingly Valuable And Stable As A Chair With Only One Leg

A Bitcoin Maximalist describes a real issue to worry about – it is not what the Bitcoin sceptics tell you.

The Path To Mainstream Adoption Of Bitcoin Is Not Through Legacy Finance Institutions, It Is Through The Excluded.

How Family Offices AKA Muppets On Steroids Are Writing The Future Of Fintech Blockchain And Wealth Management


Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

$100 Billion++ , is Softbank’s Vision fund blinding the market?

The tech IPO market is having a bonanza year so far and NASDAQ hit an all time high in April. However, confidence in the tech giants and their ethics in dealing with consumer data is perhaps at rock bottom. Cheap money is causing ballooning valuations. With Zoom, Pinterest, Lyft, Slack, Uber, WeWork all going for the big day at the market, are we witnessing a repeat of the dot com boom and bust?

Image Source

The other question to ask is “Is Technology the new Banking?”. As they say, “Follow the money” to catch the bad guys in crime stories. The other way to look at it is, when people make good money, they are often portrayed as the bad guys. The world loves to see them fall. Behavioural and philosophical points aside, several market trends are shouting out for caution.

Analytics company Intensity’s April prediction puts the chances of a recession happening in the next 18 months at 98.9% and in the next 24 months at 99.9%. They are expecting a recession to happen in October 2019. Out of curiosity, I went through all their previous months’ predictions, to check for consistency. The confidence levels had increased steeply between Aug-Sep 2018, and have stayed high since.

Irrational exuberance in the markets is on display yet again. The Crypto bubble burst two years ago, but didn’t cause much of a pain as the market cap was not big enough. But with tech stocks driven by late stage VCs like Softbank, we have more to lose.

Global debt levels are at an all time high at $244 Trillion, and almost everyday economists are writing about a crisis triggered by debt markets.

One of the key trends over the last two years in the VC industry is the rise of late stage venture funds. Softbank led the boom, with Sequioa and others following up with relatively modest sized funds to catch “Unicorns” before their big day in the public markets. The strategy is to get in, pump the firms with steroids and fatten them up for the markets to consume. In the process, make some huge multiples.

Softbank’s investment timeline: Source, Crunchbase

Some stats around the Softbank fund

  • $100 Billion to invest
  • ~$70 Billion deployed so far in about two years,
  • $15 Billion more
  • $10 Billion in Uber and $5 Billion in WeWork
  • Improbable, NVidia, Grab, Kabbage, Flipkart, Oyo, Slack, PingAn, Alibaba and more recently OakNorth are some big names in the porftfolio
  • $45 Billion from Saudi’s Sovereign Wealth Fund represents the biggest investor in the Softbank Vision Fund.

However, both Uber and WeWork have struggled to demonstrate a sustainable business model inspite of their rise. The Growth vs Profitability conundrum remains, and these two might well be case studies on how not to spend VC money, if (when?) their “Going-Public” goes sour.

The Softbank Vision fund could also be a case study of “How not to do Venture Capital”. As a late stage Venture Capital investor, they have an opportunity to look for firms with robust business models and help them go public.

One bright spot is their investment into OakNorth, a UK based Fintech, who tripled their profits in 2018.

The strategy with firms like WeWork or Uber should have been to identify where the business model needed tweaking and pivoting. That could be achieved with $100 Billion in the bank. As a fund with so much capital, they have a responsibility to make healthy VC investment decisions. Not just for their investors, but also for the markets.

I am sure Softbank will make handsome multiples when some of these shaky businesses go public. However, the success these firms managed with private money, would be hard to replicate in the stock market. If a few of them fail, that would trigger pain.

There is enough negative PR about the tech industry’s lack of ethics, diversity and how they manage data monopoly. Creating a bubble, riding it and exiting it before a market crash might just make Tech the New Banking. Softbank might have accelerated that process.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on “Sustainable Deeptech Investments” and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Digital transformation for insurance or simply competitive advantage?

Just when I thought the Elephant that is insurance was fully accepted as an aggregation of many participants’ perspectives, along comes Digital Innovation, Digitization, and Data Culture discussions as another example of many parts making the whole.  What makes effective digital innovation/integration for an industry or firm, is digitization the root of InsurTech, who in the firm should be taking the lead on evolving the firm into a digital world, all questions that crossed my media feed this week.  On one day!  And a big question- does digital transformation stand on its own as a business initiative, or is it simply one other activity that comprises a firm’s efforts to maintain or grow competitive advantage?

