“Who would have predicted the climate crisis and its spectacular impact on our country this summer?”

This isn’t a quote from a decades-old science-fiction novel or a Holywood production.

The year is 2023, and this is an excerpt from French President Macron’s New Year’s Eve address.

To his surprise, this has been a long time coming.

Alexander von Humboldt predicted anthropogenic climate change over 200 years ago.

Academics started linking carbon emissions to rising temperatures as early as 1896.

Newspapers were discussing coal use and its link with the climate crisis back in 1912.

President Macron’s compatriot, Jacques Cousteau, started talking about it in 1971, while over 20 years ago, Jacques Chirac warned that “our house is burning down,” and we are collectively looking away.

The world’s leading scientists from groups like the IPCC, the World Weather Attribution initiative and many more have been ringing the alarm for decades, issuing studies left, right and centre, each more damning than the previous. But after 27 COPs and dozens of scientific reports, the climate crisis still comes as a surprise to some.

While President Macron’s question might have been just a wrong choice of words, it reminds us of an overarching problem that we aren’t talking about enough — the widespread ignorance of those at the top regarding climate change — not only political leaders but also corporations and influential public figures.

As a community, we have a massive, inherent problem — the most surprised or ignorant of the climate crisis are the most responsible for it.

The Gap Between the Emissions of the Poorest and the Richest

According to Oxfam, the world’s richest 1% generate more than double the emissions of the poorest 3.1 billion.

What’s worse, this gap is widening. For example, in 2010, the 10% wealthiest households emitted 34% of global CO₂, compared to 15% for the 50% of the lower income bracket population. By 2015, the share of the wealthiest 10% jumped to 49% against just 7% for the poorest half of the population.

Today, in the UK, it would take 26 years for a low earner to produce as much CO₂ as the richest do in a year.

According to the World Inequality Report 2022, some of the reasons behind the widening emission gap include electricity consumption, diet, and, most importantly — transportation methods.

There is this odd, cringy, borderline-upsetting feeling watching videos of famous film and sports celebrities jumping happily in a circle, celebrating New Year’s Eve, on the board of a megayacht, with Antarctica’s melting glaciers in the background.

And, while critics may argue that Antarctica is heating three times the global average, there is no need to worry — the yacht in question is said to have a limited environmental footprint!

While superyachts, the single most-polluting assets, saw a 77% surge in sales in 2021, private jets remain the preferred transportation method for the wealthiest.

However, in just four hours, a private jet generates as much CO₂ as an average person in the EU for an entire year. While 80% of the global population has never gotten on a plane in their entire lifetime, the richest use planes on a daily basis. After the 2022 Super Bowl, for example, when over 140 private jets left LA just within the first five hours after the game. In fact, private jet flights have tripled since before the pandemic, while their carbon emissions have quadrupled.

Yard Digital has recently unveiled the scope of celebrities’ emissions by analysing their private jet travels. The analysis estimated that some have had 0.85 flights per day between January 1st 2022 and July 19th 2022. More disturbingly, some of these trips were over a distance of… 25 km.

Overall, celebrities are found to be emitting around 3,300 metric tons of CO₂ annually, compared to just seven metric tons for the average person.

But this isn’t just a practice of certain individuals. In fact, it is a glaring and widespread problem, and the football industry is its epitome.

Just after extending its partnership with the energy firm E.ON in a bid to “drive climate awareness”, Nottingham Forest took a 20-minute flight for its match against Blackpool.

In 2021, Manchester United’s flight to Leicester took just 10 minutes.

In Spain, Real Madrid’s team took a 15-minute flight to get back from Valladolid — a city a mere 210 km away.

In September 2022, Paris Saint-Germain’s team took a flight from Paris to Nantes.

Paris Saint-Germain on Twitter: "From 𝐏𝐚𝐫𝐢𝐬 to 𝐍𝐚𝐧𝐭𝐞𝐬 with @qatarairways! ✈️⚽️ #FCNPSG#QRxPSG #GoingPlacesTogether pic.twitter.com/1oovuflou4 / Twitter"

From 𝐏𝐚𝐫𝐢𝐬 to 𝐍𝐚𝐧𝐭𝐞𝐬 with @qatarairways! ✈️⚽️ #FCNPSG#QRxPSG #GoingPlacesTogether pic.twitter.com/1oovuflou4

At a press conference in 2022, a reporter’s question about whether PSG’s team should consider train trips to help fight climate change made the team’s star burst into laughter while also prompting the manager to sarcastically respond that the club was considering “sand yachts” instead.

The case was followed by criticism from public figures, including the French Sports Minister and the Mayor of Paris. As of December 2022, flights like this are banned in France.

If anything, examples like these perfectly illustrate how detached from reality the world’s elite can be when it comes to the collective mission to slow climate change down.

From Warnings to Real-Life Suffering

Climate Trends’ “No Place to Hide” report is a sobering reflection of the climate change-induced losses worldwide. The 14 extreme weather events studied have turned 2022 into one of the most ferocious years on record regarding the climate crisis. From the US and China to India and the Mediterranean, climate change proved it knows no borders.

In a nutshell:

• The US went through the worst megadrought in 1,200 years.
• Europe suffered the worst drought in over 500 years, while the UK experienced its first recorded temperature above 40°C — an event so rare that meteorologists classified the heat as “exceptional”.
• Over 900 million people in 17 Chinese provinces experienced one of the longest and most devastating heatwaves, with temperatures reaching 40°C and lasting over 70 days.
• South Korea saw the worst flooding in 80 years, with a month’s worth of rainfall occurring over just a few days.
• Central Tokyo experienced the longest streak of days with temperatures above 35°C since record-keeping began in 1875.
• An extreme flooding event submerged over a third of Pakistan and displaced over 33 million people. The floods came shortly after the country broke its temperature records in March.
• India suffered from temperatures of 49°C in the spring and experienced its hottest March since records began 122 years ago.
• Some Brazilian states saw over 70% of the rain that usually falls in May fall in just 24 hours.

Furthermore, climate change’s impacts are found to affect people disproportionately, hitting the poorest the hardest.

Countries with a lower GDP per capita are at greater risk of permanent loss and damage caused by climate change. On top of that, the population in low and lower-middle-income countries is around five times more likely than the people in high-income countries to be displaced by sudden extreme weather events. In the next ten years, climate change can push an additional 130 million people into poverty.

Nowadays, up to 3.6 billion people live in highly vulnerable regions to climate change. Scientists estimate that they are 15 times more likely to die due to floods, droughts, and storms compared to people living in regions with very low vulnerability. Studies reveal that some vulnerable countries have been hit by nearly eight times as many natural disasters relative to the 1980s.

Currently, the world’s poorest countries, including many highly-vulnerable low-lying island nations, home to around 1 billion people, are responsible for less than 1% of humanity’s global warming contribution. The World Bank finds that 74 of the world’s poorest countries account for less than 10% of global greenhouse gas emissions.

While being the least responsible, the poorest countries are the most affected by climate change and have the least capacity to adapt.

We Are on the Last Grains in the Hourglass

In a recent report, the IPCC warned that climate change’s impacts are heading towards catastrophic proportions, affecting the world way faster than anticipated.

The scientific group considers the 1.5°C target on “life support.” At the current rate of emissions, the world has approximately nine years until hitting the critical warming threshold and triggering catastrophic climate impacts, including extreme and more frequent weather anomalies, disease spread, hunger, and collapse of vital ecosystems. In a nutshell, climate disasters will become so extreme that people won’t be able to adapt.

What’s worse, the world is currently on a trajectory towards 2.7°C or more of global warming by 2100. As a result, scientists argue that the chance of having a liveable future on a habitable planet is hanging by a thread, as the consequences will get worse with every fraction of a degree of warming.

Meanwhile, the ignorance of the richest is reeking from every corner — from the USD 100 billion annual financial aid to the most vulnerable countries promised in 2009 but not once delivered to celebrities’ everyday life choices.

Regarding the latter, academics argue that taxing the wealthiest will fix the problem. But this, alone, won’t be enough. The key is for the top 0.001% to realize that their decisions can have the same climate impact as nationwide policy interventions.

They have the power, the ability and the moral responsibility to be that much-needed lifeline that will tame the world’s fall into the depths of a climate disaster. So far, however, they have been a part of the weight, pulling it down.

The world is in the dying minutes of a once-in-a-lifetime opportunity to prevent a catastrophe and secure a livable future. Considering what’s at stake, the hour or two saved by hopping on the private jet doesn’t seem worth it, right? Or is it just me?

How Your Idols Are Burning Your Home: The Emission Gap Between Rich And Poor was originally published in The Startup on Medium, where people are continuing the conversation by highlighting and responding to this story.

In times like these, I feel nothing but empathy for the community and the wealth lost over the past few weeks. However, I am not going to act surprised about the collateral damage and the events that shook the crypto lending industry.

The “I Hate to Have Told You So” Moment

Two years ago, I published my most read article — “The Crypto Lending Industry — a Ticking Time Bomb, Rather Than a Shortcut to Mainstream Adoption.” At the time, I was aware that many would have considered the headline a prime example of sensationalism, but I believed the piece held some truth to it. In hindsight, it seems it did, indeed — just not as convenient as most would have wanted.

