Now you can earn a return on gold with crypto asset AuBit

Written by Ciaran Ryan. Posted in Journalism

Like Uber and Facebook, it generates returns as more people join the network. From Moneyweb.

What sets AuBit apart is that the downside is the 'normal' performance of the underlying assets. Image: Luke MacGregor/Bloomberg
What sets AuBit apart is that the downside is the ‘normal’ performance of the underlying assets. Image: Luke MacGregor/Bloomberg

One of the oldest criticisms of gold is that it earns no dividend or interest, which banishes it from the investment mandates of most fund managers.

With the recent launch of AuBit and its Alpha Gold Bullion crypto asset, that’s now a thing of the past. AuBit earns investors a return on gold by redistributing 80% of transaction revenues back to holders. That means any time that anyone, anywhere in the world, buys AuBit-networked gold, as a holder you get a cut.

There are no ongoing platform fees, so all gains users make are theirs to keep.

This is a far cry from the traditional asset management model, where value leaks out of the system to service providers through annual fees.

It’s early days yet, but simulated models show it could be possible to earn up to 1-2% additional asset gains per year as users join and trade on the network. This can yield total additional returns of up to 70% a year after five or six years of compounding, based on historical asset price data. All this is based on less than 200 000 users adopting the system over the next five years.

The power of the network effect

The network effect AuBit leverages to generate additional returns is the same kind of network effect that has powered the valuations of companies such as Facebook, Apple, Google and Uber. Network effects occur when each additional customer adds value to existing customers. One study estimates that over the past 23 years network effects have accounted for approximately 70% of the value creation among tech companies.

These seem like extraordinary returns, and they are, though they rely on continued network activity. This forms the AuBit USP (unique selling proposition), as the downside is the ‘normal’ performance of the underlying assets, in this case gold, but the upside is enhanced as the amount of gold in each user account is designed to increase over time.

Read: Why emerging markets love crypto

And it’s not limited to gold. “The same network effect enhancements can be applied to any asset to boost returns,” says AuBit founder Peter Neilson.

“My view is that AuBit has the potential to revolutionise the global asset management industry as much as John Bogle’s passive index funds did 50 years ago.”

Joel Krueger, global chief investment officer at Aon and AuBit’s chief investment advisor, agrees: “The network effect has revolutionised just about every industry. However, no one has yet used the right tech to leverage its potential in the world of finance and asset management, until AuBit.”

In traditional asset management, the volume of assets in your account remains static, though the value of those assets may rise and fall. AuBit is changing this model by redistributing revenues to asset holders and continuously increasing their total volume of assets.

AuBit co-founder Graham Doggart says AuBit represents a paradigm shift from the traditional investment model to a new model based on asset volume, and with that, enhanced risk-adjusted alpha (outperformance of a benchmark index) through network effects.

Read: Bitcoin on the brink of fresh year high following PayPal embrace

The same network effects can be applied to traditional equities such as Apple, where many high-performing annual stock returns can be sweetened by about 6%, or the US Bond Index, where the AuBit network-enabled model simulations show a potential for an additional annual gain of 25-51% without changing the risk profile of the underlying assets.

Tokenisation – is it the future of finance?

The ETF (exchange-traded funds) market is worth $5.3 trillion today and Bank of America forecasts it will grow to $30 trillion by 2030. The World Economic Forum estimates that tokenised markets (where assets are issued on the blockchain) could potentially grow from $1.7 billion today to $27 trillion by 2027.

Joachim Godet, CEO of London investment bank 01 Capital, believes programmable securities like AuBit represent the future of asset management because of the benefits they provide in automation and cost reduction.

The AuBit network rests on what is known as the Freeway platform, which is a downloadable app that will offer an expanding range of financial products. The more people that sign up, the bigger the network grows, and so too does the asset wealth of the network participants, who will be able to purchase and trade individual stocks, bonds, commodities or the leading ETF projects from the likes of Vanguard, BlackRock and State Street.

Bridging the traditional investment world with the new world of digital and decentralised finance, AuBit’s first product, the Freeway Token (FWT) listed in November and has already seen over 200% appreciation in value. FWT is now available on digital exchanges Bithumb Global and Uniswap.

Institutions are also starting to back the venture.

Last week, AuBit announced that Canadian merchant bank GreenBank had acquired 400 million FWTs for about $3.2 million. Greenbank CEO David Lonsdale says the multi-trillion-dollar global asset management industry, though growing, has barely changed in decades and is ripe for disruptive technology such as AuBit.

“One of our declared objectives is to invest in companies whose business can be scaled globally and have the potential to be worth at least Canadian $1 billion. We believe AuBit fits that criteria very well indeed,” said Lonsdale in a statement.

Read: Michael Jordaan’s crypto venture ties the knot with EasyEquities

According to AuBit’s website, the plan is to roll this network out to 180 countries and bring financial services to the mass market, while continuing to grab the interest of institutions and traditional investors.

Dlamini-Zuma hauled to court over latest ‘illogical’ lockdown extension

Written by Ciaran Ryan. Posted in Journalism

Dear South Africa says it is improper and irrational to have perpetual lockdowns when the curve has flattened. From Moneyweb.

Minister of Cooperative Governance and Traditional Affairs Nkosazana Dlamini-Zuma is the only respondent in the case. Image: GCIS
Minister of Cooperative Governance and Traditional Affairs Nkosazana Dlamini-Zuma is the only respondent in the case. Image: GCIS

Participative democracy group Dear South Africa has filed an urgent application with the Pretoria High Court asking it to declare last week’s lockdown extension unlawful and to set it aside.

The group has given the government until Wednesday (November 18) to oppose the matter. It says the latest lockdown extension announced on Friday is illogical and was done without parliamentary oversight, as required by the constitution.

Read: Government told to provide evidence for ongoing lockdown or prepare for court (Oct 22)

The only respondent in the case is Minister of Cooperative Governance and Traditional Affairs Nkosazana Dlamini-Zuma. Papers were served on the minister on Monday.

The lockdown extensions are allowed in terms of the Disaster Management Act only to protect and provide relief to the public, or to prevent disruption and deal with the disruptive effects of the pandemic.