As for the academic approach to digital transformation, I’ll consider two authors of articles that make good points and have solid basis from which to speak. I contend that in some ways the authors are also subject to the potential narrow path of each of the vision-challenged men in the fable- a conceptual grasp primarily of what is immediate and not in consideration of whole issue.  Through whose eyes are the issues being considered?  Customers’? Staff? Leadership? The public?

While there as many definitions of digital transformation as there are discussions about it, this example is a pretty solid one:

“we define digital transformation as the integration of digital technology into all areas of a business resulting in fundamental changes to how businesses operate and how they deliver value to customers. Beyond that, it’s a cultural change that requires organizations to continually challenge the status quo, experiment often, and get comfortable with failure.”  The Enterprisers Project 

(Consider though, that even this description does not embrace transformation from the customer-backwards perspective.)

Two authors who have a good grasp on digital transformation and its effects/integration on/in business provide us some bullet points:  Jim Marous, global authority on marketing and strategy for retail banks and credit unions in his article, “Becoming a ‘Digital Bank’ Requires More Than Technology”, and Claudio Fuentes, Product Manager at Pypestream, as noted in “5 requirements for building a strong data culture”

Areas or components that the authors suggest are needed or are present for effective digital transformation within an organization:

Digital Transformation Pathways

Good summaries, good advice, but are the bullet points actionable across the entire spectrum of insurance or banking businesses?  What if the subject firm is brand new, tech-based, with no analog process ‘baggage’ to wrestle?  The reality of digital transformation is that businesses need to consider the principle as part of being competitive within their respective industries, and in being responsive to what their customers need or expect.  Transformation for the sake of being fashionable might be considered a fool’s chase.

Consider the challenges for the Nigerian insurance industry- very low insurance product penetration, and lower than average acceptance among the population regarding the need/purpose of insurance products.  One hundred million potential insurance consumers, urban and extremely rural.  Does digital transformation make as much sense for that insurance market, when the delivery to existing customers is meeting their needs, and expanding penetration to the balance of the population can be effected through smart devices (much higher penetration of smart devices than insurance) and InsurTech players?  Are digital efforts potentially transformative to existing processes if the customers have no expectations of improvement?  Would it be focus and funds not well spent?  And if an industry is being built from ground up, there is little transformation to be had as any efforts are greenfield.  The point- it’s competitive advantage and customer responsiveness that should drive transformation or not.

(if you want to read a good summary of Nigeria’s FinTech/InsurTech activity and challenges, see Segun Adeyemi,  Where are the Digital Insurance Platforms in Nigeria? )

 A recent article by Richard Sachar, titled Who is Responsible for Leading Digital Transformation Within Insurance Companies  prompted a discussion with one of my favorite InsurTech connections, Thomas Verduzco-Weisel, wherein I opined:

“Better question, one might say- who is responsible for maintaining (or gaining) competitive advantage for a respective insurance organization? Digital transformation has been continuous since the advent of electronic data processing; it simply has a rallying cry now called ‘InsurTech’.   Customers may not know how (what methods) they want their insurance products delivered, but they do know what is important to them.  Keeping that pulse drives how the firm needs to maintain its edge, and then applying process, admin, or tech innovation to keep that edge will direct the firm in who/how/when/and with whom any transformation is needed. What if a firm’s culture, processes, staff, and delivery are driving growth and profitability now, should there be a transformation just to be fashionable?  Good business practices should drive any change, and by extension strategy at the senior level, tactics at operational levels, and all levels keeping track of how customers and staff are maintaining comfort with operations. “

(However, if there’s an urge to be fashionable, innovate/transform from the customer backwards.)

Digital transformation is as fashionable a concept as is InsurTech, and needs to be approached within business context.  There is no question that if transformation is undertaken prudent businesses should follow a framework as suggested by Messrs. Marous and Fuentes.  But before jumping into the fashionable approach, is any transformation being undertaken as a standalone concept, or as part of a firm’s competitive or growth strategy? Have to consider the entire beast, not just one facet or part. And as my fine colleague who knows of such things, Karl Heinz Passler,  states, Stop Confusing InsurTech With Digitalisation.