People in the comments started arguing that…

…“there is little to no risk of the platform getting burnt even if the lender doesn’t pay up or the collateral price falls significantly.”

…or that I didn’t understand cryptocurrencies…

…or that the industry’s mammoth market cap was a solid benchmark (which anyone remotely familiar with cryptocurrency fundamentals knows it is as unreliable as they come)…

…or even that I thought lending companies (the interesting thing is that Celsius and BlockFi were the cited examples) didn’t understand risk management…

Regarding the last point — of course, I think they do. I have been working with some of the leading crypto lending service providers since the industry’s early days, and I have witnessed that first-hand. However, not all are equal.

After I published the article, Celsius’ CEO gave me a follow on LinkedIn — maybe he liked the article, or perhaps it touched some nerves.

Fast forward two years and the crypto market is in a downward spiral.

Celsius, one of the bigger cryptocurrency lending platforms, with more than $11 billion in customer assets, has paused all withdrawals and frozen the funds of over 2 million clients due to “extreme market conditions.”

Celsius on Twitter: ".@CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community. More here: https://t.co/CvjORUICs2 / Twitter"

@CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community. More here: https://t.co/CvjORUICs2

So did the Hong-Kong-based Babel Finance, while BlockFi, another prominent player in the industry, had to be bailed out.

Cases like these are why SEC officials describe the industry as “a plague with no regulatory oversight, no consumer protections, and no fiduciary infrastructure of any type.” If the crypto industry is to thrive, it should be working to change such notions.

The Anatomy of a Crisis

In 1849, French writer Jean-Baptiste Alphonse Karr wrote, “the more things change, the more they stay the same.”

Nowadays, people try to portray the crypto industry as something way better and more refined than the traditional financial system. Yet, so far, it has been making the same mistakes.

As much as people want, crypto markets lack the safety net of having a lender of last resort. As a result, insolvency is always around the corner.

The truth is crises arise from irresponsibility, not as a result of the market conditions. In fact, there is nothing “extreme” with the current market conditions - crypto winters take place every few years or so. The only extreme is the inability to withstand them.

A Painful Reality Check

The bottom line is that everyone should start reading between the lines. Crypto winters will inevitably continue in the future, and the only way to survive them is by keeping your feet on the ground. Acting as if the market has matured overnight will only further deceive those with heads already in the clouds.

And there are many of them. The bull market of the past years has made many market participants, both retail and institutional, feel invincible, even cynical at times. However, as Sir John Templeton says, “markets die on euphoria.”

The truth is we are all Warren Buffets when the market is going up, but when it starts going down… well, this is when chaos takes over.

Instead of being overly ecstatic about an extended bull market (we are in bull markets most of the time, anyway), lending companies’ clients should start asking the tough questions.

The bear market has just started, and companies are already falling like flies. What if it lasts a year or two?

What exactly is the lending company doing with your money?

How much of its funds are liquid?

What is its contingency plan in case of the so-called “extreme market events?”

As Benjamin Graham notes in the “Intelligent Investor,” the intelligent investor is “a realist who sells to optimists and buys from pessimists.” Crypto markets need more realists, rather than optimists.

Avoiding Future Distress

Here’s to hoping Celsius, like all other affected companies, will survive the latest crypto winter.

However, the problem isn’t whether a particular company will make it out alive or not. In fact, a business model that thrives only in bull markets but crumbles once bulls take over isn’t worth breaking a sweat for, either way, since it isn’t healthy for the niche’s reputation. This isn’t a dig at the crypto industry — just the natural evolution of financial markets. We have seen it with the traditional financial system, and we are seeing it now with the digital one. So why turn a blind eye?

More importantly, companies and individuals should rethink their operational models and behavior.

No matter what some may argue, there is simply one way for lending companies to ensure stability in a highly-volatile crypto market environment, and it is over-collateralization. Furthermore, to operate resiliently, platforms should prioritize their own stability. The adopted operational models should be unforgiving to clients — margin calls during times of excessive volatility that trigger collateral liquidations in case of need. The volatility risk should be shifted to the client, not the service provider. Otherwise, a problem like the one we are seeing now would become systematic rather than idiosyncratic.

On the other hand, clients must always keep their LTV at healthier and relatively lower levels than during calmer market periods. That way, they can ensure their capital won’t be impacted in case of sudden volatility spikes.

This simple formula should be enough to keep the system stable, at least on paper.

In reality, lending service providers should strive for transparency and adopt way more advanced risk management practices, including real-time auditing of assets, publicly verifiable data of their financial health, licenses, the latest security infrastructure, and more.

What Lies Ahead

The current crisis is a blessing in disguise. It is a healthy reality check — a “survival of the fittest” scenario that will clean up the stage from companies with shaky operational models.

Whether the affected businesses survive or not, the damage is already done. The current situation has sent a worrying signal to clients that once cryptocurrencies start nosediving (which is every couple of years), their funds might be at risk. In a world of skyrocketing inflation, the last thing investors want is to expose their funds to greater risk.

What remains ahead, in my opinion, is stricter regulations. Similar to the aftermath of the dot-com bubble, we can also expect significant industry consolidation. And this consolidation will give birth to the new market leaders — the Amazons of the cryptocurrency space.

Check out our new platform 👉 https://thecapital.io/

https://twitter.com/thecapital_io

The “I Hate to Have Told You So” Moment With the Crypto Lending Industry was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

You’ve probably heard the expression “safe space.” School counselors use it, psychiatrists use it, all within the same context.

A safe space is where you feel calm, relaxed, and won’t be judged or hurt.

Everybody needs a safe space. But what if there isn’t any?

What if nowhere feels safe?

A terrifying thought for you, a reality for many.

Last week I decided to swap the city’s buzz with the calmness of the mountain. Honestly, it wasn’t because I needed a break, just that there is nothing better than catching the early morning hours in the mountain.

The forest and the hills on the left, the calm yet untamed river on the right. Expanse, air, morning dew, birds, harmony — there simply wasn’t anything else to ask for.

Except that the coffee tasted differently. Not particularly bad, rather strange. Kind of dominating.

I finished my cup, but the taste was still there. And then I realized it wasn’t the coffee. It was a thought my mind was trying to process in the background.

“What if there isn’t a safe space?”

What if you can’t allow yourself to feel safe — anywhere you go, whomever you are with? This whole mountain-river stuff feels great for me, but would it be that way for everyone? What if, despite the beauty and the calmness of nature, you still can’t feel at peace?

So many questions were popping into my head. The answer was clear.

A safe space isn’t a physical location. It is a condition of the mind.

The safe space starts from within

Fear, death, relationships, work — there are so many instances in life that test our resilience. The pandemic is a major example. Studies find between 25% to 56% increase in individuals reporting symptoms of anxiety and/or depressive disorders.

Just when we were starting to finally tear walls down, the pandemic made us build fortresses.

Lockdowns were necessary, but they also proved too overwhelming for many. They stressed the feeling that you are safe when you are at home.

When the door is locked.

When no one can get near you.

Lockdowns made us create our own islands of isolation. That left scars in many of us. But the scars aren’t the problem. The problem is that, as a society, we are incapable and unwilling to help them heal.

I tend to believe I am a resilient person. However, many around me don’t have this luxury. People should understand that one’s state of mental health isn’t a choice or a switch you can turn on and off. Often, you simply can’t sustain anxiety. It can grow to a point where it takes complete control of you, disrespecting all boundaries, blocking your abilities to think, talk, move, and breathe.

That blissful morning I enjoyed on the river’s shore was possible because my head was my safe space. Take the calmest environment, and you simply won’t be able to enjoy it if your mind isn’t at rest.

A safe space, for me, isn’t a place where you can’t be hurt. It is a state where you know you can be hurt, but you are okay with it.

It’s a collective responsibility

We have all been mentally exhausted at some point. For some, this has just been a blip; for others, a harsh day-to-day reality they are trapped in.

It is important to put ourselves in the shoes of others. To help them build their safe place. If not, at least, to not intrude it.

Next time, that thought you might have in your head, these things you might want to say, the label you might want to put — remember that they will hit home differently with different people. Everybody is vulnerable in their own way, faces their own fears and fights their own battles.

As a society, we have pushed vulnerable people into the corner, forcing the narrative to always opt for what wins the popularity contest than what they really want and makes them comfortable.

“It’s all in your head.”

“It’s up to you to control it.”

“Stop worrying. It’s irrational.”

“Why are you scared? There is nothing to be afraid of.”

“How can you miss a party?”

“Why wouldn’t you want to go out?”

Know that the response you get might not always be out of the person’s own will, rather than a fear of not being understood. Of being judged. Remember that, for some, questions aren’t binary, and there are much more variables in place. And that’s okay.

We all live in the same world, yet different realities. Let’s be more understanding. Otherwise, the coffee will taste differently. To all of us.

