Last Thursday

One of the ways regulators try and protect ‘less sophisticated investors’ is to only allow High Net Worth (HNW) or professional investors to access certain types of funds. The use of options and futures (derivatives) by an asset manager to reduce a fund’s exposure to the stock market or a particular equity (under the guise of ‘efficient portfolio management’ practices) has been permitted by fund managers for years.



Historically, very few retail funds have used derivatives, leaving these more exotic financial tools to the ‘Hedgees’ i.e., hedge fund managers. They use futures and options for gaining exposure across a wide variety of assets to hedge their funds from market volatility, as a means to get exposure to an asset in a cheaper format or to gear/leverage their fund. However, most jurisdictions believe that if you have lots of money (i.e., an HNW investor) you can invest in the alternative funds such as hedge funds. Not only can an HNW investors afford the high minimum initial investment for these funds, but HNW investors are presumed to be more sophisticated, or have better access for obtaining appropriate professional advice before investing. 

Meanwhile, the DeFi sector would appear to be disbanding the arbitrary restrictions that regulators have historically imposed, enabling investors to allocate relatively small sums of capital to investment strategies - which may be the same, or very similar, to a hedge fund manager. An example of this is
ByteTree which has built a sophisticated range of trading algorithms to manage its’ Bitcoin and general fund (focused on trading Bitcoin) and has a minimum investment of $100,000. Alternatively, it is possible via TokenSets to invest a much smaller sum and gain exposure to ByteTree’s trading. To invest, all that is required is a phone number, an Ethereum wallet and an email - no KYC and no AML so extremely easy, but also potentially open to abuse.


TokenSet’s ByteTree performance v Bitcoin


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Source: TokensSet (the vertical lines on the chart above indicate when BTYE token was rebalanced)


Whilst the TokenSet’s fund is not exactly the same as the ByteTree’s fund, it is a way to access the latter’s fund managers. Given the performance against Bitcoin, it is easy to see why Byetree’s fund management skills are gaining so much interest. However, when investing via TokenSets there is no requirement to complete KYC or AML procedures, so ‘super easy’, but also potentially open to abuse.


But caution is required, as a $500 investment would incur a ‘listing fee’ of $107, i.e., 20%. When asked about the listing fee, TokenSets stated that it is the cost of accessing the Ethereum network. The listing fee so is high due to the current demand to use the Ethereum Blockchain. Such a high fixed fee will no doubt act as a deterrent for smaller investors - so will this potentially give comfort to regulators?

On Tuesday

One of the most common questions we get asked when giving presentations is ‘Are companies really using Blockchain technology?’. To be honest, this was one of the reasons that Digital Bytes came to be in March 2018, as back then most of the engagement with Blockchain technology (apart from cryptocurrencies) was about exploring proof of works - thus how this technology could be used. However, as we have commented before, the driving force for greater adoption of Blockchain technology is no longer the ’cyberpunks and techy geeks’ but is now very much being driven by governments and global corporations. Here are just a few examples:



Alibaba - one of the largest holders of Blockchain technology patents globally, using this technology in supply chain logistics, financial services and the fight against counterfeit food.

Ernst & Young - is actively involved in the development of the Baseline Protocol, which uses the Ethereum Blockchain to record business data. Baseline Protocol is being used to share business data among multiple stakeholders and by companies such as Coke One North America and SAP.

IBM - Hyperledger Fabric is one of the keyways in which ‘Big Blues’ is rolling out Blockchain technology to its clients. IBM’s Food Trust network is used by household names such as such as Nestlé, Dole, Walmart and olive oil giant, CHO. IBM has also been very active in the shipping sector, working closely with Maersk’s TradeLens platform to digitise the movement of global shipping logistics and supply chains. 

Hedera Hashgraph - developed in 2016 and designed to offer secure applications in real-time. Hedera Hashgraph has an impressive range of global corporations that own and govern  the organisation have just announced that U.S-based AVC Global subsidiary Medical Value Chain will be offering a track-and-trace platform for global pharmaceutical supplies to Bahrain. 


The Hedera Governing Council



Source: Hedera Hashgraph.com

IconLoop - South Korea is very active in the use and development of Blockchain technology. IconLoop has applications using Blockchain-powered platforms in banking, healthcare and government sectors as well as using the technology for driving licenses, which it is currently developing.

JPMorgan - the biggest bank in the United States has gone on to create the JPM Coin, despite its CEO being verbally disinterested in Bitcoin. JPMorgan is a member of a blockchain consortium comprising of 130+ banks called the Interbank Information Network, using technology to improve compliance monitoring and controls whilst reducing the time it takes to process payments. 

Oracle and Microsoft - these two global-technology ‘titans’ both sell cloud computing services offering blockchain-as-a-service attracting companies such as GE Aviation, Singapore Airlines, Indian Oil, Nigeria Customs, Starbucks, JP Morgan.

PayPal - as one of the largest online payments systems, it has accepted Bitcoin for years and now offers a service to institutions enabling them to hold cryptocurrencies as part of their treasury reserves. PayPal has recently stated that “it was looking for a way to understand how to leverage blockchain to better serve merchants and users.”

Salesforce - Salesforce Blockchain offers an additional facility to Salesforce’s customer relationship management system (CRM) which already has 150,000+ clients. Lamborghini is using the Salesforce Blockchain-powered platform to prove the heritage of its cars. This proof of provenance can substantially increase the value of a Lamborghini.

Visa - five years ago, Visa invested in a blockchain start-up called Chain, then proceeded to develop ‘Visa B2B Connect’ with Chain as a fast and secure way to 

process business-to-business payments around the world. Visa also offers a number of crypto debit cards such as Binance, Coinbase, Baanx and Revolut.

World Economic Forum - of all the supernational organisations, the World Economic Forum is one of the most active and has established the Global Blockchain Council, helping with the adoption of Blockchain technology for...

Today

Blockchain technology, as many people know, offers the ability to create a highly secure data base whereby information can be shared on a permissioned basis. This means it is possible to share information with whom you wish, and for how long. For example, at a doctor’s appointment where access to your medical records is needed or at an interview for a new job, you could authorise the involved parties access to the relevant information for as long as they required it. Such a solution could prove to be a judicious way of preserving confidentiality of your data as well as helping to comply with GDPR regulations since your personal information could be retrieved by you, when you wished; and being digital, would be ideal for our increasing on-line lifestyles.



Furthermore, Blockchain technology is being used by governments as a means to do away with paper records. In Australia, the government is looking to remove the requirement for cheques, paper signatures and the need to place notices in newspapers, as outlined in its recent Treasury consultation paper, thus opening a way to use Blockchain technology instead. After all, the practice of posting a notification in the London Gazette, which dates back to 1665, as there are various Laws, Acts, Rules, Orders and Government decisions that require to be published. At least the Gazette is now published on-line; so, if you have the urge to check to see if you are in the New Year’s Honours List, you know where to go! Meanwhile in Germany, there will no longer be the requirement to issue securities in a paper-based format with the German’s authorities now allowing certain debt instruments to be issued digitally on a Blockchain-based register. This is also due to be the case in Switzerland as the Swiss have legislation coming into force on 1st Feb 2021 enabling shares, bonds and other securities to be issued electronically, thus  removing the need for paper-based documentation.
Post this last year’s global pandemic, a digital solution to your identity (combined with your COVID-19 vaccination details) may well be the only way for permitted travel to certain countries in 2021, such as Australia. The International Air Transport Association (IATA), the lobby group of the world’s airlines, stated it would launch a digital health travel pass early next year 2021 which would include a passenger’s COVID-19 vaccination data. The World Economic Forum has developed an app called CommonPass, not using Blockchain technology but relying, instead, on Amazon Web Services. Another solution called AOKpass is being built by SOS, (the??) world's largest medical and travel security services firm, based in Singapore. SOS has partnered with the International Chamber of Commerce which, itself, is using Blockchain technology.  

 
How AOKpass works



Source:SOS.com


Notably, another coalition involving Microsoft, Oracle and Salesforce is working on a digital COVID-19 vaccination passport that will encrypt data regarding an individual’s vaccination history, the proposal being that it will be downloadable onto a mobile phone. Those without a mobile phone can print off a QR code to prove they have been inoculated. As yet, it is unclear whether this cohort is using Blockchain technology but, in December 2020,  Salesforce was reported to have been working with IBM in creating a digital passport that did use a Blockchain-powered platform. It is hoped that these digital proofs of vaccination will enable people to travel, attend international sports events and concerts etc with less concern. However, will we see people being banned/deported if they do not have their data available?

