Weekly Briefing No. 164 | A New Glass-Steagall for Big Tech

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Welcome to The FR, where we carefully police ourselves.

In this edition:

  • Top Cryptos to Keep an Eye on (That Aren’t Bitcoin)

  • A New Glass-Steagall for the Big Tech Era

  • The US Consumer Debt Crisis

  • Sucking Up to Investment Consultants

  • Lyfting Lyft Towards Profitability

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OPINION

Top Cryptos to Keep an Eye on (That Aren’t Bitcoin)

The world of cryptocurrency never seems far from the headlines, and it was back in the news recently when JPMorgan Chase announced it is creating the first bank-backed cryptocurrency in the U.S., dubbed JPM Coin. This was especially significant because JPM chief executive Jamie Dimon has been especially bearish on cryptos in the past, even calling Bitcoin “a fraud.”

While JPM Coin isn’t a true cryptocurrency in the vein of Bitcoin and others – it’s a controlled digital payments mechanism currently available only to the bank’s commercial clients – we thought it would be a good time to examine the wider cryptocurrency landscape. At this point, Bitcoin is fairly established, so here’s a look at the top cryptocurrencies to keep an eye on that aren’t Bitcoin. (Any data shown below is sourced from cryptoasset data company Nomics.)

Ethereum – With a market cap of more than $13 billion, Ethereum is the world’s second-most prominent cryptocurrency (though still well behind Bitcoin’s market cap of $65 billion). Ethereum is also the second-most valuable crypto around, trading for $125.81 as of March 4. Technically, Ethereum is the open-source blockchain that generates the cryptocurrency, named Ether. It has generally trudged along as a (distant) second behind Bitcoin since its initial release in 2015 and will likely continue to have staying power compared to most of the blink-and-you-miss-them cryptos that have come and gone; it even survived the near-catastrophic 2016 hack of its system.

Glass-Steagalling Big Tech Is a Great Idea

“Well done, folks.” That’s our best guess on what the vampirous robber baron Jay Gould would say to himself when he looks up from his perch in the underworld at the behavior of some data-loose Big Tech oligopolies (Google, Amazon, Facebook, Twitter). Of course, antitrust laws were ultimately put in place that protected honest competition and America’s national interests, but it seems pretty clear today that those laws aren’t accommodative of business models that obfuscate their monetization or deliberately keep profits low.

But now, fueled in part by Big Tech’s Monty Pythonesque incompetence in dealing with regulatory scrutiny, Congress is beginning to float some constructive ideas. One example is Rhode Island Congressman David Cicilline’s recent suggestion that it’s time for a Glass-Steagall-type law for Big Tech. Yes, we’ve heard the bromides and bloviations from those who believe that, for some reason, Big Tech should get to police itself. But as blitzscaling OG Facebook gets caught abusing phone numbers and looking the other way while scurrilous information that can damage public health finds a welcome home on its site, those arguments are diminishing. In their place, a groundswell of support for reining in Big Tech (and keeping their lobbyists out of the room while crafting the legislation) is taking hold.

From our perspective, the time is now for that talk to turn to action. Because if you haven’t noticed, Google may be working on a censorship-friendly search engine at the behest of China, and Facebook is getting ready to take the payments world by storm.

The United States of Indebtedness

Last month, new statistics revealed what most Americans already know: Student debt is the other rising tapeworm (besides healthcare) gobbling up America’s economic muscle. And while there are now signs that Congress is taking the effects of this national problem seriously, it remains to be seen whether the talk will translate into action.

But student loan debt isn’t the only form of debt making news. This week, the Federal Reserve reported that in December 2018, U.S. credit card debt hit the largest amount ever ($870 billion), which represented a staggering three-percent increase from the prior quarter. If three percent over a quarter doesn’t sound staggering to you, ask yourself this: When was the last time the U.S. economy grew three percent in a quarter? Another relevant question relates to how different forms of debt are related. Is increased use of plastic a way for people to cover medical expenses or make up for the shortfalls created by student loan bills? Perhaps. What we know for sure is that fintech companies looking to help consumers better manage their debt have the wind at their back.

NEWS

Sucking Up to Investment Consultants

“Allocators need them. Asset managers resent them. And everyone is afraid of them.”

So reads the tantalizing headline of a very fascinating story this week published in Institutional Investor on the outsized influence that investment consulting firms wield when it comes to where institutional investors decide to park their capital. Given that these consulting firms advise on about two thirds of all the institutional assets in the U.S., they serve as a gatekeeper of sorts between asset managers and allocators.

This means asset managers often spend a good amount of time trying to woo investment consultants in order to receive high ratings from them, or even just to get listed in their databases.  And some say this model unfairly favors larger asset managers; the article further states that often “smaller and emerging managers, which lack resources to devote to courting consultants, can fall through the cracks.”

Will this model change? Likely not anytime soon, the article concludes, and changes will only come in small doses and slowly.

TROVE

Lyfting Lyft into Profitability

There’s been no shortage of coverage on Lyft since it filed its S-1. But for those who don’t have the time or inclination to read its hot pink prospectus or some of the coverage (which is almost equally as long), we recommend a recent article by The Economist that sums up the company’s two perceived pathways to reach profitability — assuming it and Uber don’t try to hike prices dramatically. One is to layer in additional mobility services on top of its platform. The other is to get rid of the company’s largest expense: driver compensation.

Quote of the Week

“The most important single fact about a free market is that no exchange takes place unless both parties benefit.”

— Milton Friedman