But, at the start of the new decade, we should be looking at more than just numbers. If the industry continues its remarkable progress, it has to start solving real problems and build upon…

What we have today

At the Federal Reserve Bank of Chicago’s 41st Annual Conference in May 2005, Allan Greenspan, Chairman of the FED at the time, didn’t miss the opportunity to reiterate that the US financial system had become more resilient thanks to derivatives. Fast-forward two years and some of these derivatives unleashed the biggest financial crash since the Great Depression.

If anything, today’s financial industry has taught us to be worried when we are told not to.

In the months prior to the crisis, Bill Gross of the bond manager Pimco said we were witnessing the “breakdown of our modern-day banking system.” A system so complex that, just a year before the crisis, Ben Bernanke, Greenspan’s successor, required a refresher course from hedge fund managers on what was going on within the industry he was responsible for.

Despite the hissing sound from the last bubble still echoing in our ears even today, many still don’t get the real reason for the recent crash (those, managing your money included).

The simple truth is that bubbles burst when people stop believing big capital gains are guaranteed. Once and for all, we must accept that the economy can’t continue growing indefinitely.

But bubbles, crashes, and the economic distress, coming as a consequence are in the DNA of the way the economy works, and there is nothing wrong with that. Although we continue to repeat past mistakes and replace bubbles with new ones effortlessly, the truth is recently, we have been putting up with a structural problem that is much more serious.

For the last two decades, the conventional financial system has been destroying rather than creating value. Destruction, driven mainly by what Paul Krugman describes as “an alphabet soup,” or the process of structuring instruments like CDOs, CDSs, SIVs, RMBSs, ABCPs, and more. If the choice of words sounds too harsh, we may say that, instead of creating, at best, we are just shifting value around the system. Alternatively — money going from one pocket to another.

The lack of real product and the continuous downward spiral we are witnessing in the financial industry, alongside the last crisis, undermined the trust in the system. In the end, if AAA-rated instruments, in reality, are junk, then what trust is there to talk about at all?

But in the midst of the Global Financial Crisis, something revolutionary was born. Today, in the face of blockchain technology, we have the first real tool to really turn things around, bring trust back into the financial system, and most importantly — to start creating value.

The blockchain industry — a world of extremes

Although the blockchain niche has the potential to build a more transparent and resilient financial system from scratch, in many aspects, we can say we started on the wrong foot. We brought the old skeletons out of the closet, including Madoff-like Ponzi schemes and purely speculative projects, rather than ones with a real purpose.

However, we also witnessed idealistic concepts and projects with the primary goal to build upon what we have, becoming a reality. They showed the technology’s true potential and hinted what we could achieve with the right efforts.

In a nutshell, for a bit over ten years, we’ve seen it all.

For every OneCoin, there is Ethereum.

For every PlusToken, there is Maker.

For every Coinmarketcap, there is Nomics.

Today, we need more of the latter.

It is natural for every young and uprising industry to experience an influx of the good, the not-so-good, and the bad guys. The good guys care for the things they do and want to help the niche grow (while making money on the side, of course). In contrast, the rest just want to exploit the lack of understanding and the greed of investors, naive enough to think there is a Google or Apple under every rock (i.e., a project’s whitepaper) out there.

If we want to move the industry forward, we need more of the good guys. As the niche matures, people will learn to tame their expectations and avoid falling for every scam out there, but instead of relying on this to happen naturally, we need to further speed-up the process.

In the end, the crypto and blockchain industry was born as an alternative to the conventional financial industry. It was intended to solve its deficiencies, build upon what we had, and even replace it, as many proponents believed.

Although a lot had been made, there is the feeling we could have done better. By better, I mean having concentrated efforts in solving real-life problems.

Over the years, I’ve rejected working with crypto and blockchain projects solely due to their business model. Millions of dollars have been poured into ideas that, with all due respect, are just a bleak effort for someone to call himself an entrepreneur or enhance his LinkedIn.

24-year olds with $3m in funding to develop a browser game — sure, someone somewhere needs that, but don’t we have more glaring problems to solve?

The worst part is funding from that scale doesn’t come only from the average Joe’s determination to find the new Bitcoin, but also from many funds and VCs.

If it was evident to me, a guy without a single day of VC experience, that these projects didn’t have even the slightest chance to create value or survive in the short-term, then why we see millions of dollars poured into them?

The answer is — when there is excess money, we don’t really need value creation.

However, if we need to move forward, this has to stop. Otherwise, we will be talking about blockchain technology as the one that got away.

It is time to get real

The blockchain industry is starting fresh and without the burden of conventional financial system’s deficiencies. It has the opportunity to do things right and fix where what we have in place failed.

It doesn’t even have to do much. With the right efforts and concentrated focus on projects and causes that matter, it will quickly make a mark. Just the threat from the blockchain industry’s existence now serves as a counterweight that brings the self-absorbed financial system back to Earth.

The technology has the potential to level the playing field and boost competitiveness between both industries and the projects within. This will nurture innovativeness and drive, resulting in a healthier and more productive financial system. A system that doesn’t have to be centralized or decentralized. A system that can be both.

An example of a decades-lasting issue that we have continuously failed to address is the high number of unbanked individuals. Today, it is probably the biggest opportunity and problem, at the same time, within the financial world. As of now, the number of unbanked individuals stands at approximately 1.7b, down from 2b in 2014.

The best thing is that the barriers aren’t even so hard to bring down. Over 1.1b of the unbanked currently own a mobile device. The majority also are within countries that don’t struggle to ensure an accessible internet connection. Besides, governments from emerging markets are much more open to disruption and new technologies than strict regulatory frameworks and jurisdictions like the US.

Just solving the issue with the unbanked, for example, will result in an influx of over 1b new users in the blockchain industry. This will immediately cut the barriers to mainstream adoption — proof that big-profit opportunities for the service providers and the mission to solve a real-world problem can co-exist.

“If we solve these large problems of financial inclusion, it will be with new business models, technologies, and innovations.”
Roger Voorhies, The Bill and Melinda Gates Foundation, 2014.

These technologies have long been here, yet we aren’t much closer to financial inclusion. This is not to say we won’t get there, just that we started a bit slowly.

We have identified the areas that need improvement or a total transformation and also have the right tools to make it work. All we need now is concentrated efforts and solutions. Many blockchain projects are starting to address the problem, with solutions already in place in emerging markets countries like the Philipines (Coins.ph) and Tunisia (the national post service provider in collaboration with Monetas and DigitUS). But we can do much more than that.

Blockchain technology is so powerful that it would be a shame not to benefit from it to try solving some of the UN’s SDGs. Financial inclusion, which is a significant enabler for achieving these goals, is way behind the progress we see in other industries.

Despite the financial niche being the birthplace of blockchain technology, projects and organizations in industries and niches like medicine, agriculture, logistics, recycling, environmental governance and climate action, education, and more, are making a much more significant impact.

If we want to make a real impact within the financial industry, we need projects tackling real-life problems, not browser extensions or game interfaces.

So, the financial industry should stop resting on laurels and get to work.

In a nutshell

Blockchain makes things that seemed impossible a generation ago entirely reasonable and achievable today. Despite having arguably the most powerful technology nowadays at its fingertips, the financial industry fails to capitalize on blockchain’s potential and continuously falls for the easy money and funding of useless projects.

If we want to change that, we should set examples and find industry role models capable of moving things further. Unfortunately, in 2020, we are still trapped in the same cycle. Just when we think we have turned a corner and are starting to make real progress, accusations for money laundering, illegal practices, and criminal activities against market leaders like Binance, Bitmex, and Poloniex emerge and bring us back to the drawing board.

To move the industry forward and fulfill the real potential of blockchain technology, the situations that leave us scratching our heads have to stop. Until then, we would have to leave that romantic vision of the new financial industry that we painted in our heads aside and get back into the real world.

The world where the shadows of OneCoin and PlusToken still haunt us.

The Blockchain Industry Has to Make It Right This Time was originally published in The Startup on Medium, where people are continuing the conversation by highlighting and responding to this story.

OneCoin is probably the poster image of a cryptocurrency scam. Its magnitude even attracted Hollywood’s interest, which, as we know, makes financial-themed productions only if they relate to notable events.

Although the investors on the top of the OneCoin pyramid made money indeed, over €5b went into the founders’ pockets, which, according to the recent FinCen leaks, instructed their team to “take the money and run,” should the project goes south.

Yet, even today, hardcore OneCoin-ers refuse to face reality and continuously echo the idea they were sold by the “Missing Cryptoqueen,” as BBC named the founder — “the price and the value of the cryptocurrency depend on its usability.”

In the OneCoin case, this isn’t exactly the real picture as things there work more like:

1. Founder’s lying on some beach: “Today, I feel 1 ONE should be worth €1 000.”

2. OneCoin’s developers input €1 000 against the “Price” tab in the backend.

3. OneCoin investors see it in their dashboard (if they manage to log in at all) and start planning the color of their new Bentley.

The moral of the story is that, although it clearly isn’t the case with OneCoin, the idea that the value of a cryptocurrency should reflect its usability must be central to many digital assets’ protocols. And most importantly — to protocols of assets that investors aspire to proclaim “safe haven”.

Just like Bitcoin.