Digital transformation makes sense where it makes sense, and when undertaken, it makes sense to consider what all the organization’s stakeholders need.

image source

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Divvy mines gold in employee expense management

In late 2017 I had the fortune of interviewing Divvy founder Blake Murray, which I published on Daily Fintech – have a read here.

At the time, the Utah based employee expenses management fintech had recently raised US$7M. The business has gone from strength to strength since, with news out this week that they had raised a further $200M after banking close to $45M in funding in 2018 alone.

Why is employee expense management so hot, you might ask?

Well, I have a few thoughts about that.

Firstly, it’s one of those boring processes that gets no love internally in a business, and no compelling solution currently exists. This means you’re not displacing something existing, but providing a cure for an awful job that literally no one loves. And if you can automate it out of everyone’s hands, no one is going to be complaining or blocking that sale/implementation.

It also provides line managers, who are often in charge of managing or overseeing employee expense budgets insight and control into how they manage team spend. It’s scary handing over a credit card to an employee, no matter how much you trust them, and Big Brother Divvy takes that fear away.

And subscriptions? What. A. Nightmare. Keeping track of business subscriptions, managing trial periods and that leaky financial tap the SaaS economy creates (but conveniently neglects to mention in their sales pitch) is a business admin hell hole. Divvy allows you to create virtual cards for each of your subscription services, and provides a way to manage and see all of them from your dashboard. I actually want that for my personal life…but that’s another story.

Solving problems that don’t already have any solutions is where the gold is to be found for sure. And Divvy seems to have struck more than $200M of it.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

`You Can Marcus`

Goldman Sachs is one to watch.

It is an example of how sticky a banking brand name is – It has shredded off scandals in the past and the recent Malaysian state-run fund scandal seems no different. Sack Goldmans – a 2010 slogan – did not stick.

Goldman Sachs is an example of how an incumbent builds a Fintech business positioned in the value stack below its established competence – an investment bank getting into retail banking and wealth management for mass affluent & the hoi polloi.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by offering free access to its analytical tools SecDB – explained in my article in the 2018 WealthTech Book  `Empowering Asset Owners and the Buy Side`.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by partnering with Apple on a credit card – Apple has 900 million devices and it is expected that the Apple Card will bring 21 million users to GS by year end[1].

Goldman Sachs is a publicly traded company that is trading right now below book value and there are more than enough GS analysts out there to get estimates on the revenues from the different GS `consumer banking` new initiatives.

For now, Goldman Sachs has been building up aggressively deposits (the usual way of offering above-market deposit rates when entering a new market). The 3yr old deposit business has accumulated now $46billion across the US and the UK! The expected growth is in the order of $10billion per year going forward.

Marcus has issued $5billion in personal loans. These are unsecured loans that naturally, may worry shareholders, who typically get nervous easily (even though this is crumbs when taken in context).

The credit card part of the Goldman Sachs business is newer and could also grow at double-digit annual rates. Goldman Sachs knows well that credit card lending gets favorable regulatory treatment – less capital is required against this kind of debt – and as long as this holds it is a win-win situation. Why? Simply because Goldman Sachs will get their hands on valuable data from retailers and their shoppers, in order to process the Apple credit card application.

Goldman Sachs hits two birds with one stone. It gets to issue consumer debt on a global scale with lighter capital requirements, and it gets to process new, valuable consumer data globally.

The Apple & Goldman Sachs card economic terms are not known. Even if they are not that juicy for Goldman Sachs and even though the GS logo is on the back of the Apple card; the consumer data access and processing from 40 countries that this brings to the table is invaluable.

The Apple & Goldman card will grow an important global data pool for Goldman Sachs to leverage in its planned WealthTech offering.

In case you haven’t noticed, Marcus has been moved into the Goldman Sachs asset management unit, which will be renamed the consumer and investment management division. The October 2018 memo says that Marcus has plans to “launch a broader wealth management offering.”

A global consumer outreach is being built in preparation of this broader wealth management offering. And for all those concerned about a growing unsecured loan book, Goldman has great risk management experience and could with great elegance securitize part of this debt, once there is enough to do so. Elizabeth Dilts and Anna Irrera, raise this point too in ` Goldman’s Apple pairing furthers bank’s mass market ambitions`.

