Weekly Briefing No. 151 | The Quixotic Bitcoin Journey

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Welcome to The FR. Our stock is always up.

In this edition:

  • Bitcoin’s wild ride

  • LTSE gets caught in Facebook’s wake

  • Amazon and CFO training

  • Panama Papers continue to unveil corruption

  • Banks borrow from fintech on online lending

  • HQ2 and insider trading

NEWS ANALYSIS

Crypto collapse?

Ah, remember those heady times when it looked like Bitcoin was going to take over the world? In the span of a few days a year ago, its price skyrocketed to nearly $20,000, dizzying heads and spurring headlines around the world. News stories about bitcoin dominated the media from the most niche trade press to USA Today. Even Jamie Dimon was forced to recant his proclamation that it was a fraud. 

Well, Bitcoin’s making headlines again, but for all the wrong reasons — at least for its enthusiasts. The cryptocurrency dipped to below $4,000 this past weekend, culminating what The Wall Street Journal termed as the “week from hell” for the divisive virtual currency. But then towards the middle of the week, the embattled cryptocurrency staged a 15% rebound. Still, Bitcoin, at the time of this writing, has now fallen by about 75% since peaking near $20,000 late last year.

However, as always, there’s another way of looking at things. At the beginning of 2017, bitcoin was trading for anywhere between $900 and $1,000; those who bought at that price has still made money, even after the week from hell.Bitcoin usually elicits one of two feelings from people: slavish devotion or utter dismissal. That won’t change even after the latest news. 

The Long-Term Stock Exchange gets caught in Facebook’s wake. 

This week, The Wall Street Journal reported that Silicon Valley’s beloved Long-Term Stock Exchange initiative hit resistance in the form of SEC Commissioner Robert Jackson Jr.  By calling for a full commission vote on the LTSE, Jackson in essence overturned previous SEC staff approval for LTSE’s proposed listing rules and has bogged down the exchange for the time being (and killed a fast-track partnership that the LTSE had in place with IEX Group). In his criticism, Jackson expressed concern that the LTSE’s model could strengthen the hand of entrenched founders and early investors at the expense of other shareholders: “Research has made clear that loyalty share structures often make it virtually impossible for investors to hold executives accountable.” Jackson did not specifically cite Facebook as the poster child for his rationale. However, every time we see one of those empty chair photos at an important legislative hearing which Mark Zuckerberg (who controls 59.9% of Facebook’s voting shares) has been invited to attend, we think to ourselves that the sound rationale beyond the LTSE’s mission could use a good dose of refreshing —not a full pivot, perhaps, but an acknowledgment that the only thing worse that a short-term-focused shareholder base is one that basically has no power at all. 

Amazon should open a CFO training business. 

Amazon hasn’t yet started a business out of grooming CFOs, but if current trends continue, it probably should think about starting one. During this week alone, new CFOs were appointed at Airbnb (Dave Stephenson) and Robinhood (Jason Warnick) who learned their craft at Amazon. Both executives will look to play critical roles as their new employers gear up for IPOs next year. Other well-known start-ups that now field Big Orange alumni in the CFO chair include SnapRedfin (Zappos) and Opendoor.

Continuing fallout from the Panama Papers.

The repercussions stemming from the publishing of documents last year known as the Panama Papers continues apace. German police Thursday raided Deutsche Bank's officesin Frankfurt in a probe of suspected money laundering within the bank’s lending arm. According to authorities, the investigation is centered on two staff members who allegedly helped clients set up offshore business to launder money gained from criminal actions, and was instigated by the publishing of the papers, in which millions of records detailing the use of tax havens to shield wealth were passed to an international consortium of journalists.

We would expect this is only the tip of the iceberg in investigations and government actions that will continue to occur as a result of the Panama Papers seeing light of day.

REFLECTIONS

Imitation is the sincerest form of flattery.

The rise of fintech began because start-up technology companies offered superior services in areas financial institutions were not, or even ignoring. One of those areas was personal loans. The process of getting a loan from a bank involved mounds of paper and spending hours in a branch, and that’s assuming banks even offered them. Many had gotten out of the personal loan business. And so up popped OnDeck, Lending Club, Prosper Marketplace and others like them, offering digital loans with a superior customer experience.

And banks soon started following suit. In the latest trend in this space, American Banker reports that many mid-size and regional banks are rolling out their own online lending platforms to woo new customers, especially as the credit card business is dominated by only the largest banks. And as the recession recedes even further into the mind, people are borrowing more: Total personal loan balances reached $132 billion in the third quarter, a 59% increase in just three years, according to TransUnion.

But could banks be missing the forest for the trees. Extending too much credit —especially if borrower’s can’t pay it back —can lead to economic disaster, as we know all too well. It will be interesting to see if more banks start down this path, and what the result may be.

Insider trading, Amazon’s HQ2 and double standards.

Here’s the reality about insider trading: In many forms, it’s been perfectly legal until recently, or it remains legal. For example, members of Congress were essentially allowed to trade on non-public, material information until the passage of 2012 STOCK Act. As such, it’s not a stretch to conclude that during the financial crisis or cot-com era, pols of both parties had a party with juicy, non-public information. What’s worse still is that after the passage of the law, members of Congress have continued to engage in trading behaviors that would probably get them fired from a securities firm. But lest you think this just a political problem, consider the actions of real estate developers who knew about Amazon’s upcoming HQ2 decision before it was announced. Was it legal for such entities in the know to purchase a plot of land right near Amazon’s future Long Island City headquarters? The answer looks to be yes, because who’s to say that the developer wasn’t planning on buying the real estate anyway? Moreover, we’re not aware of any law that says the developer in question wasn’t allowed to use this information in making its purchase decision. But still, it doesn’t feel right that financial professionals or athletes can face severe consequences for trading stocks on inside information, while pols and real estate executives can use non-public information to have a (legal) field day.

Quote of the Week

“The great advantage about telling the truth is that nobody ever believes it.” 

-- Dorothy L Sayers