Usability, technological resilience, continuously-decreasing volatility, higher profit opportunities — all these are among the reasons why many crypto proponents wiped out the dust from the “Bitcoin-as-a-safe-haven” idea, and the narrative once again makes the headlines.

But, once and for all, it has to stop.

The Characteristics of Safe Haven Assets

Safe haven assets are instruments that preserve and/or increase their value during different market cycles, and most importantly — in times of turmoil. Usually, they have all or most of the following characteristics:

• Liquidity — can quickly be converted into cash without significant loss of value;
• Functionality — they have a real long-term use-case;
• Finite supply — can’t be issued indefinitely;
• Timelessness — they are hard or impossible to become outdated;
• Low volatility — the price shouldn’t react to every bit of news out there or with no clear fundamental reasons;
• Low or negative correlation to the general market — when the market goes down, the asset should maintain or increase its price.

The list of traits goes on and on. For example, we haven’t even mentioned one of the crucial factors — having a regulated market. The reason — if we include it, the whole “Bitcoin-as-a-safe-haven” theory will immediately collapse.

But even focusing just on the cherry-picked features to better fit the narrative, it is safe to say we still get a good representation of the traits safe haven assets should possess.

The most notable examples of safe-haven assets are gold, sovereign bonds, and reserve currencies. Here is a useful table from JP Morgan Asset Management to illustrate the different types of asset classes, their potential advantages, opportunity costs, and how they protect portfolios.

The essence — investors of all scale have long been looking in these asset classes to find a shelter and a hedging tool against different tail events when things turn ugly.

But at some point, the existing instruments started to seem disjointed with investors’ growing appetite. For example, in the case of gold, market participants started looking for more flexible alternatives, including digital gold, futures, ETFs, and other instruments.

They also turned their focus to a mix of alternative assets to find a better-performing alternative to conventional safe have assets.

They wanted an asset that can outperform the market while remaining stable and resistant to market shocks. Even today, this seems like science fiction.

However, for some reason, many investors and analysts started to proclaim that Bitcoin has what it takes to be that asset.

But it doesn’t.

Busting the Myth of Bitcoin As a Safe Haven Asset

Bitcoin ticks most of the boxes with the typical characteristics of safe haven assets. It is liquid, has a long-term use-case (although not so well-developed yet), finite supply, and is hard to be replaced.

However, volatility and correlation to the market are where it fails. From a purely financial perspective, these two factors are also the most crucial ones.

Let’s start with volatility.

The truth is that Bitcoin’s volatility has been decreasing over time. Today, it is at historically low levels. This is great, but… only if you take it out of context and look at it as an isolated case.

On a side note:

The funny thing is I was just about to hit “Publish” when I got Nomics’ daily automated crypto newsletter.

I am quite sure this happened just to make me get back and delete the paragraph about Bitcoin’s taming volatility. But let’s just ignore it and dig deeper to find the reasons.

A safe haven asset is best tested in situations where the broader market is going down, and the economy is distressed. A glaring example is the Global Financial Crisis. However, at the time, Bitcoin was just going live, which takes it out of the picture.

The next major event that fits the bill is the current situation we live in — the COVID pandemic.

On paper, the pandemic is an example of a global and market disaster that should trigger a surge in Bitcoin’s price, if it, indeed, is a safe haven asset.

In reality, Bitcoin tanked over 50% in just a few days after the WHO declared the situation a pandemic. The S&P, for the same period, fell by 20%.

The question is, what kind of safe haven asset surpasses the market’s drop by a factor of 2.5 when it is supposed to hedge your portfolio?

The reason for the freefall was that investors rushed to liquidate alternative assets like cryptocurrencies and gold to meet their market obligations and build a pile of cash.

According to Coinbase, the main contributing factor was the high amount of leverage in the Bitcoin market. Others refer to the immaturity of the market and the fact that speculative traders and arbitrageurs can hardly correct prices during market turmoils, which further deepens the crisis.

No matter the excuses we bring, the truth is that Bitcoin performed worse than all safe haven assets, including gold, sovereign bonds, and the USD. The majority of these showed a positive performance or remained flat to marginally down.

The most important characteristic of a safe haven asset is its ability to “weather the storm.” In the case of Bitcoin, however, it often is the storm. Or a shelter with a leaky roof, at best.

To further complement the analysis, we should mention that Bitcoin’s price is also dependable on a whole industry. This means its equation has many variables, each capable of triggering mini downturns.

A trading venue going down, a cryptocurrency ban in certain jurisdictions, an exchange hack — these are all theoretical scenarios where Bitcoin’s price can nose-dive. And the historical records have plenty of examples to back this up.

But let’s move to the other aspect that differentiates Bitcoin from safe have assets — its correlation with the market.

To adequately balance and hedge a portfolio, a safe haven asset should be uncorrelated with the other constituents. Highly-diversified portfolios require high-quality safe haven assets.

If we look at markets’ history, we will see that Bitcoin has continuously moved in line with the overall market sentiment, and inversely, only several times.

For example, during the COVID pandemic, it exhibited a positive correlation of 0.6 (and growing) with the global equity market.

Analyzing things by looking in the rear mirror rarely brings any value to the investor because it often fails to help figure out how to navigate the next crisis.

However, it helps understand past events and the way the market has responded. We need that to maintain stability.

The assets that have been stable in the past have much higher chances of replicating that performance in future crises than those who have a history of being shaky.

Why the Desperate Need to Declare Bitcoin a Safe Haven Asset?

In terms of being storage of value, Bitcoin has proven to be immune to interest rates changes or currency debasements due to its decentralization. Although this is a good start, there is a lot more to it.

For example, it should be able to resist trade tensions, geopolitical forces, and overall market turmoil caused by different tail events.

Safe haven assets have become such because of investors’ trust. If there is a big enough investor base to show faith in the asset in times of turmoil and help shape the sentiment that Bitcoin will preserve and grow its value when things got ugly, then this will, indeed, start to materialize. Slowly, but steadily.

Safe haven assets also are matured markets. Bitcoin, on the contrary, is just over a decade old. Assets that are now considered safe haven have established themselves as such over a significantly long period, lasting decades or even thousands of years. This means the Bitcoin market should mature and expand first. Alternatively, to become accessible to more investors. And not only retail ones, but institutional and large-scale, as well.

We are talking about broader use-cases, not just buying coffee with Bitcoin. Think of whole countries with currency instabilities and economic distress, like Argentina or Venezuela, for example, who decide to adopt Bitcoin to shift their model. Or central banks looking for new types of reserves. Such mainstream adoption and growing usability will also help tame volatility and maintain stable prices.

For example, with gold, central banks have been buying it as a strategic investment and a reserve asset, which has contributed positively to the precious metal’s price stability.

For now, to many fund managers, Bitcoin is just a collectible and a way to speculate. It is safe to say that such kind of understanding is quite outdated as the asset has solid fundamentals and a real use-case, albeit still a bit limited. However, this isn’t enough to make it a safe-haven asset. For now, Bitcoin is a revolutionary asset with the distant potential to be a safe haven one. Nothing more.

We should stop comparing it to other safe haven assets because it does Bitcoin no good.

To be comparable to bonds, it should generate a risk-free return.

To be comparable to gold, it should have a reverse correlation with the market.

To be comparable to the USD, it has to have a broader use-case.

The real reason why we want to declare Bitcoin a safe haven asset so badly is just that we hope there is something that can generate huge profits and serve as a storage of value at the same time. Alternatively, to benefit from its volatility, but also to cut the associated risks.

If we ever have that, we would basically crack the code of the investment world and solve financial markets.

It’s Not On the Cards

As Bitcoin investors, we all want it to become the Holy Grail of the investment universe. Unfortunately, this takes more than just wishful thinking.

Bitcoin indeed shares a variety of safe haven assets’ traits. Numerous progressive projects in the industry, engaged and ever-growing community, interest from retail and institutional investors, and the stellar technological idea and execution — these might let you think that the ultimate safe haven asset is right in front of us. But it isn’t.

The reason — Bitcoin wasn’t designed to be a safe haven asset in the first place. And trying to force the narrative won’t make it either.

Just the opposite, it might prevent investors from understanding Bitcoin’s core philosophy — to be a universal P2P electronic cash system.

The Narrative That Bitcoin Is a Safe Haven Asset Should Stop was originally published in The Startup on Medium, where people are continuing the conversation by highlighting and responding to this story.

In a few weeks, the world will witness one of the most awaited presidential elections in U.S. history. On November 3rd, Americans will vote to elect the leader of the world’s biggest economy and one of the largest military structures. Understandably, the elections’ outcome will significantly impact reforms, policies, and international relations.

According to a survey from the asset manager Hartford Funds, 93% of investors believe the presidential race will affect the stock market, while 84% admit they expect to change their investing habits as a result.

But should they? Let’s pull the curtain and find out what history can say about…

Markets around elections

Historical data reveals that markets’ behavior depends on whether we are looking at the midterm election years, the pre-, or post-election period.

A review of market data of the S&P 500 for the last 90 years suggests that equity and bond markets tend to behave more calmly in the 12-month run-up period prior to the presidential elections. Compared to non-election years, they have produced between 1.00% and 2.5% fewer gains (6.00% vs. 8.5% for the stock markets, and 6.5% vs. 7.5% for bond markets).