Marcus is a brand whose heritage is in risk management and investment banking. They will use these competences to manage growth in their retail-focused wealth management offering. This is a huge advantage compared to Fintechs that started with unbundling a specific financial service (be it loans, or deposits, or investments) and is now, growing by rebundbling additional services (e.g. adding robo-advisors to loans, or deposits to trading, ect).

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

I have written about Marcus several times.

Just after the launch of Marcus in late 2016, Will Goldman become a verb? Watch the Marcus ads!

Just after the Marcus rebranding and UK launch in Fall 2018, Welcome Marcus to the rebranded Goldman asset mgt division and to the UK

Screen Shot 2019-04-25 at 10.01.03.png

I must however, confess that I have no idea how to interpret the new Marcus Campaign ‘You Can Money’.  Is this an example of new Fintech language? If you have other such rarities, please send them to me, as I collect them. Maybe we can tokenize them, with the hope that they become the next non-fungible craze.

[1] A Seeking Alpha article that includes several links, for anyone who wants to dive into more details https://seekingalpha.com/article/4251792-buy-goldman-sachs-apple-card

Sources: CNBC, Barrons, Financial Brand, Crowdfundinsider, The economist

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Will Bitcoin go from Crypto Winter to China Crisis?


Last week our theme was “Governments with weak currencies may overcome their fear of Bitcoin and so usher in a new global currency.“ Our theme for this week is “Will Bitcoin go from Crypto Winter to China Crisis?”

TLDR. Bitcoin’s popularity has grown over the last decade and has become an increasingly attractive target for adversaries of all kinds. One of the most powerful potential adversaries is China, which has used its capabilities to influence it. This time around China is considering a ban on Bitcoin mining in response to environmental concerns, about the process of creating cryptocurrencies. It has been suggested that a Bitcoin mining ban in China could have a profound impact on the Bitcoin network, as China is home to the majority of global Bitcoin mining operations. But the result of a ban might be completely different than what you might expect.

Earlier this month, China’s National Development and Reform Commission (NDRC) released a revised list of 450 industrial activities making suggestions to promote, restrict and eliminate various sectors. Bitcoin mining was labeled as one of the industries that needs to be “eliminated”, citing environmental issues as the primary reason.

Most media outlets that covered this story, leaped to the conclusion that China wanted to ban cryptocurrency mining, just like it did in 2017 with ICOs and domestic spot trading. The reality is that there is no set timetable for Bitcoin mining to be eliminated. A public consultation is be open until 7 May, giving the citizens the chance to give their input. Even if the agency’s proposal is finalized in its current form, this would not automatically amount to an outright mining ban. When finalized, and assuming mining remains in the elimination section, some Chinese provinces may choose to avoid prioritizing this motion.

Today, China has 70 percent of the world’s crypto-mining capacity. China’s cheap energy, that’s largely powered by coal fueled power plants, make the cost per kilowatt the one of the cheapest in the world. This makes China a very cost effected and profitable place to mine Bitcoin.

With Bitcoin’s price hovering around $5,000, mining is not a profitable endeavor for many places around the world. According to research by JPMorgan Chase, in the fourth quarter of 2018, the production-weighted cash cost to create one Bitcoin averaged around $4,060 globally. For Bitcoin mining operations, electricity generally accounts for more than 60 percent of the total costs. Cryptocurrency mining requires huge amounts of electricity and costs vary from place to place, depending in the cost per kilowatt. Here is a list of countries and the cost to mine Bitcoin:

  • Albania: $3894
  • Ireland: $11103
  • Australia: $9913
  • Brazil: $6741
  • China: $3172
  • Canada: $3965
  • Chile: $9120
  • Norway: $7784
  • USA: $4758

There are various studies that analyze the power consumption that’s required to run the Bitcoin network. Currently, it is estimated that we need 54 TWh. Cryptocurrency mining consumes around 3 times more than the whole of Ireland, which uses as much as 18.1 TWh/year. These numbers sound shocking, and many journalists use them to scare the public.

The proof-of-work (PoW) consensus mechanism that is used in the Bitcoin network, is very energy-intensive due to the increasing mining difficulty. PoW has many properties, and it is the main innovation behind many cryptocurrencies. In simple terms, PoW makes sure that the network stays online and secure at all times. In order for PoW to work an intense hardware activity is required. PoW is performed by special nodes in the system called miners.

