A fight is won long before you step into the ring

https://dailyfintech.com/2021/03/01/fight-won-long-before-you-get-into-the-ring/

Since last week, bitcoin’s price dropped over 25 percent, from a high over $58k to around $44k, as I write this post. This is its worst drop in a week, in nearly a year, since March 2020. Janet Yellen ripped into bitcoin, calling it highly speculative and inefficient: “Bitcoin is an extremely inefficient way of conducting transactions and the amount of energy that’s consumed in processing those transactions is staggering”. The European Central Bank (ECB) issued a stark warning about bitcoin and Christine Lagarde, ECB’s President said bitcoin is not a currency and cryptocurrencies are not money. Central banks are getting closer to issuing their own digital currencies. Earlier this year, the Bank of International Settlements published its latest survey showing that 86% of the 65 central banks it spoke to are doing some form of work on central bank digital currencies (CBDCs), be it research, proofs of concept or pilot development. Almost 15% are moving toward actual research for pilots. The future of money might be a digital version of the cash that’s already in people’s wallets, potentially upending the currency system that the world has known for many decades. Such a future, is not the future that many libertarians and tech-savvy entrepreneurs and investors envision, who are pinning their hopes on bitcoin and decentralized cryptocurrencies. 

Ilias Louis Hatzis is the founder and CEO at Kryptonio, a “keyless” non-custodial bitcoin and cryptocurrency wallet. Kryptonio eliminates all the shortcomings of centralized crypto exchanges and problems with managing private keys and seed phrases. Sign up for our and be the first to get the safest cryptocurrency wallet.

There’s a big tug of war going on with bitcoin.

On one hand, you have the private sector that’s adopting bitcoin, led by companies like Tesla, MicroStrategy, Square and Paypal, and using it as an asset and as a payment method. A few weeks go, Tesla’s announcement was remarkable. Tesla invested $1.5 billion into bitcoin and said that it would start to accept bitcoin as a form of payment. Basically what Tesla and rest are telling us is that bitcoin is money. When you think about it, the two basic characteristics of money is that you can buy things with it and use it to store value.

There is no question about it, something is going on.

When BNY Mellon, the oldest bank in the U.S. says that it plans to hold, transfer, and issue bitcoin and other cryptocurrencies on behalf of its clients, you know something is going on. When MassMutual, the 169 year-old insurer, invests $100 million in bitcoin you know something is going on. When Mastercard brings crypto onto its network, and lets consumers transact in crypto on its network, you know something is going on. When JPMorgan and Citibank predict that bitcoin’s price is going to dwarf its current pricing levels, you know something’s is going on.

On the other hand, there’s a growing concern in the public sector. Janet Yellen, US Treasury Secretary, was very critical of bitcoin a few of days ago. Yellen’s comments are the latest salvo against cryptocurrencies, by a high-ranking government official. Before that, there were warnings from the Bank of England and the European Central Bank.

Yellen’s said that bitcoin was inefficient, and added that it was time for the US to study the merits of a digital dollar. Yellen said that a digital dollar based on a blockchain, could result in faster, safer and cheaper transactions.

Recently, ECB’s chief, Christine Lagarde, blasted against cryptocurrencies: “For those who had assumed that it might turn into a currency, terribly sorry, but this is an asset and it’s a highly speculative asset which has conducted some funny business and some interesting and totally reprehensible money-laundering activity.” Despite being skeptical of cryptocurrencies, Lagarde noted that the coronavirus pandemic has pushed economies toward faster digital adoption, and the digital euro may be ready within four years.

The introduction of a digital euro is still an open issue. In October 2020, the ECB published its first report on a digital euro. This report served as the foundation for a public consultation process, which generated a lot of interest. There are also important technical aspects that still need to be clarified.

Central banks understand full well that they risk losing the digital currency race if bitcoin becomes too entrenched in the market. So, they’re scrambling trying to figure it out.

More than 80% of the world’s central banks are exploring CBDCs in some capacity, according to the Bank for International Settlements. However, few are as far advanced in their research as the People’s Bank of China, which conducted a trial in November last year, in Shenzhen, China. While the trial was successful in purely technical terms, the results showed that participants weren’t particularly impressed by the digital yuan.

The public trust in a digital currency will be determined by the public trust in the central bank that issues it. The shock from COVID put the central banks in a dicey position and forced them to provide monetary stimulus in order to stabilize the markets. The US passed a $2.2 trillion stimulus package. The rest of the world also printed massive amounts, for example Europe approved a €750 billion program.

So why would we trust a fiat currency, just because it’s digital? Why would we trust a digital dollar or euro or yuan more than bitcoin or any other cryptocurrency, when we can trade it without interference or intermediaries?

The problem that central banks face is not whether to go digital or not. There is already digital money in many other forms that consumers around the world use to conduct transactions without physical currency, using credit cards or mobile phones to pay.

Perhaps most significantly, in a world of competing government issued digital currencies, we will see a new kind of fiat cannibalism. Everyone competing with everyone, and clearing the path for bitcoin.

In 2019, I posted Bitcoin could be America’s greatest weapon. Bitcoin is the “next Internet” an open, transparent microcosm of how a new decentralized, and automated financial system should work. The country that adopts bitcoin could attain the leadership position in the global financial system, just like the US did in the 90’s with the Internet.