Data about DJIA indicates that, since 1833, the index has averaged 10.4% in the pre-election 12-month period, compared to 6% during the election year.

According to JP Morgan Asset Management, the S&P 500’s historical volatility had been higher in election years. The reason is that investors try to “price” the probability of the candidates’ ideas.

On the other hand, the post-election period is marked with relatively lower stock market returns, with an affinity for bonds to outperform slightly. U.S. Bank Wealth Management division’s reports reveal that the stock market consistently beats projections in the year after the midterms.

When it comes to the effect of the winner’s political party affiliation, conventional wisdom reveals that markets should react more positively when a Republican president is elected as the ideas are considered more market-friendly. Looking back to data collected since 1900, however, Democrat-elected presidents have been more favorable for stocks, with the DJIA averaging 9% compared to 6% for Republican presidents.

According to Russ Koesterich, chief investment strategist at BlackRock, normal variations in annual stock market returns will mitigate the difference. That is why, today, most analysts suggest that there is no difference in which party takes control over the White House. In the end, the market retains its long-term growth either way.

The thing that can affect the market more notably is whether there is a power shift. According to some reports, when a new party comes, stock market gains usually average 5.00%. On the other hand, when the president is re-elected, or the same party retains control, the returns average 6.5%. The reason for markets to react more positively to the latter is that they already know what to expect, and the uncertainty is lower.

However, all this could turn out wrong if the candidates give investors a major reason to start a selloff.

When it comes to the Fed, the common narrative is that it is “election neutral” as it tries to maintain a more quiet policy in election years to avoid destabilizing the situation.

The historical records reveal that since 1948, the US economy performs slightly better in election years. GDP growth is higher with 0.3% on average, while potential growth outperforms by 0.4%. The reason is the expansionary fiscal policy of the cabinet in charge ahead of elections.

An important remark is that, since 1932, an incumbent US president has never failed to win re-election, unless a recession unfolded during his time at the office.

Today’s circumstances make it different

If we are to analyze the presidential race at any other point in time, we would usually consider common factors like the economy, the candidates’ ideas about fiscal and monetary policy, views on international relations, proposed reforms, etc.

However, the equation in 2020 has a unique variable — the COVID pandemic. President Trump’s handling of the health crisis was a total disaster. The US was hit the hardest, with over 218 000 deaths. In comparison, the EU lost approximately 20 000 fewer lives, despite its significantly bigger population.

The pandemic has brought uncertainty to the markets and further distorted investors’ perspective. And markets hate uncertainty. According to a 2019 Dimensional Funds report, for the period 1928–2016, negative market returns arose only four times, all of which accompanied by geopolitical events leading to global instabilities and market uncertainty.

All this in addition to the looming economic recession, and we have the reason why Mr. Trump went from a favorite to an underdog in the span of six months. Survey data from the Pew Foundation revealed that over 67% of the Biden voters are more like “anti-Trump” votes.

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At the start of this year, the consensus was that Donald Trump would be re-elected easily, due to the resilient US economy and his favorite metric — the performance of the S&P 500. Fast forward to a month before the elections, and polls and betting markets indicate a convincing victory for Joe Biden. Even the Nasdaq index that moved in line with Trump’s positive re-election prospects, now keeps climbing, despite his diminishing chances.

The FT states that the coronavirus has realigned voters’ concerns and behaviour. This is also contributed by the changing behavior in the society and the perception of the pandemic, which opposes the one of the current president.

Even after he was diagnosed with the virus, his approach didn’t changed much. Upon the news, the markets experienced significant volatility, at first, but later on calmed down.

The potential elections outcomes and their effect on the market

Trump’s international policy and the trade war were at the core of the global manufacturing slowdown, which indicates that a potential second term will further increase the risk of escalation. In such a scenario, the most affected will be international stocks like European carmakers, for example. U.S. equities are expected to continue their rise thanks to Trump’s pressure on the Fed, the tax cuts, and the deregulation.

However, according to Stephanie Link, chief investment strategist and portfolio manager at Hightower, the market would favor a scenario where Trump is re-elected, and the Congress is split between both parties. She adds that small companies and sectors like financials, technology, and traditional energy might rally on the news.

For quite some time, the Democrats couldn’t come up with a clear campaign candidate. While Elizabeth Warren and Bernie Sanders advocated for radical policy changes, including going against the big banks and tech firms, banning fracking, imposing wealth taxes, and increasing the corporate taxes, Joe Biden’s policy is more moderate. Although he still plans to reverse tax cuts, markets are likely to take a Biden win as mildly positive news.

According to Link, a small selloff between 2% to 4% might be plausible, creating “buy-the-dip” opportunities for investors in pharmaceutical and tech stocks. On the other hand, infrastructure, clean energy, and healthcare services companies are projected to do well. Link also believes a scenario where Biden wins, and the Congress remains split between both parties will lead to a market rally.

Lizz Ann, Charles Schwab’s chief investment strategist, shares similar ideas, admitting that a Biden presidency won’t be “a guaranteed disaster for the stock market”. According to JP Morgan’s analysts, such a scenario can even have a neutral-to-slight-positive effect on markets. Their conclusions lay on Biden’s proposed policies, including infrastructure spending, softening on tariffs, higher wages, and a generally more diplomatic approach, which should lower the volatility levels and increase the aggregate demand.

According to JP Morgan’s forecasts, even a partial reversal of Trump’s Tax Cuts and Jobs Act (TCJA) benefits will send rates back up to 28%, leading to a hit on S&P 500 of up to $9 per share. However, they also conclude that, in COVID times, the more likely scenario is a prioritization of job growth over policies that threaten economic growth. According to the bank’s analysis, the potential outperformers in such circumstances are expected to be companies like Tesla, Johnson & Johnson, and Boeing. Similar views are also shared by the UBS Chief Investment Office, which projects a mounting pressure on heavy industries and carmakers due to Biden’s greener agenda. Such a scenario will also lead to benefits for Asian solar and biotech companies.

UBS Wealth Management suggests that after the elections, some initial volatility might be expected, but the good thing is it would be short-lived until investors learn to manage the uncertainty surrounding proposed policies. However, the volatility might be higher if the result is inconclusive. Still, according to Thomas McLoughlin, Head of the Americas Fixed Income division at UBS Global Wealth Management, even then, it will weaken over time and won’t justify shifts to safe-haven assets.

Morgan Stanley predicts that, in a situation with a Republican President and Senate and a Democratic House, we might witness short-lived recession and continuing deregulation that benefits the energy, telecom, and asset management sectors. In a scenario with a Democratic President and House and a Republican Senate, the bank predicts pressure on the financial, energy, telecom, I.T., and pharmaceutical sectors, accompanied by better handling of the pandemic. Considering that the five FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google) are 20% of the U.S. stock market and are currently pushing it up, the whole market might suffer if they come under scrutiny.

In case Republicans win all three, the bank expects a V-shaped recovery, with an extension on the expiring tax provisions and a massive anti-China policy. This would lead to a strong dollar and potentially weakened T-bonds. Again, U.S. energy, telecom, and asset management shares are expected to benefit. In an all-democratic leadership, Morgan Stanley projects high infrastructure spending and expansion in the healthcare sector, accompanied by higher interest rates and inflation. The likely winners from such a scenario are healthcare, international oil and natural gas, transportation, and large-cap banks, with potential dips in pharmaceuticals.

How to play the market

The consensus among experts is that, although investors might be tempted to make bold moves and capitalize on the political uncertainty, it is better to retain their long-term approach. The reasoning is that economic cycles last much longer than presidential terms.

Instead of focusing on capturing the short-term volatility, investors should be aiming at portfolio evaluation that takes into account new policies with the potential to impact their long-term performance.

According to Tony DeSpirito, Co-manager of BlackRock North American Income Trust, investors should be looking at high-quality sectors such as technology and healthcare that can offer long-term growth in either scenario. Jonathan Simon, Manager of JPMorgan American Investment Trust, suggests looking for companies that have proven to be adaptable and capable of overcoming unexpected crises. On the value side of the portfolio, he provides Booking.com as an example of a business that should be highly affected by the pandemic but manages to adjust its cost structure and come out even stronger.

The UBS Chief Investment Office’s advice for investors is to adhere to a strategic portfolio allocation with long-term goals in mind. This includes anything from automation, biotechnology, and renewable energy, to sectors that will benefit from global trends like globalization.

If investors want to hedge against the uncertainty of presidential elections, they should consider sectors and companies with no US exposure. This translates to a global, multi-asset portfolio that is resilient to industry- and regional-specific risks and with the potential to benefit from all election outcomes. Examples include domestically-oriented niches like utilities or stable sectors like consumer staples. There are also investment opportunities, projected to do well in either outcome, including sectors exposed to infrastructure and technology investments.

All analysts are united by the idea that a Biden presidency will favor emerging markets and foreign equities. According to JPMorgan, equity returns in emerging markets are projected to surpass those of other markets in the upcoming years, which means they should be prioritized when building or rebalancing a long-term portfolio.

