A weekly five-point overview of critical events in fintech, the future of finance and the next wave of transformation in the banking sector.
The Bitcoin ETF could finally happen
What happened: Long a hope of both institutions looking to profit from crypto and individuals looking to justify their bet on a new kind of financial tool, the Bitcoin ETF has gone from a long shot to a real possibility thanks to the backing of a handful of huge companies.
Why it matters: The “white whale of the mutual fund industry” is not just about raising the price of Bitcoin, although it has and likely will. Invesco and WisdomTree filing again with the SEC, and BlackRock filing its own while Grayscale fights a lawsuit that could legitimize its own effort, has created enough momentum that insiders are now talking about an ETF that can hold Bitcoin as a ” when” not an “if”.
What’s next: Wait, of course. But more importantly, it remains to be seen whether BlackRock’s unique features that enable Nasdaq visibility on its trading platform will be the argument that pushes this concept over the edge. (By Joe Light, Barron’s)
Another private FinTech is being revalued and the numbers are not pretty
What happened: A second venture capital firm has revalued its investment in British fintech Revolut. The result: a 40% reduction in value.
Why it matters: Public investors can see the damage done to payment startups and other fintechs. The companies that remained private during the SPAC boom, especially Stripe, had to wait for a capital raise or a revaluation before anyone really knew what the bursting bubble had done to their valuation. Affirm lost 85% of its value and then laid off 20% of its staff. Revolut and other private fintechs like Klarna may soon have to follow suit.
What’s next: More uncertainty. You could say that Revolut is a special case: part of its revaluation is the result of the constant waiting for a banking license in its home country. But even with that license, clear skies aren’t guaranteed, as evidenced by the struggles of its competitors. (By Siddharth Venkatarakrishnan, The Financial Times)
The kids are doing well (with far more finance apps than anyone ever)
What happened: Almost every popular financial or banking app that exists for adults now has an option for teens. Teenagers want freedom, parents want security, and the companies want to bring in customers as early as possible.
Why it matters: Brand loyalty is a well-known concept. What’s less well understood is what happens when brands start collecting customers before they even qualify for their driver’s license. Which means relatively obscure startups like Greenlight ($400 million saved by teens) could suddenly be competing for assets under management with stalwarts like Fidelity (numbers undisclosed as of yet but reportedly growing).
What’s next: A whole lot of worries. Savings accounts are one thing, but teens transacting introduce a whole new set of concerns for parents. As it should. (By Oyin Adedoyin, The Wall Street Journal)
Did a court ruling just destroy the dream of decentralized finance?
What happened: Decentralized finance, DeFi, was one of the biggest buzzwords to emerge from the latest crypto rally. But a federal judge just issued a ruling that identifies a DAO, or decentralized autonomous organization, as a “person.” That could be bad news for proponents.
Why it matters: Part of the appeal of DAOs and DeFi in general has been anonymity and autonomy. This is the second court ruling in a row that forks both concepts. A judge recently said that anonymous DAO members could be served in court by, no lie, a chatbot. That put a brake on anonymity, as it forced those members to respond to the court. Now comes this ruling, which suggests that if something goes wrong in a DAO (which often happens) someone will be held accountable.
What’s next: Insecurity. Markets hate uncertainty. “Other organizations claiming to be decentralized and challenging mainstream financial institutions with promises of fairer and cheaper options could be subject to the same regulations in the future, potentially discouraging investment in the defi space.” (By Charles Gorrivan, American banker)
Are we ready for another round of fintech IPOs?
What happened: The IPO window has been frozen for the past year or so. Morgan Stanley thinks it could thaw, but only for a very specific type of business.
Why it matters: With private fintechs seeing their valuations cut in half, or worse, public markets, brutal as they are, are becoming more attractive. But they don’t accept just anyone. “The data tells you that investors for technology companies want a company that has, call it, $200 million or $250 million plus in actual revenue – not annual revenue. Compare that to during COVID, when companies with an ARR of less than $100 million went public.
What’s next: “I’m an optimist — so I’m optimistic that you’re likely to see something this year. If someone had said early this year that you get a new company with a market cap of $1 trillion, everyone would have said no. Now there is Nvidia.” (By Lucinda Shen, Axios)