Why has Australia fallen in love with neobanking?

On By mehranmuslimiblogIn BanksLeave a comment

Neobanks, or digital banks, arrived in Australia in 2018, dues to a change in legislation, and since then there has been a flurry of activity. Some might even call it a tsunami of neobanks, and this has led to a high level of competition in the country’s banking sector, something that hasn’t occurred for decades.

The neobanks are app-based banks accessed mostly from a smartphone. They don’t have physical branches and they promise clients a ‘touch of the button’ 24/7 service, and most of them have much lower charges than the traditional banks.

Neobanks have been growing in popularity outside Australia for some time, with Europe being a leader, especially the UK. As Jack Derwin points out, the fact that they are doing so well in the UK, and a number of them are registered there, such as Starling, Revolut and Monzo, is a good sign for Australia.

The digital banks are a more recent addition to the Australian banking scene, because until legislation changed in 2017/18, it was extremely difficult to start a neobank. Whilst the previous legislation was intended to protect the consumer, it was perhaps too restrictive, and anti-competition.

In 2017, Scott Morrison, who then headed the Treasury, dramatically simplified the application process to enter the banking sector. As a result, within months neobanks were lining up to enter the market.

Still, entering the banking sector is never easy. Neobanks need a banking licence, a core banking system and a substantial fund of money: one neobank founder told Business Insider Australia that $100 million was the figure needed to start up.

It takes time to raise that kind of money, and to get a banking licence, which can take up to 12 months, as the newcomer must convince the financial regulator to trust the product.

So, what is the advantage to using a neobank? Unlike traditional banks, they are more cost efficient. They don’t have a network of offices and the fact they have lower overheads, means they can pass the cost saving onto the client. Also neobanks have access to the best tech and can therefore optimise their product. It only takes minutes to set up an account, compared with all the paperwork needed for a bank. So, the consumer appeal is there, combined with free accounts and lower charges.

As Derwin says, “From recognising higher than usual bills, notifying you of unused subscriptions, and even helping you switch to a cheaper energy provider, neobanks say they can do banking better.”

That might not be hard to achieve in Australia, where the traditional banks have admitted to extorting fees for non-existent services, to the point they were even charging dead people. They also admitted to lying to the regulators, holding forged documents, failed to verify customers’ expenses when approving loans, and sold insurance to people who couldn’t afford it. And as Derwin says, with four banks controlling 80% of Australia’s business, there was no incentive for them to do better.

All this adds up to a reason for Australians to love neobanking. They now have around five to choose from, including Volt and Xinja, and the UK’s Revolut is testing the market. This is definitely a geographical space to watch for anyone interested in neobanks.

Is there a link between Coronavirus and bitcoin?

On By mehranmuslimiblogIn BitcoinLeave a comment

Bitcoin went up, and it was because of the Coronavirus, people said. Then bitcoin went down, and that was also because of the virus. The question is this; has the virus had any effect on bitcoin at all?

The global panic around the Coronavirus, or Covid-19, could be called a ‘panicdemic’ rather than a pandemic. It has certainly caused the traditional stock markets to plunge, and there is no exchange that hasn’t been affected by it.

Some people suggested that money was going into bitcoin, because it is now more often seen as a ‘safe haven asset’. But that was more of an assertion made by enthusiasts.

What in fact happened was that bitcoin collapsed by 15% over the last week, and the rest of the cryptocurrency market sank alongside it. This happened at the same time as the traditional markets went into freefall, and that was definitely due to the spread of the virus.

Billy Bambrough offers a more compelling reason for the slump in bitcoin’s price. He writes, “On Wednesday, the SEC rejected an ETF application from New York-based asset management firm Wilshire Phoenix and options exchange NYSE Arca that wanted to mix bitcoin and short-term Treasuries.”

He believes that the SEC ruling against a “long-hoped for bitcoin ETF,” provoked a sudden sell off.

Why did the SEC not give permission for a bitcoin ETF? In a statement it said: “The Commission concludes that NYSE Arca has not established that the relevant bitcoin market possesses a resistance to manipulation that is unique beyond that of traditional security or commodity markets such that it is inherently resistant to manipulation.”

Still, the SEC ruling shouldn’t have come as a major surprise, because it has a history of rejecting applications, and as James Seyffart, a Bloomberg Intelligence analyst said, “I didn’t see any viable reason why this would be accepted when others were denied.” And as Bambrough suggests, there were comments in the ruling that would lead most of us to believe that the SEC is nowhere near ready to give any ETF application the green light.

Hester Pierce, AN SEC member who is very supportive of cryptocurrencies, made an interesting comment about the recent ruling. She said that it led her, “to conclude that this Commission is unwilling to approve the listing of any product that would provide access to the market for bitcoin and that no filing will meet the ever-shifting standards that this Commission insists on applying to bitcoin-related products — and only to bitcoin-related products.”

We must also remember that bitcoin’s value isn’t derived from the same indicators as fiat, such as interest rates and GDP; it is driven by demand, as Dave Waslen, CEO of HedgeTrade told Forbes. Instead, “Bitcoin is purely driven by demand which is why it often remains steady when other markets are teetering.”