One wonders that if corporations such as those mentioned above are able to gain access to government records such as health records, then why not passport details or driving licences so doing away with more paper-based documents? One of the irritations when dealing with any official/regulated entity is the requirement to prove who you...

On Tuesday

This is a key theme in Digital Bytes frequently being asked about by readers. Digital currencies have the potential to offer governments a new tool with which to control their economies, help to engage with the unbanked/financially excluded as well as offering the ability of faster and cheaper payments for corporations and individuals.

The Chinese are continuing to roll out their own Central Bank Digital Currency (CBDC). They are once again giving away money, but it can only be spent in those shops determined by the government and with the stipulation to be used by a certain date i.e. not saved - unlike in the UK where on one hand governments have been handing out cash only for UK households to pay down their debts. During the first COVID-19 pandemic lockdown, UK consumers paid off £7.4 billion of debts  The Chinese are also trying to reduce their reliance, together with many of world’s other economies, on the US$. Qian Jun, the chief economist of China’s ICBC International Bank, believes that if we were to see the launch of Facebook’s Libra (now called Diem) or a digital US$ it would further increase dependence on the $. “If Digital Currency Electronic Payment, (DCEP) can seize this historical opportunity and combine it with the ‘Belt and Road’ construction and global value chain reconstruction, it will promote the internationalization of the RMB and the ‘network effect’”. Said Qian Jun.
Meanwhile a subsidiary of Alibaba (which along with Tencent dominates the on-line payments landscape in China) has carried out tests on its mobile app with the Chinese CBDC in Shanghai so, seemingly, it will not be long before China’s CBDC will be launched nationwide.

An estimation by the International Monetary Fund (IMF) is that over 1.7 billion people globally are unbanked. Even in the US, it is calculated that over 8.4 million households do not have a bank account. Within the Hispanic community there are as many as 17% of households un-banked, which makes it complicated and time consuming to give these citizens the financial support they need as a result of COVID-19. A digital currency signifies that money can be distributed and, more importantly for the finances of a country, taxes can be collected digitally since people are increasingly using their mobile devices to pay for goods and services. In terms of saving money, the Diem Association claims it costs 7% to make international payments, taking up to five working days. Compare this to a digital currency where payments are almost instant, and the costs are measured in cents and pence.

The market capitalisation of Tether



Source: Coingecko.com

The amount of money being invested in stablecoins continues to increase with the largest stablecoin, Tether (which is pegged to the US$), now being capitalised at over $24 billion. Worldwide, other governments apart from China are waking up to the potential offered by digital currencies. In the UK, we have seen Her Majesty’s Treasury (HMT) issue a consultative paper looking at crypto assets and stablecoins. HMT is considering the introduction of a new category of regulated tokens to be known as ‘stable tokens’, i.e. tokens backed by a fiat currency. The Treasury is also looking at introducing regulation for those organisations involved in the creation and managing of this type of asset. Indeed, according to Christiane Lagarde, former Managing Director of the IMF and now head...

On Thursday

It is somewhat ironic that cryptos such as Bitcoin and Ethereum were initially championed as a means to make payments globally, without the need to use third parties such as banks. Unfortunately, nefarious actors quickly sized the opportunity to move money digitally -quickly and cheaply - and potentially most importantly, anonymously, by-passing many of the existing KYC/AML checks that banks and regulators had established to reduce the economic impact of the shadow economy - terrorist funding, money laundering etc.

 


The likes of the notorious Silk Road website, which offered illegal drugs, guns and pornography, quickly adopted the use of cryptos as a form of payment. The US FBI unearthed the Silk Road website and shut it down in October 2013, seizing its stash of Bitcoin and, for a while, making the US government the largest holder of Bitcoins. Operators such as Plus Token, which was alleged to be a Ponzi scheme and moved $100 billion of cryptocurrencies, used crypto currencies as their chosen ransom payment. Indeed other organisations that have resorted to blackmailing and carried out cyber-attacks (such as the DDoS demanding Bitcoin as a payment). Thus, it was easy to see why cryptocurrencies were held with a high degree of suspicion and distrust.


However, in 2020, we bore witness to more and more governments beginning to embrace cryptocurrencies and offering legal clarification and regulation. Somewhat ironically, we have seen regulation to be the driving force for crypto adoption with legal certainty and regulatory clarity in various jurisdictions encouraging individuals, asset managers and multinational corporations to buy cryptocurrencies. Countries such as Japan, Singapore, Switzerland and South Korea have all passed legislation, now procuring established and thriving crypto-trading communities. In the USA, the SEC has been cracking down on ICOs, such as Telegram, forcing it to hand back $1.24billion. Presently, the government agency has a court date to bring action against Ripple for its alleged $1.3billion breach of security regulations. However, the U.S. Commodity Futures Trading Commission has confirmed Bitcoin and Ether are both classified as commodities, leading the way for quoted companies such as MicroStrategy and life assurance firms, such as Massachusetts Life, to buy Bitcoin as part of their portfolio - with some asset managers doing the same.



Should crypto currencies be considered as legal tender? - September 2020


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Source: RUSI-ACAMS


In effect, regulations are being seen, once again, as a driving force behind the use of cryptos not to circumvent the law but being bought since there is now legal clarity to do so. Conceivably, given the recent strong performance of Bitcoin in the last few months, there will be more interest in this asset class, and we will witness an increase in the acceptability of cryptos in various jurisdictions globally.

Last Tuesday

The recent surge in the price of Bitcoin will no doubt be spurring on those who have access to cheap sources of electricity since Bitcoin mining requires a huge amount of electricity. Every ten minutes 6.25 Bitcoins are created which, at $41,000, handsomely rewards the successful miner over $256,000. However, as to be expected, alongside these potential profits we are seeing much confusion globally and some unexpected consequences.

There is a hidden story about Bitcoin mining. A ‘hash’ a term used to refer to an algorithm which converts an input of letters and numbers into an encrypted output (hence crypto). These are, in effect, the building blocks of a number of cryptocurrencies including Bitcoin. According to the Cambridge Centre for Alternative Finance, research has revealed that 76% of ‘hashers’ use renewable energy. Miners also use renewable energy to power their activities, with hydropower being the number one source at 62%. However, the 76% (above) refers to the share of hashers who use renewable energy as part of the production of Bitcoins. Indeed, it estimates that only 39% of hashing’s total energy consumption comes from hydroelectricity, coal (38%) and natural gas (36%). The Chinese, with over 60% of Bitcoin capacity, have used renewable energy for much of their Bitcoin production. In China's rainy season (June to October) 'green' powered provinces such as Sichuan and Xinjiang have hydropower plants capable of providing cheap electricity prices for Bitcoin mining operations. The location of Bitcoin mining is often driven by other factors. For example, in Russia, Gazprom is now selling surplus cheap gas to Bitcoin miners whilst the Venezuelans, as a way to get around international sanctions, are mining Bitcoin as a way to generate much-needed foreign reserves.
Global distribution of Bitcoin mining capacity


Source: BitOda.com

There would appear to be a close correlation between where Bitcoin is mined and cold weather, with places such as Canada, Russia, Kazakhstan and Iceland all appearing to have notable Bitcoin mining facilities. As reported by Forbes, Bitcoin mining is being seen potentially as a way to create jobs in the heartlands of America. An example of this is a US- based firm called Core Scientific which runs Bitcoin mining rigs for UK-listed Argo Blockchain PLC (whose share price has risen a massive 981% since BTC prices have doubled in the last month). In December, Argo mined 96 BTC which, at $20,000 at the beginning of December, were worth $1.9million - but at a price of $41,000, would be worth $3.9million! However, heed caution, as Argo PLC is a small cap stock thus may prove to be very illiquid stock to trade. According to the IAG Business School at Pontifical Catholic University of Rio de Janeiro, Bitcoin mining can also be used to reduce the risk of fluctuations in the price of electricity for those looking to build renewable energy facilities. Renewable energy can 


provide an alternative source of income when electricity prices are low by diverting electricity to produce Bitcoin, as opposed to selling it at wholesale prices on a country’s national electricity grid.

