Don't be afraid, Wall Street.
While this week's liquidation of stocks has been marked, the S&P 500 is still up 34% from its March 23 nadir on Friday morning. In other words, the US fiscal and monetary stimulus efforts on COVID-19 continue to strongly favor hedge fund managers, bankers and business leaders. Meanwhile, while inventories have posted a record rally, 115,000 Americans died of a pandemic that has forced 38 million others to file unemployment claims.
This is not only fundamentally unfair, but it also highlights how our current capital market system coarsely affects resources. Bankrupt companies with disastrous long-term prospects - see Hertz, below - are rescued while small businesses and startups working on solutions to our economic and public health unrest are lacking.
It's time to talk about another capital allocation mechanism, which is not biased by the stock market. It's time to review the ICOs.
A different approach
First, a certain level: the boom in the ICO 2016-2017 was an abomination. Overflowed with scams, ill-defined business plans and hype, the initial coin supply bubble reminded why securities regulation exists: make fundraisers with asymmetric information accountable and protect investors against their abuse.
But the symbolic boom has sparked valuable thinking off the beaten track. We have to tap into it now.
ICOs were presented as a way for innovators to access a larger funding pool and for retail investors to earn the kind of returns otherwise reserved for privileged insiders. Startups, it has been said, could now bypass the venture capitalists who decide who will be funded and who will receive the gold price of an initial public offering, while symbolic investors might that these VCs at 100x payments boast.
Disintermediation of Silicon Valley and Wall Street opened the way for an open market of ideas, have proclaimed the ICO fans. Yes, there would be losses, explosions and scams. But in its roundabout way, it would ultimately allocate resources where the economy needed it most: to innovators.
These voices were calmed by the bursting of the bubble in 2018. But the current state of the American financial markets demands that we reconsider some of their arguments - if not to resuscitate the faulty ICO model than to think about reforms. related regulatory issues that solve Wall Street problems. model.
After all, the transfer of wealth from ordinary Americans outside the system to the privileged few has been much more significant in the past two months than anything that has happened in the token markets.
For most of the 20th century, this system reasonably served as an engine to monetize American ingenuity and finance economic development. But, over time, mainly due to the excessive political clout that Wall Street has accumulated, it has incorporated perverse incentives that discourage innovation.
Part of the problem comes from our political culture. The dominant narrative fueled by media like CNBC and by Dow-obsessed political leaders like Donald Trump positions the stock market as the doppelganger of the American dream. With elites so invested in the market, both economically and politically, it is not surprising that the COVID-19 bailouts were designed to support it.
But it is also structural.
Think about how the quarterly "results season" sets the standards. The rewards for everyone involved - Wall Street profit forecasters, ROI-obsessed fund managers and business leaders and, by extension, their middle managers' bonuses - depend on "beating the figure ”every three months.
It is not conducive to taking bold bets on innovative strategies that take much longer to develop. Consider the problem of "frozen assets". Most pension funds continue to hold large stakes in carbon-intensive companies such as oil and gas producers, although in-depth analyzes suggest that they will be of no use in the retirement horizon. longer term of most of their members. It is difficult to get rid of the drug from the quarterly returns.
(An experience of tangential thinking: quarterly business reports are a byproduct of centralized and compartmentalized accounting systems in which accountants and auditors must reconcile records and write periodic financial snapshots. What would happen at quarterly rates of Wall Street if these reports become obsolete, and if all counterparts in a particular supply chain or economic ecosystem haverather contributed to a single ledger distributed with an openly available snapshot but protected from the privacy of all transactions in real time? Such models are not possible now, but blockchains and knowledge-proof developers put them in the realm of imagination.)
What works and what doesn't?
To imagine an alternative, think back to 2018 when token prices were falling, the ICO market was drying up and "Crypto Winter" was taking hold. and which should be dispelled.
We have to revive it.
For example, security token offerings, which require regulatory deposits but can integrate smart contracts that traditional stocks and bonds can't, is a better way for startups to finance themselves?
STOs have been burning for a brief period after the ICO and have lost momentum since it was clear that the regulatory framework, compliance and technology still had a long way to go. But there seems to be renewed interest, with the Polymath and Securitize transmitter platforms both making technical advances. One can imagine that the recent merger between Galaxy and Bakkt also turns to security token services for institutional investors.
Can we also agree on what are legal utility tokens and best practices for marketing them? If, as the “Hinman Doctrine” suggests, a token may cease to be security if its network evolves towards a more decentralized state, what is the appropriate framework for the issuers of tokens to remain compliant throughout this evolution towards utility status? How can they remain compliant at the start but have a way to achieve the desired network effects of a decentralized token system?
And how to facilitate small investors to buy and sell tokens legally and safely?
The rules relating to accredited investors are outdated, favor the same set of privileged wealthy players and unreasonably restrict access by the general public. Meanwhile, U.S. restrictions on a multitude of crypto exchanges prevent ordinary Americans from entering a market intrinsically designed for little guys.
Regulation is both inevitable and necessary. But it must absolutely not function as a protective armor for a capital market system that harms the ability of our economy to optimize the allocation of capital.
At a time when the US economy needs innovative approaches to everything, we urgently need an innovative approach in the way we finance innovation.