Long ago, Muhammad Ali said that “the fight is won or lost far away from witnesses – behind the lines, in the gym, and out there on the road, long before I dance under those lights.” After 12 years bitcoin is still around and thriving for one and only reason: with bitcoin the benefits lie with the user, and not with the one that issues the money. While the detachment of bitcoin from monetary policy is a negative for governments who want to control such economic indicators as interest rates and inflation, it’s usually a positive for those who hold it and other cryptocurrencies. Government issued crypto will never offer what today’s “immature” bitcoin offers: protection against inflation, self-custody, and privacy.

That is why bitcoin is going to win every day and on Sundays!

In the meantime, if you’re thinking about bitcoin’s price, top guns in crypto are saying that by the end of the year it will break $100k, some say $146k and others $300k. As for what I think, I asked twitter to tell me. The survey will be running until tomorrow, so make sure to get your vote in.

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https://dailyfintech.com/2021/03/01/fight-won-long-before-you-get-into-the-ring/

Never underestimate Bloomberg, but here are 5 reasons why the Gamestonk Terminal is a contender 

https://dailyfintech.com/2021/02/25/never-underestimate-bloomberg-but-here-are-5-reasons-why-the-gamestonk-terminal-is-a-contender/

I learned to never underestimate Bloomberg in the ‘90s on Wall Street when everybody said open that data feeds would beat a closed terminal like Bloomberg – all were wrong.

Then we had a lot of hype about Symphony messaging as a Bloomberg killer. It made sense. Messaging among traders was what kept traders hooked to their expensive Bloomberg habit even when the data part was simple to replicate. Symphony was created, backed and used by Goldman Sachs.

Still the Bloomberg terminal is very much alive and well.

So why am I excited by a bit of open source on Github called Gamestonk Terminal shown to Hacker News by a lone programmer? Five reasons:

  1. The mighty Microsoft dominance was humbled by a lone programmer called Linus Torvalds (Linux).
  2. It looks functionally good enough.
  3. It got to the number one spot on Hacker News, meaning there is plenty of developer interest. 
  4. Populist rage. This post is an unplanned Part 5 in this 4-parter on Wall Street Bets vs Hedge Funds
  5. Somebody will combine this with Symphony and release it as a SaaS service for say $20 pm = 99% less than Bloomberg and get millions of paid users and go public in an IPO led by Goldman Sachs. If anybody is working on this, reach out to me as I am motivated to get involved.

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https://dailyfintech.com/2021/02/25/never-underestimate-bloomberg-but-here-are-5-reasons-why-the-gamestonk-terminal-is-a-contender/

The Internet Of (Insured) Things Part 3: Commercial Lines

https://dailyfintech.com/2021/02/25/the-internet-of-insured-things-part-3-commercial-lines/

Commercial insurance plays a crucial role in global economies. It shields businesses from failure by assuming risks in production of goods and services. In USA alone, there are over seven million small businesses, ranging from construction firms to grocery stores to home-based businesses. Without right coverages, each could be devastated by disasters or lawsuits. In commercial lines, IoT is in early stages of development, but is heralding a future of differentiated products and services with more equitable premiums, usage-based coverage and tailored interventions.

As highlighted in Part 1, economic value created through IoT is projected to reach $11.3 trillion by 2025. Using personal lines experience as guidance, barriers are expected to come down in commercial lines and value clarity achieved from growth in IoT applications. While insurers are not necessarily frontrunners, the premise of loss prevention, mitigation and restitution creates a value proposition that is irresistible.

IoT in commercial lines is finding multiple opportunities, few being:

  • Telematics solutions to track fleets and vehicle performance
  • Wearables to curb worker on-the-job injuries
  • Activity trackers to ensure process execution success
  • Exoskeletons to safeguard employee health and prevent injury
  • Equipment monitoring for predictive maintenance to prevent breakdowns.

In cargo insurance, available IoT data is helping understand risks in real time. Smart-Cargo Insurer Corvus leverages temperature stability data from decades of food and pharma shipments along with the insured’s shipment data, to curtail a major cause of loss – spoilage. Based on this, a relative risk score is shared, with better scorers receiving price reductions and broader coverage. Negative trends from ongoing shipments are reported with actionable recommendations.

Due to floods, every year, as much as $41B of damage remains uncovered, leaving people and businesses to foot the bill. Many are denied insurance or face high premiums due to lack of accurate data. Furthermore, claims can take months to verify and settle. FloodFlash uses IoT sensors to measure flood levels in customer properties. Data provided by its sensors helps customize quotes for individual buildings rather than a wider postcode area. When floods breach depth thresholds, payouts are done sans loss adjustment or complicated document filing.

In Munich’s Werksviertel district, Munich Re equipped a building with 25 multifunction sensors for monitoring during construction. The sensors detected water and measured humidity and ambient temperature, transmitting results to its IoT platform. Data is analyzed around the clock and warnings transmitted immediately for breaches, so site management can react and damages prevented. The carrier is offering these as additional services that save efforts, costs and avoidable building delays.

The above examples expound the latent IoT potential in commercial lines. Needless to say, there are obstacles that need to be surmounted for wider uptake, primary being structural and economic. Proactively identifying risks and taking timely actions requires sensors and connectivity to be embedded in heavy machinery, buildings and operating practices. Installation and servicing is expensive with tall lead-times and is alien to carrier competencies. Besides, given the intricacy and criticality involved, companies are decidedly cautious. As the market turns more competitive, corporate customers are turning the corner with insurance companies offering newer sops. Discounts for IoT connected devices for property and fleet management is one such incentive.