Ultimately, how and who produces Bitcoins is not straight forward. Undeniably, the amount of electricity Bitcoin uses due to its method of mining/production is considerable, since Proof of Works (PoW) does require significant computing power. This is one reason why other cryptocurrencies, such as Ethereum, are moving away from PoW to Proof of Stake (PoS) which uses a lot less energy. If interested, please see here for four key differences...

2 Weeks Ago

The global daily trading value on the world's digital exchanges is between US$50 billion to US$100 billion and this is set to grow if we are going to have greater institutional interest in digital assets. In a recent survey carried out by Crypto Research Report and Cointelegraph Consulting, based on 55 asset managers who, alone, have over €719 billion of assets under management, it found that 61% of wealthy Europeans already have, or plan to have, exposure to digital assets. It is not just individuals but corporations which are also investing in digital assets. In the last few weeks we have seen Microstrategy (a NASDFAQ-listed company) announce that it has raised $650 million to invest into Bitcoin. Furthermore, the 169-year old Massachusetts Mutual Life insurance company in the US has confirmed its investment of $100 million into Bitcoin. Given this sort of demand from banks and asset managers clients, it explains why we are seeing a need for the building of more infrastructure to make it easier for other institutions in various global jurisdictions to be able to invest in digital assets. Indeed, JP Morgan claims institutional demand for Bitcoin could grow to be as much as $600 billion, nearly a 80% increase from the current $355 billion of Bitcoin’s current capitalisation.

Based in Singapore, South East Asia’s biggest bank (DBS), has announced the launch of a
Digital Exchange, backed by the bank, offering institutions and HNWs access to be able to trade and provide custody services for digital assets and digital currencies. DBS Bank will also be offering the ability for companies to raise capital via tokenisation (STOs), as well as offering a listing service for these new tokenised digital assets. The Singapore Exchange will own 10% of this new digital exchange, which has been given (in principle) approval by the Monetary Authority of Singapore as an ‘approved exchange’. This type of status is vital if institutions are to engage and start trading assets on DBS’s new digital exchange. The exchange will offer trading in cryptos (such as BTC, ETH, XRP and Bitcoin cash) as well as tokenising unlisted companies, bonds and private equity funds, so providing liquidity and hopefully greater price transparency for these existing asset classes.
 

DBS Digital Exchange



Source: DBS.com

Earlier this year, Northern Trust used Blockchain technology to issue BondbloX, a bond using the Monetary Authority of Singapore’s Sandbox as Singapore is desperately positioning itself to be the digital centre in Asia.

Meanwhile in Europe, a company called Zodia Custody (based in London) has been established as a JV with between Standard Chartered and Northern Trust and will be their new digital asset custody service. It is expected that Zodia will be launched in 2021 and will be focusing initially on offering custody services for those who wish to use a third party to hold their crypto currencies. In Barcelona, a company called Brickken is launching a digital assets platform targeting those start-ups and small businesses looking to raise up to €150,000. Brickken offers a full tokenisation service so is able to help firms wishing to raise capital, done either via a utility token or a security one. Once the tokens have been issued Brickken lists them on its platform, enabling third parties to buy, sell and trade them. Under EU laws, Brickken is required to carry out full KYC and AML checks and will, initially, only be able to list those tokens it has listed. However, this appears to be a new way for smaller firms to raise the often much-needed capital thus enabling them to transition from an idea to a revenue-generating business. According to Statista, there are just over 15,000 companies in Spain which employ 50-249 people, but there are 2.6 million companies employing less than 10 people in Spain, so Brickken has a large market to target.

In Switzerland, the second biggest bank in Spain, BVVA, has announced it is preparing to launch a trading and custody service for digital assets, initially targeted at Bitcoin. The Swiss Stock Exchange, SIX, and the custody firm, Custodigit, are launching a service to help banks and their clients obtain access to cryptos. According to a website called Bitcoin Treasuries there are currently 15 publicly traded companies which hold Bitcoin. Also in Europe, the Bourse Exchange in Stuttgart (Germany’s second largest stock exchange) has confirmed its cryptocurrency trading...

BNY Mellon comented: “Fifteen hundred years after inventing the banknote, China is now attempting to take money truly into the digital age. However, the rest of the world is still not sure whether it would like to follow suit”. 

The gradual roll out of China’s Central Bank Digital Currency (CBDC) continues as JD.Com, the on-line shopping portal in China, has confirmed that it will be accepting China’s new digital yuan as payment (but only for some of the goods it sells on its platform). This ought to come as no surprise that JD.Com has been selected as potentially Tencent’s WeChat Pay and Alibaba’s Alipay are the two biggest threats the Chinese government faces for its own CBDC to be adopted. Alibaba and Tencent have been fined by the Chinese government for anti-monopolistic behaviour in reference to acquisitions each firm carried out a few years ago. Is this a sign of things to come as the Chinese government flexes its legislative powers over firms in the fintech sector, since it will want to ensure the digital Yuan is a success?



 

Alipay and Tencent’s grip on digital payments in China


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Source: TechCrunch.com


Furthermore, the Chinese government has already initiated promotion of its CBDC, having given away the equivalent of $30 of its new digital currency to 50,000 citizens, randomly selecting those who reside in the city of Shenzhen. The government is also giving away another $30 to 100,000 of its citizens, but this time to those living in Suzhou. In the last ‘giveaway’, people had 4 days to use or lose their $30, so presumably this second ‘freebee’ will have similar restrictions. According to Pakistan’s Technology Times ,the use of China’s digital yuan is gathering momentum as, in just the last month, “more than 2 billion yuan had been spent using China’s digital currency so far in 4 million separate transactions”.


A digital currency offers governments a completely new tool, if only to monitor what is being spent by whom and where, which, if nothing else, helps the authorities (in their battle against tax evasion) tackle the shadow economy that plagues so many nations. Since interest rates are almost zero, it is hard for central bankers and governments to stimulate their economies. However, by using a digital currency, governments can be very focused and subsequentially program a digital currency to be spent on exclusively specified goods (even down to only being allowed to be used according to certain postcodes). BNY Mellon, arguably the biggest provider of custody services globally, has recently pronounced that “the Chinese gave us bank notes, now they are showing us how to use a CBDC. The question is, which is the next major currency to be digitised?”

3 Weeks Ago

As 2020 draws to a close our thoughts naturally start to focus on the year ahead and everything it may hold, so here are a few topics to ponder over for 2021:


  1. ESG (Environmental Social Corporate Governance) - Blockchain is likely to play a greater role in storing and the sharing of data as to how organisations need and, indeed, are becoming more mindful, putting ESG at the core of their business strategy. As an example, Topl has built a Blockchain-powered platform which assists organisations to show the link between ESG and financial performance.



Nudge Economics - as climate change receives increasing focus there is the potential for Digital Assets to play a greater role in rewarding citizens and organisations for changing their behaviour in an effort to reduce global carbon emissions. With the success of both Plastic Bank and SC Johnson (which paid people to collect plastic) we are likely to see more initiatives like these in 2021.
 
Greater institutional adoption of Digital Assets - much of the infrastructure required over the last few years is now in place: exchanges to trade Digital Assets, availability of custody services and banking facilities, the ability for regulated companies to purchase the required insurance and we are increasingly seeing greater legal clarity in many jurisdictions. In December 2020, Reuters reported the S&P Dow Jones would be launching a crypto index off the back of institutional demand for this asset class.

CBDC (Central Bank Digital Currencies) - the Chinese launched their CBDC in 2020 and expect to see other governments follow suit since cash is used less and less as payments increasingly turn digital. Whether we see Diem (formerly Libra)/Novi (formerly Calibra) become the global payment choice for billions of Facebook devotees or not remains a distinct possibility, much to the chagrin of central bankers.

Blockchains become scalable - one of the criticisms surrounding Blockchain technology is that it is not able to handle large volumes of data. 2021 could be the year when this is no longer the case. 

Stock market turbulence - are we to see equity markets stumble as we enter the eleventh year of a roaring bull market due to debt ridden, COVID-19 ravaged economies? As a comment from Charles Schwab recently pointed out, “..it has been 11 years since we've had an extended bear market, anyone under the age of 30 really hasn't lived through that.” As ever, market crash investors are likely to shun equites for a while and look at alternative investments, many of which will potentially be offered in a digital format.