Bitcoin isn’t issued by governments or banks. It’s created by a decentralized network of miners, who mint about 3,500 new coins a day. Miners play a crucial role validating transactions. They allow the network to operate without a coordinating authority, like a central bank. The miners compete for the right to validate transactions to the Bitcoin’s universal ledger.

The best way to imagine how how a Bitcoin mining operation works, is to imagine thousands of computers rushing to solve a difficult math problem. The first computer that actually solves the problem, earns the next coin.

Mining consumes a tremendous amount of electrical power.  Companies and organizations in the industry are considering many alternatives to tackle the power consumption issue. One solution is to use cleaner forms of power, such as hydropower stations, burning trash or solar-powered mining. Others include changing PoW with other protocols like Proof of Stake (PoS). The new protocol like PoS would replace the PoW used on both Bitcoin and Ethereum, and reward miners in coins, not for solving cryptographic puzzles, but with transaction fees for helping to maintain the integrity of the network

Today, every time a miner verifies a block they earn 12.5 coins. In 2020, verifying one block of transactions to the blockchain will be worth only 6.25 coins. The next halving will see Bitcoin’s inflation reduced by 50%, and judging from past BTC halvings, Bitcoin is expected to rise in price in because of this.

Many countries around the world are looking favorably towards cryptocurrency mining and many Chinese Bitcoin mining companies are already moving their operations overseas.

Most recently, Bitmain Technologies set up a subsidiary in Switzerland, which will extend its branches, currently in Amsterdam, Hong Kong, Tel Aviv, Qingdao, Chengdu, Shanghai and Shenzhen. Bitcoin miners have also been attracted to the Canadian province of Québec because of its cheap electricity. Belarus is the latest on the list. This year, Georgia sold 45 acres of land to Bifury and established tax-free zones to allow crypto-centric businesses to commence operations. The San Francisco company aided the government to make use of blockchain for their land registry system.

China would prefer to take blockchain without Bitcoin. China may also hope to replace Bitcoin with its own digital currency. China’s crackdown has demonstrated that no one country can stop Bitcoin. That’s the beauty of the decentralized network. If one participant bows out, others pick up the slack. After China clamped down Bitcoin trading, much of it moved to Japan and South Korea.

If China decides to ban cryptocurrency mining, it will probably have a positive impact on prices. Historically, with news of this kind, we’ve seen price surges. When China created seemingly harsh regulations regarding the industry, banning its citizens from investing in ICOs during September 2017, prices were hit hard temporarily, but rebounded to record highs. History has shown that every time you try to whack Bitcoin and it doesn’t die, it becomes stronger.

A potential mining ban in China could be a good thing. It will address the Bitcoin energy consumption problem and its reliance on non-renewable energy to power mining operations. Being forced out of the nation by a ban will likely drive more miners to explore locations where renewable power is cheap and abundant.

Most importantly, it would make Bitcoin mining more decentralized. With China no longer able to dominate Bitcoin mining, the network will become more decentralized and safer. While China may still have motives to destroy Bitcoin, if the NDRC proposal goes through, it will not have the means.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

The SEC TKJ No Action letter re Utility Tokens – takeaways & questions for entrepreneurs

SEC TKJ.001.jpeg

TLDR On 3rd April 2019, the US Securities Regulator, SEC, issued a public response to TKJ (TurnKey Jet Inc) that stated unequivocally that the Tokens issued by TKJ are not securities. This may offer regulatory clarity for Utility Tokens, but the devil is as always in the details. This post is one entrepreneur’s attempt to parse these details to understand the legal landscape around Tokens.

Here is the original SEC announcement.

IANAL Disclaimer. I Am Not A Lawyer. Get proper legal advice. This is just one entrepreneur talking to other entrepreneurs.

This update to The Blockchain Economy digital book covers:

  • Takeaways from each of the points in the SEC notice
  • Case Law is different from Civil/Code Law
  • Choose your playing field – Regulated or Unregulated
  • Context and References

Takeaways from each of the points in the SEC notice.

