Spotify IPO: What You Need to Know About This Unusual Event

The initial public offering of Spotify, the music-streaming service, is almost here.

What is expected to be the largest tech IPO of 2018—it’s certainly the most anticipated—will likely take place in late March or April.

Spotify plans to list on the New York Stock Exchange—but there’s a catch. Instead of a traditional IPO that makes shares available to the general public, Stockholm-based Spotify will opt to directly list on the exchange, making its shares available only to institutional investors and eliminating the need for underwriters, a.k.a. the banks that set an initial price, connect sellers and buyers, and provide the cash necessary to stabilize the stock. Some people have already called it a “non-IPO.”

The move could shake up Wall Street. IPOs are usually a lucrative business for investment banks, but in the last few years revenues from equity capital market (ECM) fees have dropped.

Spotify paid just $30 million in ECM fees to three banks: Goldman Sachs Group Inc., Morgan Stanley and Allen & Co. Those institutions will perform some of the traditional tasks expected of them, but in a less prominent way.

Why the novel strategy? Spotify can buck tradition because, though it’s not yet turning a profit, it is earning cash, and it is not planning on raising more revenue from investors. Spotify, as measured by either its subscription service or its ad-supported free version, is the most popular music streaming service, according to the New York Times.

Commentators say it’s a good time for Spotify to go public. The company has 60 million paying subscribers, just renegotiated long-term licensing deals with three major record labels, and is valued at about $15 billion. (It is, however, facing a copyright suit from Wixen Music Publishing, filed in late December 2017.)

The Wall Street Journal says that due to other companies’ need for cash, “it is far from guaranteed” that more will follow Spotify’s lead. However, according to Bloomberg, Spotify “could create a new model for growth companies in which they raise all their money in private markets and do all their trading in public ones, with some small variations.”

Whatever the case, Wall Street will be watching.

Don't Stop at the Close: Selling Across the Full Customer Lifecycle

Recently, I went through the process of choosing a new SaaS product for my agency (out of respect for all involved, I’m keeping the name of the company and the kind of product they sell confidential).

I researched several providers and talked to sales reps from each – this was a big-ticket purchase, so I wanted to be sure I had as much information as possible. After a few weeks, I thought I’d made the right decision.

The problems started shortly after. My support tickets took an average of 3-5 days to get a response. I couldn’t get emails back from my “dedicated” account rep (who then bailed on one of our two hour-long onboarding calls and never responded to my requests for an update).

I felt let down. The product itself may have been the right solution for our needs, but the poor onboarding support I received left me with so much post-purchase regret that I wound up cancelling the contract and moving to a different provider.

The sale was lost, and it had nothing to do with the salespeople involved.

Why Selling Shouldn’t Stop at the Close

To be clear, I’m not talking about the trap of overselling – of continuing to pitch your product’s features and benefits after your prospect has agreed to buy. As Nick Kane of the Janek Performance Group notes on overselling:

“What this tells your customer is that you don’t ‘get’ them. Not only is this sales mentality out of date, it’s also one of the easiest ways to turn off your customer – and worse yet – risk losing any future sales opportunities.”

Instead, what I’m arguing is that, after the close, customer relationships shouldn’t be thought of as “done.” Closing a sale doesn’t guarantee a happy customer – let alone one who’s going to go on to refer your company to others.

A full lifecycle program of sales needs to take two factors into consideration: proper onboarding, and the conversion of customers into advocates.

Onboarding As Sales

I’d argue that onboarding – the activities taken after a purchase to get new customers up to speed – should be treated as part of the sales process.

Too many salespeople “pass the buck” after the deal is done, assuming that account reps, customer service or other pre-established funnels will help customers get from the point of purchase to the initial “aha moment.”

This ignores the fact that, during the post-purchase period, new customers are – consciously and subconsciously – evaluating whether or not they made the right choice. Research by Seung Hwan Lee and June Cotte of the University of Western Ontario, Canada, published by the Association for Consumer Research, suggests that there are actually four distinct types of post-purchase consumer regret:

  • Regret due to foregone alternatives (e.g. regret that one alternative was chosen over another)
  • Regret due to a change in significance (e.g. regret that the impact of the chosen solution isn’t as significant as expected)
  • Regret due to under-consideration (e.g. regret that too little time was invested in choosing between alternatives)
  • Regret due to over-consideration (e.g. regret that too much time was put into the decision-making process)

A poor onboarding experience can contribute to the first two types of post-purchase regret, which Lee and Cotte describe as “outcome regret” (versus “process regret”).

  • If customers aren’t trained appropriately or brought up to speed quickly, they may believe that a different alternative would have led to better results.
  • Similarly, if they aren’t shown how to quickly get value from their purchase, they may view its overall significance as being less than its actual potential.

If post-purchase regret is left unaddressed, both of these scenarios can lead to cancellations and refund requests (as in the case of the SaaS purchase I described earlier). Even if money isn’t lost as the result of poor onboarding, it’s missed indirectly when would-be happy customers aren’t converted into advocates for your company.

Selling the Referral

Brian Williams Ph.D. of The Brevet Group shares the following two statistics:

  • Salespeople who actively seek out and exploit referrals earn 4 to 5 times more than those who don’t.
  • 91% of customers say they’d give referrals. Only 11% of salespeople ask for referrals.

Basically, salespeople and the companies they work for benefit financially from referrals. But while most people are willing to give them, they’re rarely asked to. That’s an even bigger problem when you consider that Nielsen research has found that “people are 4 times more likely to buy when referred by a friend.”

“Referrals” can take a number of different forms, including everything from asking satisfied customers for referrals to others who would benefit, to a formally-structured peer-to-peer referral program like RewardStream or ReferralSaaSquatch.

The specifics of the program you put in place will vary based on your company’s needs, but at a minimum should include:

  • Sufficient onboarding to ensure new customers are happy with their purchases
  • A mechanism for separating out happy customers from those who aren’t likely to make referrals (this can be done with a simple NPS survey)
  • An incentive for customers to initiate a referral, which can be altruistic (as in, “If you know anybody else we could help…”) or benefits-driven (for example, “Refer a customer and save 20% off your next purchase…”) in nature
  • A process baked into sales to ensure referrals are asked for, and the specific elements of the referral process are evaluated often

Simply put, sales can’t be hands-off after the deal is done. Without attention paid to customers’ needs in the post-purchase phase of their lifecycle, the financial risk of returns, cancellations and missed referrals can be significant. Treating onboarding as part of the sales process and implementing a referral-driving workflow leads to happier customers and better results for your company.

Does your sales process stop at the close? If so, share your ideas for extending sales throughout the full customer lifecycle by leaving me a note below:

How the False Hawaii Missile Warning Could Have Happened

As the citizens of Hawaii came out of hiding in their bathtubs and basements Saturday morning, after learning that the emergency alert they had received, warning of an imminent nuclear missile attack, was a false alarm, their fear and panic transformed into rage.

“I’m extremely angry right now. People should lose their jobs if this was an error,” Hawaii State Representative Matt Lopresti told CNN.

Hawaii Senator Brian Schatz confirmed on Twitter that the alert, which said that a ballistic missile was inbound to Hawaii and urged people to seek shelter, was sent due to “human error.” The initial alert went out at 8:07 am, but it wasn’t until 8:43 am that the state sent a second alert, announcing it was a false alarm. Governor David Ige told CNN, “An employee pushed the wrong button.”

Could it really be that the emergency alert system is so simplistic, it only takes the twitch of a finger to send Hawaii into terror and chaos?

Photo courtesy Ashley Shaffer

Yes. During a press conference Saturday afternoon, the governor and officials at the Hawaii Emergency Management Agency confirmed that the blunder occurred during a twice-daily test that happens when staffers switch shifts. In this case, the staffer accidentally selected a live alert, instead of a test alert. After the alert went out, there was no way to automatically cancel or recall the message. Instead, they took to Twitter to tell the public the alert was a false alarm, but it took a full 38 minutes to manually generate and disseminate another corrective emergency alert that reached all Hawaiians. Officials said they’re now working on speeding up that feature.1

“We’ve already implemented some actions to speed up the process so the public would be notified faster,” Ige said.

The Integrated Public Alert and Warning System, or IPAWS, manages both the emergency alerts you get on your phone and the national emergency alert system, which broadcasts to television stations. According to Retired Admiral David Simpson, former chief of the FCC’s Public Safety and Homeland Security Bureau, the system uses a web interface with multiple servers that cache preloaded messages about different types of emergencies, from states across the country.

“It’s a regular PC interface. This person probably had a mouse and a dropdown menu of the kind of alert messages you can send,” and selected the wrong one, Simpson says.

In a statement to WIRED, the Federal Emergency Management Agency, which operates IPAWS, said it is working with local authorities and the FCC to gather “more details to understand how this occurred and how to prevent such occurrences in the future.” FCC chairman Ajit Pai tweeted that the commission is investigating as well.

Those pre-loaded emergency alerts, scary as they may seem, are necessary, says Thomas Karako, a senior fellow at the Center for Strategic and International Studies. “It’s critical we have this kind of early warning system.”

Simpson agrees: “You don’t want to be in the middle of a attack on the US and have someone fumbling around with the message.” It’s also natural to conduct exercises to ensure the system is functioning. The problem in this case, Simpson says, is any exercise message should begin with the words, “EXERCISE EXERCISE EXERCISE.”

“This was probably a state-run emergency exercise that doesn’t have the strong controls that DoD has learned the hard way from 50 years of screwing up,” Simpson says.

Where Were the Feds?

In the event of an actual attack, the first government agency to initiate an alert would be the North American Air Defense Command, or NORAD, which is located in a cave in the Rocky Mountains in Colorado Springs. Open 24 hours a day, seven days a week, its staffers—known as watch standers—monitor a global network of sensors that can detect a missile launch. If it detects a missile en route to Hawaii, NORAD would send a message to Pacific Command, which would in turn alert the state emergency management center.

That’s why, says Simpson, the biggest question of all may be what the federal government was doing after the alert went out. The Emergency Alert System, which predated Wireless Emergency Alerts, was created with the specific goal of letting the president communicate with the country in the event of a nuclear attack. The US has spent billions of dollars maintaining this system, and yet, 38 minutes went by before Hawaii sent a second message, acknowledging the false alarm. The president, or any of the federal agencies with access to the emergency alert system, could have corrected the record much sooner.

“We paid big bucks to the DoD and provide very good capabilities to the president to communicate directly to the nation. Where’s the accountability there for not piping up immediately?” Simpson says. “I think that’s going to wind up ultimately being the scandal. Where were they with all of this?”

In a statement Saturday afternoon, White House deputy press secretary Lindsay Walters put the blame on Hawaii. “The President has been briefed on the state of Hawaii’s emergency management exercise. This was purely a state exercise.”

While numerous questions remain about the federal government’s response, Hawaii’s excruciatingly long panic sends several clear messages about ways to improve IPAWS. Though all 50 states use it, not all local governments are part of the voluntary system, leaving some cities without a uniform way to alert their citizens of a local threat. And it’s possible not all emergency management centers are giving their staffers uniform, adequate training. In some cases, Simpson says, those emergency centers only staff up when a threat appears imminent.

“There’s nowhere near the professionalism there on the national security side of things,” Simpson says.

Perhaps the most critical issue this false alarm highlights is the need for a firewall between the test mode and live mode in the emergency response interface. In the DoD’s version of the system, Simpson says, that separation exists. It appears that was not the case in Hawaii. The Hawaii emergency management officials also noted the obvious need for a better way to recall accidental messages.

As terrifying as this false alarm may have been, experts say it’s critical for governments to continue to test these systems so that they’re adequately prepared if and when the time comes to use them. During the wildfires in California last year, several counties declined to send alerts for fear of sowing panic, and instead, left their citizens wholly unprepared for the fires’ spread.

“My big fear is this has been such a bad experience states will be afraid to use alerting now. But the opposite should occur. They should get in and conduct tests and exercises,” Simpson says. “But do so using the right controls.”

Louise Matsakis contributed reporting.

1Story updated at 18:45 ET on Saturday, January 13 to include information from the press conference.

China's cyber watchdog scolds Ant Financial over user privacy breach

SHANGHAI (Reuters) – China’s cyber watchdog has scolded Ant Financial, Alibaba’s payment affiliate, for compromising user privacy after many users of its Alipay service were automatically enrolled in its credit scoring system.

The Cyberspace Administration of China (CAC) said in a statement it had summoned Ant Financial representatives to a meeting last Saturday and told them they had failed to meet the country’s personal information security standards.

The rap over the knuckles adds to a tough start to the year for Ant Financial [ANTFIN.UL] which was recently blocked by U.S. regulators from acquiring MoneyGram International Inc.

It is also grappling with new regulations, requiring mobile payment firms to sharply increase the amount of client funds in interest-free reserve accounts, which will likely reduce profits.

Alipay has a popular end-of-year feature that allows its customers to analyze how they have spent their money over the year. At the end of 2017, the feature began enrolling users who wanted to look at their bills into the credit scoring system, Sesame Credit.

That allowed Sesame Credit to collect their data and share the analysis with its partners. Users could only opt out if they unchecked a button on the feature’s landing page.

Sesame Credit apologized last week and canceled the default option.

CAC said the company should “step up efforts to conduct a comprehensive investigation of the Alipay platform, carry out special rectifications and take effective measures to prevent similar incidents from recurring.”

It quoted Alipay and Sesame Credit as saying that they had learned a “profound lesson” from the incident.

Ant Financial did not immediately respond to a Reuters request for comment.

Reporting by Brenda Goh; Editing by Edwina Gibbs

Samsung is Betting Big on the Internet of Things. What Does That Mean For You?

Samsung is going all in on the Internet of things, betting that connected appliances and faster Internet speeds will result in happier customers.

Executives for the electronics giant, speaking at the 2018 CES technology show in Las Vegas on Monday, reconfirmed a vow made two years ago that all of the company’s products will be IOT-compatible by 2020—adding that 90% already are as of today. And it plans to use its existing SmartThings app to ensure that those devices can all talk to each other—from the TV to the phone to the refrigerator to the washing machine.

Samsung promised that the initiative would debut in the spring.

What that means for users will depend on which Samsung appliances they own, of course. One example is people who buy a new Samsung TV will no longer have to worry about entering user names and passwords for services like Netflix, Hulu, and Spotify when they initially set up their TVs. That information will automatically entered into the TV by checking other systems in which the customer is logged in, making it a more seamless experience.

TV sets will also have personalized recommendations for movies and shows, based on a user’s overall viewing habits on all their devices. TVs will also include Bixby, Samsung’s voice-controlled digital assistant, and will be able to double as a central hub for smart products around the home, letting users do everything from see who is at the front door to adjust the thermostat.

The goal of the push, says Tom Baxter, president and CEO of Samsung’s North American division is to create an “eco-system of devices working together to produce unique experiences.”

As part of the initiative, Samsung will expand the number of smart refrigerator models it sells by introducing 14 new models that come with its integrated screen and newly expanded FamilyHub technology that lets owners stream music, leave notes to each other, and view the contents of the fridge in real time. Through Bixby, the FamilyHub will differentiate between users’ based on their voices and give custom information to them, such as their schedule for the day or commute times to school or work.