Data democratisation - global bemouths such as Alibaba, Amazon, Facebook, Google and Tencent have monetised our personal browsing and spending data and, in doing so, have accumulated vast fortunes. Digital Assets offer the potential for the data we create by using  our cars, buildings etc to be monetised for us individually, and not to be used by global corporations. Expect to see more initiatives (such as UCL’s smart cities project) look at how technologies such as Artificial Intelligence and Blockchain technology are creating smart cities.

Omnipresent SEC - even though the ICO ‘brouhaha’ was in 2017/18, we are likely to see the US Security Exchange Commission (SEC) continue to pursue organisations it believes issued securities under the guise of an Initial Coin Offering (ICO). In June 2020, Telegram cancelled its ICO and returned $1.2 billion to its original investors as well as paying the SEC a $18million fine. Earlier in December the SEC was seen to be taking action against Ripple and some of its executives regarding its £1.3billion ICO, claiming it had...

Given the dramatic rise of Bitcoin (BTC) from its lows of just over $5,000 on 17th March 2020, to over $28,800 on 30th December 2020, there has been considerable interest in the ‘Big Daddy’ of cryptos.

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Source: CoinGeko



Whilst Digital Bytes is not authorised to offer financial advice (nor was it established back in March 2018 to focus on the ‘ups and downs’ of cryptos), the topic of digital currencies is what we receive the most questions on and is the most popular of all our social media postings. There is, without doubt, much uncertainty as we approach 2021 what with massive corporate and government debts. Yet equity markets are still riding high, despite the economic outlook of a weakening US$, rising unemployment figures and the global repercussions from the impact of COVID-19. It is therefore no surprise that BTC is hitting new highs as we see more and more corporations investing in BTC as part of their treasury management, believing that BTC represents a diversification of risk from a potential declining US$. The demand for BTC from individuals and corporations helps to explain the 8- fold rise in the size of assets in the Greyscale Bitcoin Investment trust.

Greyscale Bitcoin Investment Trust

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Source: TCharts.com


It has been a great year for those managers at Greyscale who have been charging 3% p.a. simply to hold BTC for Greyscale’s investors, although they have magnanimously agreed to reduce their management fee to 2.55% which, based on the value of the fund on the 30th December 2020 OF $16.1billion it will generate over $400million in management fees p.a.!!! 

The reality is that no one knows for sure when to buy or sell any assets unless they have inside or price sensitive information. However, there is a tried and proven way to obtain this access, especially to an asset whose price is as volatile i.e. ‘zig zags’/ go up and down as much as BTC has done in the last 10 +years. 


Results of regular savings into Bitcoin

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Source: DCABTC.com


The secret is easy - regular savings every week or every month. Simply allocate say the same amount every week, buying more BTC when the price falls and less when its price rises. By having followed this simple strategy over the last three years and saved $10 every week, the $1,570 saved would now be worth $5,737 a rise of 265 %. As to whether it is too late to buy BTC, who knows, but one thing is for sure - the price of BTC seems not to be linked to traditional economic activity. Therefore, if you are looking to diversify your investments then maybe 2021 is the year to do something about it?

A Month Ago


There is growing evidence that governments and corporations are taking climate change more seriously. Furthermore, with Jo Biden now set to be the next president of the USA and being a strong supporter of climate change initiatives, there is likely to be greater pressure to see significant reductions in the world’s carbon footprint.


Global carbon emissions


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Source: Visual.ly

 



Educating consumers to change behaviour is key in the challenge of reducing the carbon foot print - an initiative that French supermarkets, such as Casino and E.Leclerc, have taken on board by now showing the carbon emissions on food labels for some of the products they sell. Coca Cola is another example of an organisation where carbon emissions are a key priority. It has managed to reduce its carbon emissions by 30% in the last ten years. According to a report from the EU, Blockchain technology is able to help organisations in their efforts to track and then reduce carbon emissions.


The World Bank has reported that 40 countries have entered-into carbon pricing initiatives but since these only account for 22% of global emissions, the potential for this market to grow is substantial. The size of the carbon management market is currently $9 billion and, by 2025, is expected to grow to be worth in excess of $12.2billion. It is, therefore, of no surprise that we are seeing companies entering this sector to offer solutions to trade carbon. One such firm is UPA, which has launched a Digital Asset called UPCO2, a token which enables investors to trade or hold as an investment. Alternatively, UPCO2 tokens can be bought and then destroyed as a way to offset an organisation’s own carbon footprint. Essentially, every UPCO2 token is backed by a Voluntary Carbon Unit, a digital certificate whereby the money is allocated to certified projects which turns greenhouse gas reductions into tradable carbon credits. An example of such certified projects is the prevention of the deforestation of the Amazon, Congo Basin and Indonesian rainforests.


Once again, we see how Blockchain technology is being used to bring greater transparency and trust as firms track and monitor their activities and, in this case, help make better, more informed decisions to assist in the battle against climate change. Having reliable information is also a common challenge in the petrochemical industry where it, too, has turned to implement Blockchain-powered platforms. With companies such as UPA we are seeing how tokenisation not only offers access to a new type of asset, but also personally allows one to make a contribution to reducing the world’s carbon footprint.

The stock markets are well overdue a correction as recently quoted by CNN business but, actually, this is healthy and totally natural since we have seen a series of stock market crashes historically. However, what is different this time is there are potentially investors who may turn to new intangible assets just as the tangible physical assets fall. As has been documented in previous editions of Digital Bytes, history can be a powerful teacher. We can go back quite a few centuries to learn that economic strive and turbulent markets are by no means a rare occurrence. In the 14th century, the Peruzzi and Bardi families from Florence had built a fortune on banking, only to face rack and ruin in 1345. The two families had been supporting King Edward III of England’s as financial backers, helping the ruler pay for wars first against the Scottish, and then the French. The King of England’s debts grew and the afore mentioned Peruzzi and Bardi families were eventually made bankrupt since the English king refused to repay his debts! Subsequentially a vacuum of power was left, to be filled by the Medici’s of Florence in later years.



Fast forward through time and we witness a series of stock market crashes and turbulence up to our current day: 1.Tulip mania- 1630’s


Source: History.com


2. South Sea company bubble and Sir Isaac Newton’s bankruptcy - 1730’s


Source: Business Insider

Arguably one of the world’s finest brains became ensnared in the investment mania which was the South Sea Bubble, personally making a fortune only to hand it all back and losing (what some claim) to be over $4million in today’s money! These were manic times, since the share price of The South Sea Company rose almost 10-fold and in doing so encouraged all manner of crazy investments, including a firm raising money to manufacture a gun to fire square cannon balls!

3. UK Stock Market -1820’s



Source: Investment office.com

The defeat of Napoleon at the Battle of Waterloo in 1815 and the advent of peace across Europe was the precursor to a huge rise in the UK Stock Market, reaching its zenith in 1825. Furthermore, this was to be followed by the London banking crisis and a collapse in prices since, in 1816, income taxes were abolished thus leaving the UK government with little income but massive debts from the Napoleonic Wars.

4.  Wall Street Crash (Dow Jones) - 1920’s



Source: Eureka Report.au

The Wall Street crash in the US ushered-in the 1930’s depression as $billions were ‘wiped off’ equities and stockbrokers on Wall Street in NYC were seen jumping from their offices as losses mounted. However, the market did not fall in a straight line but fell 34%, rallied by as much as 20%, only to continue falling until it had lost over 84% of its value from its peak.

So, what is the relevance of all this? Well, notably, the last of these stock market falls are approximately one hundred years apart: 1630, 1730, 1825 and 1929. Therefore, is it too unreasonable to expect another stock market correction and what is different this time, almost a hundred years on from the last major crash? Points to consider include the fact that the global economy is very different now compared to the past. It is far more interconnected - look at the speed COVID-19 has spread across the globe. International boundaries account for less as people freely live and work where they wish, with an ability to move their money at a whim. Yet more of this globalisation is clearly seen with multinational corporations exploiting favourable tax jurisdictions and low-cost wages, setting up offices and factories in the pursuit of increasing their profit margins. 

But nothing lasts forever, and there arguably now exists an over-concentration of wealth in the hands of a few. We could well be at an inflection point and a time of change. According to Credit Suisse, the world’s richest 1% owns 44% of the world’s wealth. Even more disturbing is that, conversely, 56.6% of the world’s citizens own less than 2% of global wealth. There are individuals such as Bezo (Amazon $113billion), Gates (Microsoft $98billion) and Larry Ellison (Oracle $59billion), to name just a few, who are arguably...