Our takeaways in italics

  • TKJ will not use any funds from Token sales to develop the TKJ Platform, Network, or App, and each of these will be fully developed and operational at the time any Tokens are sold;

Don’t use Utility Tokens to raise capital. For that, use Security Tokens. TKJ was not raising capital. In venture terms, you need to at least have working code ie MVP (Minimum Viable Product).

  • the Tokens will be immediately usable for their intended functionality (purchasing air charter services) at the time they are sold;

In short, use Utility Tokens for marketing, not for capital raising. PrePaid Tokens work when supply is limited. This is clearly true for air charter services (which is what TKJ offers) and most analog physical world services. If supply is limited, customers are motivated to order ahead. This is very different from most digital services which are defined by being unlimited supply (because of almost zero cost to copy). Smart entrepreneurs will figure out how to create premium digital services with limited supply but with digital efficiency. An example might be a physical artefact with some special branding for fans.

  • TKJ will restrict transfers of Tokens to TKJ Wallets only, and not to wallets external to the Platform;

The term wallet is confusing here. The SEC definition seems to assumes open source crypto wallets that anybody can use. No problem, plenty of choice here. This is not like physical wallets where we can have multiple tokens (cash, loyalty cards, credit/debit cards) in a single wallet. In the digital realm, the equivalent to that physical wallet is our mobile phone. The term wallet as used by SEC is more like a combination of loyalty card with pre-paid card.

  • TKJ will sell Tokens at a price of one USD per Token throughout the life of the Program, and each Token will represent a TKJ obligation to supply air charter services at a value of one USD per Token;

SEC jurisdiction is America where USD is the currency, so their reference currency is USD.  For other jurisdictions the token will need to be priced in other currencies. The more fundamental point is that these tokens are non-fungible. You can ONLY use them to buy air charter services.

  • If TKJ offers to repurchase Tokens, it will only do so at a discount to the face value of the Tokens (one USD per Token) that the holder seeks to resell to TKJ, unless a court within the United States orders TKJ to liquidate the Tokens

This is a sensible precaution against ponzi schemes, where the issuer gives early buyers a guaranteed profit. Note the words “unless a court within the United States”. Our mantra at Daily Fintech is “bits don’t stop at borders but money has to show its passport”; financial regulation is jurisdiction dependent.

  • The Token is marketed in a manner that emphasizes the functionality of the Token, and not the potential for the increase in the market value of the Token.

Note that TKJ is NOT a cryptocurrency business; they are a business in the physical world that is using cryptocurrency technology to grow their business. This would be like selling Taxi Medallions as Tokens. The Medallion/Token buyer aims to offer a taxi service and may or may not be able to sell the Token/Medallion for a profit later. Utility Tokens are about marketing not capital raising. For a brief moment in 2017, entrepreneurs got a two for one deal in ICOs that enabled both marketing AND capital raising. Those days are over. Although the new rules seem like a limitation, the biggest issue for most ventures is marketing, not capital raising. So using Utility Tokens to reduce Customer Acquisition Cost (as we explore in this related chapter) is a big deal.

Case Law is different from Civil/Code Law

The SEC letter is no guarantee and the SEC staff reserves the right to change positions.

This is just how case law works.

The law in the USA & UK and many countries is case law (aka common law), where the law is established by the outcome of former cases (aka precedent). This is very different from what is sometimes called civil law (which I call Code Law for reasons explained below) in countries such as China, Japan, Germany, France

For more background on Case Law vs Civil/Code Law please read this.

Civil/Code law originated in the code of laws compiled by the Roman Emperor Justinian. Civil law has codified statutes. I prefer the term Code Law to Civil Law as this style of law is what developers/coders prefer and instinctively assume. You can turn Civil/Code law into computer code in Smart Contracts. It is much harder to do this with case law where you will often be told “well, it depends” or “it will be judged on a case by case basis”. This is why you must consult a lawyer and why the SEC announcement has this boilerplate language:

”This position is based on the representations made to the Division in your letter. Any different facts or conditions might require the Division to reach a different conclusion. Further, this response expresses the Division’s position on enforcement action only and does not express any legal conclusion on the question presented.”

