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JP Koning: In the CBDC Race, It’s Better to Be Last

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Is America being left behind? China is on the verge of issuing a central bank digital currency (CBDC) while America twiddles its thumbs. 

America needn’t worry. While it may look like a slacker, its approach to digital currency is probably the right one.

J.P. Koning, a CoinDesk columnist, worked as an equity researcher at a Canadian brokerage firm and a financial writer at a large Canadian bank. He runs the popular Moneyness blog.

That’s because there is no first-mover advantage to issuing a central bank digital currency. With many products, being the first out the door is important to achieving brand dominance. But central bank digital currency is characterized by last-mover advantage, not first-mover advantage. Best to sit back and learn from the less-patient central banks as they struggle with their new digital projects.  

What is a CBDC?

Central banks currently offer digital payments, but only to banks and other financial institutions. Their interaction with the public has been limited to paper money. A central bank digital currency, or CBDC, would provide everyone with an opportunity to get access to a digital version of central bank money. You or I could hold digital Federal Reserve dollars or Bank of Japan yen in our digital wallets and use these balances to buy coffee.

For years, CBDC has remained a theoretical construct of white papers and central bank thought-pieces. But recently the People’s Bank of China began to pilot a CBDC, Sweden is working on a proof of concept, and the Bahamas launched its “sand dollar” CBDC project.

See also: Marcelo M. Prates – The Big Choices When Designing Central Bank Digital Currencies

Jerome Powell, the head of the U.S. Federal Reserve (“the Fed”), has been reticent. Commenting on CBDC recently, Powell said it is “more important to get it right than to be first…” 

Powell’s approach is the right one.

No first-mover advantage

Typically there are significant advantages to being first to market. Take Bitcoin , for instance. While there are many technically superior blockchains to Bitcoin, Bitcoin was the first. Thus it had many years to build up its brand and attract a network of users, all advantages that better coins simply cannot replicate.

Central banks, however, are monopolies. While commercial banks and payment companies like PayPal are big producers of digital dollars, central banks can manufacture something that these private actors cannot: risk-free legal tender. So lacking competition, central banks can afford to be slow.

See also: Ajit Tripathi – 4 Reasons Central Banks Should Launch Retail Digital Currencies

Nor is it necessary for the U.S. to have a CBDC in place to protect the dollar’s international dominance from a digital Chinese yuan. What glues everyone to the dollar is a combination of an incredibly powerful banking vortex in New York City and America’s massive economy, not the medium on which dollars are printed.

So the Federal Reserve should be in no rush to go first. It may even have good reasons to be last.

Risky business

A classic strategy in bicycle racing is to let others lead. The burden of breaking wind resistance falls on the leaders while followers conserve energy. This same analogy applies to traveling down the risky road to CBDC.

To begin with, we don’t know what the effects of issuing a CBDC might have on the traditional banking system. Some economists worry that it will magnify banking runs during crises as panicking depositors flee banks into 100% safe central bank digital currency.

See also: Igor Mikhalev and Kaj Burchardi – Central Bank Digital Currencies Need Decentralization

Nor do we know if the public even wants a new payments system. Finland’s central bank introduced the Avant smart card system in the early-1990s, but it didn’t survive. This presaged the ensuing failure of smart card-issuer Mondex in the late 1990s. A CBDC flop could undermine confidence in the most important thing that a central banker like Powell does, monetary policy.

America already has fast payments

Some of the stated benefits of CBDC aren’t all they’re cracked up to be. For instance, Christopher Giancarlo, head of the Digital Dollar Project, has suggested that a CBDC would offer Americans a “new choice” of transacting instantaneously, one that could have improved on America’s awkward $1,200 coronavirus relief campaign from earlier this year.

But America doesn’t need a CBDC for instant relief payments. New networks such as Zelle, MasterCard Send, Visa Direct, and The Clearing House’s Real Time Payments system are all blanketing the U.S. with real-time, domestic, person-to-person payments. The Fed’s own FedNow project, slated to arrive in 2024, will add to this capacity. On the international front, companies like Transferwise and Western Union are already doing real-time remittances from the U.S. to places like India, no CBDC required. And Swift’s gpi is speeding up corporate cross border payments.

A PR minefield

The list of obstacles continues. Up till now, the Fed hasn’t had to interact with the public. With a CBDC it would have to devote resources to understanding fickle consumers. What features do they want? How to market the stuff? 

Serving consumers means setting up helplines and customer support. What happens with fraud or mistaken payments? Will the Fed reverse them? Reimburse them? If so, it will have to build up an expertise in dispute resolution. What happens the first time someone asks for a ransom in CBDC? Will the Fed freeze the payments?  

Designing and maintaining a retail-facing payments system would be a political minefield. Libertarians would want anonymous transactions while the FBI would clamor for traceability. Progressives would want financial inclusion to be maximized while Republicans would call for a minimum national ID requirement to block out immigrants. The Fed already has a complicated relationship with Congress. Why compound the problem?

