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Is Bitcoin Worth the Risk?

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Over the last few years, we’re transitioning from a process of redefining financial services, by altering the architecture that underpins our financial system. Fintech companies are becoming mainstream, but they’ve operated on the outskirts of the traditional financial system. Much of today’s payment infrastructure was built years ago to allow business-to-consumer payments, trade financing, and supply chain activities. Many of these payments use a common template, have a lot of manual overlays, and are typically costly. We can have a fundamental shift where we go from manual to automated with the growth of blockchain technology at scale. Central banks are trying to figure out how to make this new technology without having negative effects, as they try to find the best way to make it more effective. The growth trend in cryptocurrencies is expected to continue. Some, including myself, believe that cryptocurrencies will replace existing fiat currencies. One thing is certain, no one can remain blind to current events in the crypto world and its growing importance for the financial system.

Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet.
Find out why Kryptonio is the safest and simplest crypto wallet.

We are still early in the game. The global market capitalization of crypto assets stands at $1.4 trillion. When you benchmark the value of crypto assets against the value of all financial assets now in the capital markets, the truth is that it is still far too small to pose any significant systemic danger.

From an investor’s perspective, there are certain limitations. To begin with, there is a great deal of noise and confusion. Cryptocurrency is a volatile and turbulent environment. The development of non-fungible tokens (NFTs), as well as blockchain’s capacity to redefine processes and flows, are all factors to consider.

Today there are many moving pieces and it’s still difficult to predict how things will turn out. With anything new, the process is never a straight line.

The opportunities for retail investors are essentially cryptocurrencies and NFTs. But for institutional investors, there are other areas of opportunity: Consumer-facing business models, such as Coinbase, which provide access to digital assets. Then there’s the infrastructure that goes into making the ecosystem popular, such as payment apps, scalability, and compliance and regulatory solutions. The development of DeFi, or decentralized finance, is the third. The potential set for these protocols will grow as more assets are digitized.

However, the potential risk for retail investors is the unregulated nature of a lot of trading venues. We’ve seen major hacks in which exchanges were wiped out and investors who held funds on these exchanges lost their money.

Despite the inherent dangers crypto may pose, the construction of much-needed financial infrastructure is underway, and investors are increasingly able to use custodial services of institutional quality. As time progresses, professional and ordinary investors will be provided with the tools they need to manage and protect their crypto holdings.

When you trade in a highly volatile asset class using leverage, you have a potentially explosive mix. A steady improvement in the regulatory framework is occurring, and a greater number of exchanges are becoming compliant.

Speaking about regulation it’s important to look at how the United States is addressing it. At this point, several financial regulatory organizations are completely committed to the adoption or mainstreaming of blockchain technology into the financial sector: the Office of the Comptroller of the Currency (OCC), the Federal Reserve, the New York Department of Financial Services, the SEC and the Financial Crimes Enforcement Network (FinCEN).

The OCC has granted licenses to three new digital banks this year, including a bank that does not deal in fiat money. This is a significant development that opens up the door to new ideas and permitted public blockchain to be integrated into the traditional payment system, which was previously not allowed in the country.

FinCEN has announced that the travel rule, which applies to transactions over a certain threshold, will be applied to all digital asset transactions as well. To align with the mainstream financial system, know-your-customer and anti-money laundering procedures would have to be followed.

The Securities and Exchange Commission (SEC) has ruled that while Bitcoin as such is not a security, Bitcoin assets or tokens can be defined as a security and thus subject to its supervisory authority. Initial coin offerings to raise funds from the public against the issuance of cryptocurrencies are required to be registered with the SEC, similar to other initial public offerings

So far, the United States has taken some steps in the right direction to encourage innovation, while also limiting the activities of bad actors. But other countries like China need to be more open. Few would argue that China’s recent crackdown on cryptocurrency trading and mining has contributed to the recent plunge in the value of bitcoin and other cryptos. Truth be told, China wants to undermine bitcoin to incubate its own fledgling e-currency and reboot the international financial system. In many other countries, it is completely unregulated and in most, there might not be the usual legal avenues to pursue when people are defrauded. Ultimately, having the right regulatory framework could become a competitive advantage in this space.

There is no such thing as a risk-free investment in the financial world. As quickly as bitcoin falls, it can just as quickly rise again. Investing in crypto is about risk and your willingness to accept both gain and loss. It is conceivable that the benefits will be more muted as a result of environmental concerns becoming a higher priority, the crackdown in China, and the worries of central banks across the globe. But since no one has a crystal ball, it is impossible to predict the future.

Everyone should consider making a modest investment in cryptocurrency. Bitcoin and crypto is not just a new technology, but it is also a new asset class. Bitcoin has been the most rapidly appreciating asset over the past ten years, and tokenization technology will have an impact on every other market. On a daily basis, cryptocurrency is becoming part of the fabric of our financial system. Future markets will tokenize their stocks, shares, oil contracts, and commodity futures, all based on the same technology as Bitcoin. Traditional fiat currencies are becoming outdated because they are unable to provide a comprehensive answer to the problems of our world.