The latest stats show that just over 20 000 people have died in SA from the virus, while the original objectives of imposing the lockdown in March – slowing the spread of the virus to prevent the health system being overwhelmed – have been achieved.

“South Africa is no longer faced with the uncertainties that it was confronted with when the initial state of disaster was enacted,” says Daniël Eloff of Hurter Spies, the attorneys representing Dear SA.

Read: Ramaphosa surprises with further easing of Covid-19 restrictions (Nov 11)

“Consequently, government cannot continue to piggyback on a state of disaster for which the underlying and motivating reason has largely dispersed eight months since the initial declaration of the national state of disaster.”

Constitutional rights

In an affidavit for Dear SA, director Rob Hutchinson says the minister is able to extend the lockdowns ad infinitum without parliamentary oversight, while the constitutional rights of South Africans are being infringed. These rights include freedom of movement, residence, assembly, economic activity and education. Businesses were shut down at the start of the Covid-19 lockdown, schools were closed, and citizens’ rights to move and practice their professions and trades were severely curtailed.

In a statement issued on Monday, Dear SA says while it may have been rational to declare a state of disaster in March when little was known about the virus, much has changed since then. More is known about the risks associated with the Covid-19 virus and many of the measures implemented since March have had little or no effect on curtailing its spread. For example, closing schools, when we now know that children under 19 are not at risk of dying from the virus, while those under 50 suffer minimal risk.

Lockdowns will not save the lives of those who contract Covid-19 and do not require hospitalisation, according to Dear SA.

“Expert analysis by medical experts and epidemiologists conclude that the case fatality rate from the virus is 0% for those under 19, and for adults under 50 it is 0.5%.

“The case fatality rate for SA is 2.7%. The World Health Organisation (WHO) noted on 22 October 2020 that 10% of the world’s population were reckoned to have been infected with the virus. Of these, 1.3 million people have died as of 14 November 2020, an infection fatality rate of 0.17%.”

Yet the lockdown measures have had a devastating impact on the SA economy.

During April, May and June, when the most severe lockdown restrictions were in place, GDP contracted by more than 16% or an annualised decline of 51%. By comparison, in 2009, during the global financial crisis, the annualised decline was 6.1%. In the second quarter of 2020 alone, SA shed 2.2 million jobs, according to Statistics SA.

Dear SA also draws attention to the contradictory and often wildly inaccurate modelling used by government to implement policies.

“The South African Centre for Epidemiological Modelling and Analysis (Sacema) provided models to the National Institute for Communicable Diseases (NICD), though it was not aware that these models were being used to inform policy. Sacema abandoned its model soon after it was published and advised that it was not a tool for decision-making. That model’s replacement, the NICD’s ‘Epi Model’ has not been updated since June 2020 and also appears to have been abandoned. When last updated, it forecast 40 000 deaths by the end of November 2020 – which has also proven to be wildly inaccurate. The actual number of fatalities currently sits at just above 20 000.”

The recent extension of the lockdown is an “administrative act” which is reviewable by a court in terms of the Promotion of Administrative Justice Act.

Reasons given for seeking to set aside and declare the extension unlawful include:

  • It was not rationally connected to the purpose for which it were taken;
  • Irrelevant considerations were taken into account, or relevant considerations ignored; and
  • The extension is unconstitutional and unlawful.

The fact that the Disaster Management Act is being used by the minister to impose perpetual lockdown extensions is both irrational and unlawful, and “undermines our constitutional democracy, premised on a genuine separation of powers,” according to the application.

Read: Dlamini-Zuma told to amend invalid lockdown regulations (Jun 3)

One of the reasons being cited for the lockdown extensions is the threat of a second wave of infections occurring. If this does occur, the state has had ample time to prepare and a new state of disaster could be declared based on new circumstances that may arise.

“It is improper to keep the current state of disaster perpetually in force on the basis that some new disaster may occur on some unknown date,” says the court application. Tweet

SABC wants to bring in the heavies to collect license fees

Written by Ciaran Ryan. Posted in Journalism

As compliance levels, already low at just 30%, are tanking. From Dear South Africa.

SABC-licence-DearSA
The national broadcaster is in a financial pickle

The SA Broadcasting Corporation (SABC) is in a financial pickle. Revenue has been in steady decline since 2016, and the broadcaster has made profits in just four of the last 12 years.

We recently learned from an SABC presentation to Parliament that license fee collections have been in decline during the Covid lockdown. Collection rates are already low at about 30% – or just short of R1 billion out of the R3.3 billion billed to TV viewers annually.

The SABC’s apparent solution to this is to bring in the heavies – the debt collectors (including getting Multichoice and Netflix to collect on its behalf). That will require a change to the Broadcasting Act and, of course, with that will come heavier penalties for non-payment.

Its revenue comes from advertising for the most part, sponsorships, license fees and government grants.

Ten years ago, license fees accounted for more than 18% of total revenue. Today it is about 15%, having been as low as 12% in 2016 during the dark days of Hlaudi Motsoeneng’s bizarre rampage through the corporation (he lied about his qualifications, awarded himself a fat salary increase and insisted on covering cuddly stories about ANC ministers attending luncheons).

The SABC finally sacked Motsoeneng as chief operating officer in 2017, but the damage was done. The graph below paints a picture of a state-owned broadcaster in the throes of state capture.

This image has an empty alt attribute; its file name is image-1.png

During the Covid lockdown, levels of compliance in license fee payments has deteriorated below the already weak 31% reported in 2019. The Department of Communications and Digital Technologies, under which the SABC falls, wants to overhaul the Broadcasting Act to beef up the broadcaster’s powers to collect TV licenses and impose tougher penalties for non-payment.

Among the ways it plans to do this is by handing over accounts that are 60 days overdue to debt collection agencies to collect the R265 annual license fee. This has drawn robust comment from South Africans fatigued by stories of yet another distressed state-owned company in search of rescue. This time, however, the state broadcaster sees a way to use the law to enforce not so much its monopoly – which has long since been eaten away by competitors – but its right to claim a fee whether you watch SABC or not.