Nascent industries (e.g. crypto, drones) stand to benefit from IoT implementations in insurance. With little real prior experience and the high risks associated, they have historically had a tough time getting insurance. IoT’s data collection ability is letting insurers move more swiftly, without waiting for years of experience to effectively model and assess risks.

Steady flow of connected device data will let insurers identify and remediate risks. It will also bring new sets of challenges and associated opportunities, as privacy, security, massive data volumes, changing insurance paradigms come to the forefront.

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https://dailyfintech.com/2021/02/25/the-internet-of-insured-things-part-3-commercial-lines/

Part 4: What changes can we expect in future?

https://dailyfintech.com/2021/02/23/part-4what-changes-can-we-expect-in-future/

Politicians and media are all over this story like a cheap suit. Much change will come from all of this. Here is my rating (high, medium, low) on 8 possible changes:

  • Front running by buying order flow becomes illegal; high. This part of the story is easy to understand and as soon as people understand it they ask why it is not illegal. So expect politicians from both sides of the aisle to push this.
  • Short Funds will be way more careful: high. Wild overvaluation or messed up strategic positioning is not enough reason to short. As the mantra says “markets can stay irrational longer than you can stay liquid”. This is particularly true when all central banks are in full stimulus mode.
  • Some will win in the casino but most will fail: high. We all love a winner story, particularly when it is a David vs Goliath story like this. Sadly this will lead to many more to imitate these winners and most of them will fail. Even on-paper winners on Game Stock GME do not win until they sell before prices come down. This could be like buying Bitcoin in 2017 for say $18k and being a winner when it goes to $20k and a dummy when it crashes to $3k and have to wait years to be a winner again in 2021. Or it could be like Blockbuster ie the story that first brought out the shorts.    
  • RobinHood fails; medium. During market shocks many brokers fail – look at what happened during the Francogeddon. Read Part 3 to understand the risks brokers face during clearing. RobinHood maybe one of the survivors, but they are in serious peril; the combo of cash crunch and reputation/brand damage is very hard to manage. 
  • Security Tokens replace legacy equity markets: medium. The key to tokenised equity in the form of a Security Tokens is that they do Real Time Settlement or to be more technically accurate – Concurrent Delivery Versus Payment (DVP). And they operate 24/7 like social media forums.  Security Tokens are simply much more efficient than the legacy equity markets operated by Wall Street today. 
  • Regulation to protect Wall Street: low. Some traditional investors did well. (Fidelity own 14% of GameStop shares BlackRock own 12.3% and Vanguard  own 7.6%). Even if regulators are not stopped by public outrage, many traditional investors will lobby to see their competition damaged and feed off the carcass. Watch how Wall Street turned on Lehman Brothers in 2008 to see how this plays out.      
  • Regulation to make social media more “responsible”: low. The Wall Street Bets forum will be scrutinised by lawyers for collusion. Social media can be used for bad purposes (such as hate speech) as well as good purposes. The Wall Street Bets forum  may look good in this scrutiny and lawyers may conclude that it is simply a place to share information with investors making their own decisions.  The definition of good or bad is very dependant on your point of view, but it will be hard to raise popular enthusiasm for the idea that the Wall Street Bets forum was created with bad intention and if so how to fix the problem.   
  • Sustainable democratization of Wall Street via regulation: low. It saddens me to rate this a low as I think sustainable democratization of Wall Street matters a lot to all of us. I rate it a low because regulators tend to listen to lobbyists and because populist politicians will soon move onto the next hot story.

See previous post in this 4-parter.

See first post in this 4-parter.

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2021/02/23/part-4what-changes-can-we-expect-in-future/

Hunting for crypto unicorns

https://dailyfintech.com/2021/02/22/hunting-for-crypto-unicorns/


This week, on Tuesday, Bitcoin’s price set a new all-time high of more than $50,000. This week, on Friday, Bitcoin’s market cap exceeded $1 trillion. This week, on Saturday, Bitcoin’s price set another all-time high, crossing $57,000. What a week it’s been. Certainly, we are going to see more weeks like this one ahead in 2021. The corporate world is validating bitcoin. Bitcoin currently is worth roughly $225 billion more than Tesla, the company that responsible for the recent surge in the cryptocurrency’s price. Payment giants, Square and PayPal, let their users buy and sell it. Credit card processors, Visa and Mastercard are also embracing cryptocurrencies. More and more institutional and retail investors are getting into bitcoin and cryptocurrencies. But surging prices are not the only thing you can expect to see. Venture capital investment in this space is going to heat up even more, as investors look for the next crypto unicorn.

Ilias Louis Hatzis is the founder and CEO at Kryptonio, a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords. Sign up for our public beta and be the first to get the safest cryptocurrency wallet.

Although the Bitcoin white paper is now more than 12 years old, we are still very early in the crypto movement. Crypto is poised to be the next major computing platform and everyone is starting to realize this. Bitcoin, as well as blockchain technology, smart contracts and artificial intelligence are the major drivers of disruption in the coming years.

Unless you’ve living in a cave for the last few months, it’s been impossible not to follow bitcoin’s price. As the price of bitcoin continues to rise, venture capital firms are paying attention.

Crypto is increasingly becoming the target of some of the best venture capital funds, and for good reason.

Looking at the stories in news for the last twelve months, you’ll read articles: “USV Announces 30% of Core Fund Investing in Crypto Startups“, or “South Korea’s Hashed Raises $120M Venture Fund for Crypto Deals” or “VC Andreessen Horowitz Crypto Fund II raises $515 million” and many more just like these.