In a recent statement, the CEO of Mastercard claimed that Bitcoin is unable to help those financially excluded/unbanked but Central Bank Digital Currencies (CBDC) potentially could. However, it is arguable as to whether Banga simply trying to advertise for Mastercard since he also stated: “Today, we’re one of the largest patent holders in the space of central bank digital currencies.” In addition to this, the World Bank has estimated there are 1.7 billion people globally unbanked i.e. they do not have access to formal financial service - effectively barring them from managing their finances. In theory, provided you have access to the web it is possible not to have reliance on traditional banks but use digital currencies and/or cryptos instead to make payments.



Unbanked population by region (%)



Source: Findex database, Worldbank

Furthermore, a report from Deloitte has listed a selection of reasons (according to Findex and the World Bank) as to why citizens in certain countries do not have a bank account:

geographic access to financial institutions is limited
insufficient funds to operate a bank account
financial services are too expensive, relative to people’s income
lack of necessary personal documentation (ID, passport etc) to open a bank account
family member already has a bank account
religious reasons
lack of trust towards financial institutions

Another report, commissioned by Amazon, found that, “Digital payments will be a core foundation for extending basic financial inclusion. More than 90% of respondents consider that innovations in digital payments processes were among the most significant areas in which fintech was improving financial inclusion objectives within their own jurisdiction.” One of the key challenges is provision of assistance to SMEs, which are often unable to obtain credit since they are outside the focus of traditional bankers. The World Bank estimates that the credit gap for SMEs globally is $2.6tn! Given the importance of SMEs to the global economy their financial exclusion is a missed opportunity, not just for them, but the world economy as a whole.
 
On the subject of financial exclusion, the SEC in the US is considering allowing ‘gig’ workers to be allowed to be paid up to $75,000 worth of share options over a three-year period. Historically, the people who can qualify to be a member of a tax efficient option scheme are fulltime employees.



Gig work as a source of income in different countries



Source: BCG Future of work

The term ‘gig’ has previously referred to temporary employment embracing freelancers and independent contractors, who are typically self-employed since they often have more than one source of income. Increasingly, so as to be as flexible as possible, companies have relied on gig workers as opposed to offering them full-time positions meaning companies avoid having to pay additional benefits such as pension contributions, healthcare etc. Examples of such firms using gig workers include Uber, Deliveroo, Lyft, AirBnB and Amazon. Since the financial crisis in 2018, according to EY, “the full-time hiring rate among the S&P500 index companies (i.e. the largest companies in the United States) has fallen to 2.7 per cent.
 Meanwhile, temporary workers make up 17% of all employees in US companies”.

A firm known to be using digital currencies to help improve the payment of gig workers is Electroneum’s AnyTask. A gig worker in Asia, India or Latin America can undertake freelance work for someone in Europe, USA or Japan and then be paid using a digital currency called ETN, whereby saving the cost of international banking fees. In other jurisdictions we have seen similar initiatives, the Philippines’s (Coins.ph), in Tunisia their postal service have a partnership with Monetas and DigitUS. While those searching for a Blockchain developer, a copywriter or a translator etc can opt for the platforms that source gig workers such as Upwork or twago. Likewise, there is the digital wallet from Abra which gives gig workers the...

There has been a significant increase in the value of stablecoins in 2020. The total size of the stablecoin market has risen in the last year to now be worth over $26billion with the largest by far being Tether -USDT- which has grown from $4.29 billion to $19.6 billion. Incredibly, Tether is being investigated by the New York State Attorney since Tether has been unable to clarify whether it is, indeed, backed 100% by US$ - yet it keeps growing….



The top ten biggest stable coins



Source: CoinGeko.com

Facebook’s Libra project was launched June 2018 and originally in its white paper it proposed to create a digital currency that would be backed by basket bank deposits and government bonds denominated in US Dollars, Euros, Yen, and British Pounds. Libra has now announced that it is to rename itself Diem, although it will be keeping the same logo. Although Facebook would still appear to be very much involved, Dahlia Malkhi, the new CTO of Diem is, and has been, Lead Researcher at a subsidiary of Facebook. Novi which is Facebook’s representation on the Libra, sorry on the Diem governance board. According to a report by the Financial Times, Libra is to launch a US dollar-pegged stablecoin, meaning it will launch a digital currency/coin with each one backed by a US dollar. The project, however, still requires approval from the Swiss Financial Market Supervisory Authority FINMA. 

Therefore, a stablecoin with a governance board backed by the likes of Andreessen Horowitz from Silicon Valley, Facebook, TEMASK (Singapore sovereign wealth fund), Shopify (Canadian version of Amazon), Uber, Women in Banking, to name just a few, is sure to prove popular? The reputational damage to the different organisations on the governance board of Libra ought to ensure risks will not be undertaken so that every Libra $ stablecoin will, indeed, be backed by a $ in a bank account somewhere? Consequentially, would Libra not be a safer option than Tether?

The main challenge Facebook’s Libra has been confronted with is a barrage of negativity from different jurisdictions since these countries fear that, with Facebook’s 2.4 billion and WhatsApp 2 billion active monthly users, it means Libra could become very popular, very quickly. If Libra were to become the payment mechanism of choice, it is feared it may undermine various governments’ control over their supply money, and potentially their economies. How justified these fears are is questionable. Libra, if backed 100% by assets such as cash or government bonds, would not be able to create unsecured coins. Ergo, Libra’s ability to influence monetary policy through artificially expanding or contracting its supply would not be possible - a course of action that many of the governments expressing concerns over Libra regularly do with their own currencies. 

Different governments express concerns over Libra



Source: Belfin club

One of the criticisms of digital currencies relying on Blockchain technology is that they are unable to handle large volumes of transactions. However, Libra, instead of relying on a decentralised peer-to-peer network, will rely initially on the Libra Association and those with permission to modify its Blockchain. Nonetheless, a concern is - will this more centralised structure make Libra more vulnerable to cyber-attacks? It is understood that Libra is therefore looking to transition to a more decentralised style of Blockchain so as to minimise the dependency on the Libra Association. Thus far, there are no further details as to when, or how, this change will be implemented.

Meanwhile, Goldman Sachs is predicting that the digital currency already launched by the Chinese will...

In the last year the value of cryptocurrencies as an asset class has more than doubled from $203billion to over £500billion, with the price of BTC increasing from approximately $7,000 to over $17,000. According to research there are now over 100 million Bitcoin wallets, with the number of wallets active each day being typically 1million and the number of wallets holding 100+ Bitcoins reaching over 16,000 in October 2020. However, possibly more interesting is that the ownership or use of crypto is global, as reported by Statista, with citizens from Nigeria, Vietnam, South Africa, Turkey, Peru, Spain and China being more engaged with this asset class than in the US.

How common is crypto? % of respondents who own or use crypto

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Source: Statista.com


Interestingly, it is not only individual citizens who are increasingly turning to cryptocurrencies but institutional asset managers too, with Coinbase reporting that its institutional clients have increased their crypto holding from $6billion to $14billion since April 2020. Firms such as Pendal Group, in Australia, claim to be investing in Bitcoin as an alternative to gold. Highly regarded investors are singing Bitcoin’s praises, including Paul Tudor JonesBill Millerand Stan Druckenmille. The latest institution to express an interest is Guggenheim Partners which manages over $275 billion  and has filed documentation with the SEC to potentially  invest $500 million into Bitcoin.


As with any investment, unless you have a crystal ball, knowing when to buy any asset is difficult to predict so an alternative way is to save a regular amount each month. This concept of regular savings (sometimes referred to as pound cost averaging) is ideal for more volatile assets, i.e those assets whose price ‘zigs and zags’ (goes up and down a lot!) Putting money aside on a regular basis enables one to smooth out these ups and downs, buying more of the assets when prices are low and less when prices are high. By investing $10 a week every week over the last year, your $530 of savings (ignoring fees) would now be worth $1,138, a profit of 114.75%! This can be compared to investing the same amount into gold which would be worth $556 or the US Stock Market (as measured by the Dow Jones index) which would be worth $598.