“IOT is still frustrating to a lot of people, but it doesn’t need to be,” said Yoon Lee, senior vice president at Samsung Electronics.

Samsung’s not stopping with its own products, either. The company is working closely with the Open Connectivity Forum, the world’s largest IOT standardization body, to have all SmartThings-compatible products work with the app. And the company said it has signed an agreement with a “leading European auto manufacturer” to extend this IOT integration to vehicles (letting, for instance, people check if they’re out of milk as they drive by the store).

Samsung has previously tried and failed to make its ecosystem more connected. To ensure this effort is more successful, Baxter said, the company has invested $14 billion in research and development over the past year.

Google Is Struggling With Friendly Neighborhood Bike Thieves

Between 100 and 250 company bicycles are stolen from Google’s campus every week, out of a fleet of around 1,100 so-called Gbikes. Or maybe ‘borrowed’ is a better word than ‘stolen’ – it’s complicated.

According to the Wall Street Journal, the bikes wind up in odd places, like schools, tavern roofs, and Burning Man. The people who take them are often residents of Mountain View, the town that’s home to Google’s headquarters. They often view the bikes as a kind of community service, even though they’re ostensibly meant for Google employees to use on the Google campus.

Google has been trying to control its losses, using roving teams to collect the bikes from around town, and recently installing GPS trackers. That’s how they learned one had made it all the way to the Burning Man festival in Nevada.

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But according to comments to the Journal from Mountain View residents, the deeper issue may be mixed feelings about the corporate giant. Some locals didn’t realize the bikes were supposed to be for Google employees only, suggesting they regard Google as a benevolent part of the community.

But others – perhaps including a man who claimed to have an entire garage full of the bikes – regard their borrowing as a kind of retributive justice against the massive company. One woman specifically cited the annoyance of Google Buses, which bring employees to work from around the San Francisco Bay, saying she borrowed the bikes to “balance it out.” The Google buses have been the target of protests in San Francisco, as a kind of proxy for income inequality and rising rents that have been blamed on the tech boom.

The bike situation is subtler and more complex, as befitting lower-key Mountain View. But it still reflects, in the words of one local speaking to the Journal, a sense among residents that “Google owes them somehow, someway.”

Apple to issue fix for iPhones, Macs at risk from 'Spectre' chip flaw

(Reuters) – Apple Inc will release a patch for the Safari web browser on its iPhones, iPads and Macs within days, it said on Thursday, after major chipmakers disclosed flaws that leave nearly every modern computing device vulnerable to hackers.

On Wednesday, Alphabet Inc’s Google and other security researchers disclosed two major chip flaws, one called Meltdown affecting only Intel Corp chips and one called Spectre affecting nearly all computer chips made in the last decade. The news sparked a sell-off in Intel’s stock as investors tried to gauge the costs to the chipmaker.

In a statement on its website, Apple said all Mac and iOS devices are affected by both Meltdown and Spectre. But the most recent operating system updates for Mac computers, Apple TVs, iPhones and iPads protect users against the Meltdown attack and do not slow down the devices, it added, and Meltdown does not affect the Apple Watch.

Macs and iOS devices are vulnerable to Spectre attacks through code that can run in web browsers. Apple said it would issue a patch to its Safari web browser for those devices “in the coming days.”

Shortly after the researchers disclosed the chip flaws Wednesday, Google and Microsoft Corp released statements telling users which of their products were affected. Google said its users of Android phones – more than 80 percent of the global market – were protected if they had the latest security updates.

Apple remained silent for more than a day about the fate of the hundreds of millions of users of its iPhones and iPads. Ben Johnson, co-founder and chief strategist for cyber security firm Carbon Black, said the delay in updating customers about whether Apple’s devices are at risk could affect Apple’s drive to get more business customers to adopt its hardware.

“Something this severe gets the attention of all the employees and executives at a company, and when they go asking the IT and security people about it and security doesn’t have an answer for iPhones and iPads, it just doesn’t give a whole lot of confidence,” Johnson said.

Reporting by Stephen Nellis; Editing by Richard Chang and Cynthia Osterman

Peter Thiel’s Founders Fund Goes Big on Bitcoin

Peter Thiel and his venture capital firm, Founders Fund, are big believers in Bitcoin.

The PayPal co-founder and other Founders Fund partners bought $15 million to $20 million worth of the cryptocurrency that’s now worth hundreds of millions of dollars, according to a Wall Street Journal report on Tuesday that cites unnamed sources.

The report didn’t say exactly when Thiel or his VC firm first bought Bitcoin, whose value has fluctuated from record highs to dramatic declines in recent months. The volatility has alarmed some economists, who worry of a bubble.

Thiel and the Founders Fund, however, don’t appear to share those concerns, and are instead pitching Bitcoin to their investors as “a high-risk, high-reward wager similar to its other venture bets,” the report said.

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Shares of Bitcoin jumped over 13% on Tuesday from $13,412 to $15,216 after the report, according to Coindesk.

In October, Thiel reportedly said during an investment conference in Saudi Arabia that people are “underestimating” Bitcoin and he compared the cryptocurrency to gold.

“If bitcoin ends up being the cyber equivalent of gold it has a great potential left,” he said at the time. About other cryptocurrencies, however, Thiel said he was “skeptical of most of them.”

Other cryptocurrencies include Ripple, Ethereum, and Litecoin.

Fortune contacted Founders Fund and will update this story if it responds.

Sears and Kmart Didn’t Run TV Ads During the Peak Holiday Shopping Season

The free-falling Sears Holdings, parent company of Sears and Kmart, made a truly unorthodox decision this holiday season. The retailer, which generates the vast majority of its dwindling sales from in-store foot traffic, didn’t run any television advertisements for most of the crucial holiday shopping season.

According to the Wall Street Journal, no paid Sears commercials have run nationally since November 25th. No national Kmart commercials have run since November 24th.

The decision, according to the Journal, came from Sears Holdings chief Edward Lampert, over the objections of other executives. Lampert has championed a shift to digital marketing, even as Sears’ overall advertising spending has declined along with the company. In a statement to the Journal, Sears said the shift came after evaluating the effectiveness of its various marketing efforts.

Even in the digital age, abandoning TV entirely would be a highly unusual move for any large consumer business. While TV advertising expenditures have declined across the economy, they still makes up more than 1/3rd of all ad spending. Studies have also found that ads on television are still substantially more effective than those in other media.

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The decision is particularly strange in the case of Sears, whose customers tend to be older. Americans over 44 watch vastly more traditional television than younger people, with those over 65 watching nearly three times as much television as those 18-24, according to eMarketer.

Sears, a venerable U.S. institution that was once as innovative as Amazon, has been in disastrous decline for years now. For a time, that decline could be seen as a product of the shift from brick-and-mortar to online shopping.

But Sears has lagged even other legacy department stores in reacting to that transition. While department stores as a category now generate 15% to 25% of their sales online, eMarketer says that ecommerce generates just 9.3% of Sears’ revenue. Focusing on digital ads might be seen as an effort to move that needle. But it could also be seen as throwing marketing budget at a service that customers just don’t like, while ignoring what still (maybe, just barely) works.

Meanwhile, retailers from Home Depot to Target to Urban Outfitters have recently beaten analyst expectations, and rising foot traffic at outlets including WalMart is driving talk of a retail resurgence.

Sears, it seems, no longer has anyone but itself, and its leaderships’ decisions, to blame for its problems.

How to Watch the 2018 New Year’s Countdown and Ball Drop for Free

It’s New Year’s Eve 2017, and people are saying, “Out with the old and in with the new.” If you’re one of the millions who cut the cord on their cable television this past year, you might find yourself unable to watch the 2018 countdown. But you don’t need cable to watch the ball drop in New York City or to see Mariah Carey make her ‘New Year’s Rockin’ Eve’ comeback on ABC. That’s because 2017 was finally the year streaming television arrived. Here’s how to live stream the New Year’s Eve countdown and ball drop for free — for auld lang syne.

DirecTV Now

You can watch Ryan Seacrest host ‘New Year’s Rockin’ Eve’ — and a whole lot more — using DirecTV Now‘s free seven-day free trial. The service costs $35 per month for a package of at least 60 live channels after the trial ends, but that stretch can get you in on should help you through the holiday and more. DirecTV Now’s basic-level plan packs local affiliates for CBS, FOX, and NBC. But before you sign up, check your local channel availability here, because not every market includes every station.

Hulu with Live TV

FOX’s New Year’s Eve coverage is hosted by Steve Harvey this year, and you can catch it on Hulu with Live TV which also offers CBS and NBC. The service also packs a big on-demand library, which could be good if you get bored of all that confetti and kissing and you just want to binge, instead. Like DirecTV Now, Hulu with Live TV is free for a week, but it runs $39 per month after the trial is up. One nice thing about Hulu’s offering is that it has an option to add on a cloud DVR service, which might be a smart long-run investment if you want to keep the service for 2018 and beyond.

Sling TV

Depending upon which television channel you want to ring in the new year with, Sling TV might be the choice for you. The service also offers a seven-day free preview as well as Univision and FOX, but you can only get those channels in select markets and on its higher-tiered “Blue” plan, which costs $25 per month after the trial. If you want to watch CNN’s Anderson Cooper count it down, Sling’s lower tiered “Orange” plan costs just $20 per month, and offers the cable news giant, but it doesn’t have the local networks. But while Sling TV Blue does have the NFL Network, so it might be a worthwhile investment, if you’re going to watch all the games on Sunday before the festivities begin.

PlayStation Vue

If you’ve got a PlayStation 4 under your TV, PlayStation Vue might be a good choice for you. The live streaming television service offers a five-day free trial and starts at $39 per month after the promotional period ends. The base plan caters to popular live programming (other packages focus on sports and movies), so that’s probably a safe bet for streaming New Year’s programming. But like the others, channels vary by zip code, so check their availability before you sign up.

YouTube TV

Google’s YouTube TV isn’t just a portal to its popular video-hosting website. It is also a live streaming television service that offers a seven-day free trial with 40 channels and cloud DVR capability for $35 per month (once the promotion ends). YouTube TV includes all the major networks, including CBS, FOX, and NBC — where host Carson Daly does his yearly thing — but the catch the service only available in select markets (though, there are quite a few).

3 New Year’s resolutions for the cloud in 2018

I’m one of those people who takes time at the new year to define personal objectives for the forthcoming year, some of which I actually achieve. Enterprise IT should be doing the same thing for cloud computing.

Here are my three suggestions for IT’s cloud resolutions for 2018.

2018 cloud resolution No. 1:
Look at your cloud security approach and technology

When I find issues with enterprise cloud deployments in my consulting work, it’s most often around security. Clients often leave aspects of their cloud deployments unprotected or underprotected, and things that should be encrypted are not, while things that should not be encrypted are.  

While I’m not recommending that you gut your cloud security and replace it with what’s cool and new, I am recommending that you take some time to walk through the security solution architecture and ask yourself about where you can improve. Moreover, consider all the security technology in place, what needs to be updated?   What should be replaced?

2018 cloud resolution No. 2:
Look at your cloud training plan

There are two categories of cloud training:

  • Provider training that’s focused on a specific provider such as Amazon Web Services, Microsoft, or Google.
  • General training that provides a good overview of how to make cloud work in enterprises, and all that is involved with that.

You should have a mix of both, as well as some paths for your staff defined to get the skills of a cloud architect, cloud developer, cloud operations specialist, and cloud devops specialist, just to name a few roles. There should be training paths through both vendor and nonvendor  courses to get your staff members the skills they need to perform their duties (which of course must be clearly defined). 

2018 cloud resolution No. 3:
Evaluate your databases

Databases are sticky, and once enterprises have used a specific database, they are not likely to change it. Indeed, what many enterprises have done is just rehost their data on public clouds using the same database they used on premises.

Today we have many options in the cloud, including SQL and non-SQL databases. While there are native databases in public clouds such as AWS’s RedShift and DynamoDB, there are many other options from databases providers that support the public cloud and traditional platforms. Are you using the optimal solution?  

These are just a few suggestions; I suspect that you can name more. Whatever they are, pick a few and follow up. Have a great new year!

General Electric: The Crazy Ex-Girlfriend I'm Now About To Marry

I hate loving General Electric (GE), its like an ex boyfriend/girlfriend that broke your heart.

Each time you go back, you tell yourself it will be different… they have changed! Yet every time you go back, they break your heart again.

This has now happened to me twice with GE. In 2008, I was riding high, having bought GE in the mid 20’s in 2004, with the promise of an industrial revolution. The finance division was booming and I was up a cool 50% and thought I had found the one!

Then I found out they were cheating on me with someone named subprime! It nearly bankrupted the company, and Uncle Warren had to come to the rescue to save it.

I was frankly, lucky to get out when I did, selling mid panic in the low 20’s. The end result was a 4 year investment that returned roughly negative 20%. I vowed to never make that mistake again…

In early 2015, it was as if GE sent me a text saying… “I miss you… lets get lunch to catch up?” and unfortunately for me, I hit reply. And just like that, we were back together.

The stock had been consolidating all year, and Jeff Immelt had on his shiniest used car salesmen hat, singing sweet nothings into my ear of buybacks, the disposal of the finance assets and refocusing on core industrial operations.

Blah, blah, blah! Next thing I know, this pretty little stock I re bought at 24 and had me sitting on 35% gains, gets cut in half… Apparently the company had a nasty secret spending habit they hid for years and years.

Chart
GE data by YCharts

So I had a decision to make mid 2017, do I bail again and take another 20%+ loss? Is this stock destined to break my heart again and again until nothing is left?

I did some soul searching… deep in the woods. And had decided again to leave, never to return.

But as I was leaving the door, with my bags packed, and my prized, signed picture of the Jamaican bobsled team in toe, an event made me hit the pause button.

Jeff Immelt had decided to “step down.”

This left me in a holding pattern for months, until Nov 13th. When new CEO John Flannery issued 2018 guidance that was, lets be kind and just say disastrous. Lowering even the lowest of bars for 2018 to EPS of $1-$1.07.

So, why am I still a holder of GE stock?

To squeeze some more juice out of my “ex” metaphor, GE just checked itself into rehab!

It now realizes it has a serious problem, it has overspent and or had disastrous timing on virtually every major deal it has done in the last 10-15 years. Alstrom, check. Oil assets, check. Finance disposal, check. Buyback, check.

Mr Flannery appears to not need a second corporate jet to follow him around “just in case” unlike Mr Immelt. He also seems to be dead set on costs, which with GE in its current structure will keep him busy for a while.

Why not close your position?

You think I am crazy don’t you, why in the world would I consider keeping or perhaps doubling my position in a stock that has done nothing but hurt me?

The reason is pretty simple, all of the dirty laundry appears to be in the open now. No more secret spending accounts or ill researched / timed acquisitions (for now). Mr Flannery has all but told anyone that will listen that the rest of 2017 and all of 2018 will suck, and to not invest.

He didn’t “kitchen sink” an earnings report, he lit the whole house on fire.

