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What the New Force in Healthcare Means to Ethereum

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Call them the three new amigos of healthcare: Bezos, Buffett and Dimon shook the worlds of technology and healthcare on Jan. 29.  Together they are forming a separate company to do battle with high patient healthcare costs and unacceptable levels of patient satisfaction.  Everybody who read their cryptic announcement is speculating about who will be the winners and losers.  

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My vote is for Ethereum and maybe a few of the healthcare apps that are mounted on the Ethereum platform.  As risky as investing in any cryptocurrencies so far this year, here is why we think Ether holds the least risk in the healthcare reformation.

Healthcare: The Nightmare We All Know

We have all heard the disheartening figures. Healthcare in the United States is a disaster consuming over $3.5 trillion last year.  That is just under 20% of all goods produced in this country.  According to conclusions of the Peter G. Peterson foundation, the US spends more than twice any other nation but the outcomes are often no better.

That medical costs are out of hand is no surprise.  What is shocking is that in spite of things like the Affordable Care Act, costs continue to spiral faster than just about everything else increasing about twice as fast as the overall rate of inflation.

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Healthcare costs dwarf even the mammoth Defense budget at less than 4% of GDP.

Working Against The Odds

So far the efforts of Washington to make changes in the system have failed.  That is why the recent joint announcement by heavy hitters, Jeff Bezos, Warren Buffett and Jamie Dimon is interesting.  Among their three companies: Amazon, Berkshire Hathaway and JP Morgan Chase, there are nearly a million employees.  The plan is for top executives from each to form a new healthcare company using technology to improve patient outcomes while reducing costs.

You can bet any investment benefits will accrue first and foremost to company employees of the three amigos.  And of course, there is no guarantee  any real benefits.  But success could create opportunities that go beyond our ability to visualize.

As noble as the announcement sounded, very little detail is available and all parties in the new venture caution against expecting a quick fix.  That did not stop a selling wave in the leading healthcare insurers. This can only be interpreted as respect for the creative accomplishments of these three corporate leaders.

Ethereum Could Have A Quick Impact

It would be wise to view any new plan to need a development window of five or even ten years to be judged on its own merits and the challenges to success are formidable.  However the power of these three executives combined with some of the most obvious flaws in the current system, make the solution an attractive proposition for Ethereum and its smart contracts. Here is why.

Ethereum is not a solution to healthcare, it merely provides the plumbing for others.  That translates into potential demand that could develop even at the earliest stages. And then there are all those apps already using the Ethereum platform.

The Advantages of All Those Apps

The present practice of patient record keeping is part of the healthcare disaster.  For a long time patient privacy issues have encouraged medical records to be “siloed” in many different locations.  Blockchain technology offers a compelling solution to consolidating patient records without loss of privacy.  This is what Ethereum is all about.

The open source nature of the Ethereum platform offers a field day for virtually any medical app that could supplement the new company. That means more demand for Ether that drives the Ethereum platform.

Celebrity Endorsement

One line of thinking that makes sense is that major corporate backing of technology will bring much deserved awareness to the numerous startup companies whose apps provide solutions like video consultations with doctors that save time and cost.  Apps with smart contracts hold the potential to speed medical reimbursement.  

Federal and state governments that play a central role in reimbursements are ill equipped to evaluate new payment systems. But with an endorsement like Amazon, Berkshire Hathaway or JP Morgan, a new paradigm in social media takes place.

And Then Consider The EEA

Founded a year ago, the Enterprise Ethereum Alliance already boasts a membership of about 300 companies of all sizes and that includes JP Morgan.  The EEA mission is to bring together Fortune 500 companies with blockchain industry experts.  In addition to its membership, JP Morgan gained experience with Ethereum through a consortium of  Wall Street trading firms that tested the technology uncovered savings totaling billions.  If you want to become best friends with any corporate CEO start with saving them money.