Early this month, the former Digital Currency Group (DCG) Vice President of Investments, Travis Scher, announced a $72 million crypto-focused venture capital fund, backed by the billionaire investor Paul Tudor Jones and hip-hop star LL Cool J.

Bitcoin’s bull market is fueling another boom in crypto startup deals. Data from The Block shows a record $900 million was invested in blockchain startups in Q3 of 2020. Investors rushed to bootstrap decentralized finance projects in particular, including those focused on portfolio management, lending, and derivatives. Since the first bitcoin was mined a more than a decade ago, whenever its price hit new highs, venture capital firms have stepped up their investments.

Based on data from Crunchbase and Coindesk, the research team at Grom found that the average amount invested in Series A rounds for crypto startups was $10.4 million in 2020.

Chris Dixon that leads the crypto fund at Andreessen Horowitz’s has called this the “crypto price-innovation cycle.” It works like this: Bitcoin and other digital coins rise in value, sensational news reports follow, entrepreneurs and developers take an interest, and venture capitalists invest in them.

It’s not just VCs that have sought exposure to blockchain either. Family offices and hedge funds have also taken an interest in the space. Harvard University’s investment arm joined with another two investors in an $11.5 million investment in crypto company Blockstack.

There’s already a ton of new startups that are leveraging blockchain technology and we’re going to see even more entrepreneurs get into the space.

There are currently over 27 fintech unicorns worldwide, with crypto platforms such as Robinhood, Revolut, and Coinbase riding a wave of mass adoption and market growth well beyond the billion-dollar mark.

US-based companies such as Dharma, a blockchain-powered bank that enables users to earn interest on digital dollars, such as USD Coin and Dai; 0x, an open protocol that enables the decentralized exchange of assets on the Ethereum blockchain; and dydx, an open trading platform for crypto assets have raised capital from VC firm Andreessen Horowitz, as well as blockchain funds Polychain and Pantera Capital.

Plenty of European startups are also profiting from the boom. This should come as no surprise, as Europe is home to several of the top firms in crypto, from Wallet firm Nexo to security startup Ledger and token lending platform Aave.

The “Crypto Valley” ecosystem in Switzerland is home to 800 active companies, which employ more than  4,000 professionals and to six Unicorns (Ethereum Foundation, Cardano and Dfinity Foundation, Bitmain, Cosmos Network and Polkadot).

Here are some of European startups that I’ve been tracking and I think will hear more about in the future:

  • Nebeus is a company bridges the gap between crypto and cash, providing people with instant crypto-backed cash services for everyday use. Nebeus offers a host of secure and compliant solutions allowing customers to borrow, earn, send, and receive cash and crypto with full security.
  • Coinrule is the smart assistant for cryptocurrency trading, allowing users to take full control of their trading while being able to fight back hedge funds and automated bots. As per the company’s claims, it is simple and with no coding skills required.
  • Ziglu, the personal money app offers an account with traditional & digital currencies managed seamlessly in one app.
  • Argent is an Ethereum wallet for iOS and Android. With this platform, users can earn interest and invest; borrow, store and send. The platform also lets users access DeFi and Dapps in a few taps.
  • Copper is a company that provides custody and prime brokerage services to more than 200 institutional clients, including traders, wealth companies, private banks, family offices and cryptocurrency funds.

Startups in specific crypto sectors are attracting a lot of attention. Decentralized finance (DeFi) is one emerging area that had gained a strong following among investors, who are betting that traditional banking services can be securely provided based on blockchain ledger technology. Another is security solutions, that will ease the minds of worried crypto investors. Also, non-fungible tokens (NFTs), a class of tradeable digital assets that often take the form of digital artwork or collectibles.

Only those who will risk going too far, can possibly find out how far it is possible to go – TS Eliot

These words reflect venture capital’s growing appetite in crypto startups. We are at the beginning of a revolution, with insane amounts of capital flowing from legacy institutions to bitcoin and alternative coins. This year is we’re going to see greater adoption and venture capital investment in crypto startups, especially in applications that have both an intuitive user experience and a clear technological edge.

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This Week in Fintech ending 19th February 2021

https://dailyfintech.com/2021/02/19/this-week-in-fintech-ending-19th-february-2021/

This Week in Fintech ending 12 February 2021

This week our experts brought you the following insights based on their experience as investors, entrepreneurs & executives.

To continue receiving This Week in Fintech, you can either become a paying Member for $143 per year (and receive all our content in addition to this weekly summary) by clicking here.  If you just want to receive This Week in Fintech for free, you will need to fill in this form

Your Editor is Bernard Lunn. He is also the CEO of Daily Fintech and author of The Blockchain Economy and occasional opinion columnist.

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at  Kryptonio a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords and Weekly Columnist at Daily Fintech) @iliashatzis wrote Tesla buys $1.5 billion in bitcoin. Are you buying?

Today is Valentine’s day and many people around the world are celebrating the day with their loved ones. HODLing bitcoin is like being in a relationship, with its share of ups and downs. But on this day, like on past Valentine’s days, bitcoin once again showed us some love. The price of bitcoin today reached a new record above $49k, rising as high as $49,344 on Coinbase. Bitcoin’s market cap stands at $910 billion, with the entire cryptocurrency market valued at $1.5 trillion. There is a momentum in the cryptocurrency market, that’s been building up for a while now. We’re seeing more apps that let users buy and sell cryptocurrencies using their dollars, fund managers moving more money to cryptocurrencies and big corporates using cash reserves to hedge their risk with bitcoin. An SEC filing by Tesla, which became public knowledge last week, kicked off bitcoin’s new price highs. Bitcoin, which was already climbing, soared after Tesla announced it had purchased $1.5 billion worth of bitcoin, with the company’s funds. The company also said that it plans on accepting bitcoin for payments in the future. Tesla made it clear in its filing, that it sees bitcoin as a chance to diversify its cash and cash-equivalent holdings. Tesla’s move confirmed, once more, what we already know: Bitcoin has finally moved from Silk Road to Main Street.