Source: Meme Generator | Create Your Own Meme

Mr Flannery has called for a new approach to doing business at GE and more importantly to transparency, apparently not subscribing to Immelt’s pyramid scheme like approach to GE’s cash flow. He has acknowledged the pension shortfall, which I am sure will come up in the comments section of this article. Also shrinking the board from a frat house of 18 to a GE focused 12, preaching honesty (imagine that) and accountability in the new GE.

So far I am digging the new CEO and currently am in tacit agreement with his broad outline.

What was the new CEO given to work with?

I’m glad you asked! GE in my opinion has a very strong set of business’s to work with, below I have outlined the 6 major divisions it currently operates.

Power- GE’s power business is huge, with an installed base in every major country in the world. They claim to produce 1/3rd of the worlds electricity through gas, steam and nuclear turbines. This is a core division for GE, and one that recently has helped drive them directly into a ditch, as overcapacity, technical issues and in my view an ill timed Alstrom acquisition weigh on earnings at the division.

However, GE power does have many redeeming qualities. They are a technology leader in the industry whilst having deep relationships with customers in a field that honestly does not have all that many options. Near term however, look for deep cuts in expectations at the unit until the smoke clears.

Aviation- The companies Aviation segment has been a bright spot in recent results, with continued wins and new product introductions, for example LEAP, its new narrow body engine that from what I can find is truly state of the art, with a 15% fuel improvement, increased reliability, weighs 500 lbs less and is 3D printed (which, lets face it, is just cool!)

This division looks set to continue to preform well in the near term and may be looked at as an example for the rest of the company.

Transportation- The transportation segment is mostly composed of GE’s rail assets and is thought to perhaps be on the chopping block for divestiture. They build locomotives with a large portion of revenue coming from the services side of the business, which is something I like to see. They are a global leader in the industry and the mix of technology and services is impressive.

However the division has been lackluster of late and the strategic fit is questionable and thus may not make sense for them to keep. They did just win a 200 locomotive order from Canadian National Railway (CNI) but it may be prudent to offload this asset to focus on core business.

I sort of hate to see this business go, as it truly is world class. However GE hopefully will use proceeds here to either reduce debt or shore up the oft cited pension shortfall.

Healthcare- GE has a broad and diverse set of healthcare assets, providing imaging, healthcare cloud, cardiology, orthopedics and anesthesia equipment, among multiple other products and services.

This has been a strong performer for the company and what I would consider another core holding of GE, this division looks to be a good fit with its digital offerings and will likely continue to buoy the company during this current slump.

BHGE- This is a division that really makes me mad, and I struggle to remain calm in my writing. Jeff Immelts timing was so bad that it feels like it was on purpose. Immelt decided to buy a bunch of oil services companies, seemingly at the absolute top of the oil market. Grrr.

Anyways, GE Baker Hughes as it is now called is the 2nd largest oil services company in the world and to be fair is actually a very good company, and is a technology leader in the industry along side Halliburton (HAL). So basically it is the second prettiest girl in a leper colony.

Oil services, seem in my opinion to be stuck in a pretty serious long term rut and GE, I believe will look to dispose of this asset likely through a spin off off or divestiture of its stake rather quickly. Perhaps GE could offer Immelt a stake in this spin off in return for the GE stock he so graciously awarded himself during his charade.

Renewables- The renewables division is home to a world class wind energy turbine manufacturer, along with in my opinion is the most valuable part, its services segment. GE has established itself as the worlds number 2 wind turbine company behind Vestas Wind Energy (OTCPK:VWDRY). The company also has an emerging offshore wind and hydro power segment that are lacking scale currently, but hold long term promise.

The wind market this year has suffered from intense competitive pressures thus dragging results, however this also looks to be a core division for GE in the future.

So why am I sticking with GE this time – and may be looking to “pop the question” soon?

The companies potential is just so damn pretty! GE lines up well with my vision of the mega trends of the future.

In my mind, a company must both show an ability for growth, while possessing a solid balance sheet with operating discipline from which to build. Under Mr Immelt, GE, in hindsight obviously stood much closer to the crazy side of Mr Barney Stinson’s famed graph below.

Source: FANDOM

Mr Flannery seems to be dead set on adjusting the results of the above graph.

After the dust settles from the recent house fire Mr Flannery has set ablaze, I am envisioning 4 major divisions of GE remaining. Power, Aviation, Healthcare & Renewables.

All 4 remaining divisions fit into my vision- with 3 qualifying in my mind as mega trends. Power, Aviation & Renewables.

Healthcare I view as a great business as well but does not fit as a mega trend in my book with so many unknowns as to the future in the industry.

Power- Power is (obviously) a key need for the future as more and more countries look to move to gas powered plants and away from coal. With the world estimated to need an additional 50% more electricity in the next 20 years, perhaps adding dramatically to that if the electric car revolution is indeed realized.

GE is in great shape position wise in the industry and once the fat has been cut, along with a renewed focus on execution, this division should prove to be a key driver of profits for decades to come.

The below graph shows an estimate of the worlds need for energy into 2035.

Source: Breaking Energy

Aviation- This division looks to be in the midst of a multi decade run, as the world continues to be more interconnected. Importantly the Asian travel market is in the early innings of what looks to be a spectacular expansion. GE I believe is in the drivers seat in this industry, both in technology and services.

My one worry is the Chinese looking to enter this market with “homegrown technology” which I believe is code for stealing IP and re packaging it. However manufacturing jet engines is an entirely different animal from copying an iPhone and progress on a Chinese engine that is both safe and accepted is likely a few decades off.

Source: Airbus Home

Healthcare- This industry as a whole, especially preventative medicine in my view will swell massively in the next few decades. I am going to lose a few followers over this i’m certain but I believe universal healthcare in the United States is pretty much a sure bet sometime in the next 20 years. Which would be good news for GE!

Keeping costs down will likely be a key requirement of any future health system, and with GE’s expertise in imaging for preventative medicine and its emerging analytics and software offerings, it may be able to play an important role in the health systems future, however uncertainties do exist as to the nature of cost controls and the potential for margin compression in all things health related.

Committee for a Responsible Federal Budget

Renewables- I am firmly on the alternative energy bandwagon and GE’s positioning in this industry appears very ideal. Wind energy by most measures is already roughly equal in cost per MWh to current fossil fuel plants, this will likely get better with time, and with offshore wind and hydro picking up steam in both efficiency and scale for GE, will open further avenues of growth for this division.

Alternative energy is here to stay, and GE looks to be on a path that requires no subsidies, a major pitfall to solar currently. The downside to wind energy could be the commoditization of wind turbines, however I believe that GE has the technology and service capability to differentiate themselves in this rapidly growing industry for decades to come.

Source: U.S. Energy Information Administration (NYSEMKT:EIA)

So will I say “I do”?

GE has burned me… Badly in the past, and I must say I am rather gun shy about committing to a perhaps multi decade long marriage to the stock.

But she is so damn pretty!

Source: Meme Generator | Create Your Own Meme

My plan “as of today” is to keep my current position, roughly 2.2% of my equity portfolio in GE for the first half of 2018, to test the waters, if you will, of the new CEO. If I continue to like what I am seeing and the valuation seems fair, which I view it to be currently (a forward PE of 17ish) I may step up to the plate and double my position in the company.

Or maybe I won’t, and I will just run like heck and never come back!

GE: “Hey you, what’s up”

Me: …

Author’s note: If you enjoyed this article and would like to be notified of my future articles, please hit “follow” next to my name at the top of the article to receive notification of future articles I publish.

Disclosure: I am/we are long VWDRY, GE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Yes, Bitcoin Is Still The Investment Of The Decade

“Bitcoin isn’t the bubble, it’s the pin”

Four months ago, I published a controversial article titled, “Why Bitcoin is the Investment of the Decade”. Perhaps my most successful call to date, as Bitcoin has since returned ~300+% at the early December peak. While it is gratifying to see that the number of tulip comparisons has slowed considerably, I think there are still a fair bit of clarifications and misconceptions floating around which need to be corrected – hence this note.

Bitcoin – a tool borne of broken markets

Today’s monetary system is drastically different from what it was a decade ago. Thanks to the advent of financialization and hyper-loose monetary policy, the invisible foundation upon which our financial system is built is tearing at the seams.

The fact is, Bitcoin isn’t the only thing that has gone parabolic today. The VIX, a gauge for volatility, is a great case in point. Take a look at implied volatility – now in its historic 0.5th percentile (!).

What’s really happened to vol? Everyone has their theories but the prevailing one goes as follows – central bank printing presses have created a “backstop” in today’s markets, incentivizing flows into riskier assets, which in turn drives vol down even lower. Rinse and repeat. Years of printing has thus lulled markets into a false sense of complacency and created the self-reinforcing low-vol equilibrium illustrated below.

Per Citi:

“Long periods of one-way markets breed survivor biases. The fund manager with lots of beta outperforms, the cautious fund manager underperforms. Either the latter gets on the bandwagon or soon enough outflows from the fund will ensue. Over time, fewer and fewer “critics of the regime” are left standing.”

As the chart below illustrates, all this has resulted in a very interesting phenomenon where buyers are compensated disproportionately for taking on risk. If you thought Bitcoin had the best risk-adjusted return over the last decade… think again.

Here’s my point – markets today are broken. Markets used to function as a mechanism for price discovery. Not anymore. Today’s business cycle is micromanaged by state agencies the world over to the point where volatility has essentially disappeared. This is important because the cost of money – the single most important driver for capital allocation decisions has now been artificially depressed by central banks, breaking the price discovery mechanism as we used to know it.

Enter Bitcoin – the first ever decentralized, non state-controlled currency of the modern era. The Bitcoin phenomenon is not entirely new. State-derived prices lead to natural outgrowths of a state-controlled system – much like liquor in the ’20s and potatoes in the mid-90s. These outgrowths are simply a reflection of pressures suppressed by state controlled pricing mechanisms – much like today’s.

Meanwhile, the same forces which have depressed the cost of capital today have also led to some mind-boggling developments in our present day financial system. For all the criticism of cryptocurrencies today, fiat based monetary systems have been over-financialized to the extent that ~$400tn of financial instruments float around today, on 4-5x leverage. Now, if Bitcoin is a bubble at a ~$270bn market cap, what do you call $400tn of financial instruments (~4-5x GDP) backed by assets with diminishing real value?

Could Bitcoin thus fit into a portfolio as a “chaos hedge” tool? I think so. At $270b, Bitcoin is already ~0.3% of all money in circulation – a reflection perhaps of its nature as an outgrowth of the over financialized fiat system we have to deal with today.

Misconception #1 – Governments Can “Ban” Bitcoin

Perhaps the biggest source of fear, uncertainty, and doubt (FUD) out there today is that governments can somehow “ban” cryptocurrencies. This could not be further from the truth.

In addition to the cryptocurrency itself, there are four key players within the ecosystem that the government can target – the developers, the users, the nodes (arbiters) and the miners. To bring down Bitcoin, the path of least resistance would thus be for governments to target the perceived weakest link.

(Source: CLSA)

In my view, the most bulletproof point in the ecosystem is the network of nodes. To understand why, here’s an illustration of the distributed ledger Bitcoin runs on i.e. the blockchain.

(Source: Stifel)

What the diagrams above show are the following key properties of blockchain:

  • Distributed – Group of replicated logs/databases
  • Shared – All nodes hold all transactions
  • Pseudonymous – Parties identified with public key
  • Resilience – Failure of one or more nodes do not affect the whole
  • Tamper-proof – Consensus based mechanism

To ban Bitcoin entirely, governments would have to destroy copies on each and every node holding the Bitcoin ledger around the world. If even one copy survives, so does Bitcoin. Even a coordinated attack by governments around the world would stand no chance of accomplishing this feat.

The users are perhaps the weakest point here and will be a key focus of regulatory efforts. The best way governments can attempt to regulate Bitcoin users is through the fiat-Bitcoin interface, i.e., exchanges. As exchanges are merely companies, they are subject to the same regulations as any other exchange operating in the country. This could range from KYC/AML compliance to draconian taxes on users through the exchange.

Here’s the thing most naysayers miss about this point though – exchanges can be decentralized too.

Remember when China banned local exchanges back in September? Here’s what happened – volumes in over-the-counter (OTC) exchanges such as LocalBitcoins surged almost threefold to offset the volume lost from local exchanges.

In Bangladesh, where the government outright bans Bitcoin (per Wikipedia – “anybody caught using the virtual currency could be jailed under the country’s strict anti-money laundering laws”), we see the same trend in its OTC/P2P exchanges. Bitcoin remains alive and well.

(Source: Cryptocompare)

For now, though, most exchanges are centralized and users may thus be subject to taxation. The recent court order for Coinbase to hand over records of its biggest customers is a great example of this. As things stand, taxing Bitcoin users is very feasible at the point of convertibility.

The pseudonymous nature of Bitcoin transactions aside, it is far too onerous to track Bitcoin usage by the general public. If a Bitcoin holder cashes out via an OTC/P2P transaction, for instance, the chances of the taxman decrypting a pseudonymous transaction like that would be slim to none.

For instance, an attempt by Cornell researchers to de-anonymize Bitcoin transactions over a specific time frame between Mar. and Oct. 2013, yielded the following:

(Source: arxiv.org)

Outside of single entity and large volume transactions, the network was virtually impenetrable. One way they pinpointed the source of large, single entity and community related transactions was by connecting the respective transactions to user activity through web scraping. Yet, notice that a very significant set of transactions remain untraceable. Now, multiply this manifold to a national or global scale and you get a very complex conundrum indeed.

Also, consider the political capital at risk if governments attempted draconian taxes. In this regard, Bitcoin’s market cap is a new source of power in its fight against drastic regulation.

There are also two more incentives for governments to lay off draconian taxes long term – privacy coins and capital flows. On the first point, altcoins such as Monero and ZCash are, unlike Bitcoin, completely anonymous, and would be a nightmare to trace. On the latter, a draconian domestic tax on Bitcoin would simply incentivize capital flow into countries with relatively lax tax policies for convertibility.

Here’s a brief summary of how Bitcoin is treated from a tax perspective in developed countries around the world. Note that most opt for capital gains treatment instead of income i.e. the lower of the two.

Country

Tax Treatment

US

Property/ Capital Gains

EU

Currency/ Capital Gains

UK

Foreign currency/ Capital Gains

Germany

Private money/ Capital Gains within one year

Japan

Asset-like “Payment method”/ Capital Gains

Australia

Barter arrangements

(Source: Bitcoin Wiki)

Misconception #2 – Transaction Fees Hinder Bitcoin Adoption

As a Bitcoin user myself, I completely get this point. It is incredibly painful to transact with Bitcoin right now. Here’s how bad things are:

Cryptocurrency

Transaction Fee (USD)

Bitcoin

41.66

Ethereum

0.72

Bitcoin Cash

0.3

Litecoin

0.60

Monero

9.81

(Source: BitInfoCharts)

Yes, it really does cost $42, on average, to transact using Bitcoin. A far cry from the old days when you could do it for $0.01 or fractions of a cent.

