Kiffmeister’s #Fintech Daily Digest (01/13/2021)*

ECB digital euro consultation ends with record level of public feedback

The European Central Bank (ECB) concluded the digital euro public consultation that was launched in October 2020. 8,221 citizens, firms and industry associations submitted responses to an online questionnaire, a record for ECB public consultations. An initial analysis of raw data shows that privacy of payments ranked highest among the requested features of a potential digital euro (41% of replies), followed by security (17%) and pan-European reach (10%). The ECB will publish a comprehensive analysis of the public consultation in the spring. 

Jean-Michel Godeffroy on Central Bank Digital Currencies

The risks of issuing CBDC relate mostly to the lack of information about the latent demand for CBDC. If this demand is very low, for example because deposit insurance has blurred the difference between private money and central bank money, then central banks run a reputation risk in investing energy and money in a project with no future. If, on the contrary, demand for CBDC is very high, it would trigger bank disintermediation which could ultimately create financial stability problems and possibly impact on economic growth. This explains why central banks are very prudent! The risks of not issuing CBDC is the risk of leaving the payment system entirely in the hands of the private sector, and to rely only on regulation and supervision to solve competition and efficiency issues. 

Walmart/US fintech: all-American Ant

In 2007, Walmart withdrew an application for an “industrial bank charter” that would have allowed it to lend money and back deposits with a government guarantee. Opposition from banks and credit unions had been too fierce. They claimed a Bank of Walmart could pose systemic risks in the financial sector. Now they’re taking another crack at it by partnering with venture capital firm Ribbit Capital to create a new fintech firm. Details are scant. But the timing is noteworthy. The Federal Deposit Insurance Corp, which backstops bank deposits, has just approved new rules that will make it easier for non-banks to get into banking. 

FinCEN’s Crypto Rules Aren’t as Unfair as Jack Dorsey Says

Over the last few weeks, the U.S. Financial Crimes Enforcement Network, or FinCEN, has been inundated with 7,477 angry comments about a rule change it proposed just before Christmas. They are upset not only about the reduced usability and less privacy with the new rule, but they also claim it creates a double standard between crypto transactions and legacy cash transactions that occur between financial institutions and individuals. But JP Koning disagrees, But I disagree with these claims about unfairness – crypto-assets are merely inheriting the same regulations that already apply to other forms of money transfer. 

DeFi is Paving the Road for ‘Self-Driving’ Banks, Says OCC Chief

Brian Brooks, Acting Comptroller of the Currency, argued that decentralized finance (DeFi) could pave the way for a kind of “self-driving bank.” With a set of new regulations in place, he says that national bank charters might one day be granted to DeFi protocols. DeFi protocols are automated, algorithmically-governed money management systems that essentially skip out on the need for human moderation in financial services and products. 

Visa drops planned acquisition of Plaid after DoJ lawsuit

Visa has called off its deal to buy fintech start-up Plaid for $5.3bn after the US Department of Justice sued to block the transaction on antitrust grounds. Plaid makes software that allows banks and fintechs to plug into consumers’ various financial accounts, enabling those companies, with users’ permission, to aggregate spending data, look up balances and verify other personal financial information. Visa denied it had been trying to eliminate a potential competitor but said it wanted to avoid “protracted and complex litigation”. 

Tether’s Paolo Ardoino and Stuart Hoegner do a podcast

Avid bitcoiner Peter McCormack released a podcast interview with two Tether/Bitfinex frontmen today—CTO Paolo Ardoino and General Counsel Stuart Hoegner. McCormack is a well-known Tether apologist whose podcasts are funded almost exclusively by bitcoin companies. Tether is also paying his legal fees in a libel suit brought against him by Craig Wright. Despite that, McCormack claims to be completely objective, although he makes it clear he believes all the “Tether FUD” circulating on Twitter stems mainly from “salty nocoiners,” who are upset because everyone is getting hilariously rich with bitcoin but we’re not. 

Record Breaking Year for UK Crowdfunding

According to Equity Crowd Expert, 2020 was a gangbuster year for UK crowdfunded securities offerings. In total, £332 million was raised, led by Crowdcube and Seedrs who are in the process of merging operations and who were responsible for 90% of the offerings. 433 campaigns were funded, versus 2019’s 403 offerings. Crowdcube and Seedrs shared the market almost equally with Crowdcube booking the most funding and Seedrs listing the slightly more offerings. Offerings received a bit of a government boost via the Future Fund that supported 11% of offerings during the year. 

Institutions Suck at Trading Crypto

When it comes to trading cryptocurrency, institutional investors tend to underperform individuals on a risk-adjusted basis, new research shows. Part of the reason for less-than-stellar performance for both institutions and individuals, is that neither have particularly diversified cryptocurrency portfolios. Using trading data from December 2017 to August 2019 from an anonymous Hong Kong crypto exchange, the researchers found that, on average, institutions hold just four currencies, focusing on Bitcoin and Ethereum because that’s where the liquidity is. Institutions trade more actively on the exchanges than their individual peers, averaging 32,614 trades per month. The average retail investor traded 464 times. Institutional crypto portfolios on the exchange also tended to be small compared to overall investment holdings, suggesting they are still “reluctant” to put money to work in cryptocurrency. 

SPAC Mania Gives Early Investors Steady Returns With Little Risk

Some of the biggest players in finance, particularly hedge funds, are making a killing by investing in special-purpose acquisition companies (SPACs). Hedge funds give the SPAC money for up to two years while it looks for a merger target. In return, they get a unique right to withdraw their investment before a deal goes through that minimizes any loss on the trade. At the same time, the potential return for early investors is huge if the SPAC shares rise because they also initially receive shares and warrants giving them the right to buy more shares at a specified price in the future. 

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.