Editor note: Bitcoin bears need to ask if they are comfortable betting against Elon Musk and many other smart entrepreneurs and investors.

——————————————-

Tuesday Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote:   Part 3: Shorting can be a valuable price discovery mechanism if done right.

Hedge Fund used to have a precise meaning. Limited Partners (LPs) invested in Hedge Funds who were bearish in order to “hedge” the rest of their portfolio which was long ie bullish. Hedge Funds then later came to simply mean a bunch of very smart people getting paid a lot of fees by LPs to make them a lot of money.

Editor note: At the risk of sounding like an apologist for the reviled hedge funds, this post explains how shorting can sometimes be valuable service.

Wednesday Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote Stablecoin News for the week ending Wednesday 17 February 2021.

This weekly snapshot is the news that matters in the Stablecoin market.

Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: Bitcoin hoarding aka HODL is logical but prevents it becoming a medium of exchange.

Tesla Model 3 price was shown above Bitcoin on CoinMarketCap for many days. A few months ago, you needed two Bitcoin to buy one Tesla Model 3. As I look at CoinMarketCap today I can see selling one Bitcoin , buying one Tesla Model 3 for $37,990 and having lots of spare change. Or should I HODL Bitcoin and delay gratification on Tesla?Bitcoin bulls such as myself think you will be able to buy two Tesla Model 3 cars with a single Bitcoin in the near future.

So we hoard rather than spend.

Editor note: Some entrepreneur somewhere is figuring out how to fix this. This post outlines one technically and commercially feasible solution. 

——————————————-

Thursday

Rintu Patnaik, an Insurtech expert based in India, wrote: The Internet Of (Insured) Things Part 2: Connected Homes

Savvy consumers are cozying up to “Internet of Things”, welcoming smart doorbells, access controls and monitors that report incidents. These devices autonomously control parameters, bolster security and delight through optimizing home entertainment. Insurance carriers’ prognosis is that such gadgets can unlock pent-up policyholder satisfaction while simultaneously lowering risk. Market research characterizes the global smart home market as a $78.3 billion market that will grow at 11.6% over next 5 years.

Editor note: Read this Part 2 to understand the future of home insurance.

Christian Dreyer @x3er, the Swiss based CFA who focusses on how XBRL changes our world wrote: XBRL News about trade reporting, legal identifies and risk management

Editor note: This weekly snapshot is the news that matters in the XBRL market.

——————————————-

Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London, wrote: Alt Lending for week ended 19 February 2021.

Editor note: This weekly snapshot is the news that matters in the Alt Lending market.

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https://dailyfintech.com/2021/02/19/this-week-in-fintech-ending-19th-february-2021/

Alt Lending Week Ending 19th February 2021

https://dailyfintech.com/2021/02/19/alt-lending-week-ending-19th-february-2021/

What Starling, Allica Bank and Modularbank think about neobanking business models in 2021

What the UK leaders of digital banking think. Luminaries from three of the Uk’s digital banks discuss what’s on their minds for this year. The gist seems to be that the big banks are shedding customers in their boatloads thanks primarily to physical bank closure programs and the digital boys and girls are picking up the slack. Fair enough I suppose but with the FCA worrying about how the bricks and mortar based traditional bank disappearance program is leaving some customers cold and disadvantaged perhaps means that some innovative thinking might be worthwhile. As I look at the property portfolio the majors have here in the Uk and elsewhere I do think it makes them look at bit more solid than their digital counterparts. As far as business acquisition ideas are concerned it seems that small business is on their minds.  The problem here and in every other type of banking is how do you make any money at it. I know I bang on about this week in and week out but with interest rates at more or less zero there just isn’t an easy answer. ROE is a key ratio in any business but particularly banking but it is difficult to see with the current ROA and restricted leverage how the P word can be achieved and that is pretty basic to being in business.

The impact of UK Chancellor Sunak’s Stamp duty dispensation is still making the headlines?

As I have mentioned before this tax on moving has at least united everyone to agree that it should be removed but it is far from certain that it is going to be. This was a principal factor in the mini boom in residential property prices over the past year which pushed prices up as people rushed to complete before the dispensation ended. The longer term impact however is unknown. What is clear however is that the market looks stressed, Some 450 thousand residential renters are now in arrears and thousands of High Street sites remain empty. The impact on security coverage cannot be ignored forever.  Most of the big lenders have toughened up their criteria making moving even more difficult and the commercial lenders don’t seem to be saying very much. I think there are a lot of very worried people out there in the real world.  Property prices are not irrelevant and a liquid but stable market is essential to a well functioning economy. This year we have seen property price rises when they really shouldn’t have. Is this an economic optical illusion? Watch this space.