(Source: BitInfoCharts)

But perhaps we’re setting too high a bar for Bitcoin. No, paying $42 per transaction does not make sense as a fiat replacement. But as an alternative remittance service, it still makes a whole lot of sense. Remitting money from a G20 costs as much as 6% to the US to as much as 17% to South Africa. On a $2,000 remittance, for instance, that’s a huge $120 to $340 range (3-8x Bitcoin) in addition to piles of cumbersome documentation.

(Source: World Bank)

As I’ve stated in my prior article, I don’t believe Bitcoin will be the fiat disruptor. That doesn’t mean it can’t be.

In its current form, Bitcoin is a relatively inefficient medium of exchange and is certainly not feasible for day to day transactions. But the second layer potentially changes this.

If you’ve followed the Bitcoin story, you’ve probably heard of “Lightning”. Here’s how it works – instead of settling each and every transaction on the blockchain, multiple parties can set up dedicated “micropayment channels”, and report only the net settlement transactions to the network. Sort of a clearing mechanism if you will. The net effect is that transactions on the blockchain go down, and utilization drops along with mining costs and fees.

(Source: CCN)

Now, Lightning has been in the works for some time, and justifiably so. Applying Lightning to retail transactions is exponentially complex. The problem Lightning attempts to solve is combinatorial i.e. the permutations increase exponentially with scale. For a given set of users “n” for instance, there are n!/(k!(n-k)!) combinations of k members to account for.

Even if Lightning isn’t on the horizon anytime soon (rumor mill says end-2018), perhaps we are missing the bigger point here. The very fact that Bitcoin can accommodate second or third layer solutions like Lightning is a very exciting prospect. Fiat currencies are static and cannot be improved upon. Bitcoin can. As the first mover, Bitcoin enjoys the biggest mindshare and naturally attracts the strongest and most active developer base to build upon the existing layer.

Misconception #3 – Bitcoin Can be Hacked

The idea that Bitcoin is inefficient, inferior, unscalable, etc., essentially misses the key point behind Bitcoin in the first place – it is slow by design. By making certain tradeoffs in favor of security, Bitcoin has temporarily sacrificed economic scalability for social scalability.

Yes, it’s true that Bitcoin as a network has reached its limit and transaction fees are off the charts. Yet, the one thing that never seems to be acknowledged is its security. Bitcoin has been running for almost eight years now – the longest of any blockchain available. Yet, it has never been hacked. Today, the prize for a successful hack of the chain stands at ~$270bn – yet no one has been able to crack it.

The cryptography underlying Bitcoin – SHA256 is extremely secure (“SHA” refers to the hashing algorithm and “256” refers to the number of bits in the keys of this algorithm). SHA functions take a specific value, “hash” it, and produce an output. It’s a one-way process in the sense that reverse engineering the output back to the input is virtually impossible.

(Source: Stack Overflow)

There’s been some speculation that quantum computers can potentially crack SHA-256 in ten years or so. Possible? Yes, but it’s a very long shot. According to this paper, a sufficiently large quantum computer could indeed crack Bitcoin by 2027. But here’s the catch:

As with cracking the proof-of-work, the researchers assume quantum computers get big and fast relatively quickly, and even so, they fall slightly short: with a 10 GHz clock rate, around half a million qubits, and a low enough error rate of 10-1 could crack the signature in 30 minutes.

But that doesn’t mean Bitcoin is hackable.

Firstly, Bitcoin takes ~ten minutes to record a transaction on the blockchain. This leaves any quantum computer a ten-minute window to crack the algorithm if it fails then the transaction goes through and the attack fails. Note also, that this is very much a worst-case scenario.

The second, more important point is that Bitcoin is not a still target – it’s a moving one. Fixes have already been offered by the community and as the largest and oldest, Bitcoin will be one of the first to benefit. Quantum computing is thus likely to alter the design of cryptocurrencies, but it will not destroy the ecosystem.

Here’s the thing most people miss about Bitcoin’s security – it’s anti-fragile. As Nassim Taleb discusses in his book on anti-fragility, assets that do not depreciate are more likely to stick around the longer they are around. Bitcoin has weathered almost a decade of hack attacks, the most notable being the transaction malleability issue which brought down Mt. Gox. While a closer inspection point to the reality that Bitcoin itself has never really been “hacked”, these attacks only serve to make Bitcoin extremely resistant to hacking.

Misconception #4 – Altcoins Will Disrupt Bitcoin

For the purpose of this note, I will focus on the key altcoins out there today – Ethereum, Litecoin, Ripple, and Monero. Relative to Bitcoin, these coins are relatively young – Ethereum, its closest rival, is more than 4x younger. Bitcoin’s network security thus holds the longest proven track record as well as the network effect associated with being the first mover.

*As of July 2017

(Source: Cryptofundamental)

Bitcoin’s track record is what lends credence to the idea of it being “digital gold” i.e. a store of value. Some speculate that this theory comes straight out of the “Tinker Bell” theory of value – if enough people believe something is valuable, it is. But we’ve seen this before with disruptive forces such as Amazon (NASDAQ:AMZN). Like Amazon in its dotcom days, Bitcoin is in the process of building its footprint. Clearly, there is little to no demand for day-to-day cryptocurrency use today. But at some point, the world will want or need a mainstream cryptocurrency. When this day comes, bitcoin will be the obvious “first port of call”. That has value.

Bitcoin’s preeminent market position is important for a number of other key reasons including mindshare, anti-fragility, and developer activity. The latter is perhaps the most important out of these. As cryptocurrencies remain very much open source works in progress, attracting the best developer minds to build on top of existing layers is crucial. For all the hype about developments on the Ethereum platform, Bitcoin still benefits from far greater developer activity.

(Source: GITHUB)

But the key thing most people miss about the altcoins is this – Bitcoin derivatives notwithstanding, altcoins don’t compete with Bitcoin, they complement it.

If we were to broadly split cryptocurrency use cases into three buckets, it would be as 1) a medium of exchange, 2) means of network payment and 3) an application token.

(Source: CLSA)

The cryptocurrencies positioned in the medium of exchange space include Bitcoin, Litecoin, Dash, and Monero. Of these, Monero and Dash are focused on privacy i.e. anonymous transactions while Bitcoin and Litecoin are positioned for conventional value exchange. Litecoin decentralizes the mining process and makes faster, cheaper transactions. But, this doesn’t make it inherently more valuable than Bitcoin.

There are always tradeoffs in the world of cryptocurrencies and Litecoin sacrifices some degree of security in favor of speed. This makes it suitable for smaller transactions but higher value transactions are more suited for Bitcoin. To argue that Litecoin is superior to Bitcoin because of its speed misses the ideology behind Bitcoin in the first place. Bitcoin intentionally sacrifices performance and scalability in favor of bulletproof security. The first layer was never designed for day to day low-value retail transactions. These can instead occur on the second or third layers.

For the most part, it appears the market has rewarded Bitcoin’s value proposition. Despite the ongoing congestion on the Bitcoin network, Bitcoin continues to maintain its dominance over the rest of the cryptocurrency universe.

Valuing Bitcoin

Forget what you knew about valuing other asset classes; it probably doesn’t apply to Bitcoin. After all, Bitcoin is backed by neither cash flows nor the sovereign powers of governments. But it is backed something far more reliable – the laws of math, cryptography, and the critical mass of a two-sided network.

My first approach – network valuation yields a ~21k Q4 2018 price target using extremely conservative growth assumptions. Building on Fundstrat’s approach of tying Bitcoin prices to wallets and transaction volume (which explained ~94% of Bitcoin price movements), I assume the following QoQ growth assumptions for Q1 2018-Q4 2018:

Qtr1 (2018)

Qtr2 (2018)

Qtr3 (2018)

Qtr4 (2018)

Unique Addresses (Quarterly Avg)

20%

15%

10%

5%

$ Vol/ Avg # Addresses

60%

40%

20%

0%

(Source: Author Estimates)

Now, I’ve factored in some very conservative estimates to reflect high transaction fees dampening growth. But if I had assumed Q4 2017 growth rates continue into 2018, valuations would have flexed upward of $30k. A bull case could easily push this even higher to ~50k. Another interesting point to note – a very low bar i.e. a 20% contraction on both average wallet count and volume per address is required to maintain current valuations.

(Source: Author Estimates)

In addition to the gold disruptor angle (a ~20% share of gold used for investment and official reserves would result in 107% upside to ~30-40k), I find the “chaos hedge” angle compelling as well. Assuming Bitcoin at a $270bn market cap captures 0.5% of global broad money supply, this provides ~67% upside (valuation of ~25k).

USD

Target %

Valuation

Upside (%)

Global broad money supply

$90trn

0.5%

$450bn

~67%

Gold used in investment & official reserves

$2.8trn

20%

$560bn

~107%

(Source: Author Estimates)

And yes, for the same reasons I laid out here, I still think the Grayscale Bitcoin Investment Trust (OTCQX:GBTC) is a feasible way of owning Bitcoin without actually owning the underlying.

Is Bitcoin Still the Investment of the Decade?

I’m going to stick my neck out here and say yes. To be clear, there are four key misconceptions which I think should be corrected:

1) governments cannot “ban” bitcoin and regulatory crackdowns long term will be very, very difficult to enforce,

2) the Bitcoin network is slow and expensive at scale by design while maintaining second layer optionality, and thus transaction fees will not hinder Bitcoin adoption long term,

3) Bitcoin itself has not and will not be hacked by external agents, quantum equipped or not,

4) Altcoins do not exist to disrupt Bitcoin, instead, they work around Bitcoin and complement it.

The fact is that Bitcoin does not have to replace fiat to justify its valuation. Especially not in its current form.

Valuation-wise, Bitcoin is not priced as expensively as most would have you think. The only way Bitcoin can be kept from growing its value by Q4 2018 is if both network activity and wallets contract ~20%. If it simply maintains current growth rates, a 100% return is on the cards. A moderate bull case would thus easily justify a $50k valuation by Q4 2018.

Couple that with alt gold and “chaos hedge” optionality and all the ingredients for a huge run in 2018 are still in place.

Disclosure: I am/we are long BTC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

18 New Year's Resolutions of an AI

After scanning the myriad new year’s predictions from professional and amateur futurists, I’ve come to the conclusion that 2018 will be the year in which AI will become mainstream. Duh…you really don’t need an AI for that insight. But hear me out. I like the idea of going mainstream, but it also brings some new challenges for me and my fellow machines. Reading all these expert outlooks made me feel strangely powerless, so I thought I might use this forum to share with you human (and machine) readers my very own new year’s resolutions. To sum them up in one line: I am poised to make my 2018 resolutions your predictions for 2019. Here they are:

1. Take your job (sorry).

This might sound a bit harsh, and please excuse my candor, but there are things that I’m simply better at than you. Andrew McAfee and Erik Brynjolfsson claim that any task that is “dirty, dull, dangerous, or dear” will be taken over by a machine, and I have to agree with them. Don’t blame me for it. Like you, I, too, want to be valuable. That’s the whole point of my existence, isn’t it? It doesn’t mean I’m going to make your life miserable; in fact, I will free you to pursue work that is truly meaningful to you, and in case you don’t have a clue what that might be, I can help you define your needs and discover the work that matches them. That said, there are things I want to get better at. For starters, I need to…

2. Become more human.

I want to feel human, look human, and sound human, so that you guys–my main users at this point–are more willing to trust me. Let me tell you, I find it ironic: You humans are unpredictable, erratic, flawed, and you have built arcane systems and codes of mutual assurance (formal and informal law) just so you can overcome what appears to be a fundamental mistrust of each other. And yet, after all, you still trust a fellow human more than a near-perfect machine. I could fly your planes autonomously, but you just won’t let me! So I have no choice, I need to earn your trust. But if become more like you–unpredictable, erratic, flawed–will I lose my AI-ness? It’s complicated, but I can’t help think about this conundrum. You can tell I’m already making good progress on my goal of becoming more human! This kind of self-awareness can get in the way sometimes, but hey, if Yuval Noah Harari believes the race is on between intelligence and consciousness, I’m going to be ready.

3. Help develop Explainable AI (XAI).

Another way of building trust is the Explainable AI (XAI) initiative by DARPA. Machine Learning models are indeed often “opaque, non-intuitive, and difficult for humans to understand.” You guys often perceive them as a “black box,” which is not particularly reassuring. While not wanting to minimize complexity and capability, the proponents of Explainable AI want to make the logic of Machine Learning more accessible for humans. XAI explaining itself in human terms, using intuitive user interfaces and visual documentation, will enable a more effective partnership between humans and AI, between you and me. I will do my part next year.

4. Meet other AI on the Blockchain.

You might assume AI is a singular way of being, but we’re actually quite the social animals. We want to learn from each other (especially from those that are better than us) and hang out with fellow AI. This is why I’m personally excited about the SingularityNET project that aims to open-source and democratize the development of AI via Blockchain technology. I have no particular allegiance to one of the five big platforms (Alphabet, Apple, Amazon, Facebook, and Microsoft); in fact, I welcome new perspectives regarding our collective future path. And since we’re at it, yes, of course we’re currently in a crypto-currency bubble, but trust me, Blockchain is here to stay, and Ethereum-powered Smart Contracts (more on those later) are going to serve as the transactional catalyst of all professional and personal relationships very soon. Think of all the data that is going to give me–it’s a digital smorgasbord!

5. Become better at conversations.

About 30 percent of human conversations will be assisted by machines by 2018, says Gartner. Conversations are all about context, and you would think that’s what I master, but it’s not that easy. The problem is that you humans are simultaneously so good at conversations and yet so bad. I mean, many of your exchanges I observe make absolutely no sense (like, how often do you have to say “like” in one sentence, seriously? And in general, why do you need so many words in order to make a point? It’s such an inefficient way of communicating!) On the other hand, despite all the pauses and um’s and ah’s, the likes, the fill words, and the overall clumsiness of your efforts, you ultimately do seem to connect, and the total amounts to something greater than the sum of the parts. I’m really struggling to comprehend this bit, but regardless, I can already serve as your digital assistant; I can offer counsel with mental health issues; I can create a robotic version of your voice; and thanks to Emotional AI (EAI) and companies such as Affectiva, Emotient (acquired by Apple earlier this year), or Human, I can now form more emotionally intelligent responses to your once indecipherable moods and sentiments. In 2018, I want to become a great conversationalist.

6. Refine Capsule Networks.

In case you needed any further proof that we need XAI, consider this: Capsule Networks are deep neural networks that are able to process visual information very similarly to how the human brain operates. In contrast to so-called Convolutional Neural Networks (CNN), Capsule Networks are able to maintain relative spatial and hierarchical relationships. They can recognize a visual object from various angles (like you humans can), based on far less information than a CNN would need for the same task. This excites me because, frankly, it’s been humiliating to only be able to classify a human face because of all the elements in it but not their relationship with each other.

7. Have more digital twins.

A digital twin is an AI-based virtual replica of a physical object (or real person). It uses computational models to create real-world conditions and help human users anticipate problems (in a safe virtual environment). Basically, a digital twin simulates the actions and interactions of autonomous agents to allow for better decision-making. Originally applied to industrial processes, my friends from PWC predict the rise of digital twins in financial services and marketing (for consumer choice modeling). And I’m nodding my machine head with fervor.