To sum up: Coronavirus has had an effect on all markets, but it would appear that it is not solely responsible for the recent rise or drop in price. However, it is entirely possible that as the virus impacts more countries, and the markets wobble even more, that assets like gold on the one hand, and bitcoin on the other, may benefit. We can only watch and wait.

Who’s in the Forbes Blockchain Top 50?

On By mehranmuslimiblogIn Blockchain, cryptoLeave a comment

The Forbes annual Blockchain 50 is on its second outing. It lists the companies making the biggest strides in blockchain, and most of them are valued in the billions of dollars. Indeed, to appear on the list, Forbes says, “To qualify, Blockchain 50 members must be generating no less than $1 billion in revenue annually or be valued at $1 billion or more.

There are some surprising names that turn up in the Blockchain 50, if only because on the face of it they have little to do with blockchain.

For example, De Beers is on the list. The diamond giant’s new software, Tracr, follows diamonds through the supply chain as they are mined, cut, polished and sold and tens of thousands of stones are being registered per month.

Foxconn makes the iPhone trade-finance venture, Chained Finance, pays more than 20 electronics suppliers using digital coins minted on the Ethereum blockchain. As a result the costs have dropped from annual percentage rates as high as 24% to a mere 10%.

Dole Foods is another blockchain adopter. It is using it across all vegetable processing, for millions of pounds of lettuce, spinach and coleslaw. Customers at Walmart can now check where their fruit comes from by scanning a code used by farmers. It is soon expanding this use of blockchain to its fruit.

LVMH, the luxury goods brand, is using blockchain technology for traceability and proof of authenticity. Among its brands, Louis Vuitton is already tracking millions of its products in an effort to reduce counterfeiting.

The United Nations, a 75-year-old organisation is using a number of blockchain initiatives, including one that is intended to combat warlords who steal aid using pilfered ID cards, the UN has over the past two years disbursed funds to 106,000 Syrian refugees in Jordan, using blockchain-verified iris scans instead of ID cards.

As Forbes says in its introduction to the Top 50, “Blockchain started as a way to move bitcoin from point A to point B, but it is now being used by a host of big companies to monitor and move any number of assets around the world as easily as sending an email.”

From the instantaneous settlement of German government bonds to verifying the provenance of diamonds mined in Africa and bringing liquidity to a small supplier of sliding shower doors in Zhongshan, China, this year’s members have largely moved beyond the theoretical benefits of blockchain, to generating very real revenues and cost savings.

How do you pay crypto taxes?

On By mehranmuslimiblogIn Bitcoin, cryptoLeave a comment

I would be prepared to wager that many people who bought cryptocurrencies, never thought about any tax considerations. It is unsurprising that the tax authorities are ahead of the crypto owners, because they see plenty of new income for their coffers. The IRS in particular has started on a crackdown, because when it sees that only a few hndred people report their crypto trades, but Coinbase has 35 million accounts, they know something is going on.

It used to be that you might have got away with saying that the law isn’t clear, but there is no denying it now that the IRS has decreed that cryptocurrency is property. Not an asset or a security — it’s a property. Therefore, as capital assets, they give rise to capital gains and losses when disposed of.

As William Baldwin writes at Forbes: “A profit is taxable as a short-term gain if a position has been held for a year or less, as long-term if held for more than a year. If a coin is held for profit rather than amusement, which is presumably almost always the cases, then a loss on it is a deductible capital loss.” Also, you need to note this: you can go out at a loss and then right back in without losing the right to immediately claim the loss.

Don’t trust your exchange

For some reason, many people are convinced that the exchange they use won’t reveal their name to the tax authorities. Wrong! Especially if you are a prolific trader. For example, in the US, the 1099-K is mandatory for a customer who in one calendar year does at least 200 transactions with proceeds totalling at least $20,000.

Watch out for the forks

The IRS also has a view about what happens when there’s a fork in a blockchain. It believes that a fork gives crypto owners a windfall that should be taxed at high ordinary-income rates.

Also, if you have benefitted from an airdrop, that’s income, and obviously, so is mining. if you join a mining pool, spend $8,000 on electricity and get rewarded with a bitcoin worth $9,800, then Eeen if you don’t sell the coin, you have to report a $1,800 profit, and that profit is ordinary income.

Gifts and donations?

On the other hand, if you donate crypto to a charity, or gift it to your kids, then it is treated like ‘gifts of stock’. Baldwin gives this example: “Say you bought a bitcoin at $12,000 and give it to your niece when it’s worth $11,000. If she sells at more than $12,000, then she uses $12,000 as her basis. If she sells at less than $11,000, she has to use $11,000 as her basis, reducing the capital loss that she can claim. Any sale between $11,000 and $12,000 is in a dead zone that creates neither a gain nor a loss.”

If you’re confused about tax rules around your crypto holdings, I would suggest you find a tax adviser who knows crypto — there must be several trying to occupy this niche now. If they don’t know crypto — you could find yourself in some trouble later on. It really is worth getting expert advice about your crypto holdings.