Conclusion

In a nutshell, the cream of the crop on Wall Street doesn’t see the need for any drastic changes in well-diversified and balanced long-term portfolios. And there is sound reasoning behind this.

As the Nobel-laureate Paul Krugman states in his New York Times opinion pieces, nowadays, the economy and the stock market can’t be further away from each other. The Federal Reserve Bank of New York’s weekly economic index indicates that the economy is still more depressed than it was at any point during the post-2008 recession. There are 11.5m fewer jobs in the US economy than February this year.

There is an old economists’ joke that the market has predicted nine of the last five recessions.

Yet, despite the economic doom and gloom and the deepening implications of the pandemic, the market is soaring. At the start of September, the S&P 500 hit an all-time high, while Apple surpassed the $2 trillion valuation mark.

A partial reason for the dissonance is that over 50% of all stocks are currently owned by 1% of Americans. The rest 50% own just 0.7% of the market. The rumor on Wall Street is that we should brace ourselves for a “K-shaped recovery” that will materialize in rising stock valuations and individual wealth for the richest, and falling incomes for the poorest.

What all this comes to show is that despite what the theory says, presidential elections might not have a significant effect on your portfolio if it is well-diversified. Economic policies, investments, geopolitical ideas — all these factors will most likely affect your investments in the short-term, but they don’t have a major role in long-term planning.

The article first appeared in the 20202 Autumn issue of the International Investor Magazine. It does not constitute investment advice. The piece is a general communication being provided for informational purposes only. It is not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purposes in any jurisdiction.

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The Impact of the US Presidential Elections on Your Investment Portfolio was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.

Netflix (NFLX) was added to the S&P 500 in 2010, replacing the New York Times. Since then, the index has returned 157%. Netflix — 1533%.

During the last decade, the company was close to bankruptcy several times but managed to overcome the bumps and today has a market cap of over $217b.

What Netflix is also known for is being the epitome of subscription services. It is no coincidence that the company’s success is in line with the growth in its subscribers.

Companies like Apple, Adobe, Spotify, Microsoft, and more, followed the example and adopted the subscription-based model.

It isn’t popular only among digital service providers, however. In recent years, the subscription business model has managed to penetrate a variety of industries, including health care, transportation, cosmetics, fashion, and more.

Instead of purchasing or leasing cars, you can use a subscription service from Ford or Volvo. Today you can get everything from sneakers and designer clothes, through razors, to your family tree and DNA analysis for a monthly fee.

The success of the subscription-based model is so big that today, we are in a situation where it is seen no more as an alternative, as it is the norm.

The Rise of Subscription Economy — Pre-COVID

According to the Subscription Trade Association’s (SUBTA) “2019 State of the Subscription Commerce Economy” report, for the period 2014–2019, the industry marked a 17.33% Compound Annual Growth Rate (CAGR). According to Harvard Business Review, since 2011, the subscription economy has been growing by 200% annually.

It is no different when we take a look at Zuora’s Subscription Economy Index. The index was created to track the performance and reflect the growth metrics of subscription-based businesses worldwide. It covers companies from various industries, including software-as-a-service, media, telecommunications, corporate services, and IoT. According to the last pre-COVID report, released in October 2019, overall subscription businesses have grown revenue about five times faster than S&P 500 companies’ revenues (18.2% vs. 3.6%) and U.S. retail sales (18.2% vs. 3.7%) over the period January 2012 — June 2019.

The State Of the Subscription Economy During the COVID Crisis

The global pandemic brought an acceleration in the growth of the subscription economy. We started with Netflix, so let’s take a look at its performance.

The Washington Post points out that the company now has over 190m subscribers worldwide, adding over 10.1m during the pandemic and hitting a whopping $6.15b revenue.

Many investors believed that Netflix would suffer after the lockdowns were eased around the world. However, although falling down a bit recently, its stock is still 33% higher than it was at the beginning of March this year. In addition, Netflix resumed production across the world, although not as actively as pre-COVID.

But the subscription economy isn’t just Netflix. The growth is evident everywhere. The pandemic accelerated trends across a variety of industries and sectors. Healthcare, media, retail, manufacturing, and, most importantly — the ways we work and learn have changed dramatically.

The latest edition of the Subscription Economy Index™ (SEI), issued in September 2020, finds that subscription companies continue to outperform their product-based peers even more convincingly. With 6x faster-growing revenues and 12% expanding sales (contrary to a 10% annualized rate of contraction in S&P 500 companies’ sales), subscription-based companies actually drive growth even in these challenging times.

The report dives in detail to highlight subscription models’ resilience, singling out reasons like agility to launch new revenue streams, leveraging rich customer data, automation capabilities, etc.

Another primary reason is that during the first months of the pandemic, the subscription companies started offering their clients major discounts. This not only helped them through times of economic instability and potentially lower income, but also showed that these businesses are willing to show flexibility. Of course, they were capitalizing on the momentum, but in the end, a business is judged by the way it serves its clients and how open it is to make their lives better.

The dominance of subscription models becomes even more evident when analyzing regional trends.

As can be seen, the model is dominant worldwide and marks steady growth, despite the worsened economic conditions.

“Over 90% of technology companies are embracing subscription or consumption business models. Amid the strain of COVID-19, it’s wise to challenge business as usual and rethink your offerings for a changing world.”
 — EY Research

How Investors Respond to the Subscription Economy

The investing community is open and actively embracing the migration to a subscription economy due to its unique characteristics. It disturbs the status quo on the existing markets, generates large-scale social effects, aggregates capabilities, and enhances the current business models.

Aside from the industry statistics, several other points of view validate the investors’ interest in thе subscription model:

• The model’s fundamentals

Subscription businesses have been so successful due to their ability to lock in their most faithful customers. The formation of a tighter relationship with clients is also eased by the fact that the subscription model phases out the middle-man and highlights the direct connection between the business and the market.

With the pay-per-product model, the process is pretty straightforward. You hear about a product, check it out, decide to buy it, and everything is concluded in a single transaction. If you ever get back to the company, it will most probably be to complain about something.

Subscription companies rely heavily on their long-term relationships that help guarantee steady revenue growth. They also ease collecting information about their customers, analyzing their behavior flow, and coming out with better and more personal experiences. That is why the biggest challenge for the investors in subscription economy businesses is considered churn. The reason for that is because the cost of replacing lost subscribers is very high. This can dramatically undermine the viability of a business and even drain its cash reserves. That is why it is so crucial for companies to ensure continuous value delivery to maximize the customer lifecycle value and minimize churn.

The subscription economy businesses interest investors also because they are showing adaptability and flexibility. Transitions to subscription-based models require lots of resources and adequate strategic planning. Firms have to reshape their structure, change the existing sales culture, disrupt incentives, and convince existing and new customers of the new offering’s value.

Another reason investors respond positively to the subscription economy is the room for businesses to adopt more efficient growth strategies. This type of services has higher potential for successful upsell campaigns beyond the initial subscription. This is because their customers already have an existing habit and are more open to paying more for a better service. In fact, experts’ analysis points out that upselling additional services to the existing subscriber base is, by far, the most effective way to generate extra revenue. This is very important for investors when it comes to understanding the future profitability potential of such type of business. It is worth noting that the leading companies lay particular stress on community building and making their customers feel like a part of a bigger movement.

• The psychological perspective and the demographics factor

Investors acknowledge how valuable the subscription-based model can be for a company’s development. It is a passive way for customers to build up familiarity with a service. After a while, as they start to feel comfortable and enjoy what they are paying for, they are becoming less reluctant to cancel their subscriptions from a psychologic perspective.

In many cases, subscription services become embedded in customers’ lifestyles. For example, in the case of Amazon Prime, 50% of U.S. households currently have a monthly subscription worth $13. They are willing to renew it every month due to the faster shipping and full access to movies and music. From the investors’ point of view, though, the real benefit is that these users spend much more time on Amazon, which dramatically increases the chances of making an additional purchase.

If we take the subscription medicine niche, for example, we can can conclude that patients, who get used to perks like same- or next-day doctor appointments and virtual consultations, slowly get attached to the comfort that the service provides. As time goes by, they are less likely to cancel their subscriptions. From a financial point of view, this means a steady income stream for the service provider, thus more accurate projections for investors.

In Netflix’s case, the model is very well-built and applied, which directly influences customers’ reasoning. A subscription of $8.99 per month is identical (even lower, depending on the state) to a cinema ticket’s cost. From a psychological point of view, the idea of consuming as much content as you want for the same price you will watch one movie per month is perfectly reasonable.

The shift from a transactional to a subscription-based model was eased also by the concentration of spending power in millennials and Generation Z. Their buyer persona has simple characteristics — they don’t fancy owning things and prefer having the freedom to explore and switch between new things effortlessly, with no strings attached. Instead of buying furniture for $5 000, millennials prefer renting it for $200 per month.

According to McKinsey, the majority of subscribers are younger individuals with spending power. The demographics analysis derives a buyer persona within the age of 25 to 44, with income between $50 000 and $100 000, living in urban areas. 60% of the group are women.