Having even a modest amount of disposable amount of capital in your portfolio for cryptocurrency exposure will guarantee you will not get left behind when the market begins to expand even more rapidly. Start with a small amount of money and buy only invest what you can afford forget.

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Source: https://dailyfintech.com/2021/07/12/is-bitcoin-worth-the-risk/

Payments

XBRL News about trends and Nigeria

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

1  Major European trends for reporting

Whether it’s the upcoming mandatory ESG disclosures or increased scrutiny reflected in data granularity, the road leading up to 2022 (and beyond) is a challenging one. In a financial world that is so profoundly wired together, a small change on one end can unravel a process on another end, and the wind of change will affect all involved. Approaching the publication of our whitepaper on major trends shaping reporting in the European Union, we share our subjective teaser on trends that are and will be a major influence.

Europe currently is in the vanguard for reporting of all kinds. Here’s a summary of the relevant trends.

2 99 days that will change reporting

The coming days should see greater certainty emerge in the environmental, social, and governance (ESG) standards-setting space, observes XBRL International CEO John Turner.“For those of us very used to the normal pace of accounting standards setting (or indeed, disclosure rule creation), the speed with which policy makers have turned their attention to the goal of mandatory and consistent sustainability reporting is breathtaking,” he writes in a new blog post.

Due to his position, John has great insights into reporting developments around the world. Check out his 99 days!

3 New for Nigeria: XBRL reports blaze a trail

We were delighted to hear this week that Dangote Cement, Africa’s largest cement producer, has produced its most recent financial statements in XBRL, using the International Financial Reporting Standards (IFRS) Taxonomy. This marks the first time a Nigerian listed company has reported its results using XBRL.

It is genuinely encouraging to see an important company in Africa’s largest country by population stepping up to true leadership by voluntarily filing XBRL reports! Go Nigeria, go Africa!

—————————————————————

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

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

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

 New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just USD 143 a year (= USD 0.39 per day or USD 2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

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Source: https://dailyfintech.com/2021/07/29/xbrl-news-about-trends-and-nigeria/

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Fintech

BIS, MAS Plots Blueprint for a Global Real-Time Retail Payments Network

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The Bank for International Settlements Innovation Hub Singapore Center and the Monetary Authority of Singapore (MAS) published a proposed blueprint to enhance the global payments network connectivity via multilateral linkages of countries’ national retail payment systems.

Titled Project Nexus, this blueprint outlines how countries can fully integrate their retail payment systems onto a single cross-border network, allowing customers to make cross-border transfers instantly and securely.

According to a statement from MAS, “this blueprint will bring like-minded regulators and instant payments operators along with global bodies like the G20 and the Committee on Payments and Market Infrastructures (CPMI) together to make real-time cross-border payments a reality in the next two to four years”.

The Nexus blueprint comprises two main elements, the first being the Nexus Gateways which is to be developed and implemented by the operators of participating countries’ national payment systems.

It will serve to coordinate compliance, foreign exchange conversion, message translation and the sequencing of payments among all participants.

These gateways will be predicated on a common set of technical standards, functionalities and operational guidelines set out within the proposal.

The second element is an overarching Nexus Scheme that sets out the governance framework and rulebook for participating retail payment systems, banks and payment service providers to coordinate and effect cross-border payments through the network.

Under the Nexus blueprint, participating countries will only need to adopt the Nexus protocols once to gain access to the broader cross-border payments network.

This removes the need for countries to negotiate payment linkages with each jurisdiction on a bilateral basis.

The Nexus blueprint was developed through extensive consultation with multiple central banks and financial institutions across the globe.

It builds on the pioneering bilateral linkage between Singapore’s PayNow and Thailand’s PromptPay launched in April 2021, and benefits from the experience of the National Payments Corporation of India’s (NPCI) development and operation of the Unified Payments Interface (UPI) system.

The blueprint can be built upon through continued research and engagement with regulators, payment operators, banks, and other industry participants collaborating towards a technical proof-of-concept.

Sopnendu Mohanty, Chief Fintech Officer, MAS Singapore Hungary fintech

Sopnendu Mohanty

Sopnendu Mohanty, Chief Fintech Officer, MAS said,

“To achieve significant cost-reduction in cross-border payment transfers, enhancements must be made on two fronts: direct connectivity between domestic faster payment systems, and frictionless foreign exchange on shared common wholesale settlement infrastructures.

The BIS Innovation Hub Singapore Centre is working on both. The Nexus project maps out a much-needed set of standards to achieve seamless cross-border payment systems connectivity.”