Fact Or Fantasy

Some readers may look at these possibilities for Ethereum and scoff simply because of the very stubborn problems in controlling healthcare costs.  You can not be blamed if you fall into this camp.  At the same time with the sharp crypto price correction since mid December perhaps you can afford to look beyond the emotion of present day traders.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.3 stars on average, based on 24 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Ethereum

Ethereum: Building A Lead In The Marathon

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A lot of what is written these days on cryptocurrencies fits into one of three categories. The first is a description of the latest price moves up and down.  We all know how much drama there is and that makes good headlines.  

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Let’s call the second category the SegWit syndrome where we receive a description of the latest breakthrough in blockchain technology written from a developer viewpoint: hard to read and nearly impossible to understand.

In the third category is all of the other highly qualified writers and journalists that I have not already insulted.  Apologies to all.

For more than 30 years as a Wall Street analyst, hedge fund manager and Director of Research, my approach is to access things from an analytical perspective.  Technology is constantly changing the world but the things that make for long term business success pretty much stay the same.  That is why our bias tends to favor the crypto giants Bitcoin and Ethereum.

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Focus On Ethereum

By now it is probably no longer necessary to describe Ethereum’s open source blockchain platform that features self executing smart contracts.  Everybody knows that by now, right?

As a business person and investor, I am drawn to the leadership already created by Ethereum founders.  Say what you will about Initial Coin Offerings, but Ethereum accounts for over 80% of that market.  But that is just surface stuff because if ICO were to stop overnight, the demand for Ether would not end.

One of the forces behind this prediction is the Enterprise Ethereum Alliance which is now just over a year old.  Membership totals somewhere near 300 companies from JP Morgan and MicroSoft down to much more modest enterprises.  The mission of EEA is to bring together Fortune 500 companies with blockchain experts.  This is a great selling tool for Ethereum and as the list grows, so does their competitive strength.

Capital And Competition

To be successful, it is critical to always keep an eye out for what is going on around your business.  It is a well turned phrase that if a business doesn’t disrupt itself, someone else will. That takes capital. These days capital is flowing into crypto in many different ways.

The Weird Journey of Algorand

Venture Capital are dying to find a way of tapping into the cryptocurrency wave.  As we pointed out in a recent article, VC’s have been wounded by things like crowdfunding and ICOs and looking for about any action.  That is when I came across MIT’s Algorand blockchain project.  It raised $4 million in seed money from two VC’s.  Now $4 million is chump change but still it made me ask, what were they thinking?

Here is how CoinDesk described the project.  Algorand constitutes a digital currency and transaction platform.  It represents the latest effort to build a wholly new blockchain aimed at tackling some of the perceived governance issues associated with distributed systems.

The Professor Speaks

The head of the Algorand is MIT professor,  Silvio Micali. In addition to spending 30 years in cryptography he is also a Turing Award winner.  So obviously he is no slouch.  But apparently all these years in academia has depleted his appreciation for Econ 101 which states that everyone behaves in a way to optimize profits.  Professor Micali and the Algorand platform appears to be forgetting the value incentives for crypto mining.

At a recent conference Macali explained his attitude and the Algorand approach in this way. “We must use incentives as a last resort.” “ When you put incentives out there, people learn how to use those incentives for making money in ways that are nearly impossible to predict.”  Wow, that sounds a lot like creative capitalism.

Crypto Socialism

Micali believes that miners who have invested lots of dough in expensive equipment are dealing in trivial computations and do not need to be rewarded.  Instead the Algorand platform uses “validators” who in return for doing trivial computations will not have to invest in expensive equipment.  

Coindesk describes Algorand as the latest effort to build a wholly new blockchain system. The best guess on a release date is sometime in the next year. Taking that statement at face value out of respect for the author, at this time,  investors in Ethereum have little to be worried about from competition.  In the meantime Ethereum founder Vitalik Buterin is working on something call a DAICO.  It is intended as an improvement on the current Ethereum ICO process.  As we suggested earlier, when a tech company disrupts itself, it reduces the chances of being overtaken by others.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.3 stars on average, based on 24 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Lessons From Venture Capital Craziness

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Financial technology or Fintech is a white hot area these days and lots of folks are after a piece of the action.  The payments business is one huge area of opportunity even before counting cryptocurrencies. When the global economy generates more than $90 trillion in GDP, that means lots of money constantly on the move.  Trouble is, these days, it moves slowly and at a high cost.