This means younger generations have embraced the subscription economy with 62% within the 18–34 age group and 56% within the 35–44 one having subscriptions for three or more services at the same time.

• The investment potential

Almost all of the leading tech companies are now using the subscription model. Adobe, Microsoft, Autodesk — these and many more are partially or entirely ditching the outdated one-time license options. The effect on the share price since the switch to subscription-based models is staggering. Adobe (ADBE) has jumped 843.7%, Microsoft (MSFT) rose 522.2%, while Autodesk saw a 321% jump.

Turning the focus to a more accurate metric like the P/E reveals that a major part of the 15 most valuable tech, media, and telecom companies are subscription businesses.

Another benefit from investors’ point of view is that the subscription-based businesses they invest in have more stable sales and income streams, typically referred to as recurring revenue. This means companies’ earning estimations can get much more accurate. That way, businesses won’t constantly miss on initial projections, thus having their share price tumble.

Subscription models go down well with investors also because they can get a clearer understanding of the businesses’ finances. The current inflow of subscribers and the growth potential — if they have already conquered a small and competitive domestic market, this might not be the best choice for investment (unless there are plans for international expansion, of course). On the other hand — a company with stable growth in its subscribers in a bigger market can prove a great investment opportunity.

Aside from that, this type of companies bring investors a very straightforward relationship to look for and analyze. The focus is shifted from retailers to producers directly. By eliminating middle-man, businesses can build more stable connections and first-hand experience with their clients by providing a more convenient, quick, and straightforward service for the consumer. It also accounts for greater lifetime sales potential from each customer. That way, businesses can also easily predict the number of customers they can address and acquire, how many clients they can retain, and, most importantly — how much revenue they can get per customer.

A study by the Harvard Business Review focused on researching how the stock market responds to the news that a particular company migrates to a subscription-based model, particularly software vendors becoming SaaS providers, found several interesting points.

First, a SaaS announcement has no effect on a company’s value. However, investors’ preferences are more aligned with new SaaS offerings, rather than product conversions. The study found that this can result in intra-day stock valuation moves of up to 3.5%. The other important conclusion is that companies that partner with third-party cloud service providers to deliver their SaaS solutions, instead of building everything in-house and from scratch, enjoy up to a 2.9% increase in stock prices on announcement day. Besides, the study finds that investors tend to increase their valuations by 2.2% on average if the company announces that the SaaS offering is offered in addition to a perpetual licensing model. In fact, launching new software with both models is better accepted by the market.

Another finding is that having a previous version of the product before switching to SaaS offering decreases company value by 3.5% on average, compared to new subscription-based product launches. This means investors would instead prefer companies launching new product lines, rather than converting existing.

The conclusion is that companies adopting a smoother shift from pay-per-product to SaaS that has a transition period of facilitating both models perform better on the market. An example of such a business is Autodesk. The perpetual licensing option and subscriptions were offered together for a period of 15 years. After that, the company shifted to SaaS-only.

All-in-all, investors give higher valuations to companies operating on a subscription-based model than to those sticking with transactional sales.

Going forward

The subscription model has been around since the first newspapers went to print in the 17th century. Its influence nowadays is getting so powerful that it will make companies embrace it more and more going forward. With the new generations having the spending power, the subscription economy will be the dominant force in the near future.

However, it is worth noting that there is a separation line, and not everything can be subscriptionized. Many businesses have tried to switch to that model and failed. One of them is MoviePass, which attempted to offer a film per day for a monthly fee of $9.95. The model proved unsuccessful and brought the company close to bankruptcy. There are also several examples of subscription boxes that have entered and left the niche in a similar, lightning-fast manner.

What this comes to show is that, if you are investor, you should look beyond numbers when analyzing subscription companies. Look for companies willing to show flexibility and a stable and loyal customer base. Bear in mind that clients subscribe only to the services they need and care about. They also focus predominantly on the quality of the service and are quick to cancel subscriptions that lack perceived value.

In the end, the subscritpion model isn’t the “Holy Grail”. If a business lacks the fundamentals, the model can only do so much. So, riding the momentum won’t take you far. Flexibility and ideas will.

The Investors’ Response to the Subscription Economy in the Pre- and During-COVID Period was originally published in The Startup on Medium, where people are continuing the conversation by highlighting and responding to this story.

While drinking my morning coffee and browsing the news feed, I noticed 70 or so percent of the suggested articles were about Robinhood and its record earnings. I decided to go through some of them. The more I read, the more baffled I became by pieces coming from Forbes and other supposedly top-tier publications.

“Robinhood is selling its users’ orders to market makers…”

“Robinhood isn’t democratizing finance at all…”

“Robinhood is an oxymoron and not a charity…”

“They are sleeping with the enemy in some respects…”

“Robinhood has sold the world a story of helping the little guy that is the opposite of its actual business model…”

“Robinhood is selling the little guy to rich market operators with very sharp elbows.”

Seriously, only those who aren’t familiar with today’s financial markets’ infrastructure find this disturbing. If you are among them and are completely surprised by statements like this, however, it isn’t entirely your fault. We should blame the journalists who had just had their “Eureka!” moment about something known for over a decade and bring it up in such a sensationalistic manner today.

Call it a rigged system or whatever you want, but the truth is that’s how brokerage companies operate nowadays. Robinhood is no exception, and there is nothing wrong about it.

Let me ask you a question. How do you think Robinhood makes money if it brings you commission-free investing? As per the quotes above — they aren’t a charity.

There is the saying that if you aren’t paying for the product — you are the product. It also applies here but does it matter, though? The answer is no, and here is why…

A brokerage company selling orders to market makers — paint me surprised!

Todays’ financial markets infrastructure is layered. In a nutshell — there are intermediaries and market makers who compete for your orders’ data. They do so because they have complex hardware and software infrastructure (collocation, high-processing algorithms, etc.) that allow them to discover and capture the best possible execution price. Sometimes even to engineer their own NBBO.

So, what you pay for your order, in the end, isn’t the price it is executed at. And this has been the case since before the Financial Crisis of 2008 when HFT companies were on the rise.

Forbes came out with a pretty extensive article titled “The Inside Story Of Robinhood’s Billionaire Founders, Option Kid Cowboys And The Wall Street Sharks That Feed On Them.” The truth is, I’ve never fancied the quality of their journalism, and this article didn’t help. The authors called Robinhood “a digital casino” because they were selling users’ trading data to Wall Street “sharks”.

Well, welcome to the XXI-st century! You think discount-brokerages don’t do it? Everyone does it and had been doing so for years.

Charles Schwab.

Fidelity.

TD Ameritrade.

E-Trade.

You name it.

This is a market loophole, and the industry-leading companies had been exploiting it for years. Fines, lawsuits, and nothing changes. Everyone is aware of this, and it still exists.

How to Divorce Safely and Sanely Without Sacrificing Your Children or Your Finances | DataDrivenInvestor

The main difference is that, according to some estimations, Robinhood profits the most. Below is a relative assessment by the QZ on the scale of earnings from order flow sales:

If you want to get in detail and find out the extent of the problem and how each brokerage company benefits from it, take a look at their 606 filings. This should put things into perspective.

Why are they doing it?

The short answer is because they can and because everyone does.

Robinhood targets the millennials and the hipster “on-the-go” investors for several reasons:

• They are progressive and continuously seek ways to make money. Trading is a popular one;
• A majority of them can afford setting aside a part of their paycheck to invest;
• They are willing to take advantage of fractional shares investing that their parents didn’t have access to.

The fact that similar to some journalists, they also lack the knowledge of how market mechanics really work is just an added benefit.

In a world where tech stocks are soaring, Bitcoin is skyrocketing, and marijuana stocks are emerging on the scene, the FOMO is bigger than ever. Young people don’t want to get left behind and aim to embrace the stock market rally.

Let’s face it. Trading today isn’t that sophisticated game that only the big boys got to play back in the days. It is trendy and accessible even to those with just a couple of bucks in their accounts.

Robinhood is a massive reason why this momentum was created and now rightfully capitalizes on it.

Some are irritated by the hypocritical statements that the company is trying to democratize finance. And rightly so. However, even with this, we can argue that democratization is more in the sense of bringing the average Joe access to no-commission investing.

While others were charging $10 per trade, Robinhood charged $0. While others had minimum balance requirements, Robinhood didn’t.

In fact, the company was a part of the reason why low-cost brokerages like E-Trade, Schwab, and TD Ameritrade started offering commission-free investing. That is why it says it levels the trading field. So, not exactly the bloody villain, is it?

What can you do?

The thing is you never know where and how your orders are executed, or whether they are sold to anyone. You can check their filings or request such information from your brokerage service provider, but it is unclear how reliable or conclusive it would be.

It’s not like it hasn’t happened for a company to be penalized for misleading its investors. But in the end, it is just a fine, and they have all the money in the world to pay it.

So, in that case, you have two options basically.

• Option 1 — trade via a free-of-charge service provider (i.e., Robinhood) and have your orders sold to market makers;
• Option 2 — pay commissions and hope your orders aren’t sold to market makers.

If you think the game is flawed, it is because you are right. But that is how markets work nowadays, and there is nothing you can do about it. And truthfully, it isn’t too much of a pain.