During the presentation to Parliament’s Portfolio Committee in October 2020, the SABC proposed using service provides such as Multichoice and content providers like Netflix to collect on its behalf. This will require a change in regulations to broaden the definition of a TV license to embrace newer platforms where people consume SABC content. It remains to be seen whether Multichoice and Netflix customers will comply with what may be seen as a cunning shake-down by the SABC.

The SABC provides 18 radio stations, five television channels as well as a digital media offering. Channel Africa is an additional radio station managed by the SABC on behalf of the government. Two other channels are delivered through DStv.

The three terrestrial television channels (SABC 1, 2 and 3) attract, on average, 28 million South Africans in a typical month. Seventeen of the nation’s top 20 television programmes are broadcast by the SABC’s television channels

It’s not hard to see why license fee delinquency is on the up. The annual fee is R265 but the fine for non-compliance may not exceed R500. Many people choose to take that rather low financial risk. Others prefer to get their content outside of the SABC and, certainly until recently, believe that they were paying for political propaganda.

Should the government decide in the middle of a Covid crisis, when income levels have collapsed, to take a battering ram to TV viewers in the hope of improving collection rates, there may well be a Constitutional Court challenge on the matter. After all, many South Africans long ago tuned out of SABC in favour of content more to their liking elsewhere.

What do you think? Should we support tougher enforcement of TV license fee collections? Or should the SABC ditch the license fees altogether and start finding more creative and less expensive ways to make up the revenue shortfall (such as through better, more targeted content)?

FNB being sued for R103m by customer it accused of fraud

Written by Ciaran Ryan. Posted in Journalism

Nav Chan has waged a noisy social media campaign against the bank for what he says is financial defamation. From Moneyweb.

Secretly blacklisted because of ‘administrative errors’ by the bank, Chan has been cleared of all charges. Image: Nadine Hutton, Bloomberg
Secretly blacklisted because of ‘administrative errors’ by the bank, Chan has been cleared of all charges. Image: Nadine Hutton, Bloomberg

For nearly eight years, Durban businessman Nav Chan has waged a relentless social media war against FNB, which accused him of fraud for misrepresenting his income when applying for credit cards with FNB and its partners, Discovery and Kulula.

Chan’s name ended up on an anti-fraud database operated by the SA Fraud Prevention Services (SAFPS), which is shared by the banks and retailers for the most part.

What alarmed Chan was the fact that he was merely suspected of fraud, and yet suddenly he was persona non-grata, not just with FNB, but Absa as well. It seemed no one wanted to touch him. In the blink of an eye, he says, his import-export business was strangled by a lack of cash.

Before this all started in 2013, Chan had a perfectly clean credit record.

He only found out about the secret SAFPS blacklisting when his green ID book went missing and he tried to have it replaced. “The police told me my name was blacklisted on this database I had never heard of before, called Shamwari, which is operated by the SAFPS. I’m all for fraud prevention, so I wanted to help them clear up what was an obvious mistake,” says Chan.

That was easier said than done. Chan asked to see if there was a criminal charge against him so he could address it, but that only came later.

When Chan laid a complaint with the Public Protector (then headed by Thuli Madonsela) and the National Credit Regulator, FNB and Absa removed his name from the Shamwari database.

Yet the National Prosecuting Authority (NPA) decided to push on with the case after FNB pressed criminal charges of fraud.

FNB’s 2013 fraud charges against Chan accuse him of supplying false information while applying for the FNB Platinum credit card, as well as cards from Kulula and Discovery.

Read: FNB wants you to ditch your physical cards

FNB also accused him of supplying false information when later applying for a bank account upgrade and an increase in credit card facilities. In all, he was facing seven charges of fraud.

What the bank seems to have missed – something that was clarified in the 2017 magistrate’s court transcript – was that Chan’s salary was paid into an offshore account, with money transferred to his FNB Platinum card account as and when needed. It was not paid into his FNB Platinum account, nor does there appear to be a document obligating him to do this.

Bank could have picked up the phone

Chan denied all of the charges against him, saying the information provided was at all times correct, and that bank staff were guilty of basic administrative errors which could have been easily verified had they bothered to pick up the phone and ask. But he also suspects he became a target for the bank after repeatedly questioning how it was calculating its eBucks rewards.

When the matter came before the Durban Magistrates Court in 2017, FNB admitted that it had not lost any money as a result of Chan’s alleged fraud, and the case was dismissed.

Chan was cleared on all seven counts.

One of the bank’s own witnesses described him as a model client, and the transcript of the trail shows bank investigators made little effort to verify the authenticity of the income statements provided by Chan when applying for credit facilities.

R3m in legal fees

Chan was not done with the bank yet. Already R3 million in the hole for legal fees, he is now suing the bank for R103 million in damages, which is revenue lost as a result of the “financial defamation” he says he has endured as well as the impact on his import-export business. The damages figure was calculated by a professor of accounting at the University of KwaZulu-Natal.

Chan, who has a masters degree in business from the University of Chicago, has been trolling FNB for years, building up a steady following on social media and keeping them up to speed on the latest developments in his case.

At one point, FNB offered to withdraw its charges against him provided he issue a public apology and refrain from any further adverse publicity for the bank. Chan refused.

In June 2020, Chan served summons on FNB, arguing that in laying charges of fraud against him, the bank and its employees “had no reasonable or probable cause for doing so nor did it have any reasonable belief in the truth of the information given”.

On this basis, Chan says the charges made against him were done maliciously and in bad faith.

FNB’s argument

In its reply to the summons, FNB denies the allegations of malice and bad faith, and the fact that Chan suffered damages in the amount of R103 million.

FNB is defending the matter, arguing that Chan failed to take necessary steps to avert any loss of income arising from the NPA’s prosecution, and for dragging out the prosecution and failing to cooperate with the police.

Read:FNB takes R270 million knock on fees
Here’s what recovery looks like – FNB CEO

Asked to comment on the case, FNB’s head of legal Shaun Chelin, replied: “FNB confirms it is currently dealing with legal proceedings involving [Chan]. The bank denies it is liable for any claim and is defending the matter in court. Due to the ongoing legal process, we cannot provide any further information at this stage.”