The result of regular saving into BTC, gold and the US Stock Market (Dow Jones)


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Assumptions- $10 saved per week, no costs

Source: DCABTC.com


Despite some claims, no one knows what will happen to crypto’s prices, but they certainly seem to be gaining more and more demand from private clients and institutions alike. There now exists a range of ways that investors can access cryptocurrencies which are much more user-friendly for private investors, such as debit cards linked to crypto currencies, funds and even bank accounts. As for institutional investors, the challenges around custody and how they physically hold these digital assets are being addressed. A firm called Copper with offices in Hong Kong, London, New York, Moscow and Singapore has a service called Loop that is designed for institutions that need to have a third party custodian to hold its crypto for its clients. While other firms such as Fidelity’s Digital Assets service also offer a custody service The speed of adoption is likely to further gather pace should the price of Bitcoin continue to rise over the next six months as it has in the last six months, especially if there is more stock market volatility as the ravages of COVID-19 are truly understood and priced in!
A 2-minute video on Yellen as potentially the next Treasury Secretary, and what could this mean for both inflation in the US and cryptocurrencies.

Jo Biden is looking to nominate Janet Yellen as the first lady to be Treasury Secretary. This could prove to be a clear sign of a more expansionary ‘hand on the tiller’ of the US economy, as Yellen has been pushing for more cash to be injected in the American economy in the wake of the economic damage wreaked by COVID-19. Will an even bigger increase in the money supply lead to greater inflation? Will this, in turn, result in more people buying and pushing up the price of BTC?



Janet Yellen at a congressional hearing in 2017- bet she wished she had bought BTC! 



Source: YouTube

In the past Yellen has not been a fan of cryptos and made that very clear when she was Fed Chair speaking to the House Financial Services Committee on 13th July 2017. She was ‘photo bombed” by a Bitcoin fan, holding up a message “Buy Bitcoin”, who allegedly was subsequently sent small crypto donations worth the equivalent of 7 Bitcoins. Those 7 Bitcoins would have been worth approximately $16,000 back in the summer of 2017, compared to today’s value of over $131,000. One might suspect Yellen did not take the photo bomber’s suggestion. Or maybe she did since she has said very little in public about cryptos in the last few years! 

One muses that with Yellen’s classic Keynesian economic training she will favour another significant injection of cash into the US economy. Reuters has reported she is “someone who normally favors looser monetary policy to reduce unemployment”. Given the current almost 0% interest rates, it will be interesting to see how supportive Yellen will be towards a US Central Bank Digital Currency (CBDC) so that the US government can, in effect, give money to those most in need. To have a ‘new tool’ to stimulate the economy in a focused manner, as opposed to ‘helicopter cash’ i.e. giving cash to many and additionally having to pay the banks to distribute it for the government. A CBDC would make it possible to make payments incorporating the stipulation for it only to be spent on certain products and services within x weeks as opposed to be being saved, which would seem to have happened earlier this year. The Wall Street Journal reported that the US personal savings rate soared to 33% between Feb-April 2020  so, in effect, the US government increased its indebtedness whilst its citizens repaid theirs. If inflation were to return, then a transaction fee could be levied on those using a CBDC as a method to slow down the circulation/speed of money in the economy. 

Who knows how much Yellen takes counsel from her Nobel-prize winner husband, George Akerlof, who wrote a paper called the ‘Market for Lemons’? In it he says, “If a market has substantial “information-asymmetry” (sellers know a lot more about the good than buyers -e.g. 2nd hand cars), it will come to be dominated by lemons (bad cars)”. Since one of the challenges cryptos face is the perception caused by many of the 5,000+ ill-conceived ICOs which were launched in 2017 and 2018: many, at best, were ‘iffy’ and, at worst, fraudulent. As reported by the publication, Finance Magnet, the SEC has, “since May 22017, with its 4,500 staff, revealed over 2,750 enforcement actions obtained over $14 billion in financial remedies and paid around $565 million to the whistleblowers in the same period.”

It is extremely difficult for ‘Joe Public’ to have a complete understanding of cryptos, let alone the new-fangled DeFi sector and, in turn, make an informed opinion. But times are changing...

It is often touted that BTC is a good way to diversify your portfolio as being over 11 years since it started trading, BTC has almost zero correlation with equities if you were to compare it with the S&P500. However, BTC price fell considerably in March 2020, as did the S&P500, but since then this asset has outperformed the S&P500 as its correlation returns to norm i.e. zero. Will we see other quoted companies follow MicroStrategy which has recently bought BTC since it believes BTC will be a better store of value than $? If this happens equity indices are likely to have a much closer correlation between with BTC as the underlying constituents will be exposed to BTC. According to Seeking Alpha, “MicroStrategy now offers a remarkable opportunity to gain indirect exposure to Bitcoin with limited downside and still offering significant upside. To conservative investors wanting Bitcoin exposure, the 30% downside on if BTC goes to ZERO but a gain of 240% if BTC rises to $100,000.”



Bitcoin correlation with S&P 500 (30-day rolling average)


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Source:Inva.com


A challenge for investors looking for exposure to crypto currencies is the dominance of BTC. It accounts for 63% of the entire capitalisation of the crypto currencies market as it can be traded physically, over the counter, via a fund or via futures contracts, all of which many other cryptos cannot. If BTC rises, as has been the case this year, then many other cryptos have tended to rise as well. Historically, this had equally been the case because many cryptos carried out Initial Coin Offerings (ICOs) and were funded by investors using BTC as opposed to cash. An example of this is Electroneum (ETN) which did an ICO attracting 112,000 participants (the largest ever number for an ICO) and ETN still holds a considerable number of Bitcoin


In the equity market the situation is potentially no better. There has been a vast amount of money flowing into index funds and ETFs, partially due to the lower fees they charge compared to active fund alternatives. Passive funds have also performed better in many instances. According to Morningstar’s (a funds rating and analytics business) reports in the last ten years, just 23% of active funds managed to both survive and to outperform their passive peersThe likelihood and performance penalty for picking an underperforming manager tends to be greater than the probability and reward for finding a winner.” However, one of the downsides of buying a fund that tracks an index can also be the risk of being overexposed to a handful of stocks. For example, only 5 companies Apple, Microsoft, Amazon, Facebook and Google (which is quoted as Alphabet) account for over 40% of the capitalisation of the NASDAQ index. The S&P500, which represents the 500 most valuable equities traded in the US, is dominated by four stocks, Facebook, Amazon Netflix, Google. 


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Source: Yardeni.com


These stocks account for over 13% of the entire market capitalisation, so hardly a great way to be diversified. What is worrying is, if you look at the FANG’s earnings, they only account for 4.7% of the S&P500. An even more extreme situation can be seen in China where only three shares in the benchmark MSCI China Index account for more than 38% of the index. These equities are China’s version of FANG - Alibaba, Tencent and food delivery firm, Meituan Dianping (otherwise collectively known as ATM).


Whether you are investing in a stock such as MicroStrategy, buying one of the increasing number of crypto funds that are being launched, many of which often have a large exposure to BTC or are buying an Exchange Traded Fund (ETF) linked to an index such as Nasdaq or MSCI China, ensure you know what you are really exposed to and how diversified your holdings really are.

Historically, crypto currencies have had a reputation for being widely used by criminals and terrorists because of their anonymity and the fact that they can be transferred without the need to use traditional financial markets and banks. However, according to analysis from a company called Chainalysis there are actually less than 1% of crypto transactions linked to illegal activities. Given the capitalisation of cryptos being over $500billion, 1% would equate to $5billion, which is a drop in the ocean compared to the $800billion to $2trillion of cash (2% to 5% of global GDP) that the United Nations estimates is money laundered worldwide p.a. One possible reason for cryptos not being used more extensively for nefarious activities is that they leave a ‘digital footprint’ which enables others to track and trace, and thus ascertain, where a digital payment has come from and gone to. Indeed, this is one of the reasons it is being alleged that the Chinese have introduced their own Central Bank Digital Currency. Notably in a report from Bloomberg, one of China’s central bankers has explained that, user identities will likely be tied to individual wallets, giving authorities another window into people’s lives”.