Choose your playing field – Regulated or Unregulated

Fintech Entrepreneurs have 3 basic regulatory strategies to choose from:

  • A. Full stack regulated. You ask for permission upfront. Budget for big legal and compliance bills. Compete directly with banks. Do this in every jurisdiction you want to do business in (state by state in America and country by country in Europe).
  • B. Full stack unregulated. This is what Uber, AirBnB and Skype did. You act boldly without upfront permission and either seek forgiveness or fight (depending on how powerful the regulator is). Banking is far more protected/regulated than taxis, lodging or telecoms, so this is a dangerous strategy in Fintech, but can work for some types of user for Bitcoin related services.
  • C. Lower in stack unregulated. Provide services to regulated companies north of you in the stack.

Bitcoin is C.  Companies northward in the stack provide the user facing functionality and can choose either A or B.

Context & References

Investing in Utility Tokens.

Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

The rise of Chief Behavioural Officer and how to hack customers’ mind

Financial Services has traditionally been a game of numbers, aggressive product (mis)selling, big bonuses and as a result too many “too big to fail”s. The rise of regulations and technology innovation within the industry has resulted in a course correction. The customer is now getting some attention. And more recently customers’ behaviour is.

Applying behavioural sciences to study how customers make their financial decisions has seen some recent traction. It is critical to bring together cognitive biases and behavioural anomalies and understand how these affect financial decisions. Add to that the impact these financial decisions have on an organisation’s PnL. An executive in a bank capable of doing that would be an ideal fit to as the Chief Behavioural Officer.

The rise of Fintech was accompanied and facilitated by the rise of friendly customer journeys. Today I spend so much, not realising how much money has gone out of my bank account with just a touch. The process is so frictionless that, the act of paying someone is invisible. When it is out of sight, it is out of mind. That’s the simplest way to make people spend more.

That is an example of how an existing process has been made less of a touchpoint. Recently, Merill Lynch conducted an experiment where they asked users to upload their photos. They would run a program to show what the users would look like in 30-40 years. That made the users more conscious of their retirement planning, and shifted their financial behaviour.

Another instance is where the Commonwealth bank of Australia launched an app for customers to set goals. The tool prompts customers to set personalised savings goals and breaks them down to smaller milestones. Since February 2019, users have created more than 250,000 savings goals – 27% of the goals being towards a holiday and 19% towards a property.

Human beings are irrational when it comes to financial decisions. An understanding of behavioural sciences is not just important to win over customers. It is critical to understand the biases that affect existing business decisions that are made within a firm. Leading valuations expert Ashwath Damodaran calls for the need to study these biases as much as the valuation principles used within investment banks.

All valuations are contaminated by bias, because we, as human beings, bring in ourpreconceptions and priors into the valuations. When you are paid to do valuations, that bias multiplies and in some cases, drowns out the purpose of valuation

Professor Ashwath Damodaran

We (my firm Green Shores Capital), recently did an event to identify top financial inclusion firms to invest/track for investments. One of the firms Confirmu, based out of Israel, study the psychological responses from a potential borrower to assess if they were trust worthy or not.

It is one thing going through the borrowers bank account, business plan and reasons for the loan. While all that could be genuine, a borrower might still not have a genuine intention to repay. Especially in countries where there are no credit bureaus, a system to predict the future behaviour of a borrower could be very handy.

While there are several tools to assess the ability to repay, there are very few to assess the intention to repay a loan.

Confirmu’s customer journey takes the users through a chat process, where the customers answer a few basic lifestyle questions, then choose their favourite between a bunch of images, and finally leave a voice answer to a question. Their machine learning powered algorithm gives a rating indicating the customer’s intention to repay.

Banks have started to focus on technology much more than they have ever done. However, as Steve Jobs puts it – ” it’s technology married with liberal arts, married with the humanities, that yields us the results that make our heart sing”

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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InsurTech adherents must see- the Elephant is insurance

A common approach to InsurTech- describing insurance by parts, not the whole

I’ve noted in the past that InsurTech is not dissimilar to the fable of six blind men describing an elephant solely on touch- each man ‘sees’ the elephant from the perspective of his narrow exposure to a very large creature. One sees a rope because he has grabbed the tail, another a tree because he’s grabbed a leg, another a snake due to the feel of the trunk, and so on.

InsurTech is that similar situation- many firms ‘touching’ the initiative from a narrow perspective. Not blind, surely, but not from a vantage of ‘seeing’ the entire concept. Of course it would be very daunting to try to grasp the industry from all angles, and very expensive too.

there are the individual firms describing their unique parts- underwriting,
pricing, distribution, administration, claims, agencies, customer acquisition,
etc. And designing and/or applying technology- artificial intelligence
(AI), machine learning, IoT, algorithms, data science, actuarial science,
behavioral economics, game theory, and so on. Using technology and new
methods to help them see their part of the beast that is insurance innovation.