Payday lenders under fire for silence on compensation

Back to the end of the lending market that nobody likes. The high risk, high interest rate sector of the personal lending market has seen a number of casualties and it looks like it might see a few more. There is a really terrible dilemma here. The clients of these companies are the people that nobody else wants and come under fire from all sides, clients, auditors, regulators you name it. Part of the problem seems to be deluge of claims for compensation for being sold unaffordable credit. It appears that some of these companies have not disclosed potential liabilities despite sign off from their auditors. One thing about this article caught my eye it appears that there are a lot of key workers who are their clients and a lot are low paid NHS workers. It is easy to see how this could turn into a very emotive issue indeed. Yet this sector does provide a regulated service to a small but socially important groups of already fairly deprived people. If these guys won’t lend to you then the only person who will might be less than worried about regulation. It’s a big problem for regulators  all parties should put some more intellectual thinking into how to do it properly but humanely  and still keep it operating.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2021/02/19/alt-lending-week-ending-19th-february-2021/

XBRL News about trade reporting, legal identifies and risk management

https://dailyfintech.com/2021/02/18/xbrl-news-11/

Here is our pick of the 3 most important XBRL news stories from the last week. 

1 Time to digitize trade reporting

In September 2009, it took just nine words – OTC derivative contracts should be reported to trade repositories – for the Group of 20 (G-20) to unleash one of the most ambitious and complex initiatives in the history of derivatives markets. Despite the obvious rationale for improving transparency to give regulators better insight into market activity and emerging risks, trade reporting has proven exceptionally challenging.

I like the “technology first” approach taken in this ISDA blog post. It constitutes a refreshing change from the otherwise wide spread (ok, who am I kidding – the Swiss) regulatory cop out attitude of “technology neutrality”. It’s just trying to avoid answering hard questions. In doing so, detail pandemonium swiftly ensues …

2 GLEIF unveils issuance and infrastructure models for verifiable LEI system

On 11 February 2021, the Global Legal Entity Identifier Foundation (GLEIF) published issuance and technical infrastructure models for its recently announced verifiable LEI (vLEI) system. A vLEI is a secure digital attestation of a conventional LEI. When fully developed, the vLEI will enable instant and automated identity verification between counterparties operating across all industry sectors, globally.

Again, this piece is answering another hard question, as mentioned above – and in doing so generates real day to day value in use. On a meta-level, it seems to do for LEI what the proposed Swiss eID avoids doing by delegating to private issuers, with an overly complicated governance framework to compensate …

3 Mohini Singh on standards to manage investment risk

Head over to the Taggings section of our website for a guest post from Mohini Singh, ACA, Director of Financial Reporting Policy at CFA Institute and Treasurer of the XBRL International Board of Directors. She reflects on a panel discussion on ‘Standards to Manage Investment Risk,’ where she joined Mike Willis of the US Securities and Exchange Commission (SEC) and the Council of Institutional Investors’ Jeff Mahoney in a conversation moderated by Jeff Naumann of Deloitte – a special treat for anyone who missed the XBRL US Investor Forum 2020.

If anything, the pandemic has demonstrated the usefulness (and indispensability, frankly) of timely, granular information, without which we are navigating in the dark. Which is still where we are in many places, twelve months later. Here’s to hope that this demonstration will fall on fertile ground when it comes to updating reporting frameworks all over the place!

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

 We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

 For context on XBRL please read this introduction to our XBRL Week in 2016 and read articles tagged XBRL in our archives. 

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https://dailyfintech.com/2021/02/18/xbrl-news-11/

The Internet Of (Insured) Things Part 2: Connected Homes

https://dailyfintech.com/2021/02/18/the-internet-of-insured-things-part-2-connected-homes/

Savvy consumers are cozying up to “Internet of Things”, welcoming smart doorbells, access controls and monitors that report incidents. These devices autonomously control parameters, bolster security and delight through optimizing home entertainment. Insurance carriers’ prognosis is that such gadgets can unlock pent-up policyholder satisfaction while simultaneously lowering risk. Market research characterizes the global smart home market as a $78.3 billion market that will grow at 11.6% over next 5 years.

Top consumer motivators for owning smart home devices include increased safety/security (47%), convenience of managing remotely (31%) and reducing energy bills(25%). Top barriers include perceived device cost (58%), lack of perceived need (42%) and privacy concerns (26%). While consumers continue to adopt IoT devices briskly, awareness of smart home insurance programs has been limited.

Insurance was slow to smart housing – partly from the potential new market being seen as narrow and uncertainty in meeting technical standards. Of late, the mass market has been opening up, facilitating simple connections with multiple devices. More insurers have embarked on cooperation approaches, selling integrated products via Google Nest for instance. They offer premium discounts to those who fortify their homes with smart-home devices. Similar to the use of telematics by auto insurers to offer discounts to safe drivers, smart home devices allow home insurers to reduce premiums.

Insurance is not a primary driver of connected home technology adoption. Insurers hence need to partner with distribution channels and device companies. As a binding service in the customer journey, they can prevent accidents and risks, assist in times of repair needs and pay claims proactively before clients are aware of something wrong.

To insurers, three categories have appealed most. The first is water leak detection. The second is smoke detection and fire suppression, and the third is intrusion. Non-weather-related water damage claims from plumbing or appliance issues accounts for ~20 percent of common home claims, making water leak detection a priority.  Per American Insurance Association, water leaks in homes resulted in several billion dollars of property loss. Anything insurance carriers can use to mitigate risks for those damages is clearly impactful.

Smart Home technology seems to have exceptional promise, but success hinges on an IoT ecosystem with many stakeholders – technology companies, appliance / sensor manufacturers, security companies and insurance carriers. The common way for carriers to partner is to white label a solution from a device vendor, offering a discount for activating a device in a specified amount of time. In a second approach, carriers provide policyholders a device vendor list to procure from and be eligible for premium discounts. Another prevalent approach is when the insurer, instead of direct premium reduction, gives a percentage reduction off a new water monitoring and control system expecting they can recoup costs over time.