The ability for cryptos to be tracked has proved very helpful, particularly when a crypto has been ‘forked’. One of the reasons cryptos may need to be tracked down is because their owners may have misplaced them when there is a ‘fork’ - a term used to explain when a Blockchain splits, often instigating the creation of a new crypto currency. Forks usually occur due to a significant change in a Blockchain’s protocol leading to splitting the Blockchain into an ‘old’ way of doing things and a ‘new’ way of doing things. It is claimed that between 2017-2019 there were 58 Bitcoin forks, resultant from which the original Bitcoin Blockchain has now spawned other versions, e.g. Bitcoin cash, Bitcoin Gold etc. In addition, forks can be categorised into either a ‘hard fork’ or a ‘soft fork’; a hard fork is when a Blockchain totally changes the way it functions so that those running the Blockchain need to change the software they use and, conversely, a soft fork means that although the rules of the network change the old software is still used to validate transactions. 
  Chart of Bitcoin Blockchain and Software Forks
Source:Unhashed.com

Unsurprisingly, it can be a challenge to keep track on these different forks and the cryptos they create. However, there are websites to help one track and trace forks such as ForkDrop.io and Forks.net, and now there is a service called Reclaim Fork (from UK-based Coinfirm) which can also help. The crypto and blockchain analytics firm has looked into the digital wallet which was holding over $1.2 billion of Bitcoins (which the US government recently seized) that were allegedly linked to the infamous illegal Silk Road website. Coinfirm has discovered that there could be in excess of another $380,000 worth of different cryptos due to forks linked to the seized digital wallet that have, as yet, been taken under the control of the US government.

Another company active in tracking down cryptos is Chainanlysis which has just raised $100million, valuing itself at $1billion (up from only $266million in July 2020). Chainanlysis provides information and analysis to governments, exchanges and financial institutions using a range of compliance tools helping to track and trace the source of funds and lost cryptos. There are also other longer established firms such as Kroll (owned by Duff and Phelps) and Alaco, which this year launched Alaco analytics. These firms are employed by organisations such as banks, corporate brokers, accountants and law firms to help conduct background checks, due diligence and investigations on individuals and corporations including sources of funds. Henry Burrows at Alaco analytics has stated, “We are definitely seeing institutions warm to virtual assets.  There is far greater regulatory clarity than there was in 2017, and a far better understanding of the risks.  Services like ours provide clear and concise information on customers and customer’s funds – in more granular detail than traditional financial services.  As that understanding grows, we will continue to chip away at the misplaced perception of crypto as a refuge for financial crime.”

The ability...

2 Months Ago

Will Biden ‘throw the kitchen sink’ at America’s economic mess in an effort to get the bad news out of the way now, so that in four years the US economy looks better? As they say, ‘no gain without pain’. Is the party for US equities also over? Cazenove Capital US reports that equities have been in a bull market for over 3,450 days - the longest bull market ever! With interest rates at almost 0%, the Fed has little room to stimulate the economy by cutting interest rates. The US, akin to other governments the world over, has been printing cash to massively expand the money supply and thus potentially stoke up inflation since studies have found that, in the long term, there is a 99.1% correlation between the rate of inflation and growth in money supply. 



In a recent survey by Reuters, 73% out of 160 economists believe COVID-19 to be very deflationary. Unfortunately, economists are typically like a stopped clock, i.e. only correct twice a day! Were the huge global monetary stimulus to lead to higher interest rates then this could cause a bond and stock market correction. Alternative investments could prove to be popular as well as those often touted as ‘inflation hedges’, for example, index-linked gilts, gold and, increasingly, Bitcoin.


What is the greatest risk once the pandemic subsides?


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Source: Reuters.com


When America came off the gold standard people were uncertain as to the long-term price of gold, resulting in considerable volatility in its price. According to Forbes, “There were years, like 1975, when gold tumbled in value, falling 25%. And years, like 1979, when it soared, rising 120%. In 1973, gold’s price moved more than 3% one out of every ten days!”

Fidelity argues that Bitcoin’s volatility is similar to gold, having an intervention resistant market, no central bank or government can step in to support or prop up markets and artificially subdue volatility”. Cash, too, is often seen a safe place in which to shelter in troubled times, although one needs to be careful of retaining cash over long periods of time.


The decline of the purchasing power of US$


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Source: Investors Ideas.com


Consequentially, holding money in cash is not always a wise investment yet, in the UK, 8.2 million investors entrust their money in a cash Individual Savings Account (ISA) as opposed to only 2.4 million opening a stocks and shares ISA.


Is it now time to look at where and how your pension and savings are deployed……..?

The multinational conglomerate General Electric (GE), based in the US, together with Albany International Airport in New York have rolled out the launch of the first Blockchain-powered platform targeting airports in an effort to reassure passengers it is safe to fly again. The  Wellness Trace App, which is run on Microsoft’s Azure enterprise Blockchain, tracks the cleaning of public areas as well as passenger and employee screening. The app enables staff to confirm when areas have been cleaned by using 45 QR barcode stickers placed around the airport and is designed to rate in almost real time the cleanliness of cloakrooms, restaurants, hotels and other facilities. Travellers can also use the QR codes to rate their opinion of the cleanliness of different places, thus providing instant feedback to both cleaners and safety and maintenance staff at the airport.



GE’s Wellness TraceApp

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Source: GE.Com


SGInnovte, has created a Digital Health Passport which is a Blockchain-based solution to help reduce the impact of COVID-19. It is being paid for by the Singapore government, in partnership with a local start-up, Accredify. The objective is to be able to store and share by using a QR code (on a permissioned basis) those individual COVID-19 medical records such as treatments, vaccinations, date, location and results of swab tests. This digital solution removes the reliance on analogue, paper-based procedures which can be more easily forged or lost and harder to share, especially globally. Digital Health Passport offers greater transparency, security and privacy since no personal health information is disclosed, enabling users to also select the information they wish to be shared as well as to set expiry timings.


The use of Blockchain technology to store and track COVID-19 test results has been used in The Mediterranean Hospital in Cyprus for several months using the E-H Cert App. It has been reported from The Mediterranean Hospital that, “This innovative new EHR system will provide the hospitals a fast and simple method of on-chaining the patients COVID-19 related testing and treatment records, giving a final result of the health status of the individual without showing exactly the treatment records.  Allowing government authorities, employers and other concerning parties to access said health information at the discretion of the individual but controlling privacy exposure.  So that the individual can go about life as usual”.


Using technology such as Blockchain has helped in the battle against COVID-19 as the world economy looks for a new way to be able for citizens to be able to return to a degree of normality. As Jerome Powell, Chairman of the Federal Reserve in the US proclaimed recently at a conference, “The economy as we knew might well be over”. There has understandably been concern over safeguarding people’s personal data, but there will certainly need to be a safeguarded way in which to record and share information as to whom has/has not yet been vaccinated against COVID-19 if we are to believe that vaccination is the best way for this pandemic to be quashed.
The world's largest container shipping company, MAERSKB.CO, has donated 400 million Danish crowns (£48.6 million) to carry out research in Denmark in order to assess how carbon emissions could be reduced in the shipping industry. Container shipping accounts for 3% of the world’s carbon emissions due to its transportation of over 80% of global goods. The industry has confirmed its objective for container ships to have reduced carbon emissions by at least 50% by 2030.

 


A large ship in a body of water

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Source. Reuters/Michel Kooren


Historically, ships that sailed the oceans transporting goods around the world relied on wind and it was not until 1819 that a ship called SS Savannah, partially powered by steam as well as sails, managed to cross the Atlantic. Unfortunately for the health of the planet, we have transitioned from environmentally friendly, wind-powered ships to bunker oil-powered vessels, now coming under pressure to be cleaned up. The most promising solutions are those based on hydrogen, hybrid and battery modules, with these becoming the ‘new norm’ for container ships as clients such as Unilever and Volkswagen increasingly demand for the vessels to be more environmentally sustainable.

Already there are a number of these hybrid solutions in shipping with it now being possible to use more environmentally friendly fuels and to add battery modules to a ship, thus enabling the sailing to or from port without powering up the vessel’s diesel engines. Ports around the world are already investing in solutions to enable ships at dock to be powered by electric drives at the port in an effort to improve air quality and reduce engine noise pollution. California already has air pollution laws restricting container ship emissions in port.


One of the roles offered by Blockchain technology is that of facilitating data to be collected, stored and then shared in order that the end consumers, manufacturers, governments and shipping companies can all access information showing how much carbon is being emitted as goods are transported across the globe. In addition, a further challenge for the shipping industry in reducing its carbon footprint is the quality of the bunker oil it uses. A UK-based company, BunkerTrace, uses a combination of a fuel additive and Blockchain technology to track and trace the bunker oil being used as well as the source from where it comes. This ensures that ships are only using fuel from verifiable and accredited sources. 