Total’s second major gas find puts SA on the global energy map

Written by Ciaran Ryan. Posted in Journalism

Government must act fast to reap the benefits of this discovery, which could attract $40bn in investment – Africa Energy Chamber. From Moneyweb.

An enabler rig off the coast of Norway; the country has been adept at using its sovereign wealth fund to hedge against oil price volatility and save wealth generated from its petroleum sector. Image: Mikhael Holter, Bloomberg

An enabler rig off the coast of Norway; the country has been adept at using its sovereign wealth fund to hedge against oil price volatility and save wealth generated from its petroleum sector. Image: Mikhael Holter, Bloomberg

Last month French energy giant Total announced it had made a significant gas condensate discovery 175km off the southern coast of SA in what is known as the Luiperd prospect.

This follows the 2019 discovery of an estimated one billion barrels of oil equivalent of gas and condensate at Brulpadda, off the coast of Mossel Bay.

Even before the latest Total discovery, the 2019 Brulpadda find was touted as one of the biggest finds globally, and a ‘game changer’ that puts SA on the global energy map.

An analysis by engineering group EPCM Holdings suggests that the billion barrels at Brulpadda is enough to run all of SA’s refineries at a cumulative volume of 700 000 barrels a day for just less than four years. “Mossgas is the only refinery in SA ready and equipped to run on condensate. So it would naturally be assumed that the condensate will be extracted for use in the Mossgas refinery, which couldn’t come too soon, since this refinery has been on the verge of closing down for the last year or two, due to the dwindling gas resources feeding the facility.”

Add to this a potentially even larger find at Luiperd, and it’s clear that SA’s energy matrix has been radically reshaped. The gas discoveries come at a time when Eskom is having to retire its older coal-fired power stations and reduce its carbon output.

Gas as a source of power generation is now a real option.

Total’s Luiperd well was drilled to a total depth of about 3 400 metres and encountered 73 metres of net gas condensate pay in well-developed good quality lower cretaceous reservoirs,” says a statement by Total. “Following a comprehensive coring and logging programme the well will be tested to assess the dynamic reservoir characteristics and deliverability.”

The prospecting block in question covers an area of 19 000km2 at water depths ranging from 200 to 1 800 metres. Total has a 45% interest in the block alongside Qatar Petroleum (25%), CNR International (20%) and Main Street, a SA consortium (10%). Main Street is 49% controlled by Africa Energy. The three international shareholders in this project have large war chests which could be quickly deployed to build the necessary infrastructure to land the gas onshore.

What’s also become clear is how underexplored SA’s offshore basins are. Given the latest find, there’s possibly much more waiting for discovery.

NJ Ayuk, executive chair at the Africa Energy Chamber, says many South Africans seem unaware of the significance of these two gas discoveries.

“These two discoveries put SA on the map as a global gas player. Gas is the future, and is needed as we transition to renewables as a source of energy.”

The timing of the find is near perfect, adds Ayuk.

Move fast, get it right

“As we enter the post-Covid recovery phase, SA needs to move fast and put in place the right incentives and policies to make sure we do not make the mistakes made in Nigeria and Angola.”

And what were those mistakes? Policies that favoured oil companies over the local population, creating massive inequity in the spread of oil wealth, and weak local content requirements which allowed most infrastructure investment to be spent outside the host country.

Ayuk says government needs to move fast to reap the benefits of these finds. “It will have to relook at its BEE codes, its labour laws and will have to offer some kind of incentives for tax and skills training. If we get it right, we can be looking at an investment of $40 billion to $60 billion over the next decade, which makes the IMF loan of $4 billion [that SA has applied for] look insignificant in comparison.”

Ayuk points to the roughly $100 billion investment earmarked for gas extraction off the coast of Mozambique as the kind of cash injection that could be in SA’s future.

“We estimate the investment required to extract this gas would be of the order of $40 billion to $60 billion, of which $35 billion would be spent in SA.”

If we get it right, we could land gas onshore within two to three years.

This was recently done in Equatorial Guinea, which put in place policies that encouraged energy investment while ensuring most of the benefits remained in the country. Ayuk points to contrasting examples of two countries that both discovered oil around 2007 – Ghana and Uganda. Ghana had the right regulatory framework in place and extracted its first offshore oil in 2011. Uganda’s oil find remains buried underground because it has been unable to finalise policies that satisfy investors.

When Norway discovered oil in the North Sea in the 1960s, it put in place policies and a sovereign wealth fund (SWF) to ensure that there would be economic benefits long after the oil was gone. Key among these policies was an insistence on developing the local oil and gas sector, rather than leaving it all to outsiders. Petroleum accounted for 43% of exports in 2018, and great care is taken to ensure that exports exceed imports – which in turn provides currency stability. Compare this to Venezuela, where oil accounts for 95% of exports, a key factor behind its current political instability.

Norway has been particularly adept at using its SWF to hedge against oil price volatility and as a means of saving wealth generated from its petroleum sector for use by future generations. Another benefit of SWFs is to diversify away from cash holdings or low-yielding US Treasury bills.

Infrastructure already in place

South Africa’s only local source of natural gas was developed in the 1980s with the Mossgas facility built to beneficiate the gas. Additional natural gas is imported from Mozambique to supply the gas industry around Gauteng and Mpumalanga.

“The Brulpadda discovery could have a similar impact on Mossel Bay and the Mossgas facility as the Zohr discovery did in Egypt. At the time of the Zohr discovery, Egypt was starting to plan for a future where the domestic gas production would not be enough to keep up with local demand for gas,” says EPCM Holdings.

The Total discoveries have significant advantages over the Kudu development in Namibia or the giant fields of Mozambique and Tanzania. The SA finds would be able to tap into a pre-existing local market where the infrastructure and demand are already in place.

“This is a great moment for SA,” says Ayuk. ”We shouldn’t waste it.”

Creating your own crypto index to beat the market

Written by Ciaran Ryan. Posted in Journalism

BitFund lets you do this, or you can pick one off the shelf. From Moneyweb.