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Source: https://fintechnews.sg/53885/payments/bis-mas-plots-blueprint-for-a-global-real-time-retail-payments-network/

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Payments

Catastrophe Models Are More Accessible, Insightful and Prevalent Than Ever

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Five years ago, catastrophe(CAT) modelling was relatively unknown. Today, CAT modelling for hurricanes and earthquakes is fast becoming the norm in property underwriting, for catastrophes that can obliterate otherwise stable businesses. Commercially viable CAT models started emerging only in the last quarter century. Earlier, rudimentary methods were employed to estimate catastrophic losses as historical loss data was scarce for low frequency, high severity events and standard actuarial techniques inadequate.

CAT modelling is the practice of using computing horsepower to mathematically represent physical characteristics of catastrophes. Dominant CAT models in use are AIR Worldwide(AIR), Risk Management Solutions(RMS), and EQECAT. These modelers develop probabilistic models that help organizations prepare for financial impacts of catastrophes. (Re)insurers, rating agencies, risk managers and brokers license models from these firms.

It was the unprecedented loss sizes experienced during Hurricane Andrew in 1992 that exposed deficiencies in the erstwhile actuarial approach to quantify cat losses. When the hurricane hit, AIR promptly issued a fax to its clients estimating model losses in excess of $13 billion. Months later, the Property Claims service reported an actual industry loss of $15.5 bn. Losses hit the market hard, resulting in insolvency of 11 insurers. Subsequently, adoption of catastrophe models grew briskly, turning into a more sophisticated and reliable basis to catastrophe risk assessment.

CAT models are designed to pinpoint locations where future events are likely to occur, intensity likelihood, estimated damage ranges and insured losses by future events. Factors that obviate use of traditional methods include: constantly morphing exposure landscapes, new properties in high hazard areas and changes in building materials and designs. Models combine historical disaster information with current demographic, building (age, type and usage), scientific and financial data to determine potential cost of catastrophes for specified geographic areas.

The process of developing CAT models is complex, drawing on expertise from a broad range of disciplines, including meteorologists, seismologists, geologists, engineers, mathematicians and actuaries. CAT models provide a wide range of outputs e.g. exceedance probability curves, real time loss estimates and loss tables.

Insurers use CAT modelling for underwriting and pricing. Models assess risk in an exposure portfolio, guiding underwriting strategy and reinsurance decisions. It helps reinsurers and brokers to price and structure contracts, while bond investors use it in pricing and structuring of catastrophe bonds. Some regulators allow insurers to use CAT modelling in rate filings for pricing.

The unprecedented severity of storms during the 2004-05 hurricane seasons led to CAT modelers facing criticism for underestimating losses. However, it is important to recognize that there is no one-size fits all approach and different approaches exist, each using different assumptions, data inputs and computational algorithms.

As in most of insurance, new technologies are making a dent in CAT modeling. Xceedance, a global provider of insurance consulting and services, offers On-Demand Catastrophe Modelling Services, using the open Oasis Loss Modelling Framework. It allows global and regional catastrophe modelling companies to implement models on the Oasis platform, while delivering modelling services on-demand to the insurance industry with no annual licensing requirements and the flexibility to choose peril models from its community of expert model providers.

The CAT modeling industry is also steadily moving towards greater use of AI, a step change from its focus on traditional statistical techniques. In data-assisted approaches, physical models simulate the underlying processes. Such usages are emerging in organizations such as Cytora and Reask. A number of partnerships have evolved tying carriers with insurtechs, example being global reinsurer Scor with insurdata and KatRisk.

Despite the widespread use of CAT models, as with financial models, it is not an exact science. But as the probability of extreme weather-induced catastrophes becomes acute, CAT models will grow as a vital component of risk management toolboxes for (re)insurers.

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Source: https://dailyfintech.com/2021/07/29/catastrophe-models-are-more-accessible-insightful-and-prevalent-than-ever/

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Blockchain

XRP jumps 19% as Ripple announces ODL corridor in crypto-friendly Japan 

US-based blockchain company Ripple, which operates the payment protocol and exchange network using XRP, announced a new partnership with Japan’s largest money transfer provider SBI Remit, mobile payments service Coins.ph and digital asset exchange platform SBI VC Trade to transform remittance payments from Japan to the Philippines.

The post XRP jumps 19% as Ripple announces ODL corridor in crypto-friendly Japan  appeared first on CryptoSlate.

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Ripple transfers 60 million XRP even as US SEC lawsuit crawls on

To bolster its fair notice defence in a lawsuit filed by the Securities Exchange Commission (SEC), Ripple (XRP) claims two of their sitting Commissioners have spoken out about the lack of clarity on how securities laws apply to crypto.  Meanwhile, Ripple and Binance got caught on the radar as 110 million XRP tokens worth roughly […]

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Source: https://cryptoslate.com/xrp-jumps-19-as-ripple-announces-odl-corridor-in-crypto-friendly-japan/

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