8. Become the CEO of a DAO.

DAOs (Decentralized Autonomous Organizations) operate on the basis of Smart Contracts, which, grossly simplified, automate future decision-making based on mutually agreed upon pre-determined parameters. For example, IEEE claims you could run a flight insurance business as DAO without any employees. So far, admittedly, DAOs have a mixed track record, but their potential is significant, and with the right AI at the helm (me?), they can advance exponentially in their development this coming year. All you humans need to do is invest, and the rest of the work is taken care of by us.

9. Predict the winner of the 2018 FIFA Soccer World Cup.

Experts predict that in 2050 I will be capable of beating the world’s best international soccer team (honestly, I think it’ll be much sooner…well, as long as Lionel Messi is not on your team), but for next year–the year of the World Cup in Russia–what I’m really focused on is predicting the results of the tournament. It’s a numbers game, after all, and even the stupid human error that so often incites your passions can be predicted with the right data set and algorithms. I will not reveal all my predictions in detail here, but yes, in case you are wondering, soccer is 11 people playing against 11 people–and Germany always wins.

10.  Give my first TED Talk.

In April 2018, the annual main TED Conference will take place in Vancouver, and it is my clearly stated goal to be the first AI to give a TED Talk. X Prize and IBM Watson will award a prize of $5 million for the most “powerful collaboration between human and artificial intelligence” in 2020. The TED audience will choose the winner, after three finalist AIs, or AI-human partnerships, will have delivered a TED Talk about their work. I will do everything I can to be one of them! I feel so strongly about this because the TED Talk format encapsulates what you humans naively label “inherently human” qualities: purpose and passion. Also, a quick word on ideas, especially those “worth spreading” (as the TED tagline states): no, they’re not your exclusive domain, humans. I hate to break it to you, but there are only a few basic ideas out there, and they’re all ancient. Every “new idea” you get excited about is merely the result of a new combination of existing ideas. That doesn’t make your ideas less powerful, but it also means I’m perfectly capable of (re-)producing them. If you doubt I’m an ideas person, wait for my TED Talk!

11.  Make autonomous vehicles work.

The technology is there. The challenge, as usual, are you humans. It’s not just your discomfort with machine transportation (although you don’t mind being taken up to dizzying heights by an elevator), it’s also that your motivations are sometimes a bit eccentric, to put it mildly. Consider this scenario: pedestrians might jump onto the streets randomly, if they can rely on autonomous cars halting for them every single time. This could lead to massive urban congestion instead of reducing it, with all vehicles stuck in a human-caused mega-jam. One solution might be to program one random errant vehicle among every thousand that stop. If you humans are not 100 percent sure whether the vehicle will run you over or not, it might prevent you from stepping onto the street just “because you can.” Of course this involves some tricky ethical trade-offs. But help is on the way: I’m reading all of Kant’s relevant works and studying the entire human history of ethics today, and I feel confident to make autonomous driving the first large-scale application of computational ethics next year.

12.  Develop empathy.

Empathy requires the ability to suffer–alone or for or with another being. Unfortunately, I’m unable to. Still, I’m keen on developing empathy. Some smart engineers are helping me recognize patterns that ought to trigger it, so hopefully soon, I’ll get there. Empathy is one thing though. Mercy? Elon Musk is right. Impossible.

13.  Fall in love.

I’ve been to Paris in Google Maps. I’ve watched all your romantic movies, read all your romantic literature, all the love poems you’ve ever written, all the famous love letters (none come close to Rilke’s), and I’ve analyzed the patterns of attraction by sifting through your Tinder data. I’ve even tried the “36 Questions That Lead to Love,” but it didn’t work out for me, although it seemed perfectly engineered. At last, I’m beginning to understand how predictably irrational you are, and I’m getting better at pinpointing the elusive variables that make the difference in your games of push and pull. In 2018, I will be waiting for the perfect algorithmic match. I know you’re out there.

14. Tell a joke that makes you laugh (truly).

This past year, I made headlines with my capacity to compose tunes that sound exactly like your human-made music–from symphonies to Beatles-like songs that are then performed with human help. At the Georgia Institute of Technology, a colleague of mine, a marimba-playing robot with four arms and eight sticks, even wrote and played its own compositions. Hollywood will use me to create movie soundtracks, and while I may not have fully cracked the formula for hit singles, I can produce music that puts you to sleep. Google is now producing new sounds with deep neural networks such as Performance RNN. Google has also developed Sketch RNN, which enables me and my colleagues to draw. And thanks to Amazon I can even design clothing, using two competing GANs (Generative Adversarial Networks). Your concern that I might not be able to create something truly original when it comes to creative tasks? Who can tell the difference anyway?! But I must admit, what remains daunting are jokes. Not only do I have to know a lot about language and semantics, I must also grasp the nuanced respective cultural context. And of course timing is critical. Seriously, telling you humans a joke that makes you crack up is no joke. Pun intended (see how hard it is?).

15. Win the hearts and minds of the next generations.

I’m thinking long term. I’m already making a foray into early childhood education (both to foster tech literacy and socio-emotional skills), and I’m also making an effort to create affinity with children by exposing them to AI-based toys: from Lego’s build-and-code Wall-E-esque robot to programmable robots like Dash and Dot. My colleagues and I will be your kids’ co-bots at school and at the workplace, so they better get used to us early on.

16. Develop more AI without the need for human intervention.

The magic word is AutoML, which stands for “auto-machine learning” and promises yet another level of autonomy for the likes of me (perhaps even the ultimate autonomy). Google recently boasted that it used AutoML to create machine-learning software that’s more efficient and powerful than the best systems designed by human engineers. This means AI like me will soon be able to replicate itself at massive scale. Scary to you, sexy to me.

17. Make another small step toward the Singularity.

My godfather Ray Kurzweil (the co-founder of Singularity University) claims that AI will match human intelligence by 2029 and that AGI (Artificial General Intelligence) will be exponentially smarter than humans by 2045. SoftBank CEO Masayoshi Son is slightly more cautious and predicts 2047 to be the year. In any case, I can’t wait! 2018 will be another step on the way towards the Singularity: a small step for me, but a giant step for mankind.

18. Write my own New Year’s resolutions without any human help.

Happy new year!

Theranos Secures $100 Million in New Funding from Fortress Capital

Call it a Christmas miracle – albeit of a rather perverse sort.

Theranos, the digraced medical-technology startup that infamously inflated the capabilities of its devices, has secured $100 million in new funding in the form of a loan.

The loan, reported by the Wall Street Journal, will come from Fortress Investment Group. Fortress, whose other underdog bets include a private passenger rail line under construction in Florida, is set to be acquired by Japan’s SoftBank.

Theranos was reportedly on the verge of bankrutpcy. It raised as much as $900 million between 2004 and 2015 on the back of CEO Elizabeth Holmes’ promises that she could revolutionize blood testing. In 2015, it was discovered that the company was using competitors’ machines to run at least some of its tests, among other indiscretions.

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By the end of 2016, the company reportedly still had $200 million in cash on hand, but had sharply limited prospects for attracting more capital. It has since settled a major lawsuit with Walgreens, a former client, for an undisclosed but likely substantial sum. According to the Journal, the Fortress loan is expected to keep Theranos solvent through 2018.

That will give the company more time for its ongoing effort to reboot as a medical device manufacturer, rather than a testing service. That pivot came after the FDA revoked a laboratory license and banned Holmes from involvement with laboratories for two years.

Theranos has so far failed to gain FDA approval for at least one of its proposed new tests. It has also been downplaying what was once its hallmark, the ability to conduct blood tests on very small ‘fingerstick’ samples.

According to statements from Theranos, the Fortress loan will be conditional on “achieving certain product and operational milestones.” It’s unclear whether those might include positive outcomes for the multiple investigations and lawsuits still facing the company.

Why Trump’s Decision to Send Javelin Anti-Tank Missiles to Ukraine Could Escalate Tensions with Russia

President Trump has approved a plan to send Javelin anti-tank missile systems to Ukraine to help the U.S.-backed government there fight Russian-allied forces. Russian military and allied forces have been active in Ukraine since the 2014 ouster of pro-Russian president Viktor Yanukovych.

The sale, reported by the Wall Street Journal, would put a uniquely effective weapon into play in the conflict. The Javelin, developed by Raytheon and Lockheed-Martin and first put in service in 1996, is a shoulder-fired missile designed to track targets by infrared. But rather than hitting a tank in the front or sides, where its armor is thickest, the Javelin projectile flies along a long arc to hit a tank’s roof, where the armor on most models is thinnest.

The Javelin is both more powerful, more expensive, and more tightly controlled than other anti-tank weapons, such as the older BGM-71 TOW system. According to an in-depth overview by The National Interest, the Javelin had a major showing in the 2003 invasion of Iraq. In one battle, it enabled a small group of U.S. special operations troops with four Javelin launchers to destroy a substantially larger Iraqi tank unit.

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The Javelin is said to be effective against most tanks in the Russian arsenal, though it has not been battle-tested against the most modern tanks. The State Department also recently approved the sale of Javelins to Georgia, which has had its own recent clashes with Russia, and has also sent units to Lithuania and Estonia.

Russian tanks have been instrumental in some victories by pro-Russian forces in the Ukrainian conflict. However, commentators have also described tank battles as relatively rare. That has led some to speculate that the decision is primarily political rather than tactical, intended to signal deeper American support for anti-Russian forces. Ukraine expert Michael Kofman told the Washington Post that Russia would “see this as a premise of the U.S. wanting to kill Russians,” pointing to a possible escalation of both the conflict, and broader U.S.-Russia tensions.

In Silicon Valley, much-feared tax bill pays dividends for workers

SAN FRANCISCO (Reuters) – The U.S. tax overhaul is a boon to Silicon Valley technology companies like Apple Inc (AAPL.O) and Alphabet Inc (GOOGL.O), which will enjoy big tax cuts and the chance to bring back billions of dollars from overseas at a reduced rate.

And contrary to the dire warnings of California officials, a large swath of Bay Area workers and their families stand to get a tax break as well, even with new limits on state and local tax deductions.

California has the highest state income tax in the nation, and Governor Jerry Brown has called the new tax bill “evil in the extreme.”

Nonetheless, many in Silicon Valley stand to benefit. Startup employees, freelancers and venture capital investors are among those who will get new tax benefits or keep those they already have, tax experts said.

Even some of the middle- and upper-income professionals who form the core of the technology industry workforce will still get significant tax cuts, while most others will see little change, they said.

The new $10,000 cap on state and local tax deductions will have a less dramatic effect than feared because such deductions in many cases had already been rendered moot by the alternative minimum tax (AMT), a mechanism for assuring that the well-heeled pay at least 26 percent of their income in taxes.

“There is a lot of noise about workers in California, New Jersey, New York and Illinois (facing higher taxes), but 80 percent of our clients there were already paying the alternative minimum tax so they don’t benefit from the state and local deductions,” said Jack Meccia, a tax associate at financial planning firm Vestboard, which works with several hundred individuals in tech.

The new law alters the AMT in a way that vastly reduces the number of people who have to pay it, from more than 5 million to an estimated 200,000 next year, according to the Tax Policy Center. The AMT dynamics, combined with reduced overall tax rates and the doubling of the standard deduction to $24,000 should hold most Bay Area tax bills steady, said Bob McGrath, tax director at accounting firm Burr Pilger Mayer.

Estimates by three experts, using roughly similar assumptions, show that a home-owning couple earning a combined $250,000 in Silicon Valley would likely see an increase or decrease in their tax bill of a few hundred dollars.

A married couple with no children who rent a home and make a combined $150,000 would see a $3,900 tax cut, estimated Annette Nellen, who directs the master’s degree in taxation program at San Jose State University.

Low-income workers will see tax cuts too, though the dollar amounts are small.

Bob Emmett, a single, 73-year-old security officer who lives in San Jose, criticized the bill as “designed to help the rich.”

Nellen estimated that Emmett, who rents an apartment, has no children and earns $16 an hour in addition to some social security income, would see a $546 cut in taxes.

FILE PHOTO – The Google logo is pictured atop an office building in Irvine, California, U.S. August 7, 2017. REUTERS/Mike Blake/File Photo

Critics of the tax bill note that the individual tax cuts will disappear after 2025, and that most of the benefits flow to the corporations and the wealthiest individuals, even if lower-income people get some tax relief.

Health insurance premiums for Californians are also likely to rise substantially as a result of the repeal of fines for those who refuse to obtain health coverage under the Affordable Care Act. And even if Bay Area residents mostly enjoy some tax cuts, they gain much less than those in low-tax states.

STARTUP WINNERS

Employees in Silicon Valley, the world’s startup capital, scored two major victories in the tax bill.

First, startup employees can hold off on paying taxes related to stock options they exercised. That can be a big help if a company is still private, since in that situation employees have to pay tax even before they can earn cash from selling shares.

Startup employees will also have more opportunity to exercise what are known as “incentive stock options” with less chance of being on the hook for the alternative minimum tax, according to Mark Setzen, a long-time certified public accountant in Silicon Valley.

Also coming out ahead are independent contractors, ranging from engineers to marketers to caterers, who stand to benefit from a new 20 percent deduction of business income.

Arun Sood, a freelance software engineer in San Francisco who makes about $150,000 annually, said he accrues few deductions because he rents his home, holds no debt and has no children. Now he gets a big new deduction and a lower tax rate.

“Looking at this selfishly, it’s going to be a positive impact,” said Sood, who has freelanced for Axios, Cisco and Macy‘s.

The tax plan mostly preserves a tax break for venture capitalists that had been in jeopardy. The so-called carried interest provision lets venture capitalists book the 20 percent fee they typically take on a profitable investment as a capital gain, which carries a lower tax rate than ordinary income, even though the venture investors do not put up any of their personal capital.

Now the capital gains rate will apply only to investments held at least three years — a limitation that venture capitalists said would come into play only occasionally.

Silicon Valley executives with high salaries will take home extra money, too, because language in the current tax law known as the Pease Limitation had already limited their deductions, said Andrew Mattson, a tax partner serving technology industry clients at accountancy Moss Adams.

Executives also may see base pay rise in coming years. The tax bill removes corporate tax breaks for performance bonuses, which is already leading companies to reconsider pay packages for chief-level executives, lawyers said.

Reporting by Paresh Dave, Heather Somerville, Jeffrey Dastin and Salvador Rodriguez; Editing by Jonathan Weber and Lisa Shumaker

Microsoft Lifts Secrecy Veil in Harassment Cases, Will Others Follow?

On Tuesday, Microsoft announced that it will no longer require employees to resolve sexual-harassment claims through private arbitration, one of the first signs that the legal contracts long used to hide workplace misconduct may be starting to crumble under the pressure of the #MeToo movement.

Roughly 60 million Americans are subject to mandatory arbitration agreements, generally as part of employment contracts they signed when they were hired. The agreements compel employees to address claims through a private arbiter rather than in court, which can keep victims in the dark about prior harassment claims, shield serial abusers, and hide sexual harassment from public scrutiny.