Choosing a unit trust-type portfolio that provides exposure to a basket of cryptos is a relatively easy way to go for newcomers. Image: Luke MacGregor, Bloomberg
Choosing a unit trust-type portfolio that provides exposure to a basket of cryptos is a relatively easy way to go for newcomers. Image: Luke MacGregor, Bloomberg

Building indices as a way to reduce risk or beat the market has been part of the investment world for decades.

Teams of quantitative analysts rake over thousands of portfolio permutations to come up with an equity or bond index that will deliver a fractional reduction in risk or outperform a chosen benchmark.

It was inevitable that the same statistical rigour would find its way into the crypto space.

BitFund is a cryptocurrency investment platform that started out as something of a hobby, where the founders wanted a way to buy, sell and rebalance their cryptocurrency holdings.

They started building indices to see if there was a way to soften the enormous volatility of crypto coins like bitcoin and ether, or whether an investment spread over a basket of cryptos would outperform bitcoin.

The results were fascinating.

History shows that there are periods when other cryptocurrencies outperform bitcoin, and that was certainly true earlier this year before bitcoin surged on news that PayPal would allow its customers to buy, hold, and sell cryptocurrencies, including bitcoin, directly from their PayPal accounts.Read:The future of money and paymentsBitcoin on the brink of fresh year high following PayPal embrace

Bitcoin has doubled in price since the start of the year, and that’s a hard act to follow. Bitcoin accounts for about three quarters of the total crypto market value, so it remains hugely dominant in the sector.

An investment spread over the 20 largest cryptocurrencies, weighted by market cap (with a maximum weighting of 15%) shows it seldom underperforms bitcoin, but frequently outperforms it.

This is shown in the graph below. Since January, an investment in bitcoin would have yielded a return of 109%, against 88% for the Capped 20 index. Bitcoin’s recent outperformance of the Capped 20 index is a rarity, and history suggests it is something of an anomaly that may not last. These figures are net of the 2.4% annual rebalancing, storage and transaction fees.

Source: BitFund

Investors would have done slightly better choosing an investment equally weighted across the 10 largest cryptocurrencies (all with an equal 10% weighting). This is shown in the following graph, where the results since January again give bitcoin the edge, with a return of 109% against 92.2% for the Equal 10 Portfolio.

Source: BitFund

Other than these off-the-shelf portfolios which are rebalanced weekly, BitFund lets you customise your own crypto portfolio. Clients have access to a reporting dashboard for keeping track of their investments in real time and making any further deposits or withdrawals.

Portfolios such as these are often preferred for first-time crypto investors, says BitFund co-founder Joshua Miltz.

“Most people making their first foray into cryptos can find it confusing, so choosing a unit trust-type portfolio which gives them exposure to a basket of cryptos is a relatively easy way to go.”

BitFund is three years old, but the growth in customers and investment flows since January this year has been one for the record books.

Interest in cryptos spiked during the Covid crisis, amid fears of steadily depreciating fiat currencies such as the rand and the US dollar.

It seemed for a time that cryptos may have been a passing fad, particularly after the bitcoin crash in 2018. All that has changed in the last 18 months. “People are scared of what will happen to their wealth when measured in traditional currencies such as the rand, so they are looking for some way to hedge against currency depreciation,” says Miltz.

Read: Bitcoin is the bubble that keeps on giving

BitFund was founded by Dean Joffe, Joshua Miltz, Bradley Goldman and Jonathon Ferrer, combining the skills of a lawyer, software engineer, chartered accountant and actuarial analyst.

They spent the best part of a year building the BitFund platform and created a rebalancing engine to automate many of the back-end processes. Heavy investment in security ensures customer funds are buried away in virtual vaults, away from the internet (known as cold storage).

Fees

BitFund portfolio fees are inclusive of trading costs. Annual management fees are charged at the rate of 2.4% on the total value of cryptocurrencies under management, plus an exit fee of 1% to make up for any cost incurred in liquidating the portfolio. Institutions pay lower fees based on the size of investment.

Miltz says a high proportion of new customers is looking to create their own portfolios to either reduce volatility and risk, or to outperform a predetermined benchmark (such as bitcoin).

Portfolios are rebalanced weekly to keep investors’ desired exposure stable, and to adjust portfolios based on market performance. This is the only time that a portion of the funds in the various portfolios resides on well-vetted international exchanges.

“Our corporate accounts with these institutions enable much lower costs of regular rebalancing,” says Miltz.

What lies in the future?

“We see investors looking for a more customised exposure to cryptos, which allows them to build portfolios that are consistent with their investment objectives.

“There’s no question that cryptos are volatile. One way to reduce volatility is by building portfolios that spread your investment.

“Diversification is always sound investment advice,” says Miltz. “Our products allow you to do that while remaining exclusively in the crypto space.”

Best case scenario for world growth: Biden wins it – UBS

Written by Ciaran Ryan. Posted in Journalism

But Trump has defeated the odds before. From Moneyweb

A Biden win would also be good news for China, though he is unlikely to revoke tariffs imposed under Trump. Image: Micah Green, Bloomberg
A Biden win would also be good news for China, though he is unlikely to revoke tariffs imposed under Trump. Image: Micah Green, Bloomberg

Two events could have a major impact on world economic growth: the availability of a successful Covid vaccine and the outcome of the US presidential election.

A Democratic Party sweep, with Joe Biden as the new US president, is the optimum scenario for global growth, says a report out this week from UBS.

It could mean an extra percentage point growth for the world in 2021. In that scenario, global GDP growth could hit 6.2% next year, against 5.2% growth if Donald Trump wins and the status quo prevails. That growth momentum would carry over into 2022, with world GDP growth holding steady at 5.2% under a Democratic administration.

The outcomes for a Trump ‘status quo’ win and a Congress divided between Republicans and Democrats are similar, with growth likely to be about 5.2%.

Fiscal stimulus

UBS says the US election outcome will determine the extent of fiscal stimulus. A Biden win is likely to be accompanied by a $1 trillion fiscal stimulus packaged focused on Covid relief, with a further $500 billion to make good on Biden’s campaign pledges. Though Biden has promised to increase taxes, UBS assumes these will get delayed.

Lukman Otunuga, senior research analyst at broker FXTM, agrees that a clear Biden win, where his party retains control of the House and wins the Senate, seems like the most positive outcome for markets.