As ever, Blockchain technology does not offer a silver bullet solution to solve the challenges of carbon emissions in the shipping industry. However, by using Blockchain technology along with other technologies such as AI, IoT, we are beginning to amass a clearer understanding and greater visibility of those areas requiring a much-needed focus with regards to the long-term health of the planet.

Not sure what to buy for Christmas? Now you can buy a % of a share, e.g. $20 of either Amazon, Apple, Facebook, Google or Tesla, as opposed to buying a whole share in any of these companies. FTX, based in Hong Kong, is an exchange that offers trading in cryptos and derivatives and now enables clients to buy a % of certain shares, as opposed having to buy whole shares. This is particularly useful for those shares which have a high nominal price such as Amazon, whose share price is over $3,000. Buying part of a share is not new since fractional share buying has been possible if dealing through platforms such as Stockpile, Robinhood, Betterment and Stash Stockpile, which all allow fractional investing.



But who would have thought that you would witness the USA being classed alongside countries such as Syria, Iran and North Korea as being banned as the FTX exchange refuses to deal with Americans who would like to get exposure to some of the most successful tech stocks in the USA? Uncle Sam - you need to look at your regulations since, increasingly, you would appear to be no longer the "Land of the Free"....


Buying some, not all of a share


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Source: FTX.com

 

In the UK, if you wanted to buy £100 of Berkshire Hathaway (run by the legendary investors Warren Buffet) it is almost impossible since, if you were to use a traditional stockbroker, the current share price is over £222,000. However, there are other trading platforms that do enable you to buy a fraction of a share such as Berkshire Hathaway broker such as eToro, Plus500 or Trading -212. The UK share trading platforms eToro and Plus500 (as well as Robinhood in the US) have all been hugely successful and taken considerable trading volumes from traditional stockbrokers. These trading platforms have been long term advocates of helping to educate and allow clients to get exposure and trade crypto currencies in different formats.  


The aforementioned platforms, together with exchanges such as FTX, allow investors to trade 24/7 in a selection of assets - cryptos, shares, derivatives and even betting on the outcome of the matters such as the US election. The digitalisation of assets, such as IBM has recently done by issuing $1.6 billion of Thai government bonds or by enabling existing assets e.g. equites in Tesla, Apple etc. that FTX now offers, will potentially transform our existing capital markets. A likely driver for greater digitalisation of assets could well be the fact that improved risk management, stronger compliance controls and monitoring can be achieved. It is not simply within the trading of securities that we are going to see disruption, as according to Deloitte, “Blockchain technology has the potential to wipe Luxembourg off the map of fund distribution and administration market.”

 

A powerful combination of lower trading costs, greater transparency and less risks for capital markets and the asset manager is sure to attract attentions of the boards of banks, insurance firms and fund managers (as well as regulators) as they collectively begin to understand the benefits of having assets tradable in a digital format.

Surely the G7 has more pressing needs than fretting over Libra? It would appear not as, according to Reuters, the G7 (United States, Canada, Japan, Germany, France, Italy and the United Kingdom) had Libar on the agenda to discuss at a recent G& meeting at the beginning of October 2020. It is somewhat ironic, as apparently most of the G7 members are currently exploring the possibility of launching their own CBDC (as it is a very inclusive payment mechanism), yet they wish to ban Libra. 



Reuters has reported, “G7 require payment systems to be supervised and regulated to guarantee:

  • financial stability;

  • consumer protection;

  • privacy policy;

  • security.

Without these guarantees, the risk is that coins like Libra are used for money laundering and terrorism financing, or other illegal purposes”.


However, is the G7 more concerned that Libra is, indeed, too closely associated with Facebook? Given Facebook’s 2.7billion active users in Q2 2020, which is almost 3.5 times the population of the citizens within the G7’s countries, it is easy to see why the conglomerate is nervous. In the light of almost zero interest rates globally, governments have lost control over their ability to stimulate economic growth by manipulating interest rates. One suspects the G7 subsequentially do not wish to see a loss in control over the effectiveness of its currencies, despite the fact that in January 2020 three of them (France, Germany and Italy) embraced the Euro.


Bank of England’s view on the opportunities a CBDC presents


Chart, sunburst chart

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Source: Bank of England


Whilst the G7 has been fretting about Libra, the Chinese have already launched their own CBDC. Chinese citizens have been fast adopters of making digital payments using their mobile devices, courtesy of Wepay or Alipay, which is possibly why the Chinese have said 


little about Libra - but, then again, Facebook is banned in China! According to the New York Times, Libra’s launch in June 2019 encouraged China to push ahead with its plans for its own CBDC. In a trial encouraging its citizens to use its new Digital Currency the government is giving away 10 million e-yuan ($ 1.5 million) randomly selecting 50,000 people, each of whom will receive 200 e-yuan ($30). However, the catch is: the winners must spend their e-yuan between October 12th - 18th at one of the 3,389 authorized outlets, i.e. use it or lose it. Is this a sign of things to come? Does this mean, should the Chinese wish to stimulate spending in a particular sector, they could give out e-yuan and put a limit on where the digital money is spent, and by when? The Japanese seem to be unsure as whether to deem it a threat that China has launched its CBDC, with Okamura, Japan’s vice-finance minister, declaring, “First-mover advantage is something we should be afraid of." However, a week later Kamiyama, the man responsible for investigating CBDC at the Bank of Japan, was reported as pronouncing, The first-mover advantage may easily turn into a disadvantage, and that no single digital currency will dominate”.

3 Months Ago

IBM has announced 90,000 of its current 352,000 employees will be moved to a ‘New Co’  - name yet to be announced. It will also be transferring some of its existing customers and will thereby have an initial turnover of $19billion. The New Co will run IBM’s ‘Managed Infrastructure Services’, i.e. its legacy IT infrastructure, leaving IBM to focus on higher margin digital transformation offers such as AI, Blockchain and Cloud services.




IBM and its New Co - different services offered



Source: NewPlatform.com

When announcing the spin out IBM’s CEO, Arvind Krishna, said, "IBM is laser-focused on the $1 trillion hybrid cloud opportunity." This follows on from IBM having reported only in September 2020 about how Blockchain adds trust to AI and IoT and stating, “Blockchain and AI are on every chief information officers watchlist of game-changing technologies that stand to reshape industries”. IBM has 1,500 staff and over 500 projects dealing with Blockchain work in a wide range of industries, including financial services, shipping and healthcare. IBM extols Blockchain as being able to both help improve supply chain logistics and offer greater transparency as to the provenance of the origin of food. Indeed, IBM has had some great successes developing the Blockchain-powered TradeLens with Maersk, the shipping conglomerate, and TradeLens has now signed up five of the biggest shipping companies. A subsequence of this has been the been the necessity for TradLens to obtain special exemption in the US in order to overcome any potential anti-trust legislation, otherwise even discussions between a competitor regarding how cargo documents might be used on the TradeLens platform would have been illegal. This, itself, demonstrates how Blockchain technology is changing the shipping and global supply chains and logistics with the blessing of government regulations. Furthermore, IBM has also been successful in helping supermarkets provide provenance from where the food they sell is sourced using IBM’s Food Trust Blockchain platform. Food trust has been used by the supermarket giant, Walmart, since 2017 and this short video gives an insight to the advantages food trust offers for farmers, retailers and consumers alike.

We have seen many tech firms ‘muscling in’ on financial services with IBM (aka Big Blue) being of no exception, having developed its own banking payment platform and signing up banks such as Australia's National Australia Bank, Spain's BBVA, and Indonesia's Bank Danamon. Working with StellarLumens, IBM claims that using Blockchain technology can help banks make international payments faster and cheaper as well as being less susceptible to errors - a real win, win solution. More recently IBM has been working with the Thai Government, having just issued $1.6 billion of bonds using Blockchain technology. The process to issue government debt usually take 15 days but took IBM only 2 days, so illustrating the improved efficiency. The issuance of bonds is huge, with over 22,000 deals creating $7+trillion of bonds in 2019. IBM, with its massive global corporate client bank and contacts within governments, is in an enviable position by getting its clients to switch to using Big Blue’s Blockchain technology for issuing bonds going forward.

Surely one of the key drivers for this more focused strategy on AI, Blockchain technology and Cloud computing is for IBM’s management to inject some vigour into IBM’s share price? Over 1, 3 and 5 years IBM has ‘lagged’ the NASDAQ index, as well as the likes of Google, Microsoft and Oracle. Looking at the performance over 5 years of IBM’s shares (down 13.85%) compared...