Here is our pick of the 3 most important Alt Lending news stories during the week:
Why this matters: While this is primarily all about equities and the meteoric rise of the Robinhood trading platform it does touch on the rather avant garde financial activities of distressed giant Eastman Kodak. This weeks story concerns a $ 725million US government loan to EK which the company have obtained to finance the production of generic pharmaceutical ingredients for the production of drugs to treat COVID 19 including hydroxychloroquine. When news of this broke EK shares improved by 1200% however days later when subsequent news alleged that the government was blocking the deal they immediately fell by 40%. Such things do happen in these febrile times but Robinhood attracts young and inexperienced traders, quite a lot of whom have pockets full of government stimulus checks, to its platform which exacerbates the problems caused. However some of you will remember EK’s rather oblique attempt to enter the world of Blockchain through its ICO (Initial Coin Offering). Undoubtedly this offering was severely flawed and when dealing in new instruments doing your homework is an essential component of the groundwork. Nevertheless I quite like the concept of Coin offerings in principle. They are potentially a very good way of funding projects through ALT lending at the upper end of the market. To my mind two problems exist. Firstly there is not exchange for these instruments to encourage market making and liquidity and secondly the information conduits required to monitor progress need to be a lot better than they are currently. This is where technology needs to be focussed. In the meantime the answer might be keeping the whole thing simple. Charles Street Securities has done just that by offering a PGX coin backed by Gold in the ground at a significant discount to the current gold price.
Why this matters: Hot off the press another piece on consolidation in the US. This time AMEX has announced that it is in advanced discussions to take over Digital Small Business Lender Kabbage in an all cash deal of around $ 850 million. The deal is being compared with last months deal which consolidated Enova and OnDeck capital last month. What is interesting is the lack of meaningful understanding as to what has driven both of these transactions although the mood music in the press releases has all been highly positive. However the American Banker’s report pointed out that neither Amex or Kabbage wanted to comment on the talks. Of course the talks are ongoing and the whole deal could fall apart but I do not understand the reticence for comment. As I mentioned in last weeks commentary the whole worldwide sector for Alt lending is ripe for consolidation and the underlying reasons for link ups in the current environment are complex. The driving factors are many and varied and technological excellence is only one of them.
Why this matters:The plethora of digital banking start ups continues apace and the familiar rhetoric follows as night follows day. In Revolut’s case the message is simple – we are acquiring clients at a rate of knots and our losses are only caused by client acquisition costs. In Revolut’s case revenues grew to £ 163 million but unfortunately the costs of pushing into new markets including the US meant that costs grew to £ 269 million leaving a £ 106 million loss. Competitor Monzo last month said that it did not know if it could continue as a going concern. Starling Bank on the other hand indicated that it could reach break even by year end. Revolut on the other hand stated somewhat cryptically that there was a reasonable expectation that the company could continue operating for the foreseeable future. So that’s OK then. Despite the unprecedented downturn caused by COVID19 the deviation from optimism to pessimism is extraordinary. It reminds me of the days of the early 90’s. At that time I remember receiving a letter from a very large Investment Bank valuing the company of which I was a director at $ 2 billion on a turnover of less that $ 10 million. There are going to be big winners and big losers in this game. You pays your money and you take your choice. However In the final analysis it will be money not technology that decides who gets what.
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.
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Here’s how Nasdaq-listed MicroStrategy went about buying $175m in Bitcoin
MicroStrategy has become the poster child of mainstream Bitcoin adoption amongst corporations. It is the only publicly listed company to turn towards BTC as a reserve asset to store their capital in.
Their announcement last month regarding their decision to ditch the US Dollar in favor of BTC to store their capital was a big one, because it showed that the benchmark digital asset is gaining utility as a store of value.
For a company with hundreds of millions of dollars in cash, the decision makes sense, as the crypto’s scarcity allows them to avoid the massive losses that would otherwise be incurred due to inflation.
Acquiring this much BTC without going through over the counter (OTC) venues is no easy task, however, and the company’s CEO explained in a recent tweet how they went about doing this.
MicroStrategy now holds 38,250 Bitcoin
Earlier this week, Microstrategy CEO Michael Saylor announced that his company had doubled down on their Bitcoin bet, adding $175m worth of the digital asset to their holdings.
This massive purchase came about just weeks after the company had revealed its plans to switch to an alternative Bitcoin-focused financial strategy. They now intend to hold their entire capital reserves in BTC to avoid inflation and devaluation of the US Dollar, which is being printed at unprecedented rates.
This strategy is unprecedented and was kicked off by the purchase of a whopping $250m worth of the digital asset.
