Blockchain Continues to Break Down Barriers: Financial Market Disruption
February 2019 Issue
This month’s newsletter brings new updates showing how blockchain continues to turn the business and investment world on its head. Companies both established and new are beginning to see that the limitations of our currently existing financial transfer framework are no longer suitable for an increasingly globalized and democratized financial world. Blockchain continues to demonstrate itself as a viable alternative to ACH and wire transfer methods that have not kept up with the pace that businesses and investments operate today.
VanEck/SolidX ETF Still in the Works
The Chicago Board Options Exchange withdrew its application for the first-ever Bitcoin ETF in mid-January, only to resubmit it on January 30th. This is not a signal of disinterest in the ETF, but rather a strategic move to ensure the application gets the attention it deserves. Due to the recent US government shutdown, the SEC was unable to rule on the application. Had the February 27th deadline passed while the government was shut down, it would have resulted in an automatic denial of the ETF, forcing VanEck and SolidX into its appeal process.
VanEck and SolidX decided it was prudent to instead withdraw and resubmit the application, providing the SEC another 240 days to review it. At the time that this was done, the government was embroiled in its longest-ever shutdown to date, without any indication that it would have ended in time to review the application. While an approval within the original timeframe would have certainly been preferable, this will ensure that that the SEC reviews the application fairly without resulting in a ‘pocket veto’, intentional or not. Given the length of time that the application remained outstanding to begin with, it seems unlikely that it would sit for the entire length of the review time frame once again.
J.P. Morgan Chase Prepares to Roll Out JPM Coin to Revolutionize Business Transactions
This year, J.P. Morgan Chase will pilot one of the first real-world applications of cryptocurrency in business banking. To date, the banking industry has been shy to adopt cryptocurrency, citing the risk and volatility involved in the new technology. J.P. Morgan Chase, however, is taking a bold step to offer blockchain-based value transfer to its business clients. The move may raise some eyebrows, as J.P. Morgan chairman and CEO Jamie Dimon had previously criticized Bitcoin rather vehemently. However, he has since expressed approval behind the underlying technology, citing an interest in blockchain specifically. JPM Coin will be rolled out to a small set of interested clients over the following months. At this time, there are no plans to open this offering to retail investors; instead, the coin will be offered exclusively to J.P. Morgan’s institutional clients that have passed strict regulatory criteria.
The most promising use case for JPM Coin is the speed at which transactions will clear. ACH transactions can take days, and wire transfers can still take hours even in best-case scenarios. International transfers are further complicated and can take even longer. Bitcoin has already shown that transactions can clear in ten minutes or less, and if a coin is specifically engineered for speed, it can occur even faster than that. Furthermore, a blockchain solution can enhance ETF trades with those same faster transaction times. When buying securities internationally, the clear time for the transaction can result in a gap in between what was paid, and what was actually issued; a near-instant transaction will minimize the impact of such an occurrence. Not only that, but since different countries will settle transactions at different times of the day due to time zone differences, the real-time settlement capabilities of JPM Coin mean that currency can be transferred at any time of day and be realized instantly.
Finally, JPM Coin will be exchanged for US dollars at 1:1 to avoid any fluctuation of value between them. When a coin holder wishes to redeem their tokens, the bank will destroy them and provide the equivalent number of US dollars. This abstraction of fiat currency that is then sent through blockchain will allow the transfer of funds between businesses without the delays and wire transfer fees involved, resulting in more amenable transfer rates to businesses. Since businesses move huge sums of money around on a daily basis, this will help trim the per-transaction wire transfer fees.
Abra Provides a New Venue for Stock Purchases with Bitcoin
Abra, an already-established name in the Bitcoin investing sphere, is rolling out an offering to allow an abstracted stock purchase with cryptocurrency. The service will begin with access to 50 proven stocks, most notably tech and commerce giants such as Facebook, Amazon, Apple, and Google.
To be clear, users will not purchase the stocks directly. Instead, Abra will convert the investor’s cash to bitcoin and then carefully tie the value of that bitcoin investment to the stock’s price. When an investor then wishes to sell, they would receive a payout in bitcoin of the same notional value, with a complex web of calculations ensuring that the moving prices of both Bitcoin and the stock result in the same notional value to the investor. Neither Abra, nor the investor, will actually own the stock, which means that Abra would not need to lie in the same regulatory landscape as other crypto investment vehicles such as Robinhood. Moreover, since it would be able to operate in all 50 states as opposed to the 17 that Robinhood operates in, but it would also become available to more than 150 countries as well. Though there are numerous apps available to US investors already that allow users to buy fractional shares of stock, such as the previously mentioned Robinhood, Acorns, and Digit, this would be the first platform to involve a global audience alongside U.S. investors. It would also allow investors to remain anonymous while still participating in the stock market, rather than having to tie their investments to their Social Security Number or a tax identification number.
Though skeptics have raised concerns about Abra’s ability to ensure that proper notional values are kept, they already have a proven track record with their C3 system. Abra was launched in 2017, meaning it was thoroughly tested by Bitcoin’s largest price swings to date and was quite able to keep its ship righted properly.
‘Business as Usual’ is No Longer Satisfactory
These updates demonstrate a running theme in that they provide workarounds to avoid the lumbering pace of our currently existing financial system. ACH was developed in the 1960s, with wire transfers preceding that by nearly a century. As business operations continue to become more global, the limitations of these systems become more and more evident. No organization is ever immune to the need to adapt to market conditions to succeed. These promising new ventures and techniques show that innovation is still proceeding full speed ahead, and those that are willing to invest in such innovations will find themselves more nimble, allowing them to get a leg up on their competition that is still using the same old methods.
If you have questions about our fund or would like to be sent investor documents, you can contact our investor relations department at firstname.lastname@example.org.
Darius & Saul
*Article was written February 2019