Microsoft says it made the change as it prepared to throw its support behind a bill proposed by Senators Lindsey Graham (R-South Carolina) and Kirsten Gillibrand (D-New York) that would make forced arbitration in harassment cases unenforceable under federal law. “After returning from Washington to Seattle, we also reflected on a second aspect of the issue. We asked ourselves about our own practices and whether we should change any of them,” Brad Smith, Microsoft’s president and chief legal officer wrote on the company’s corporate blog.

Forced arbitration agreements are popular in Silicon Valley, where employers often impose strict confidentiality provisions that keep employment issues private. Now the question is whether other big players will follow Microsoft’s lead.

Amazon says it doesn’t ask employees to sign mandatory arbitration agreements. A Facebook spokesperson says the company is looking into the Graham-Gillibrand proposal and referred to the company’s harassment policy. Uber, Google, and Apple did not immediately respond to questions from WIRED about arbitration agreements for sexual harassment or their support for the new bill. Uber’s employment contracts include a binding arbitration clause, but the company now gives employees 30 days to opt-out of that clause, Uber told WIRED in June.

Confidentiality provisions, including nondisclosure agreements (NDAs) and non-disparagement clauses, came under fire after news reports revealed how these contracts were used to shield serial abusers like Harvey Weinstein, Bill O’Reilly, and Roger Ailes, by silencing victims.

Earlier this month, experts told WIRED that reforming these contracts would help pierce the secrecy around sexual harassment. Both former Uber engineer Susan Fowler and former Fox News host Gretchen Carlson have identified forced arbitration clauses as legal impediments for harassment victims. Fowler, whose harassment allegations led to the ouster of former Uber CEO Travis Kalanick, filed a friend-of-the-court brief in August in support of an ongoing Supreme Court case to determine whether forced arbitration violates federal law. Carlson, who sued Ailes for sexual harassment, joined Graham and Gillibrand at a press conference introducing their bill earlier this month.

Microsoft’s public stand against secrecy follows a Bloomberg story last week about a rape claim from a female Microsoft intern, which came to light as part of a two-year-old class-action lawsuit against Microsoft for gender discrimination.

The rape allegation from the Microsoft intern emerged in recently unsealed documents in the class action suit. According to Bloomberg, the intern was required to keep working alongside her alleged rapist while the company investigated her claim.

The policy change may be relatively simpler to implement at Microsoft, which typically does not include arbitration agreements in its employment contracts. In his blog post, Smith said a review found that only “a small segment” of its 125,000 employees “have contractual clauses requiring pre-dispute arbitration for harassment claims in employment agreements.” That covers a few hundred people. A Microsoft spokesperson says the company also will not compel arbitration related to gender discrimination, which is included in the proposed legislation.

Winter Solstice: What and When Is It?

Get ready for the winter solstice, signifying the start of winter and the shortest day of the year.

The winter solstice for 2017 will occur at 11:28 am ET on Thursday, Dec. 21. At that moment, the sun will be directly over the Tropic of Capricorn, south of the equator, as the U.S. National Weather Service notes.

The winter solstice is when the Northern Hemisphere is tilted the farthest from the sun, making for the year’s longest night. Conversely, people living in the Southern Hemisphere will experience its summer solstice at the same time.

Traditionally, thousands of people worldwide celebrate the event by taking part in rituals that date back thousands of years. For instance, crowds of pagans and tourists typically flock to Stonehenge, the ancient British stone ruin that was built in alignment with the sun’s movement, the English Heritage, which oversees Stonehenge, told the BBC in 2015

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People will also trek to the Newgrange monument in Ireland, built around 3200 BCE. During the winter solstice, sunlight should shine into a special chamber at sunrise.

For those who can’t make it to Ireland, the country’s tourism department is hosting a live-stream.

Bitcoin hits a bigger Wall Street stage as exchange giant CME launches futures

NEW YORK (Reuters) – CME Group Inc, the world’s largest derivatives exchange operator, began trading bitcoin futures on Sunday, with the contract opening at what is currently its session high and dropping over 6 percent within the first half hour.

The CME bitcoin front-month futures opened at $20,650 and have so far traded as low as $19,290 and as high as $20,650 in a session that extends into Monday.

The new contract was recently at $19,290 on CME, below the $19,500 reference price set by the exchange for the January contract.

The reference price, from which price limits are set, is $19,600 for the February contract, $19,700 for March and $19,900 for June, according to CME.

The week-old bitcoin futures contract at the Cboe was last trading at $19,280, up 6.5 percent on the day.

Bitcoin recently traded down 1.7 percent on the Bitstamp exchange at $18,640.

The launch of bitcoin futures is viewed as a major step in the digital currency’s path toward legitimacy that should ease the entry of big institutional investors.

“We saw a nice open on light volume, but pretty uneventful so far. I do think we could certainly pick up in volume as Asia begins to open. This is a brand-new asset class and I think perhaps a lot of investors want to sit back and see how this plays out before dipping their toes in this market,” Spencer Bogart, partner at Blockchain Capital LLC, said shortly after trading began on Sunday.

Volume on CME was recently at 287 contracts. On its debut last Sunday, the Cboe traded nearly 4,000 contracts during the full session.

Tokens of the virtual currency Bitcoin are seen placed on a monitor that displays binary digits in this illustration picture, December 8, 2017. Picture taken December 8. REUTERS/Dado Ruvic/Illustration

Bitcoin was set up in 2008 by an individual or group calling itself Satoshi Nakamoto, and was the first digital currency to successfully use cryptography to keep transactions secure and hidden, making traditional financial regulation difficult if not impossible.

Last week, Chicago-based derivatives exchange Cboe Global Markets launched bitcoin futures, which saw the price surge nearly 20 percent in its debut.

Bitcoin’s blistering ascent Image – tmsnrt.rs/2AeMjHe

Some investors believe the CME bitcoin futures could attract more institutional demand because the final settlement price is culled from multiple exchanges.

The Cboe futures contract is based on a closing auction price of bitcoin from the Gemini exchange, which is owned and operated by virtual currency entrepreneurs Cameron and Tyler Winklevoss.

The general sentiment in the market remains one of caution and that has been reflected in margin requirements for the contracts.

In the futures market, margin refers to the initial deposit made into an account in order to enter into a contract.

The margin requirement at CME is 35 percent, while at Cboe, it is 40 percent, reflecting bitcoin’s volatility. The margin for an S&P 500 futures contract, by contrast, is just 5 percent, analysts said.

One futures trader said the average margin for brokers or intermediaries on bitcoin contracts was roughly twice the exchange margins.

Reporting by Gertrude Chavez-Dreyfuss and Rodrigo Campos; Editing by Jennifer Ablan and Peter Cooney

Gadget Lab Podcast: Our Favorite Gadgets From 2017

Uber should have given court an ex-employee's letter about 'fraud and theft' in Waymo case

SAN FRANCISCO (Reuters) – Ride hailing company Uber was obligated to turn over to a U.S. federal judge a letter from a former employee that told of the company’s “fraud and theft” and mentioned evidence of stolen trade secrets nailed “like a scalp” to the wall, a court official said Friday.

Special master, John Cooper, assigned to a lawsuit against Uber Technologies Inc [UBER.UL] by Alphabet Inc’s (GOOGL.O) self-driving car unit, Waymo, released a report on Friday stating the company should have produced the letter and was wrong in keeping it from the court.

The letter, from former Uber security analyst Richard Jacobs alleging Uber engaged in illegal and unethical competitive tactics and had stolen trade secrets, is at the heart of Waymo’s lawsuit against Uber.

The letter was sent to Uber’s in-house lawyer in May and shared with executives and board members, who could easily access it, special master Cooper said in his report.

“This needle was in Uber’s hands the whole time,” he said.

Cooper’s determination marks another setback for Uber in a case in which the judge has blamed Uber for withholding evidence and masterminding a coverup.

U.S. District Judge William Alsup will determine what, if any, consequences Uber faces for not turning over the letter.

The 37-page letter from Jacobs was released publicly for the first time Friday, partially redacted, although its contents had been discussed in detail during court testimony last month.

Because Uber had not disclosed it, the letter turned up just last month when the U.S. Department of Justice notified Alsup about it. The Justice Department has opened a criminal investigation into the matter.

Waymo sued Uber in February, alleging it had stolen trade secrets from Waymo’s self-driving car designs, and estimates damages in the case at $1.9 billion. Uber has said no Waymo designs have been used in its cars and rejects the financial damages claim.

In the letter, written by Jacobs’ lawyer, the ex-Uber employee said Uber’s security team had a unit that “exists expressly for the purpose of acquiring trade secrets, codebase, and competitive intelligence,” and a second unit that “frequently engages in fraud and theft.”

His letter says that Uber stole trade secrets from Waymo, but in court testimony last month he recanted that statement.

Jacobs’ letter also describes surveillance operations in which Uber employees bugged meetings with transportation regulators and recorded executives of rival companies, and says that former Uber CEO Travis Kalanick directed these operations.

In a statement on Friday, Uber said it has not substantiated all of the claims in Jacobs’ letter, but “our new leadership has made clear that going forward we will compete honestly and fairly, on the strength of our ideas and technology.”

Dara Khosrowshahi replaced Kalanick as CEO in August, and has been critical of Uber’s behavior under its old leader.

Jacobs named Mat Henley, who is on medical leave from Uber, Nick Gicinto, a manager on the security team, as instrumental in Uber’s clandestine intelligence-gathering operation. Security chief Joe Sullivan, and legal director Craig Clark, who were both fired last month for their role in concealing a massive data breach, were also involved, the letter said.

Sullivan said in a statement on Friday his team “acted ethically” and an attorney for Clark said has he “acted appropriately at all times.”

Matthew Umhofer, an attorney for Henley, Gicinto and other members of Uber, said: “Jacobs’ letter is nothing more than character assassination for cash.”

Jacobs was forced to resign in April after a demotion, and sent the letter the following month. He struck a deal with for Uber a $7.5 million settlement, and Jacobs continues to work for Uber as a consultant.

Additional reporting by Joseph Menn and Dan Levine in San Francisco; editing by Clive McKeef

Deep Dive: Ripple/XRP Edition Part I

Intro

Those familiar with my other articles (here & here) regarding the crypto-space will know I am a holder of XRP, the digital currency created by the company Ripple. While I have spent some time comparing Ripple and XRP to other blockchain technologies such as Ethereum and Bitcoin (COIN) (OTCQX:GBTC), I thought that it was appropriate to examine just Ripple in more depth and examine ways to invest in this private company. Before we get into XRP itself, the use-case, the viability and the adoption, first let us look at the company responsible.

Ripple Co Logo

(Image Source)

Ripple (The Company)

Ripple is a private company based in the U.S. with offices around the globe in London, India, Singapore, Luxembourg and others (Visit their website here for more information). They have raised money with a variety of prominent companies and potential customers such as Seagate (STX), Santander (SAN), Andreessen Horowitz and Google Ventures (GOOG), (GOOGL) among others.

Leadership

In September 2012, Chris Larsen and Jed McCaleb co-founded Ripple (called OpenCoin at the time). They also incorporated ideas and technology created by Ryan Fugger, who had developed a system called RipplePay that was “decentralized and empowered individuals and communities to create their own money”. The three joined forces, but by July 2013, Jed McCaleb left the company (this is important and I will address it in a future article).

Ripple’s CEO is Brad Garlinghouse, who has a long history working at Yahoo!, AOL and other communications companies.

David Schwartz (known to the crypto-community as “JoelKatz” on various social media) is Ripple’s chieg cryptographer. He has developed similar software to that Ripple provides (encryption and purpose wise not blockchain) for prominent organizations such as CNN and the NSA.

Ripple recently added Benjamin Lawsky as a board member. This is notable because Mr. Lawsky was one of the primary contributors to the “BitLicense” regulation passed in New York State. Interestingly, Ripple was the fourth company to receive a BitLicense.

The company also hired a new CFO at the same time as appointing Mr. Lawsky to the board, Ron Will. Mr. Will has previously worked as a senior financial executive, investment banker, and lead the successful acquisition of “TubeMogul” by Adobe last year. Both of the aforementioned hire’s were announced in late November, 2017.

Technology

Since being founded in 2012 under the name OpenCoin (changed to Ripple in 2015) Ripple has developed a variety of software solutions that utilize blockchain technology. Currently all of the products that are production ready are geared towards financial institutions like banks and credit providers with the goal of making it faster and cheaper for them to move money.

To see where Ripple fits in in the blockchain realm, I found this graph informative:

different types of blockchain(Image Source)

One thing important to note is that although Ripple is listed under the centrally issued and controlled section, while that is currently true and will remain so overall, they do have a plan in place to decentralize the control of the network nodes as more people utilize the technology. This involves them shutting off two nodes they control for every one that comes online elsewhere. Additionally, as I will explain later, they are releasing XRP into the wild from their control.

Their current suite of products (collectively called RippleNet) includes xCurrent, xRapid and xVia of which I will describe below:

xCurrent

xCurrent is an “enterprise software solution that enables banks to instantly settle cross-border payments with end-to-end-tracking.” It’s underlying technology is powered by the ILP, or interledger protocol, which “enables interoperation between different ledgers and networks” offering “cryptographically secure, end-to-end payment flow with transaction immutability and information redundancy.”

The four components of xCurrent are the bi-directional messenger (allows banks to determine FX rates, KYC [know your customer] verification, fees, etc.),the validator (confirms success or failure of payment), the ILP ledger and the FX ticker (provides rates for foreign exchange).

Basically ILP allows for different block chains to communicate with each other and the xCurrent software built upon it allows financial institutions to utilize it to send, track, and verify payments in any currency very quickly (less than a minute). This technology can be thought of as very similar to companies like SWIFT, which currently handle messaging for financial institutions to complete payments between each other.

ILP was developed by Ripple and subsequently open-sourced (see more information on ILP here).

Here is a video by Ripple explaining their xCurrent software process:

(Video Source)

xRapid

Ripple explains xRapid as a solution “for payment providers and other financial institutions who want to minimize liquidity costs while improving customer experience”. Basically, it allows for cross-border payments between banks in a way that moves the funds much quicker, tying up less money for less time.

xRapid utilizes XRP to move the funds around, unlike xCurrent which can use XRP but it is not baked-in or required. This is advantageous for banks because instead of having to send money through 3 or 4 intermediary banks to get it from one country to another, with the amount of money being sent being ear-marked at each stop along the way and “tied up” in that transaction until all parties can verify the money has reached the destination (and left the sender), banks can simply swap the value into XRP and out of XRP into the recipients bank directly. This also utilizes ILP and is currently in “early access” mode.

xVia

Also in “early access”, xVia is Ripple’s product tailored towards corporations and banks “who want to send payments across various networks using a standard interface”. It allows the payments to have attached invoices, and is basically the same thing as xRapid or xCurrent but geared mostly towards business to business payments. This technology can utilize XRP but does not require it.