We get caught up in the thinking that InsurTech is a discrete concept– because each involved player has his unique approach to defining how change will be effected (and we can’t have multiple terms to describe what the movement is.) In the end each is convinced the efforts being made in their firm are defining the term. A recent article penned by Hans Winterhoff, KPMG Director, 3 Lessons European Insurers can Learn from Ping An, provides suggestions for legacy insurers based on successes Ping An has had in the China insurance market. The author makes three apt points but as with simply grabbing the Beast’s trunk and calling the animal a snake, is Ping An’s approach to insurance innovation the best InsurTech perspective for mature insurance markets?

Can the best innovative methods be applied to incumbent markets if a carrier’s staff are not engaged adequately in the evolution? 

Legacy markets are populated with customers who are content with the Beast that is insurance, and in spite of some years of InsurTech efforts the market penetration of innovative companies remains low.  Not that these customers don’t deserve the latest and best methods (surely most would trade the bureaucracy and cost of existing health care for the ease of service provided by a Ping An kiosk), but change must also come from within insurance company organizations.  If one looks at Fortune magazine’s best large employers by employee survey and finds two of the insurance market’s biggest employers, Allstate and Geico, not in the top 500 firms, one must consider absent employee engagement then innovative change may be inhibited for those major companies and their customers.

every week there is a significant conference of InsurTech enthusiasts,
thousands of attendees per month, all seemingly with an idea of what InsurTech
is, where it’s going, and how they will capture innovation lightning in the
bottle they have designed. There are some very smart persons who are seen
as champions of the effort, and these persons publish/travel/post and remind
the industry of where it has been and where it’s going. They are adept at
describing the beast in terms that most can understand, and in terms that help
the holder of the ropy tail to see that there also is a snaky trunk, and that
the two parts are of the same beast.

is cool about how the InsurTech movement is evolving is that a solid
recognition is being realized by most (not all) that InsurTech is comprised of
multiple, important and integral parts, and even if your firm is not working
with idea A, it can leverage the knowledge in developing idea B. We pick
at the theories others espouse, nay say, comment, maybe even doubt or
criticize, but at the same time all the knowledge is to the common goal-
improving a product for the existing and as yet unidentified insurance

without belaboring the theme, we can be reminded that the elephant is not
InsurTech; the elephant is insurance. InsurTech is the trappings with which the
elephant is enhanced. And the elephant is the contractual agreement that
comprises insurance, and the elephant’s handler must be the customer. 

all describe the beast well from our unique perspective, with the understanding
that in the end the elephant’s handler- the customer- must be why we are touching
the beast at all.


image source

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Australia’s Judo ‘NAB’s’ banking licence to service SMEs

Judo Capital is the second fintech to be issued an Australian banking license this week, following Volt’s line honours in early 2019.

Xinja is another in the race to the licensing finishing line, with a longer tail of startups following up the rear.

Judo Bank (as they can now claim title to) will be listed as an authorised deposit taking institution (ADI) without restriction. It marks just under a year in processing time for the new bank, who lodged their application with the regulator in May 2018.

Founded and staffed by a number of ex-NAB (National Australia Bank) bankers, the bank focuses exclusively on small business banking, redesigning the banker/business relationship for the modern, digitally enabled world.

According to a report published by Judo, Australian SMEs face a $80 (2h 47m) (2h 47m) billion funding shortfall, with 9/10 claiming to have no meaningful relationship with their bank. The two biggest issues faced by SMEs include banks’ insistence the family home be used as collateral, and the turnaround time for credit approval.

No surprises there.

So what will Judo’s secret sauce be? The human touch and bucket loads of capital to execute on their vision.

Late last year the bank raised $140 (4h 52m) (4h 52m) million, which was claimed to be the largest pre-revenue funding round done to date in Australia.

It’s heady stuff, and SME’s will be saying about time. To date the only other player in the SME banking space exclusively is Tyro, who’s lending product is suited to small businesses who accept EFTPOS payments as their predominant revenue collection model.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)