“Such a result will open the doors to a round of large-scale fiscal stimulus that could nurse some of the damage Covid-19 has inflicted on the US economy. Should Biden win with Republicans retaining the Senate, this may reduce the odds of a larger fiscal stimulus and could be less positive for global risk sentiment.”

But Trump has defeated the odds before.

In 2016, the polls had Hillary Clinton easily winning the presidential election. Something went horribly wrong with the polls. Could it happen again?

Otunuga says a Trump victory will certainly catch markets by surprise and prove the polls wrong again.

“Although this outcome may result in a smaller or even delayed fiscal package, the policy continuity from his re-election could send stock prices higher over the medium term.”

UBS says the discovery of a successful vaccine is another factor likely to have a major impact of global growth. In an optimistic scenario, a vaccine with a high efficacy rate is found by the end of 2020, and production ramped up sufficiently to inoculate half the world’s population.

“This results in growth of 6.1% similar to a Democratic Party sweep. The pessimistic scenario assumes the approval of an effective vaccine is delayed until the of end 2021,” says UBS.

Trade

A Biden win would also be good news for China, though he is unlikely to revoke tariffs imposed under the Trump administration. Biden may look to use multilateral agreements to limit China’s trade practices if they are believed to be illegal and unfair. He is likely to focus on environmental rules, intellectual property violation, steel dumping, World Trade Organisation rules and human rights violations.

Biden is likely to support ‘fair trade’ rather than free trade policies.Read: China’s growth story isn’t what it seems

Biden will also recommit to the Paris climate agreement renounced by Trump, and sign on to net carbon neutrality no later than 2050 with emissions free electric power by 2035.

On fiscal policy, Biden will likely raise federal spending by $7 trillion over 10 years, with a ‘Buy American’ agenda, including spending on infrastructure, buying US-based goods, US research and development, housing, education, social security and healthcare. He has proposed an infrastructure bill with an initial spending of $1.3 trillion, rising to $2 trillion to include spending required to meet his commitments to climate policy.

Read: Global warming trends prove ‘enormous challenge’ of meeting Paris climate goals – WMO

From a commodity perspective, the biggest difference between Trump and Biden appears to be the green policy agenda which could lead to big changes in commodity demand (positive for green commodities like copper and battery raw materials, and negative for fossil fuels).

There would be an even greater shift towards decarbonisation if Biden wins.

“In addition, a Biden victory could suggest a more predictable policy environment, albeit not necessarily a de-escalation in the trade tension,” says UBS.

Luno sets target of a billion customers in 10 years

Written by Ciaran Ryan. Posted in Journalism

The recent buyout by Digital Currency Group gives it a head start. From Moneyweb.

Luno co-founder Marcus Swanepoel says crypto adoption in Africa is exploding. Image: Supplied
Luno co-founder Marcus Swanepoel says crypto adoption in Africa is exploding. Image: Supplied

Launched in 2013, crypto exchange Luno has built up an astonishing customer base of five million in 40 countries, with more than one million of them in SA.

But that’s nothing compared to what lies ahead. Speaking on the future of crypto in Africa via webinar last week, co-founder and CEO Marcus Swanepoel outlined plans to grow Luno’s customer base to one billion within the next 10 years.

That’s Facebook-type levels of penetration – but Swanepoel believes it’s doable.

“It may seem unrealistic to say we want one billion customers, but we have the momentum and the adoption is accelerating by the day,” he said.

Luno is betting big on an accelerating rate of crypto adoption across the globe. It was recently bought out by US-based Digital Currency Group (DCG), which has investments in some 160 companies involved in cryptocurrency and blockchain development

.Read: SA crypto pioneer Luno finds a US buyer

This will give it the financial and technical muscle to tackle retail markets in new countries. Future plans include deeper penetration of the UK and European markets, and the US at a later stage. The company recently launched a crypto exchange in Australia, and already has a presence in several European countries.

The company had a major hand in persuading South Africans to adopt cryptocurrencies such as bitcoin, then took the same message to other countries in Africa, Asia and Europe.

The financial crisis of 2020 has been a gift to crypto exchanges like Luno, which initially focused on a single cryptocurrency, bitcoin, but has since added several more, such as Litecoin, Bitcoin Cash, XRP and Ethereum.

Swanepoel says crypto adoption in Africa is exploding, a trend accelerated by the Covid pandemic and fears that local fiat currencies will continue tanking against safe haven assets such as the US dollar and gold. After a wild and volatile start 12 years ago, bitcoin and other cryptos have shown an increasing correlation to gold and are now seen as a hedge against reckless government financial conduct, with budget deficits running out of control across the world.

What’s driving crypto’s growth in Africa

Explaining why Africa is ripe for mass crypto adoption, Swanepoel identified the following trends driving Africans to the crypto sphere:

  • High inflation and dollar scarcity;
  • Political instability and capital control;
  • Poor financial infrastructure;
  • An accelerating trend towards digital and mobile money; and
  • The high cost of transacting using conventional means.

“It’s still so expensive to use money [in Africa], whether for remittances or online payments, or even to withdraw funds from a bank – something that is unheard of in Europe. This is laying the platform for big growth in crypto in Africa,” he said.

Africa-destined remittances totalled $40 billion in 2019, with 10% of that going in fees. African e-commerce transactions exceeded $30 billion last year, with fees of $1 billion. Identity theft and cybercrime cost Africa $3.5 billion in 2017. Combined, this adds up to a massive leakage of wealth from the pockets of consumers.

“All this value currently captured by financial institutions could be released to consumers,” said Swanepoel.

The removal of capital controls could increase GDP by between 1% and 2% in some African countries, and expand inter-African trade by 52%.

A more inclusive financial system could see deposits increase by $1 trillion in Africa.

All this suggests the existing financial system, captured by traditional financial institutions and their loaded fee structures, is ripe for the picking.

The obstacles to wider crypto adoption are:

  • Inadequate internet coverage;
  • Competition from mobile money; and
  • Resistance from regulators and financial institutions.