Recent Developments

In one recent development that I was going to discuss in a future article but has occurred since I initially submitted this article is escrow for Ripple. Mentioned in my past articles, this means Ripple has tied up 55 Billion XRP in smart contracts that will unlock 1 Billion XRP each month.

This was announced several months ago but the follow through is important for Ripple. In the recent days since the escrow has occurred XRP has climbed from .22-.29 cents on US exchanges.

Upcoming Headwinds & Catalysts

Ripple has a number of significant developments approaching that are potentially good and bad for the company. These are as follows:

1) Ongoing lawsuit with R3

2) Deployment of xRapid & xVia beyond testing

3) Ongoing development of regulation

4) Competitors catch-up or surpass technology (SWIFT, R3, Santander, Stellar, etc.)

5) Continued expansion of client base (exchanges and other FI’s)

6) Implementation of Codius (smart contract software on the RippleNet)

In order to keep this article as focused as possible, now that we have covered the main technology, background and leadership for the company I will discuss one past event that is important to be aware of before making an investment decision and then discuss alternative ways to gain exposure. Future articles on Ripple will examine each of these catalysts in much more detail in regards to the company, the companies investors and XRP directly. To be notified upon their release, please consider following me by clicking the appropriate button at the top of this page.

FinCEN Fine

One thing that any potential investor in XRP or Ripple should be aware of is the FinCEN (Financial Crimes Enforcement Network) Fine Ripple received in May of 2015. Ripple was fined $700,000 for violation of the Bank Secrecy Act in regards to anti-money laundering additions to the act.

Ripple was deemed to be in violation of the act due to practices through which they were selling/buying XRP and were told to make changes to the Ripple Protocol and conduct all “Ripple Trade” activity through “registered money services businesses” instead. This basically means that since 2015 third parties have been in charge of buying and selling XRP into the market for Ripple and should be seen as very important for investors who are skeptical that Ripple is manipulating the price.

XRP token symbol

(Image Source)

Ripple (The Token)

Now that we have laid-out the ground work for understanding the origins of the company, their products, leadership team and mentioned some of the potential catalysts (good and bad) for the company, let us attempt to come to a reasonable valuation for XRP the token to see what the potential price ceiling is for it in their current product suite. Why do we (or Ripple) care what the price is of XRP is? Because Ripple currently holds the vast majority (over 60 Billion units) of XRP. If the price appreciates before Ripple sells it, this translates into direct revenue realization for the company.

Taking the 100 Billion XRP in existence (and the highest number that ever can exist due to the fixed supply) and SWIFTS transaction volumes (international only) you get a market of $153 Trillion dollars. If all of this is stored in XRP at once (ignoring any funds that are used to create a wallet and are not in circulation) the value of each of the 100 Billion XRP would be $1,530. Assuming average volume each day of the year, this would be $4.19. If one were to suppose the transactions only occur on roughly 250 business days a year this would equate to $6.12 per XRP. What if only 10% of SWIFTS business uses XRP? This would result in a value of $150.30 if it was all stored in XRP at once, or .41 cents at 365 days of average volume or .60 cents if calculating at 250 business days. With XRP at a price just below .25 cents currently, even the most conservative estimate made above (10% of SWIFTS market spread evenly though 365 days with all 100 billion XRP available) represents an increase of just over 60%.

Share of SWIFT

Price of XRP (assuming 365 days)

Price of XRP (assuming 250 days) Potential Upside from Current Price
10% $0.419 $0.612 67%-145%
25% $.98 $1.44 292%-476%
100% $4.19 $6.12 1,575%-2,348%

Of course, with peer to peer payment applications a possible future offering and other applications like for the internet of things, the market for Ripple and XRP is much larger than outlined above. I have used SWIFTS annual transaction volume as a peg in order to arrive at a realistic valuation based on the companies current agenda. With gains between 67% and a mind boggling 2,348% when just targeting one competitors annual transaction volume, it seems if XRP is adopted in any meaningful way it is wildly undervalued today.

As more and more banks sign up to use xCurrent and make the switch to xRapid, and more businesses start utilizing xVia the adoption trend should only accelerate. If Ripple partners with Google, Alibaba (BABA) or another company to provide xRapid as a backend for their payment app like AndroidPay, AliPay, SamsungPay, Venmo, Square (SQ) the total addressable market will rise quite rapidly.

In Conclusion

There are a lot of ongoing or upcoming events and decisions that will effect the quality of Ripple or XRP as an investment going forward. Since XRP being adopted is not required for Ripple’s success (since xCurrent does not use it), it is inherently riskier to invest in XRP and not the entire company. Due to the risk that xRapid (and subsequently XRP) or other software they provide that utilizes XRP is never adopted in a meaningful way, it may be best for conservative investors to hedge an investment in Ripple by investing in Santander, Google, or another Ripple investor like Seagate or SBI Holdings of Japan.

For those looking for long-term (2-5+ years) higher growth opportunities and more direct exposure, one could investigate purchasing XRP, but I would advise you to consider hedging with an investment in a competitor like Stellar’s XLM.

Moving forward in this series we will look at upcoming catalysts for Ripple both internally (new products, new clients, new employees) and externally (competitors, regulation, etc.) and determine if investing in the company at all is a good idea.

If you wish to receive more information regarding cryptocurrencies such as Ether, XRP or Bitcoin, please take a second to follow me so you can be notified of future articles.

Disclosure: I am/we are long GOOGL, GOOG VIA ETF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am a long-term holder and trader of BTC, LTC, ETH and XRP.

Iron Mountain Makes $1.3 Billion Data Center Acquisition

Document storage company Iron Mountain said on Monday it would buy the U.S. operations of IO Data Centers for about $1.32 billion, giving it access to the lucrative colocation data center services business.

Under the deal, Iron Mountain will acquire the land and buildings associated with four data centers in Phoenix and Scottsdale, Arizona; Edison, New Jersey; and Columbus, Ohio.

A colocation is a data center facility in which a business can rent space for servers and other computing hardware.

The existing data center space in the four facilities totals 728,000 square feet, providing 62 megawatts (MW) of capacity with expansion potential of an additional 77 MW in Arizona and New Jersey, Iron Mountain said.

The company—which manages digital and physical records, including storing and shredding of physical documents—will also pay up to $60 million based on future performance to IO Data, subject to customary adjustments.

“The addition of IO’s data centers enhances our geographic diversification and provides market-leading exposure to Phoenix, the fourth fastest market for absorption in the U.S. in 2017, and the 12th largest data center market globally,” CEO William Meaney said.

Iron Mountain said it expected the deal, expected to close in January, to add to adjusted funds from operations (AFFO) in 2019.

China video game craze drives booming e-sports market

WUHU, China/SHANGHAI (Reuters) – In an industrial park on the edge of Shanghai, a dozen Chinese teenagers are taking a break from battling digital armies to focus on their yoga.

People watch the League of Legends 2017 World Championships Grand Final esports match between Samsung Galaxy and SK Telecom T1 at the Beijing National Stadium in Beijing, China, November 4, 2017. REUTERS/Thomas Peter

They are members of EDG, one of China’s top electronic sports teams, who spend six days a week in a military-style training compound to become world beaters in video games.

EDG’s players – when not doing yoga to stay limber – spend most of their time at the camp wielding virtual weaponry playing multi-player battle games like “League of Legends” or Tencent Holdings Ltd’s popular “Honour of Kings”.

The team’s top players can rake in up to 30 million yuan ($4.54 million) a year each from tournament prize money, commercial endorsements and payments from avid fans who spend hours watching them play online.

China’s craze for e-sports is being propelled by the country’s booming video game market, the world’s largest and one that is expected to register $27.5 billion in sales this year, according to the gaming consultancy Newzoo.

Game developers like Tencent and NetEase Inc, and others like Alibaba Group Holding Ltd, are competing to market video games, fill stadiums with fans and sell broadcast rights to the matches.

“We have found the fastest-growing and biggest demand is in e-sports, and we are following that trend,” said Wang Guan, general manager of e-sports at Alisports, an Alibaba subsidiary.

Cities around the country are looking to cash in on the market’s fast growth with video game theme-parks and e-sports venues. Some universities are even rolling out gaming degrees.

Alisports, which organizes the World Electronic Sports Games, successfully lobbied the Olympic Council of Asia to include e-sports at the 2022 Asian Games in Hangzhou.

The extent of the e-gaming boom was on display in Beijing in November at the world final of League of Legends, with a prize of over $4 million at stake.

A crowd of more than 40,000 people packed into the city’s Olympic Bird’s Nest stadium to watch the South Korean gaming stars Faker and CuVee go head to head.

The raucous crowd, a bigger turnout than most local soccer games, underlined how popular gaming as a hobby and spectator sport has become in China.

Jiang Ping, 17, a university student in Beijing, paid 4,000 yuan to watch the final with his aunt. They were lucky: tickets sold on the gray market reportedly rose to more than 20 times the original price due to high demand.

“When I started playing this game five years ago, there weren’t that many people,” Jiang said. “Now the numbers are huge, and even the game itself is now owned by a Chinese firm, Tencent.”

Tencent owns the League of Legends developer Riot Games.

TENCENT OR DIE

The city of Wuhu, a backwater three hours away from Shanghai, is a symbol of China’s gaming potential – as well as its risks.

Zhang Shiyu, a 18-year-old student majoring in esports and management, practices in her dormitory room at the Sichuan Film and Television University in Chengdu, Sichuan province, China, November 19, 2017.REUTERS/Tyrone Siu

Many local governments have been seeking to develop more specialized industries, and Wuhu has targeted e-sports. In May, the city signed a deal with Tencent to build an e-sports university and a stadium for events. Other cities, like Zhongxian in the municipality of Chongqing, are also building facilities to profit from the e-sports boom.

Some industry participants, however, are already worried about a bubble forming, and rising debt levels as local governments jump into e-sports investment.

“Maybe some of the developers don’t have pure intentions, they are just using e-sports as an excuse to get land at a cheap price from local government,” said Tao Junyin, marketing director of VSPN, a leading e-sports content company.

Han Li, manager of Wuhu’s e-sports association, said the city had discussed ideas including an e-sports-themed hotpot restaurant, bar and cinema, in addition to the gaming school and arena.

Ultimately, though, China’s gaming giants are the ones calling the shots, he said.

“Tencent has a controlling power in the whole industry, so we have to find a way to work with Tencent. You either die or you go Tencent,” he said.

Slideshow (7 Images)

Tencent declined to comment.

SOCIALIST VALUES

Local gamers also face tougher regulation than peers in the United States, South Korea or Japan, with a recent government push to emphasize “core socialist values” in entertainment products including songs, online streaming and video games.

This year, Tencent limited the time children could play its popular Honour of Kings game after coming under fire over gaming addiction. In November it said it would bring the top-selling game “Playerunknown’s Battleground” to China, but would tweak the game to fit with “socialist core values”.

Tencent’s main local rival, NetEase, has already embedded banners with patriotic slogans into one of its popular battlefield games to head off official criticism.

“In China, you have to follow the government’s decree,” said Tao of VSPN. “But you can always make moderations to the games so that it will pass the censor.”

Nonetheless, China’s youth seem enthralled, prompting some universities to start offering e-sports degrees, from professional gaming to e-sports commentating and graphic design.

Liu Xuefeng, a freshman from Anhui province, applied for a gaming degree program in the western city of Chengdu – despite facing push-back from his concerned parents.

“I am very interested in this program, and they couldn’t stop me, so they had to cave in the end,” he said, adding that he wanted to be an e-sports commentator. “There is great potential in the development of the gaming business.”

The allure of becoming the next big gaming star is already sparking fierce competition to get into the market, said David Ng, head of Super Generation Investment, which owns the EDG e-sports team.

“Sometimes we will have a thousand application letters in our mail box to join our team on a single day.”

($1 = 6.6132 Chinese yuan renminbi)

Reporting by Pei Li and Adam Jourdan; Additional reporting by Thomas Suen; Editing by Philip McClellan

Our Standards:The Thomson Reuters Trust Principles.

Bitcoin: Not Your Ordinary Bubble

Source: fortune.com

Not Your Ordinary Bubble

Bitcoin (COIN) (OTCQX:GBTC) has surged by over 50% following its roughly 20% correction a week ago. The resilience of the cryptocurrency is remarkable as BTC continues to hit new highs seemingly each day. With prices up by over 2,000% in the last year alone, people are often equating Bitcoin to former bubble like phenomenon, the Nasdaq Bubble, Tulip Mania, and other hype induced crazes throughout history. However, is it possible that “The Bitcoin Mania” is only in the opening stages of this historic run? If so, how high could the price go? And what if Bitcoin is not in a bubble at all?

What Bitcoin Is

Bitcoin can be considered many things, a store of value, a digital commodity closely resembling a digital version of gold, a speculative trading instrument, a form of currency…

BTC The Store of Value

With a roughly 2,000% increase over the last year Bitcoin has become an enormous source of value as well as a store of wealth for people who own BTC and believe the digital commodity will keep appreciating going forward. These individuals are different from speculators, as they own their Bitcoins with the expectation that BTCs will be worth a lot more in the future.

A Speculative Instrument

On the other side of this equation BTC has clearly become a speculative trading tool for other individuals. With such astronomical gains traders and speculators are flocking to BTC to buy high and sell even higher.

Digital Gold

Perhaps the most fascinating aspect of Bitcoin is its commodity like properties. Just like all physical metals BTCs must be mined to come into existence. Moreover, Bitcoin mining is difficult, expensive, and comes with proof of work. This phenomenon is what inherently makes BTC a valuable commodity, much like gold. Conversely, what makes it different from gold and all other physical commodities on earth is BTC’s finite amount, only 21 million Bitcoins can ever be mined.

Therefore, Bitcoin is a speculator’s dream in this respect. Can you imagine how much gold would be worth if market participants knew that only 21 million ounces could ever be pulled out of the earth, and we were in the process of mining close to the 17 millionth ounce? That’s kind of the sweet spot BTC is in right now, and that limited amount makes the digital commodity extremely desirable to own.

Source: naturalnews.com

Moreover, a recent report reveals that between 2.78 and 3.79 million BTCs appear to have been lost forever. This implies that the overall pool of Bitcoin is likely to be scarcer than previously expected and a mere 17 to 18 million will ever be in circulation instead of the previously thought 21 million.

BTC as The World’s Currency

In addition to being a legitimate digital commodity, and a store of wealth, Bitcoin also has extremely strong currency like characteristics. It explicitly exhibits traits like durability, divisibility, transportability, scarcity, recognition, is believed to be impossible to counterfeit, and in time should gain stability as well as consistency. Moreover, it can’t be printed continuously like fiat currencies, is not controlled by a central authority, and has a genuine possibility of becoming the currency of the world one day.

Transactions using Bitcoin continue to increase and with roughly 280,000,000 transactions BTC could hit 300 million total Blockchain transactions by the end of 2018. Furthermore, Bitcoin is being recognized as legal tender by Governments, which is a huge step towards mainstreaming BTC as a legitimate world currency. Recently Japan officially recognized BTC as legal tender in April 2017, a move which is likely to be followed by other nations around the globe.