See also: JP Schnapper-Casteras and Misha Guttentag – The US Risks Getting Left Behind on CBDCs

Given all these complications, the prudent choice is to let the others go first. Join the discussion over CBDCs. Be loud. Issue white papers and hold conferences. 

But do so mainly to egg the others on. Let Europe, Sweden, the U.K. or Canada become guinea pigs for this new technology. Then closely monitor the many political, legal, and technological problems these early adopters inevitably encounter. If these problems prove intractable, then the Fed should avoid CBDC altogether. If not, think about ways to solve these problems. By going last, the Federal Reserve has the benefit of the most information.

But at all costs, avoid being the first.

The problem with a game in which no one wants to go first is the game never gets going. If CBDC is ever going to happen, it needs some reckless first movers.





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MicroStrategy Buys Additional 13,005 Bitcoin for $489 Million

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With the current BTC price, MicroStrategy’s total Bitcoin holding is worth more than $3.4 billion.

MicroStrategy Inc (NASDAQ: MSTR) has continued its Bitcoin acquisition spree as it has purchased another $489 million worth of BTC. As of the 21st of June, the Nasdaq-listed business intelligence company holds 105,085 Bitcoins.

The company announced its latest Bitcoin acquisition earlier today. According to the company, the newly acquired BTC totaled 13,005 at an average price of about $37,617, fees and expenses included. The purchase came after MicroStrategy generated $500 million in cash from the sale of debt to fund the purchase of BTC.

Before MicroStrategy purchased the most recent Bitcoin, the company had unveiled plans to buy Bitcoin in a filing with the US Securities and Exchange Commission (SEC). In the filing, MicroStrategy said it would be selling up to 1 billion of its class A common stock through an “Open Market Sale Agreement” with Jefferies LLC. The company added that proceeds from the stock sales would be used to buy more Bitcoin. MicroStrategy explained:

We intend to use the net proceeds from the sale of any Class A common stock offered under the prospectus for general corporate purposes, including the acquisition of bitcoin, unless otherwise indicated in the applicable prospectus supplement.

MicroStrategy Focuses on Bitcoin Acquisition

In addition, MicroStrategy has made Bitcoin acquisition a focus for the company. The company said that it mainly pursues two corporate strategies. Apart from growing its enterprise analytics software business, a major strategy for the company is to acquire and hold BTC.

In the SEC filing, the Nasdaq-listed company added that it is currently seeking opportunities to implement Bitcoin-related technologies like blockchain analytics into its software offerings. Also, the company intends to hold its Bitcoin holdings long-term and not engage in regular trading.

MicroStrategy became the first publicly-traded company to buy Bitcoin in August 2020. At the time, the company bought 21,454 BTC worth $250 million, making BTC its primary treasury reserve asset. When MicroStrategy made its initial Bitcoin purchase, BTC was trading at $11,653 per coin. This means that the price of Bitcoin has surged about 5 times since the first purchase.

After debuting into the crypto space in August last year, MicroStrategy had purchased more and held more than 90,000 BTCs before its latest acquisition, announced on the 21st of June.

At the time of writing, Bitcoin is hovering around $33,000. With the current BTC price, MicroStrategy’s total Bitcoin holding is worth more than $3.4 billion. According to MicroStrategy, its new subsidiary – MacroStrategy, manages about 92,079 BTC of its coins.

MSTR stock is currently at $595.79, a 7.64% decline over its previous close of $646.46. The company has grown nearly 403% in the last twelve months and 53.57% in its year-to-date record. In addition, MicroStrategy stock has gained more than 26% over the past month. However, MSTR has shed 17.65% over the past three months and has dropped 0.30% in the last five days.

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Ibukun is a crypto/finance writer interested in passing relevant information, using non-complex words to reach all kinds of audience. Apart from writing, she likes to see movies, cook, and explore restaurants in the city of Lagos, where she resides.



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Wise Fintech to Go Public via Direct Listing on London Stock Exchange

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In the future, Wise plans to roll out OwnWise, a client shareholder program that will allow its users to own a stake in the company.

British fintech Wise, formerly TransferWise, announced Thursday its plans to go public via a direct listing on the London Stock Exchange (LSE). The money transfer company said it had sufficient funding and therefore, did not require underwriters or issuing of new shares.

Wise will pioneer direct listing in London, a deal which will be finalized on July 5. Sources speculate the listing could value Wise at anywhere between $6-7 billion, up from its latest $5 billion valuations. This would also make it one of the biggest floats this year.

Founded in 2010, Wise has managed to accumulate 10 million customers who use its services to send £5 billion ($7 billion) every month. Its rivals include Western Union and MoneyGram in addition to startups like WorldRemit and Revolut.

Since 2017, Wise’s track record shows consistent profitability with a 54% annual growth rate. The latest 2021 fiscal year report shows it made £30.9 million in profits out of the £421 million ($589 million) sales revenue. This year, the company’s payments app registered £54.4 billion of international transfers for 6 million clients.