“Some regulators are pro-innovation but want to make it safe for consumers, so we spend a lot of time with them to prove we look after clients,” said Swanepoel.

A new financial system

The new crypto economy will soon offer everything the existing system does, but with more variety and safety – and at lower cost.

Speculators love the volatility of bitcoin (though volatility is reducing as more people enter the market) and altcoins, and huge numbers of traders have diversified from stocks and forex to the crypto market.

A big challenge for cryptos is to achieve universally-accepted payments, and that is also now within reach.

PayPal recently announced that US account holders will be able to buy, sell and hold cryptocurrencies in their PayPal wallets over the coming weeks. Many new payment solutions are already in place, and building out the networks and scale needed to achieve a universal payments system will likely happen within the next few years.

Read:PayPal CEO says cryptocurrencies are just an experiment for now (Mar 2018)

Bitcoin on the brink of fresh year high following PayPal embrace (Oct 2020)

Another development already at an advanced stage is collateralised borrowing using cryptos. Virtually everything available in the traditional financial space is now (or soon to be) available in the crypto sphere.

“We are starting to see a shift towards crypto investments and even crypto-backed credit, and this will grow over time,” said Swanepoel.

An amazing seven years

“It’s been an amazing seven-year journey, but the best is yet to come,” added Swanepoel, who started out working in the banking sector in Asia, Africa and other emerging markets. “In 2013 I moved to Palo Alto [California], where all the tech companies are located. Someone introduced me to bitcoin and explained how you can move value anywhere in the world.

“I had an epiphany moment, and saw how this new technology could influence things positively, so I got together with my partner to start Luno.”

Luno GM for Africa, Marius Reitz, says customers have understandable concerns over the security of their deposits. “We’ve been around since 2013, and never been hacked. We have five million customers in 40 markets, so we take our security seriously.”

Security

Several layers of protection keep hackers and thieves at bay, including cold storage (storing funds offline and away from the internet), safe keeping of private encryption keys with the need for a third party key to effect any transaction (which means two people must authorise a transaction), and multiple vaults requiring any hacker to get into more than one vault at the same time.

Customers can add additional security using two-factor authentication (a time-sensitive code that must be entered from your smartphone) and a ‘disable send’ feature that stops anyone from sending your crypto anywhere in the unlikely event they do get into your account.

Asked how to detect crypto scams, Reitz replied: “Anyone saying you can’t lose money is suspect. Do some due diligence, and look to see who runs the company. When anyone says you must invest now, that’s a red flag – run away. Also, don’t allow others to trade on your behalf.”

Crypto exchange VALR has increased trading volumes 5x since January

Written by Ciaran Ryan. Posted in Journalism

With some heavyweight backing from Michael Jordaan and Bittrex. From Moneyweb.

Crypto – the next stage in humanity's monetary evolution. Image: Andrey Rudakov, Bloomberg

Crypto – the next stage in humanity’s monetary evolution. Image: Andrey Rudakov, Bloomberg

SA-based crypto exchange VALR reports a five-fold increase in crypto volumes this year as nervous investors seek safety from more conventional assets such as shares and bonds.

Just two years old, VALR is now the largest crypto exchange in the country by trading volume over the last six months, trading nearly 17 000 bitcoin in September. Co-founder Farzam Ehsani, formerly part of the Rand Merchant Bank blockchain team, says growth was explosive from day one: “We entered the market offering lower fees than anyone else and signed up about 1 000 customers on our first day of trading in June 2019.”

It has since signed up more than 80 000 customers. What accounts for such explosive growth?

Reckless financial governance around the world and fears that traditional currencies will lose value, says Ehsani.

“Crypto is as promising as our legacy financial system is defective. The fact that it still takes our current financial system days to send money from one person to another, even within the same country, is absurd. Some 95% of money is now digital and digital transfers shouldn’t take this long.

“Imagine if emails took a few days to arrive at their destination – this shows the absurdity and archaic nature of our current financial system.”

The US Federal Reserve is digitally ‘printing’ more than $1 million per second, and went into overdrive as a result of the Covid-19 economic crash.

They did this to prop up financial markets which have decoupled from the real economy, and this is something of grave concern. Our current financial system is defined by divisions in humanity, predominantly along the lines of the nation state. Cryptocurrency offers an alternative that transcends the nation state and sees humanity for what it truly is: one. To be sure, cryptocurrencies are still nascent and there is room for improvement, but brilliant minds the world over are dedicating their lives to this today.

Read: Bitcoin is the bubble that keeps on giving

VALR’s other co-founders are Theo Bohnen, Badi Sudhakaran and Chris Tsimogiannis – all of whom were originally part of Rand Merchant Bank’s blockchain team. They left the bank in May 2018 to set up VALR, and started trading a year later.

VALR is backed by former FNB CEO Michael Jordaan and US-based Bittrex, one of the largest crypto exchanges in the world, who invested $1.5 million in seed capital in July 2018. It recently raised an additional $3.4 million from 100x Ventures and 4Di Capital, bringing the total raised to date to R79 million.

Read: Michael Jordaan’s crypto venture ties the knot with EasyEquities

It offers customers the ability to buy and sell more than 50 cryptocurrencies, the largest selection of any South African platform.

Ehsani was born in Kenya to Iranian parents and spent most of his life on the African continent before moving to study in the US at the University of Berkeley. He was the inaugural chair of the SA Financial Blockchain Consortium, and previously worked at Deloitte Consulting in San Francisco and then consulting firm McKinsey, A committed member of the Baha’i faith (he worked at the Baha’i World Centre in Haifa, Israel for some time), he sees cryptos as a way to overcome national and sectarian divisions.

From shells and beads to bits and bytes

“In my humble opinion, cryptocurrencies represent the next stage in humanity’s monetary evolution – an evolution that has taken humanity from cows to shells to beads to salt to animal hides to metals to paper and now to bits and bytes.”

The exchange initially offered South Africans the ability to purchase bitcoin in rands (BTCZAR), then expanded to other cryptos such as Ethereum-Rand (ETHZAR) and XRP-Rand (XRPZAR).