Canary Care, a UK start-up, places sensors in houses that monitor movement, temperature and light to push to a dashboard display. Based on the patterns of behavior detected by sensors, the platform sends notifications to caregivers, modifying the value proposition from reactive to pre-emptive and reducing premiums.

Homies is a peer-to-peer alarm platform from Achmea that allows neighbors to help each other out in case of fire or a burglary. Achmea is attempting to expand its field of interaction to risk prevention, enabling people in neighborhoods during emergencies, increasing quality of life and bringing down damages.

Insurers are not alone in seeking a leading role in smart home ecosystems. To get there, people have to be convinced to let insurers use their data and gain credibility. The starting point is transparency. Consumers need to know why and how their data is used. The interest of the insured and insurer must align. Key recommendations are to resolve data issues, focus on value-added-services and partner with potential disruptors.

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https://dailyfintech.com/2021/02/18/the-internet-of-insured-things-part-2-connected-homes/

Bitcoin hoarding aka HODL is logical but prevents it becoming a medium of exchange.

https://dailyfintech.com/2021/02/17/bitcoin-hoarding-aka-hodl-is-logical-but-prevents-it-becoming-a-medium-of-exchange/

Tesla Model 3 price was shown above Bitcoin on CoinMarketCap for many days. A few months ago, you needed two Bitcoin to buy one Tesla Model 3. As I look at CoinMarketCap today I can see selling one Bitcoin , buying one Tesla Model 3 for $37,990 and having lots of spare change. Or should I HODL Bitcoin and delay gratification on Tesla?Bitcoin bulls such as myself think you will be able to buy two Tesla Model 3 cars with a single Bitcoin in the near future.

So we hoard rather than spend.

Bitcoin bulls who hoard Bitcoin maybe wrong. Maybe we should sell. However there are enough Bitcoin hoarders for this to be a real force in the market that prevents Bitcoin becoming a medium of exchange.

Sure I can buy a Tesla Model 3 with one Bitcoin today. Why do that if I think I can buy two Tesla Model 3 cars with that same Bitcoin in the near future?

If I hoarded Fiat currency rather than spending the economy would crash. That is the deflationary nightmare of those reviled central bankers and why they try so hard to create a little bit of inflation.

I believe that the market will create a solution to this problem via Bitcoin lending. This is the next big crypto opportunity. This is simple lending based on assets under control of the lender. It works with other assets, where it got by names such as Lombard Loans. Combining this with decentralised storage/custody is a problem to br solved. Lets say you have some Bitcoin and want to buy a Tesla Model 3 andy don’t want to sell your Bitcoin. If you could borrow  $37,990 using you Bitcoin as collateral you problem is solved.

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2021/02/17/bitcoin-hoarding-aka-hodl-is-logical-but-prevents-it-becoming-a-medium-of-exchange/

Part 3: Shorting can be a valuable price discovery mechanism if done right.

https://dailyfintech.com/2021/02/16/part-3-shorting-can-be-a-valuable-price-discovery-mechanism-if-done-right/

Hedge Fund used to have a precise meaning. Limited Partners (LPs) invested in Hedge Funds who were bearish in order to “hedge” the rest of their portfolio which was long ie bullish. Hedge Funds then later came to simply mean a bunch of very smart people getting paid a lot of fees by LPs to make them a lot of money.

Short selling Hedge Funds can provide a useful service. One example of a useful service provided by a short selling hedge fund is when Jim Chanos (Founder & President of Kynikos, which is Greek for “cynic“) shorted Enron, because he spotted evidence of fraud before others did. Chanos does not always get it right and now talks about his painful short in Tesla. Shorting Enron was a good example of “sticking it to the man”, so he should be popular on Reddit investing forums.

Short selling can be good for price discovery. A short seller such as Jim Chanos spotting fraud at Enron is clearly adding a lot of value. Two other markets illustrate why short selling can be good for price discovery:

  • Crypto markets in the 2017 bull run.  Before you could go short Bitcoin or other crypto using derivative exchanges such as CME, prices went up super fast and then crashed hard. Now that shorting is a more  normal part of crypto, prices are a bit more stable.
  • Private Equity during the valuation inversion between public and private markets (ie when private shares were valued higher than public shares), a subject Daily Fintech first covered in 2016 in Square & the public private valuation inversion for VC backed Unicorns. The reason for the inversion is simple – you cannot short private shares. Now that inversion is over and valuations of many tech stocks resemble the Dot Com era is not a good time to stop short selling. 

Destroying good companies via collusion is obviously not good. Sadly this is all too common as it is an easy way for short finds to make money. Nor is jumping into over shorted companies just because everybody else is shorting that stock adding any value. After the GameStop saga, both types of short sellers will be a lot more careful.

See previous post in this 4-parter.

See first post in this 4-parter.

In next week’s concluding post we peer into our crystal ball to estimate what changes can we expect in future?