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With that much at stake, there is no shortage of entrepreneurs with the next disruptive idea.  As an analyst and investor, it is hard to choose who knows their stuff.   Revulut got my attention and here is how it happened.

Venture Capitalists are wrong on about 95% of their investments but to put a valuation of this magnitude was quite unusual, maybe even a little crazy. The crypto buzz had a lot to do with Revolut’s capital raising success.

Last summer, Revolut founders Nikolay Storonsky and Vlad Yatsenko raised over $66 million in VC funding and another $23 million from Crowdfunding. That is serious money considering the company was scarcely a year old at the time with hardly any revenues.  This placed the implied value of the company between $200-$400 million.

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It would be easy to declare insanity in the ranks of venture capital.  An equally plausible conclusion is that a major source of risk capital has done their homework on crypto and has given their seal of authenticity.  Just something to keep in mind as the price of crypto is soaring and the word bubble comes up.    

About Them

The Revolut app allows customers to open a current account in under 3 minutes, and includes a prepaid contactless MasterCard debit card.  So far there is nothing unusual about Revolut. Sounds like about any other branchless bank.

The company marketing offers freebees like free international money transfers that could save users 3% so that is good.  Also there is free access to global ATM machines although no mention is made of what networks are included or their location.  

And there is one other caveat; the free ATM access ends when you withdrawn $250 in any month.  That is chump change for most people.  If you average closer to $500 per month at the ATM, you will want to select the Premium service.  That will cost $6.99 per month.

OK so not everything is really free but still $6.99 per month beats the $25-$35 charged by conventional banks.

Offering freebees can be a great way to attract customers but read the fine print before making any commitments.  In Revolut’s case you really have to dig into the details such as the limit of free ATM withdraw before little charges start to creep in.  And if you are an American here is the most puzzling detail taken directly from the company website.

“You can transfer money to banks in the United States using Revolut. However, if you are currently living in the United States, you cannot make a bank transfer from Revolut to your local bank account due to licensing restrictions.”  Something must have been lost in translation: what does this mean?

The firm launched personal international bank account numbers (IBANs) across Europe last summer.  So if you live in the United Kingdom or one a a dozen or so Eastern European countries, Revolut offers real value added services.  For the rest of the planet, not quite yet.

Since then they have begun integrating  currencies like Bitcoin, Ethereum and Litecoin.  Here is the sizzle to bring in new customers.  “Revolute will now be able to buy, hold and exchange Bitcoin, Litecoin and Ethereum in just 30 seconds at the best possible rates.”  There is a 1.5% fee for this service which is competitive with exchanges like Coinbase and others.

Revolut is adding other new services beyond cryptocurrency to lending and pay-as-you-go travel insurance at the tap of a button.  Altogether, not a bad business plan but it is the crypto connection that moves the needle.

VCs Depending On Experienced Management

Storonsky is more than a slick operator with a pretty pitch deck.  He and his partner have deep experience in the global payments business.  Nikolay spent years as a currency trader with Credit Suisse so he understands the level of fees charged by the current system.  

The technical wizardry, however, rests with his partner Yatsenko. Vlad spent over 10 years building financial systems for major Wall Street investment banks.  He serves as the company’s CTO.

Conclusion: Why Is Revolut Unique?

The global payments business has long been a gigantic oligopoly controlled by a series of networks, governments, banks and a group of oversized corporations such as Visa, MasterCard, Fiserv and others.  