The company revealed on September 15th that they were buying even more BTC, conducting a $175 million purchase via the spot retail markets. This may have caused Bitcoin’s price to rally to $10,900 while the rest of the market trended lower.
Their total holdings now stack up to 38,250 Bitcoin, with an aggregated purchase price of $425 million.
Here’s how MicroStrategy market-bought 16,796 BTC
During their latest bout of purchasing, MicroStrategy used the retail market to acquire their crypto, with the company’s CEO explaining that they purchased 16,796 BTC throughout 74 hours of continuous trading.
“To acquire 16,796 BTC (disclosed 9/14/20), we traded continuously 74 hours, executing 88,617 trades ~0.19 BTC each 3 seconds. ~$39,414 in BTC per minute, but at all times we were ready to purchase $30-50 million in a few seconds if we got lucky with a 1-2% downward spike.”
The massive amount of capital that was introduced into the market as a result of these 74 hours of continuous trading likely had lasting impacts that may still be influencing Bitcoin.
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FinovateFall 2020: Banking-as-a-Service shows industry’s future value
While the lines can be blurred between open banking and Banking-as-a-Service (BaaS), it’s in the latter where real value can be found.
That’s according to a panel of banks speaking at the virtual FinovateFall conference this week.
Jenny Mustazza, executive director at JP Morgan, says things can be “a little bit blurry”.
“European open banking and US open banking are slightly different,” she explains. “In the US it’s about accessing new functionality as well as just accessing data.”
For Alex Yang, director of CashPro API strategy at Bank of America, open banking and BaaS are very different.
He says that with the ongoing COVID-19 pandemic the industry is at “an inflection point”.
“Open banking as an ability to offer to services is great but BaaS is about creating an attractive service without necessarily managing the customer relationship.”
Mustazza says she is excited about connectivity between banks and corporates becoming easier. “It will make things easier for third parties to service clients, use data and execute. I’m excited to see where new payment methods go. It’s going to explode.”
Young adds that there is an increasing focus on standardisation going on in the industry. He believes that if APIs and connectivity is spread on a global level then financial institutions can compete with Big Tech firms.
Roland Folz, CEO of Solarisbank, says that legislation in Europe has facilitated connectivity among different players and created user democracy.
“The big change that we have been noticing over the years is that the key focus was originally in payments.
“That’s a business with huge volumes and very thin margins. So, the shift now is going towards stickiness in accounts.
“If you can offer a full account within your ecosystem it gives you all the flexibility to add additional products and services and create additional value.”
Here’s how Twitter and active wallets predicted insane DeFi gains
Predicting the crypto markets does not have to be a hard science necessarily. New research shows a simple strategy of tracking sentiment on social media, such as Twitter, about certain tokens and projects could have proven a profitable venture for traders.
But as always: It works until it doesn’t.
Predicting DeFi token movements
According to a report by decentralized application tracking firm DappRadar, social media can be a “powerful tool” for predicting token price movements, especially as the DeFi space remains heavily driven by retail hype.
The firm used a proprietary method to map DeFi token prices against those of Bitcoin, alongside weighting them with social volumes, Twitter follower changes, and active dApp wallets.
In the case of decentralized lending provider Aave (LEND), Dappradar ran regression analytics using the four metrics. Its findings? A massive 75.9% of LEND price fluctuation was majorly impacted by the two metrics — Twitter followers and Aave active wallets.
The firm found a similar result on stablecoin lender Curve, whose CRV token nosedived recently by over 84% compared to its all-time high. It currently hovers at $2, as per CryptoSlate’s price tracking page.
The firm said, “Similar to Aave, we can observe the same trends of correlation and regression analysis in Curve on the provided metrics. All four metrics have a positive correlation to CRV price.”
It added Curve’s Twitter follower changes and active wallets showed the strongest correlation of 86.4% and 84.7% respectively with each other. The firm further noted:
“While running regression analysis for the Twitter followers and Active wallets, the results were exceptional, indicating that 80% of CRV price is majorly impacted by these two metrics.”
Meanwhile, MKR, the governance token of MakerDAO, was impacted the more by Bitcoin price and Twitter follower change, as opposed to the rise in active wallets having an impact on MKR prices.
Do Twitter followers affect price? Yes.
In conclusion, the firm said that the narrative Bitcoin prices affecting altcoin prices continue to hold true. However, active wallets and the increase in Twitter users serve a better correlation for the prices of some DeFi altcoins such as LEND and CRV.
However, the firm did point out some limitations that existed in the calculations, such as the tests being conducted on only three DeFi tokens and that social media sentiments were taken only from Twitter, with sites like Reddit not included.
Still, it’s alpha for those who dare.
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