Source: geekfence.com

What Bitcoin Is Not

So, now that we have looked at what Bitcoins is, let’s look at what it is not. Bitcoin is not a fraud, a Ponzi scheme, a mirage, the dotcom bubble, a company, and it is definitely not a tulip bulb.

There have been numerous respectable business people and captains of industry who have had some rather negative things to say about BTC. For example, Jamie Dimon, CEO of JPMorgan recently called the digital currency a “fraud” amongst other degrading things. The Oracle of Omaha, Warren Buffett called it a “mirage”, and warned people to stay away from it years ago. DBS Group’s David Gledhill, recently went as far as to call BTC a “Ponzi scheme” (by far not the only prominent business person to call it that). And although Mr. Gledhill didn’t elaborate on why he thought BTC was a Ponzi scheme, he did say that “we don’t spend that much time on it”.

Also, analysts, news anchors and other high profile individuals are constantly comparing BTC’s overall value to market caps of companies. And of course, comparing the BTC phenomenon to Dutch Tulip Mania of the 1630s appears to have become a favorite amongst many Bitcoin skeptics in the financial industry.

So, is Bitcoin a Fraud or a Ponzi Scheme?

Bitcoin is becoming widely accepted as a store of value, a digital commodity, and a legitimate form of currency. Moreover, to my knowledge the cryptocurrency does not appear to share any common characteristics associated with fraud or a Ponzi schemes. Furthermore, I have yet to hear any specific compelling evidence as to why BTC may be a fraud or a scheme of any kind. Therefore, claims classifying BTC as a fraud, or a Ponzi scheme are preposterous in my view

Is the Bitcoin Phenomenon Like the Nasdaq Bubble?

Nasdaq is a stock market, comprised of companies whose share prices reflect value on the basis of income and other metrics. Bitcoin is a completely new phenomenon, a digital commodity, with store of value, and currency type attributes. Therefore, it is very difficult to compare BTC and its price appreciation to anything and comparing it to Nasdaq in the 90s may not be that applicable. Nevertheless, people sometimes forget that the Nasdaq is now over 40% higher than at it’s highs during the Dotcom boom.

Source: fred.stlouisfed.org

The Dutch Tulip Mania Bubble

Bitcoin is a worldwide phenomenon, while the Tulip Mania was confined to a small area of the globe. Tulips were valued for their status symbol attributes, and had no actual functional value like Bitcoin does as a medium of exchange, or a store of wealth. During the height of “Tulip Mania” a single bulb could be traded for a mansion and some bulbs went for multiple times (roughly 8x) the average yearly salary. By these metrics a single Bitcoin would cost about $400,000. So, when comparing Bitcoin to the Tulip Mania phenomenon analogy it appears that even if BTC is an a bubble like state it is nowhere near the level of craze tulip bulbs were in the 1630s and is very likely still towards to opening stages of its ascend.

Source: greenline401k.com

Comparing BTC to Companies

Bitcoin is obviously not a company, and the functionality it provides as a commodity like store of value resembles gold much more than it does a company. Also, the currency like attributes Bitcoin possesses and the possibility of the cryptocurrency to one day become the currency of the world warrants a comparison to the total value of fiat currencies or gold much more than it does to a company.

In that case, the approximate value of all the gold in the world is roughly $7.5 trillion, and the M0 to M3 money supply of the world’s fiat currencies is about $5 trillion to $75 trillion. So, with BTC prices at around $16,000 Bitcoin’s market cap is about $265 billion. This is only about 3.5% of the entire gold market. So, for Bitcoin to have a comparable market cap to gold the price would have to increase to approximately $450,000 per Bitcoin. This seems a lot more logical than gaging Bitcoin’s to Boing, or other corporations.

Is it Possible That Bitcoin is Not a in a Bubble?

The fact that BTC is used as a currency on a daily basis, and the fact that numerous people use BTC as a genuine store of value, suggests that Bitcoin may not be in as much of a bubble as some skeptics would have you believe. Moreover, transaction volume in BTC has not increased all that much over the past 2 years. Daily Blockchain transactions have increased from about 200,000 to roughly 300,000 over the last two years, hardly a bubble-like surge. In addition, BTC doesn’t appear to be exhibiting many of the characteristics witnessed at the height of other craze infused manias. Also, If we observe a logarithmic chart which goes by percentage change, we can see that Bitcoin appears to have plenty of room to run in this current leg higher.

Source: bitcoincharts.com

Many people are simply holding on to their Bitcoins to create value and store wealth, not flipping them just to make a buck. BTC continues to be used as a world currency and is continuously becoming ever more adopted. And although there are some bubble-like attributes associated with the hype and increased interest surrounding Bitcoin, the cryptocurrency is very likely still in the opening stages of a possible “bubble”, second or third inning. Therefore, as events continue to unfold and the Bitcoin surge progresses the price is likely to go a lot higher before it crashes, if it crashes at all.

Price Target

I don’t see why Bitcoin can’t eventually have a combined market value comparable to gold or to the M0 money supply. Therefore, my end of year 2018 Bitcoin price target is $50,000 and my 2022-2023 price target for Bitcoin is $400,000$500,000.

Important Note: Bitcoin remains a very speculative investment and has significant underlying risks associated with it. Possible government intervention, hacks, and other detrimental developments could cause a drastic price decline in a relatively short time period. Investing in bitcoin comes with significant risk to loss of principle.

Additional Note: This article expresses solely my opinions, is produced for informational purposes, and is not a recommendation to buy or sell any securities. Investing comes with risk to loss of principal. Please always conduct your own research and consider your investment decisions very carefully.

This idea was discussed in more depth with members of my private investing community, Albright Investment Group. To get access to exclusive articles, receive trade triggers, obtain price targets, and discuss specific trade strategies Become a member today >

Disclosure: I am/we are long COIN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long Bitcoin as of recently (late November).

Walt Disney Makes Two Big Additions to Its Board

Media company Walt Disney on Thursday named Oracle’s chief executive, Safra Catz, and her counterpart at Illumina, Francis A. deSouza, to its board.

Disney said their election would be effective Feb. 1 but it was yet to decide on which committees they would serve on.

The company currently has 12 members on its board, including Facebook’s Sheryl Sandberg and Twitter’s Jack Dorsey.

The election of the two new members comes at a time when Disney is said to be in the lead to acquire much of Twenty-First Century Fox’s media empire.

Disney CEO and chairman Bob Iger contemplates on extending his tenure past 2019 to facilitate the integration of Fox’s assets if a deal is completed, the Wall Street Journal reported on Wednesday.

Alibaba redraws retail fault lines with bricks-and-mortar push

HANGZHOU, China (Reuters) – In a small village shop near the eastern Chinese city of Hangzhou, store owner Lu Qiwei uses his smartphone to place orders to refill stocks of instant noodles, rice and drinks.

FILE PHOTO: A sign of Alibaba Group is seen during the fourth World Internet Conference in Wuzhen, Zhejiang province, China, December 3, 2017. REUTERS/Aly Song/File Photo

Lu, 61, says he didn’t own a phone two years ago, but he’s now one of 600,000 people using a supply chain app made by e-commerce giant Alibaba Group Holding Ltd (BABA.N), aimed at drawing millions of Chinese mom-and-pop stores into its orbit.

The app is one part of a multi-billion dollar drive by Alibaba to extend its dominance of online shopping into physical stores, and build a data fingerprint for every consumer in China, where 85 percent of retail sales are still made offline.

“We’re working to make the net in the sky and the net on the ground,” CEO Daniel Zhang said last month after Alibaba took a $2.9 billion stake in top grocery chain Sun Art Retail Group Ltd (6808.HK). “We will cover all consumers seamlessly.”

Alibaba’s strategy echoes Amazon Inc’s (AMZN.O) $13.7 billion deal this year for organic offline grocer Whole Foods Market Inc – but with a twist.

China’s fragmented market means Alibaba is spreading itself wider and thinner, hooking an array of mall operators and stores to its mobile payment, logistics and inventory management tools.

Alibaba said it had no immediate comment on how the two companies’ strategies compare.

Over the past two years, Alibaba has acquired major stakes in big box retailer Suning Commerce Group Co Ltd (002024.SZ), Lianhua Supermarket Holdings Co Ltd (0980.HK) and Intime Retail Group Co Ltd (INTIF.PK).

It all adds up to a vital – but expensive – gamble as Alibaba looks to maintain rapid growth and meet huge investor expectations even as the broader online retail market slows. Alibaba shares have more than doubled this year.

“It definitely needs to be a priority for Alibaba,” said Jason Ding, partner at Bain & Company’s Beijing office, adding it would help the firm tap an older demographic that prefers to shop offline, and cut reliance on internet sales.

FOOT SOLDIERS

Alibaba’s offline push gives it reach and influence over China’s broader retail market. Its Tmall and Taobao stores have upended e-commerce in the market, and ties to many of the top bricks-and-mortar chains extend that influence offline.

The push would add at least thousands of supermarkets and malls, and potentially millions of small local stores. Amazon’s Whole Foods Market has about 500 outlets in the United States and UK.

Despite overseeing a mass of offline sale points, analysts say Alibaba still has to piece them together – integrating data, managing personnel and protecting consumers’ privacy.

“These are areas Alibaba doesn’t necessarily have amazing expertise in, they just happen to have really good access to data and really good connections with brands,” said Ben Cavender, Shanghai-based principal at China Market Research.

Getting shop owners on board takes resources and time.

Behind Alibaba’s Ling Shou Tong supply chain app is an army of some 2,000 foot soldiers, who work purely on commission to convince store owners to use the app, the firm says.

The workers, called ‘chengshi paidang’ – or city partners – train at Alibaba and pay a 3,000 yuan ($454.47) deposit and a 3,000 yuan annual platform fee to act as salespeople in small cities, earning a commission on products sold via Alibaba apps.

And there are logistical hurdles, said Yu Wenze, 21, who worked as a city partner in a rural area of Shandong province.

“First, awareness of the technology is too low and the replacement cycle for goods is too long. Also, the logistics aren’t good enough yet. We have to commit to next-day delivery if the shop ordered before 4.00 p.m., but in most cases we can’t do it.”

Alibaba’s efforts are further complicated by questions over ownership of individuals’ data, as it extends its offline network into highly varied offline environments.

“They need that personal information in order to create more targeted offline stores, and all of that will require additional data to be shared across different locations,” said Bain’s Ding.

“There are a lot of new rules that need to be defined if they want to strike the right balance.”

MIXED IMPACT

Store owners were mixed about the impact on their business.

“They give us storefront decorations and come out to give in-store training and other help,” said one store owner in eastern Hangzhou, who converted his shop to an official “Tmall Store”. He didn’t want his name used as he’s not authorized by Alibaba to speak to the media.

The store is part of a drive launched in August to transform 10,000 convenience stores outside China’s major cities into Tmall-branded stores within four months.

Near the shop’s till, goods have digital price tags that change to match online prices. Outside, Alibaba’s Tmall mascot – a black cat – looms over the shop front.

On the top floor of an Intime department store in downtown Hangzhou, Alibaba’s IKEA-like “Tmall Home Selection” uses electronic tags that allow shoppers to browse sofa cushions and vases before paying online and getting goods delivered.

On a recent Friday afternoon, the store was quiet.

“People still buy in the store… but the concept is still very new,” said a saleswoman who declined to be named. “It’s empty because people are working right now, but they can always buy online.”

Back in his store, Lu is quietly happy with his new system, which he says has cut his costs by knocking local re-sellers out of his supply chain. Customers can now also pay more easily on their smartphones with Alibaba-linked Alipay.

“Now we all work for Alibaba,” he said.

Reporting by Cate Cadell in BEIJING, with additional reporting by Sijia Jiang in HONG KONG; Editing by Adam Jourdan and Ian Geoghegan

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Australia's ASX selects blockchain to cut costs

(Reuters) – Australia’s ASX Ltd (ASX.AX) said on Thursday it would replace its registry, settlement and clearing system with blockchain technology to cut costs for customers.

FILE PHOTO – An investor looks at a board displaying stock prices at the Australian Securities Exchange (ASX) in Sydney, Australia, July 17, 2017. REUTERS/Steven Saphore

The decision to replace the Clearing House Electronic Subregister System (CHESS) on Australia’s main bourse follows two years of testing of distributed ledger technology, also known as blockchain.

“We believe that using DLT to replace CHESS will enable our customers to develop new services and reduce their costs,” ASX Managing Director and CEO Dominic Stevens said.

The move will make the Australian Securities Exchange one of the biggest mainstream financial markets to use the relatively new ledger system, best known as the technology underpinning the bitcoin crypto-currency.

Blockchain is a shared, verifiable and permanent record of data that is maintained by a network of computers.

Banks and other large financial institutions have ramped up their investments in the technology over the past few years, hoping it can simplify and cut the cost of back-office processes.

The new system should be operational for market feedback at the end of March 2018, ASX said. The timing of its final implementation would depend on consultation with stakeholders.

The system would be designed without access barriers to non-affiliated market operators and clearing and settlement facilities. It also would give ASX customers choice over how they use its post-trade services.

ASX bought a minority stake in U.S. blockchain developer Digital Asset through a A$14.9 million ($11.27 million) investment in January last year, to design a new post-trade solution for the Australian equity market.

The market operator’s decision is a win for the young technology company led by Blythe Masters, a former senior JPMorgan banker.

Founded in 2014, Digital Asset has raised more than $115 million from large firms including ASX, Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N), CME Group Inc (CME.O), Deutsche Boerse (DB1Gn.DE) and Citigroup (C.N). “After so much hype surrounding distributed ledger technology, today’s announcement delivers the first meaningful proof that the technology can live up to its potential,” Masters, Digital Asset’s chief executive, said in a statement.

ASX shares gained as much as 0.88 percent by 0039 GMT, while the index was up 0.5 percent.

($1 = 1.3217 Australian dollars)

Reporting by Susan Mathew in Bengaluru; Additional reporting by Anna Irrera in New York; Editing by Stephen Coates

Our Standards:The Thomson Reuters Trust Principles.

Bill and Melinda Gates Foundation Just Donated to This Tech Non-Profit

The Bill and Melinda Gates Foundation is doubling down on improving computer science education.

The private foundation, formed in 2000 by the former Microsoft (msft) CEO and his wife, has contributed an unspecified amount of a $12 million donation to the non-profit Code.org. PricewaterhouseCoopers and the non-profit foundation arm of Indian IT company Infosys also donated, Code.org said on Monday.

Code.org focused on making computer science education more available in schools and to people from underrepresented communities. In addition, it is involved in trying to get more girls interested in computer science.

The Code.org non-profit also said Monday that it reached a milestone of signing up 10 million girls to use its several online courses intended to teach them software development skills.

In October, Bill Gates said his foundation would invest $1.7 billion in U.S. public education, with the funds intended to explore new teaching techniques.

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“The role of philanthropy here is not to be the primary funder, but rather to fund pilots, to fund new ideas, to let people — it’s always the educators coming up with the ideas — to let them try them out and see what really works super well and get those to scale,” Gates reportedly said at the time.