Taken together it is like a mafia of financial behemoths interested in nothing more than keeping the status quo.  Perpetuating the system enables them to maximize the amount of fees for the mindless service of money transfer.  Revolut could be one of many disruptive forces but will it take $90 million to get them there.  Evidence shows the answer is most definitely no.  The cache of cryptocurrencies in the Revolut business mix has attracted Venture Capitalist and others to pay outsized prices for access.  Bravo for crypto investors everywhere.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.3 stars on average, based on 24 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Business

First Internet Bancorp: Breaking The Shackles

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Traditional bank stocks have been pretty boring until recently.  Yes, that is changing.  The prospects of a steeper yield curve could make for better earnings in 2018.  But if it weren’t for some of the exciting things to come along in financial technology, the S&P 500 financial index would still be stuck in the rut of underperformance.

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So let’s take a look at one of the early innovators that draw their roots to the small town of Fisher Indiana in 1999.  That was era of landline telephones and dial up Internet.

The Original Internet Bank  

So what makes First Internet Bank (INBK: NASDAQ) different?  For starters, they are the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank.

INBK does not have a conventional brick and mortar branch system. It operates through a scalable Internet banking platform.  That may not sound like a big deal since every bank around has mobile banking.

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Everybody in fintech wants to tap into branchless online banking but getting and FDIC charter isn’t so easy. It takes a huge amount of paperwork and lots of time to get approval.

Many startups like Simple attempted to enter the game acting as a broker for FDIC insured banks.  However, under banking rules growing out of the 2008 financial crisis, this proved a tuff road.  

So little old plane vanilla First Internet Bancorp has the key benefit of being an FDIC chartered and insured bank just like the big boys like Citibank and JP Morgan Chase but without the bricks and mortar branches.

INBK’s structure gives them nationwide reach. The implications for costs and customer acquisition being a major benefit.  Until more recently, however, capital limitations put the brakes on major expansion opportunities.  But now, things have changed.

What To Do With $150 Million

On August 8, 2017 INBK filed a registration statement for a $150 million secondary offering with all proceeds going to the company for “general corporate purposes.” Considering the market cap of INBK at the time was about $250 million, the offering was huge.  It substantially bolstered Tier One Capital.  That means for the first time in a while since the financial crisis that INBK could expand its deposit and lending base.

These days INBK’s balance sheet looks darn attractive with cash and deposits more than tripling since 2015 to $656 million and long term investments more than doubling to $2.4 billion.  INBK is exceptionally lean.  They have no long term debt.  When you add up all the fixed overhead like offices, computers and employees, it amounts to just a little under $15 million.  That, as they say, is chump change.  

Full Service Banking

INBK offers the usual assortment of commercial, small business, consumer and municipal banking products and services. They conduct consumer and small business deposit operations primarily through online channels on a nationwide basis and have no traditional branch offices.

Residential mortgage products are offered nationwide primarily through an online direct-to-consumer platform and are supplemented with Central Indiana-based mortgage and construction lending.

Consumer lending products are originated nationwide over the Internet as well as through relationships with dealerships and financing partners.

Commercial banking products and services are delivered through a relationship banking model and include commercial real estate (“CRE”) banking, commercial and industrial (“C&I”) banking and public finance.

A public finance team was established in early 2017, provides a range of public and municipal lending and leasing products to government entities on a nationwide basis.

Free At Last

In 2017 customers shelled out about $45 billion in fees to the banking industry in account service fees, check return fees, overdraft fees and more.  All of this was needed to cover the overhead of the bazillion bank branches.

In 20 years it is possible that 80% of all branches will be replaced by mobile devices. Perhaps there will be none at all.

With no branch overhead to cover, First Internet and others like them can offer appealing perks like free checking, no overdraft or bounced check fees.  That is a big selling point.

Customer Turnover Is Low In Banking

Customers hate those annoying fees but it takes a lot to get them to move.  Costs are often measured on the amount of marketing dollars needed to attract new customers.  There are many ways of measuring these costs so there is no single guide to the true cost.

One bank, BBVA placed the cost at $100.  Other estimates run as high as $145.  Both numbers include the cost of branches.

A study that I participated in several years ago placed the cost for an online bank as low as $50 per new customer.  The difference in these two numbers is just one reason why you should get excited about pure online banks.  First Internet Bank looks well positioned.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.3 stars on average, based on 24 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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