Wise Listing on LSE

Listing the giant company is a great accomplishment for London as it competes with “The Big Board”, New York Stock Exchange Group (NYSE), to attract more high growth and Blue-chip firms. As of 2020, the NYSE had 2800 company stocks and its market cap as of June, 2021 was $24.68 trillion. LSE, on the other hand, has listed over 1300 companies and its market cap is at 40.08 from today’s MarketWatch data.

To further this development, the British government is considering increasing leniency in firm enlisting guidelines to encourage issuing of dual-class shares. However, European stock markets have been hit with a lot of volatility this year, with at least two IPO cancellations in recent weeks.

The dual share structure is what Wise is opting for as it allows them to retain voting control while accommodating investors and customers into their shareholder base. At present, however, it locks them out of the lucrative Financial Times Stock Exchange (FTSE) indices.

Nevertheless, the company intends to issue both class A and class B shares with the latter holding the privilege of 9 votes per share. The expiry for Class B shares is in the fifth year following Wise’s IPO. It is likely for concerns to arise over this structure as it may give executives excessive influence on shareholder votes.

In the future, Wise plans to roll out OwnWise, a client shareholder program that will allow its users to own a stake in the company. Financial endeavors for the company are advised by Goldman Sachs, Morgan Stanley, Barclays and Citigroup.

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A financial analyst who sees positive income in both directions of the market (bulls & bears). Bitcoin is my crypto safe haven, free from government conspiracies.
Mythology is my mystery!
“You cannot enslave a mind that knows itself. That values itself. That understands itself.”



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JPMorgan Acquires Nutmeg Robo-Advisor, Furthering UK Retail Banking

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Before the deal, JPMorgan and Nutmeg had partnered late last year to offer clients an assortment of globally diversified exchange-traded funds (ETFs).

JPMorgan Chase & Co (NYSE: JPM) said Thursday it has closed a deal to purchase Nutmeg, an online investment management service, for an unnamed price. US biggest bank hopes the agreement, which awaits regulatory approval, will complement its launch of a standalone digital bank brand in the UK during the year.

Using the latest technology from Nutmeg will help boost JPMorgan’s retail and institutional push since the company aims at establishing as many branches as it can outside the US.

With over £3.5 billion (4.9 billion) worth of assets under management, the decade-old Nutmeg is one of the UK leading and award-winning robo-advisors. The company offers various investment accounts including Individual Savings Accounts (ISAs), general investment, and pensions accounts.

Additionally, its competitors include Wealthsimple, Moneybox, and Moneyfarm. Before the take-over, Nutmeg had raised over $150 million in investments from Goldman Sachs and the British venture capital firm – Balderton Capital.

JPMorgan CEO Jamie Dimon stated last year that the banking giant would be “much more aggressive” in adding assets by conducting more acquisitions. The bank may also be stepping up to competition from adversary Morgan Stanley (NYSE: MS) which, in recent years, has spent $20 billion in merger agreements with E-trade and Eaton Vance.

Dimon also mentioned leveling up against blue-chip tech firm Alphabet Inc (NASDAQ: GOOGL) and other fintech firms such as PayPal Holdings Inc (NASDAQ: PYPL).

JPMorgan Stock Market and Nutmeg Acquisition

Before the deal, JPMorgan and Nutmeg had partnered late last year to offer clients an assortment of globally diversified exchange-traded funds (ETFs). This is not the first time the bank has partnered with a company then acquired it later. In October 2020, JPMorgan partnered with 55ip, a tax-smart fintech start-up, then bought it a couple of months down the line.

Differing regulatory guidelines in Europe and the UK made it necessary for JPMorgan to purchase the robo-advisor, rather than use investment technology available in the US. However, its US-based investment service You Invest is currently doing well, with assets valued at about $50 billion, as Dimon states.

JPMorgan’s tech initiative marks one among many happening in Britain’s retail banking sector. Banks such as Revolut, Starling, and Monzo manage digital-only checking accounts which have attracted a host of clients. Going by data from Innovate Finance, FinTechs in the UK probably make up the world’s largest markets, having pulled in $4.1 billion investment from venture capitalists as of last year.

JPMorgan Securities served as financial advisor in the JPMorgan-Nutmeg transaction, while Freshfields Bruckhaus Deringer acted as legal counsel. Arma Partners was Nutmeg’s financial advisor and Taylor Wessing was legal counsel.

As of June 17, 2021, at 7:59 p.m. EDT, JPMorgan stock closed at $151.76, down 2.89%. In the after-hours session, it was trading at $151.48, down 0.18% in 24-hours.

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A financial analyst who sees positive income in both directions of the market (bulls & bears). Bitcoin is my crypto safe haven, free from government conspiracies.
Mythology is my mystery!
“You cannot enslave a mind that knows itself. That values itself. That understands itself.”



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