Does the currency of the future have a future?

Bitcoin’s success has been remarkable. Its most important characteristic, and what makes it different from money (USD or GBP for example), is that it is decentralized. No single institution controls the Bitcoin network. This puts some people at ease – as it means banks and government have no control over their money. Bitcoin is the Rocky Balboa of economics. During the start-up, one Bitcoin was valued around $35; now, it soars anywhere between $5000 to $6000 dollars. This being said, Bitcoin is incredibly volatile. Prices rise and dip considerably month to month, and sometimes day to day. In this week’s article, we will take a look at how bitcoin works, and see what experts predict of its future prosperity. Let’s see if Bitcoin can go the distance.

Bitcoin is a cryptocurrency monitored by a ledger. The ledger is available to be downloaded by anyone, and with it, you can see every account and every transaction ever made. If I want to buy a sofa from you and pay you 0.5 bitcoins, then the coins will go from my e-wallet to your e-wallet and this will be marked onto the ledger. This is available for everyone to see. Simple.

Although all records of transaction are in the public domain, each user remains anonymous. Transactions and accounts (E-wallets) are tracked by a number, and not a name. It would be impossible to trace an account to a person using the ledger alone. Although anyone can check the ledger, they cannot use it to link a transaction to an individual. But this anonymity comes at a price.

As all accounts on the ledger are mathematically coded, the ledger needs constant work to be kept up to date with pending transactions. When you pass money to someone, it creates a key which creates an e-signature from your personal wallet code and the recipients’. This mathematical key is unique and cannot be replicated.

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When you make a sale, everyone in the world’s ledger is updated with this new transaction, and everyone can match this transaction against the ledger. This keep Bitcoin secure.

Mathematicians will link pending transactions to past transactions, this way, everyone’s ledger agrees. Coincidentally, this is how Bitcoins are distributed to people. Someone links a transaction onto past transactions and is paid in Bitcoins. This allows for Bitcoin to be self-sufficient, and have no centralized authority, like the federal reserve to the dollar. This process is called data mining. In turn, no one can print money and Bitcoin is distributed by the system for updating the ledger. Bitcoin is safeguard by everyone, for everyone; and any person who owns a Bitcoin is a part of the Bank of Bitcoin.

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It sure is interesting to see how it works; and, even though it can be daunting understanding it at first – Bitcoin is a simple concept. The founder stated that once understood, it makes much more sense than centralized currency as it is maths. But how does it compare to hard currencies? And does it have a future in the way the world works?

Goldman Sachs made its position clear, they believe “gold wins out over cryptocurrencies in most of the key characteristics of money.” They compared the two in terms of durability, sustainability, intrinsic value, and unit of account. On the other hand, cryptocurrencies take up significantly less space – but new alternatives are being created every day. There is no competition when it comes to the value of gold, but there is to the bitcoin. Goldman rounds of their statement by pointing out that Bitcoin is dangerously volatile. The Bitcoin-to-U.S. dollar volatility on average was nearly 7 times that of gold this year (2017).

Frustratingly, there is not enough evidence to come to any conclusion as to how Bitcoin will do in the future. But the central question we need to bear in mind isn’t whether or not Bitcoin is a fad or has staying power, its whether Bitcoin has the potential to be the new gold. Whilst commentaries from Goldman’s state it does not, it is worth mentioning that they are in the process of building their own tech to help decrypt and data mine. This indicates that despite their comments, they still have some faith in the “currency of the future.”

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Henry James and James O’Leary do not hold any stake in Bitcoin.

 

 

 

Amazon’s hostile takeover

In my previous article we investigated the new strategy implemented by Starbucks in which they closed their online stores and force consumers to physically enter their stores to purchase something. This runs strictly against the business models of giants like Amazon who are happy to sell to consumers in the c omfort of their own home – epitomized by the launch of Amazon Prime – a same day delivery service on selected items bought on Amazon.

But what are Amazon (AMZN) doing in response to this apparent new culture of buying in store? In true Darwinian fashion, they strike back with their own vision of how consumers will be purchasing in the years to come through an appropriation of the semi-monopolized safeguarding market.

ffElectronic payments are a growing market. Traditionally, everyone had a bankcard that was linked to two providers – Mastercard (MA) and Visa (V). These two safeguard companies are well trusted by users and renowned worldwide as being safe, secure and trustworthy. Since the launch of the internet, new providers came along such as PayPal (PYPL) – who ensured a safeguarding through internet transactions. But the market seems to be shifting in another direction now, which will leave these companies in the rubbish-bin of history.

Moody’s Stephen Sohn and his team of analysts tell us that the electronic payments market is large, with plenty of new entrants. This poses a threat to current payment ecosystems of networks and cards. The potential interlopers include, but are not limited to: Alphabet Inc’s Google (GOOG), Amazon.com Inc. (AMZN), and Apple Inc (AAPL). The new goal is to create a gateway system that bypasses Visa and MasterCard’s safeguarding by doing it in-house. Alongside this, we are seeing a myriad of new entrants into the market. If this happens, we could see an even more centralised power from online companies.