A phoenix rises ... and falls
For proof of our broken capital allocation system, look no further than the performance of Hertz shares. On May 24, the car rental company filed for bankruptcy after suffering massive losses due to COVID-19 travel restrictions, which had halted the industry's fleets. In response, Hertz's share price, which had already lost more than 85% from its two-year high in late February, plunged further, falling into penny stock territory at $ 0.56. But a strange thing happened: Thursday last week, Hertz started a three-day tear to reach $ 5.54 on Monday, a gain of 574%. A surge in trading activity by accounts listed on the Robinhood small investor trading app seemed to be behind this gain.
For many of these newcomers, the story did not end well. On Wednesday, the New York Stock Exchange notified the company of its delisting. Hertz is appealing the decision, but the announcement has returned the actions to earth. As of Thursday's close, the price was $ 2.06.
A common response to a caveat emptor would simply say that some greedy speculators have learned a lesson and that we can forget about it. But the reality is more nuanced. This kind of speculative craze is inseparable from the broader market sentiment, which is now consumed by a logic of "not fighting the Fed" on monetary stimulus. The Hertz mini-bubble was (indirectly) designed by central bankers.
What's your story, Bitcoin ? So far, June has been a frustrating month for bitcoin bulls . It is not only because a series of rallies offered false hopes, each vacillating near the psychologically significant level of $ 10,000. It is also because market performance has again confused efforts to define a narrative for bitcoin as an asset. After its sale of COVID-19 in early March, which challenged the idea of bitcoin as a refuge, the relatively strong rebound in bitcoin was explained in terms of currency issues. the Bitcoinwould then be described as an antidote to the "quantitative easing" of the fiduciary world, because the Federal Reserve's stimulus efforts have led to the "Money Printer go Brrrrr" meme and bitcoin's own monetary policy "quantitatively tightened" via the reduction A half. But Thursday, the day after the Fed said it was "determined to use its full range of tools to support the US economy," bitcoinagain sold spectacularly. After organizing another frustrating rally at just over $ 9,900, he plunged to an intraday low of $ 9,108.47. Above all, this was in line with a large unwinding of American stocks while concerns were growing around new cases of COVID-19.
So, is bitcoin just a "risky asset", moving up and down with investors' appetite for global risk? It's unclear. Having a more consistent history would make it easier to make an investment for bitcoin . But maybe the lesson is that we shouldn't be looking for a story. Don't try to pigeon him. Bitcoin simply is.
We have set the table for you ... The failure of a significant price breakthrough is sufficient proof that the long-awaited arrival of institutional investors in the crypto markets remains unsatisfied - regardless of the optimistic comments of Paul Tudor Jones or Bloomberg about bitcoin . But that hasn't stopped the big players in the crypto industry from continuing to create services for institutions when they finally show up. Three separate companies - Genesis (a sister company of CoinDesk), BitGo and Coinbase - haveestablished crypto prime brokerage services, which leverage deep balance sheets and market connections to provide assured liquidity and profitable order routing to institutional investors. Meanwhile, Galaxy and Bakkt have teamed up to offer specialized cryptographic custody and trading services to the same types of players. In a statement, the companies have described as a "white glove service" the kind of business that does everything with a tailored service to its customers. So there you have it, the institutions, the price is right, the butlers are waiting for you. What else do you need? Jump in. The water is fine.
Go for a bike ride, get it done. Those of us who are obsessed with privacy - like Money Reimagined does from time to time - may be frustrated by an apparent lack of concern about it among the general public. That is why it is important to humanize it, to show the real impact of privacy breaches on people's lives. Enter Peter Weinberg. Thanks to a date error in a public service announcement by the police and to some overzealous users of the Strava bicycle location app, a Twitter crowd mistakenly reported Weinberg as the instigator of a rather ugly incident. A viral video had previously shown a different man on a bicycle accosting two young girls who were posting flyers in support of George Floyd on a trail in Bethesda, MD. cyclist, he wrongly used June 1 as the date of the incident. This tweet has been shared 55,000 times. He then corrected the tweet to say June 2. But it has only been shared 2,000 times. You can piece together what happened. A Strava user must have looked at the data on the site, found what was supposed to be a look-alike, linked it to Weinberg's associated social media profiles, put two and two together to find five, and then pulled it out. Weinberg's Twitter and LinkedIn message feeds linked them to Weinberg's associated social media profiles, put two and two together to find five, and then pulled it out. Weinberg's Twitter and LinkedIn message feeds linked them to Weinberg's associated social media profiles, put two and two together to find five, and then pulled it out. Weinberg's Twitter and LinkedIn message feedshave been bombarded with comments accusing him of being racist and abusing children. Surely that is not what he signed up for when he agreed to share information about his walks and exercise program with a friendly cycling community. A Strava user must have looked at the data on the site, found what was supposed to be a look-alike, linked it to Weinberg's associated social media profiles, put two and two together to find five, and then pulled it out. Weinberg's Twitter and LinkedIn message feeds havewas bombarded with comments accusing him of being racist and abusing children. Surely this is not what he signed up for when he agreed to share information about his walks and exercise regimen with a friendly community of cyclists. A Strava user must have looked at the data on the site, found what was supposed to be a look-alike, linked it to Weinberg's associated social media profiles, put two and two together to find five, and then pulled it out. Weinberg's Twitter and LinkedIn message feeds havewas bombarded with comments accusing him of being racist and abusing children. Surely this is not what he signed up for when he agreed to share information about his walks and exercise regimen with a friendly community of cyclists.