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2021/02/16/part-3-shorting-can-be-a-valuable-price-discovery-mechanism-if-done-right/

Tesla buys $1.5 billion in bitcoin. Are you buying?

https://dailyfintech.com/2021/02/15/tesla-buys-1-5-billion-in-bitcoin-should-you/

Today is Valentine’s day and many people around the world are celebrating the day with their loved ones. HODLing bitcoin is like being in a relationship, with its share of ups and downs. But on this day, like on past Valentine’s days, bitcoin once again showed us some love. The price of bitcoin today reached a new record above $49k, rising as high as $49,344 on Coinbase. Bitcoin’s market cap stands at $910 billion, with the entire cryptocurrency market valued at $1.5 trillion. There is a momentum in the cryptocurrency market, that’s been building up for a while now. We’re seeing more apps that let users buy and sell cryptocurrencies using their dollars, fund managers moving more money to cryptocurrencies and big corporates using cash reserves to hedge their risk with bitcoin. An SEC filing by Tesla, which became public knowledge last week, kicked off bitcoin’s new price highs. Bitcoin, which was already climbing, soared after Tesla announced it had purchased $1.5 billion worth of bitcoin, with the company’s funds. The company also said that it plans on accepting bitcoin for payments in the future. Tesla made it clear in its filing, that it sees bitcoin as a chance to diversify its cash and cash-equivalent holdings. Tesla’s move confirmed, once more, what we already know: Bitcoin has finally moved from Silk Road to Main Street.

Ilias Louis Hatzis is the founder and CEO at Kryptonio, a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords. Sign up for our public beta and be the first to get the safest cryptocurrency wallet.

At the end of 2020, Tesla had $19 billion in cash and cash equivalents. Now almost 10% of its reserves went into bitcoin. When a large company like Tesla makes such an investment, it only makes sense if in the future, bitcoin eventually becomes a transactional security. While the investment itself is bold in sheer numbers, its importance is far reaching and I think it will remodel the way corporations set themselves up financially. It will add more trust and grow bitcoin as a store of value.

Late last December, business intelligence company MicroStrategy announced it also purchased over $1 billion in bitcoin. While MicroStrategy’s entry into the bitcoin made a lot of noise, Tesla took it a notch higher. Tesla is the fifth most capitalized US. company, with a market cap of over $800 billion.

There is no question that Michael Saylor and MicroStrategy believe in bitcoin, but they are also biased, with a billion riding on bitcoin. A move by a company like Tesla makes MicroStrategy’s position safer. In a tweet in December, Michael Saylor, the co-founder of MicroStrategy, recommended to Elon Musk: “If you want to do your shareholders a $100 billion favor, convert the $TSLA balance sheet from USD to #BTC.” Elon subsequently replied, “Are such large transactions even possible?” Early this month, MicroStrategy also hosted a free virtual conference, which was a huge success with over 22,000 attendees. The conference aimed at educating other corporations on how to plug bitcoin into their balance sheet.

In the last three months, bitcoin has gained more than 180%, becoming a high-growth investment vehicle. Companies are starting to recognize the opportunity to use bitcoin as a form of payment and use it as an investment vehicle. For Tesla, there are at least two uses of bitcoin. One is as an investment to bolster the returns on their cash. The other is as corporate cash to facilitate consumer and commercial transactions internationally. As Tesla begins to use bitcoins in transactions, Tesla will benefit from their positive feedback loop and recognize the profits from their bet.

Yet, not everyone is going to follow Tesla and MicroStrategy into bitcoin. When GM’s CEO, Mary Barra, was asked about Tesla’s position in bitcoin, she responded: “… first of all, we don’t have any plans to invest in bitcoin, so full stop there. This is something we’ll monitor and we’ll evaluate. And if there’s strong customer demand for it in the future, there’s nothing that precludes us from doing that…”

Her statement sums up that Its going to take a lot more to get most of the hyper-conservative executives to add bitcoin to the portfolio. Keeping assets in liquid and safe investments is very important, especially when a crisis like a pandemic hits. But, I am sure that many big corporates remember getting burnt in high-yield investments in 2008, which looked safer than bitcoin.

Hopefully the big corporates will realize, that new thinking and approaches are necessary. With the current situation on both markets and shrinking central bank rates, both will become harder to justify. What was the most secure investment traditionally, might now only be the most secure to depreciate in value. Bitcoin’s market cap rose 370% in 2020 alone, 22% after the latest Elon pump, and as we are nearing the one trillion mark, the asset gets more attractive to institutional investors as small entities won’t be able to manipulate the price as easy.

Saylor did it. Dorsey did it. Musk did it. No one will blame the next CEO of being the first to buy bitcoin with the company’s treasury reserves and take unprecedented risk with shareholders money. I think it’s safe to say that the market’s bull run will probably intensify even more, as we see more corporates, one by one, join in and drive more demand, prodded on by Tesla’s major investment in the bitcoin.

So, what should you do?

Bitcoin launched in 2009 and investing $1,000 in bitcoins in 2010 would have been considered very risky. I am not going to tell you, that it would of been worth millions had you taken that risk. What I am going to tell you, is that if you bought $100 worth of bitcoin in the last year and held it, today it would be valued at:   

  • Dec. 18, 2019 –  $662 (BTC was $7,252.71)
  • Mar. 18, 2020 –  $900 (BTC was $5,331.81)
  • Dec. 18, 2020 –  $206 (BTC was $23,207.70)
  • Jan 18, 2021 – $128 (BTC was $37,286.51)

I am going to tell again, the same thing I’ve said many times before.

Forget about charts. Forget about how much it costs. Stop thinking it’s too late to buy. Stop trying to analyze and predict bitcoin’s price. Just put in a small amount of money. Buy what you can afford to forget. Buy consistently every month the same amount. HODL. You can’t lose, it’s a sure thing.

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https://dailyfintech.com/2021/02/15/tesla-buys-1-5-billion-in-bitcoin-should-you/