One reason for the rapid growth at VALR is a referral system where existing customers get 15% off trading fees for referring another person. It paid out more than R5 million in September is referral discounts. Its pricing model also broke with convention by charging 0.2% to market takers (those who purchase cryptos at the prevailing market price) and -0.1% for market makers (those who place buy or sell orders away from the current market price).

“This means we actually pay our customers to provide liquidity on the VALR platform. What we aim to do with this system is make it free to sign up as a customer, charge no monthly fees and then pay customers if they provide liquidity on our exchange.

“There isn’t any financial institution that has anything like this out there,” says Ehsani.

Why cryptos will swamp out traditional financial institutions

Ehsani has little doubt that legacy banks will have to either embrace this new world or get dragged off to the knackers yard.

The market cap of bitcoin is currently about $255 billion, and all cryptos $402 billion. “Since the beginning of 2020, bitcoin’s price has gone up by 90%, yet cryptocurrencies in total still have a very low valuation compared to other asset classes. All cryptocurrencies are currently valued at $402 billion, which is only about 3% of the total value of gold, never mind other asset classes.”

One of the big trends to watch in the coming years is decentralised finance, or DeFi, which offers an alternative universe of financial applications, such as peer-to-peer lending and borrowing and the ability to earn returns on cryptos. “DeFi has taken off this year with a host of applications that facilitate the exchange of tokens and the ability to access collateralised funding, and in some cases uncollateralised funding, without the need for a trusted intermediary,” says Ehsani.

DeFi operators, in addition to offering a return for lending you crypto, also offer a token as something else of value which can be traded. Banks have never offered their client anything other than loans at interest.

Read: The future of money and payments

“I think we are still very early in the development of the crypto asset class. At just over $255 billion the value of all bitcoin is still only a dot on the financial landscape of the world. To put this in context, if all the bitcoin had the same value of all the gold in the world, then each bitcoin would have to be valued at $575 000, a 50-fold increase from its current level.

“No South African with investments should be without some exposure to cryptos such as bitcoin.”

Urgent application to stop FSCA making senior appointments

Written by Ciaran Ryan. Posted in Journalism

Open Secrets and the Unpaid Benefits Committee want the public involved in appointments to help speed up the refund of an estimated R51bn in unclaimed pensions and benefits. From Moneyweb.

The finance minister’s decision ‘to conduct the appointment process under a veil of secrecy’ is being challenged. Image: Moneyweb

The finance minister’s decision ‘to conduct the appointment process under a veil of secrecy’ is being challenged. Image: Moneyweb

Open Secrets and the Unpaid Benefits Committee (UBC) are asking the Pretoria High Court to halt Finance Minister Tito Mboweni from appointing a commissioner and deputy commissioner at the Financial Sector Conduct Authority (FSCA) until public involvement is guaranteed.

“We have asked the court to interdict the shortlisting, interviewing and selection of candidates – as directed by Minister of Finance, Tito Mboweni – until public participation has been provided for, to allow members of the public as well the media to have full access to these processes,” say Open Secrets and UBC in a statement.

“We believe this is essential to protect the constitutional imperatives of openness, transparency and accountability and the right of the public to participate in these processes.

“The minister is opposing the application.”

The case relates to an estimated R51 billion in unclaimed pensions and benefits owed to about four million South Africans and former workers living in neighbouring countries.

Read: How unclaimed retirement benefits can be put to better use

Pension fund whistleblower Rosemary Hunter, a former deputy registrar of pension funds at the Financial Services Board (now called the FSCA), waged a multi-year campaign within the FSB to force an open and transparent investigation into the cancellation of thousands of pension funds that still had unclaimed funds in them. She took her case all the way to the Constitutional Court, but lost her case in 2017 on the grounds that the FSCA had already launched investigations into the cancelled pension funds.

Read: What was the real issue in Hunter’s pension funds case?

Open Secrets investigator Michael Marchant says questions remain as to who owns the roughly R51 billion in unclaimed benefits. “We think it is vital to have public participation in the appointment of a new commissioner and deputy commissioner at the FSCA, as this will give greater comfort to the public that their interests are being properly served, especially those who are owed pensions and other benefits.”

Open Secrets and UBC say they have been trying for 18 months to get an answer from Mboweni on the appointment process, including an explanation for the excessive delays in these crucial appointments. They have urged the minister to make proper provision for public access and participation in the process.

“Minister Mboweni has to date never responded, other than sending an acknowledgement of receipt showing a disregard for efforts by civil society who have pressed for stability and leadership with integrity at this key regulatory body,” says the statement.

‘Dismayed’

The applicants in the case say they were dismayed to find that a year after the appointments should have been made, National Treasury announced a new shortlisting panel and “the appointments would go ahead without proper public participation – effectively in secret”.

To speed up the appointment process, Mboweni amended the regulations, but with no provision for media and public participation or scrutiny of the process.

Open Secrets and UBC say it is important that these positions are filled as a matter of urgency, however, for the appointment process to be fair and transparent, the public must have access to this process.

“Secretive, rushed appointments could do great harm, as we have seen in some of the appointments made in instances of state capture.”

Mboweni and the chair of the FSCA Selection Committee – both of whom are cited as respondents in the case – have given notice of intention to defend, though have yet to file an answering affidavit.

Open Secrets and UBC are asking the court:

  • To put a halt to the appointment process until public participation has been provided for, and for any scheduled interviews to be made public;
  • Alternatively, to ensure that the media and public be granted access to the interviewing of shortlisted candidates;
  • To declare as unlawful and set aside the minister’s decision to conduct the appointment process under a veil of secrecy, without any public participation or oversight; and
  • To order that the appointment process must continue in a transparent manner with the appointment process thus far being declared as unlawful and set aside.

“We are concerned about the FSCA appointments for reasons that go beyond the pensions industry,” says Marchant.

“The FSCA will be crucial in ensuring that customers of banks, insurance companies, pension fund administrators and other financial institutions are treated fairly and have their interests protected.”

Open Secrets is a non-profit organisation that investigates and exposes corporate economic crimes and human rights abuses. The UBC is a coalition of groups of former workers, community organisations, advice offices, non-governmental organisations and individual activists campaigning for the payment of unclaimed pension and other benefits held by the private sector.