We can infer two things from this shift. Firstly, the fact that there are new entrants into the market means that there is a market to be tapped into. This must mean that consumers feel more comfortable doing in house deals with companies than in the past. If there is more competition for roles that were traditionally accomplished by Visa and Mastercard, then it means people are not as suspicious as they once were – which is understandable – consumers often have a lot of faith in companies like Amazon and Google.

Secondly, that online companies are themselves pushing for easier trading on the internet – which is directly opposed to Starbucks’ (SBUX) vision of the future. If this market were tapped by online retailers, they could cut out costs making it cheaper and quicker to purchase online.

This being said, Sohn reports “material displacement of traditional electronic payment providers remains unlikely.” As we have established, Visa and MasterCard have near universal acceptance in the USA which will make them very difficult to dislodge. This may make it difficult for online companies to fulfil their ambition of securing their place in this market.

As a generalisation, tech companies such as Alphabet and Amazon subscribe to the philosophy “if you can’t beat ’em, join ’em.” So far, there have been collaborations between already existing safeguard mediums (Visa and Mastercard) and new-comers into the market (inc. GOOG and AAPL).

So, what can we make of all of this?

It seems that there is a heavy focus on consumer perception to predict the future of sales. Amazon are dependent on online sales to survive and cannot allow Starbucks, or any other competitor such as Nike, to create a social-trend where experience is crucial in the buying of goods. Their response to this is in creating better and easier ways to buy and sell online. Although Starbucks wish to create a new trend, online companies are building on an already existing one.

We will have to wait and see how consumers react to Amazon’s adaptation of buying online.

 

(Please note: James O’Leary does not currently hold a position in: Amazon (AMZN), Starbucks (SBUX), Nike (NKE), or PayPal (PYPL). Henry James International Management does not currently own a position in: Amazon (AMZN), Starbucks (SBUX), Nike (NKE), or PayPal (PYPL).

(Please note: James O’Leary currently holds a position in: APPLE (AAPL), VISA (V), and MasterCard (MA. Henry James International Management currently owns a position in: APPLE (AAPL), VISA (V), and MasterCard (MA).

 

Does Apple’s New iPhone Launch Signpost A Slowing Of America’s Economy?

 

iphoneWith stock indexes reaching an all-time high, the big tech stocks – FANGs (Facebook (FB), Amazon (AMZN), Netflix (NFLX), Alphabet (GOOG), and Apple (AAPL)) – may have lost their mojo. The most recent setback to one of the major tech companies is Apple (AAPL). According to Barrons, their new iPhone and Apple Watch are not going to meet sales expectations.

The exact reasoning for APPL’s plummet in sales is relatively unclear, but we can gather something from recent international trade relations. Firstly, China has been investing less in the American economy year by year. This is not of direct fault of APPL, but of China’s decision to cut down on outsourcing and invest more in its own domestic products. The price of copper also took a hit earlier this month due to China’s moderating demands which shows it is not a tech-centred issue.

It has also been evident that the iPhone 8 has been subject to slander on all social media platforms. Every time the Facebook and Twitter community decide they do not like a product, it has a direct negative effect on the sales of that product. It symbolizes that their clients are not happy with their products. APPL have since admitted having poor sales. They have also publicly acknowledged problems with their watch.

Of course, just because one tech company is underperforming, we should not begin to worry about the future of the American Stock Market. However, when FANGs struggle, we cannot throw caution to the wind. These stocks represent a large portion of market capitalization, and it most definitely will be a concern for the S&P 500 and Nasdaq.

On the surface, the American market seems strong due to stock prices chugging higher, regardless of APPL’s recent decline. But analysts are persistently pointing toward a low reading of Chicago Board options Exchange Volatility Index (VIX). The VIX, commonly understood as the fear index, signposts to us the volatility of the market. If it is low, then there is little fear of for investors looking to invest. The index is currently high. This means, although stock prices are rising, the market at any second could be volatile. Risks that were once safe, become high-risk. It makes for an uncomfortable climate that investors tend to avoid.

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Apple’s sales to China have underperformed, but this should not necessarily spook investors. It means that other regions will have to outperform expectations. It is possible that demand is coming from elsewhere, and that due to the September hit on the Copper industry, Apple realized China would underperform regardless, and thus changed their target location. In other words, lower sales to China is not directly related to the outcome of the market. We could see a resurgence of APPL shares shortly, when the iPhone is released.

According to Michael Khan, APPL and FANGs decline does not spell the end for the American market. It seems that in the current financial climate, the failings of APPL’s most recent product is being supported by other facets of the market. The market could remain stable, bearing in mind its normal fluctuations. Unless there is some major political shift in congress, or a major international confrontation – everything should level itself out.

(Please note: James O’Leary does not currently hold a position in: Amazon, Alphabet, Netflix, or Twitter; and Henry James International does not currently own a position in:. Amazon, Alphabet, Netflix, or Twitter)

(Please note: James O’Leary currently holds a position in Apple and Facebook; and Henry James International currently owns a position in Apple and Facebook ).