In the end, if you are a retail investor, the chance is you aren’t trading at scale. In this situation, you shouldn’t be bothered whether you can be getting fractions of a cent better price for the $100-worth of TSLA shares you are buying.

If you are a large-scale investor, though, things get different.

Nothing new under the sun, but why bring it up just now?

The reason why more people now start digging deeper and miraculously discover how things work on practice is that Robinhood is eating a big chunk of the market share.

According to the New York Times, in Q1 2020, Robinhood users traded 9x as many shares as E-Trade customers, and 40x as many shares as Charles Schwab’s customers, per dollar in the average customer account.

For its seven years of existence, Robinhood equaled the number of customers Schwab had been attracting for almost 50 years and doubled that of E-Trade.

The company marks the biggest growth, almost twice the numbers of TD Ameritrade.

Below is QZ’s estimation of the average daily trades for some of the leading retail brokerage companies.

You can’t see Robinhood because it stands above all others at 4.3m daily average trades.

I am in no way affiliated with Robinhood. I don’t even use the app. However, it is ignorant to make statements like various journalists have been doing in the last couple of weeks when this had been an issue for years. It is no one’s fault that they are living in the era of pit trading. Yellow ties are outdated, and so is this kind of understanding.

Robinhood paints themselves as the rebellion force that is fighting for the good of the average individual. And to some extent, this is true. The app brings you free investing. This is enough for a major part of the younger and uprising generation to embrace it — those in the heart of the Occupy Wall Street movement from a few years back. They are tired from banks “robbing” them and believe they are the “opposition.” Robinhood is the epitome of this idea. It brings a way for investors to be independent. At least to think so.

The truth is that if you really understand the markets, you will know that there is no way to be entirely independent when trading. There is no way you are getting the best possible execution price. But who cares, when you can trade on your phone?

Don’t get in the water if you can’t swim

Around all this, another argument against Robinhood was also brought up - a claim that the app promotes trading among the inexperienced users, which leaves them losing money. The reasoning was the app’s gamification principles, the options trading features, the subtle messages, tolerating active trading, etc.

Critics are pointing out these factors as a big reason why novice investors lose money on Robinhood. And they base this on plenty of user reports stating that they didn’t understand what they were getting into before losing their money.

A variety of industry professionals also backed these accusations. However, you will rarely witness financial advisors and wealth managers criticizing deceiving promotions in malls. That is because it has nothing to do with their business. Yet, when it comes to Robinhood, financial advisors hurry to declare it “gambling.” And it is understandable — it phases them out or at least forces them to up their game.

In all fairness, all this sounds like a non-sense. According to Robinhood, its users’ average age is 31, and half of its customers had never invested before. At that age, you should have already gained proper education or built reasoning skills to help you understand that trading is a personal responsibility. You can’t blame falling confetti or emoji-filled push notifications to be the sole reason you’ve lost your money trading options.

You don’t buy a car before learning how to drive. “Sorry for hitting that sign, officer! I wasn’t aware this thing stops only when you push the brake”.

In the end, no reasonable human being would risk hard-earned money because of a beautifully-designed “Trade Options” button or a push notification, right?

The bottom line

Robinhood’s aggressive practices are well-known. In 2019, the company was fined by FINRA. Another investigation with a potential fine of up to $10.2m is currently ongoing.

While some journalists and analysts prefer hiding behind excuses and sensationalistic headlines, others are honest to admit their Robinhood anxiety. Will Danoff, Fidelity’s $230 billion star manager, admitted that although his fund is up 21.0% this year, he sees money flowing out. And the reason, according to Danoff, is a demographic shift.

“There’s a demographic issue — we need to appeal to the Gen Z-ers and the younger generation as well, and luckily I think our app is quite good. But you know, a typical Gen Z-er may not be as interested in owning a mutual fund.”

— Will Danoff, vice-president and portfolio manager of Fidelity Contrafund

So, if Robinhood has in some way forced the big boys to change and serve their clients better, then give credit where due.

For all its flaws, the truth is Robinhood is a major reason why trading today is cheaper than ever. The company has a strategy of targeting the new generation and appealing to its needs, which is why it gets rewarded. A few days before this article was published, Robinhood closed another $660m in its latest funding round, reaching a valuation of $11.7b.

We are often quick to declare some things as either good or bad. Sometimes, however, the truth is in-between.

Oh, and as tempting as it may be, don’t fall for the cheap excuse that the big flashy button on your app made you go all-in on options. It doesn’t sit right.

This article does not constitute investment advice. It is a general communication being provided for informational purposes only. It is not designed to be taken as advice or a recommendation for any specific investment service, product, strategy, plan, feature, or other purposes in any jurisdiction.

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Robinhood Sells Its Clients’ Orders. So What? was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.

• Jack-of-all-trades content creation agencies produce crappy content;
• They are a pointless stumbling block that stands between you and the one who makes things work, while also charge you for this;
• The days of the agencies with the one-size-fits-all approach are numbered;
• Don’t let agencies shoehorn your brand in a framework that isn’t specifically designed for your business;
• As a client, you should outsource your content writing needs exclusively to niche specialists;

And you can stay for some real-life examples about the way these agencies have failed some of my clients.

Let me start by saying that, for me, as a part of the content marketing industry, it would have been easier to paint it as the Holy Grail. Although I believe it is a key cog in today’s digital world, working within the niche also puts me in a unique position to criticize and expose its deficiencies.

No matter under what form it comes, the value of content creation can’t be highlighted enough. Even the most conservative and stubborn business owners now realize their companies should be present in the digital world under some form.

And this benefits us, the content creators. The demand had never been higher, which, on the other hand, also creates room for exploiting the clients’ trust. In a bid to satisfy this demand, creative agencies from all around the world start offering services that they aren’t quite capable of delivering right. And that way, they screw you — the client.

Content creation nowadays

Over 90% of the content you will find on the web is crap. It doesn’t provide actual value or insights. It lacks bits of information that will stick into your brain or at least make you stop and think about what you have just read. There are tons of stats to back this up. The most indicative, however, is the median average reading time per article. According to some experts, it is only 15 seconds. The more optimistic estimates go up to 37 seconds. Either case — dreadful results, right?

Let’s be honest — to find the reason why we should look no further than the content’s authors. Don’t try to justify the numbers above by claiming people are in a hurry; prefer more digested information; fancy other formats to consume content like audio/video, etc. There are over 6 billion Google searches on average per day. The majority of the results are written content. It means people are intentionally looking to consume information in this particular format.

So, there are billions of searches for information, and yet people spend 37 seconds at most reading it. You see where we are going, right? The only reason for this is the content’s quality and delivery.

The truth is that content created by people who lack expertise or who fail to provide a unique angle that will retain the readers’ interest for more than 30 seconds, should not exist. Period.

Unfortunately, it does, though. And most of the time it is created by “jack-of-all-trades” agencies or “know-it-all” content creators. Put differently — by those who write guides on how to waterproof your basement, trade penny stocks, and transform your love life in 5 key steps.

If there is anything to take from this post, let it be this: all-around content creation service providers are worthless. Those serving clients from all types of industries like finance, pharmaceutical, tech, retail, etc. will most probably deliver mediocre results on each front.

Why? Because they are generalists and lack the required niche-specific expertise to understand what your business does, which features make your product stand out, and what benefits you bring your clients. No matter how many discovery sessions, briefs, or meetings you go through together, in the end, you should know that you can always get a better value for money elsewhere.

What happens when you approach an all-around content creation agency?

Let’s say you have a small business that produces hand-made jewelry. You run everything by yourself. You don’t have the time to deal with production, operations, financials, logistics, marketing, etc., altogether, which is why you decide to outsource.

You do your research and find that amazing “state-of-the-art”, “growth-hacking” agency that delivers “actionable insights” and “quantifiable results” to help “high-impact entrepreneurs” “disrupt” their niche and “make their mark”. They have a rich portfolio with “industry-leading” clients from tech, finance, retail, automotive, and other niches.

Next, in the best-case scenario, you will be asked to provide instructions, define buyer personas, help create a brief, etc.

Then the agency will proceed to hire a contractor to handle the work as it has no idea what value your business actually brings and how it stands out. The reason is that they lack industry knowledge, which prevents them from acknowledging how your brand builds and preserves authenticity.

Too harsh? Do you believe someone at the agency will deep-dive into the health- and ecological considerations that have driven your choice of raw materials? Or why you have decided to use exactly these particular finishes and what benefits they have over the alternatives? What about the hours of research you have invested in refining your creative process? Or your cost estimation and product pricing process?

This is not a business-size-related problem, though. The case is quite the same even if you are, let’s say, a big construction material producer. Do you imagine that hipster marketer working at the agency downtown describing the flexibility or tensile adhesive strength of your tile adhesives confidently? Or start learning about stuff like vapor permeability and crack bridging characteristics of waterproofing membranes? What about the thermal conductivity coefficients of your ETICS systems?

You need a niche specialist. Otherwise, you will end up relying on someone who will be learning about all those things from the crappy content on the web we talked about earlier. And this is how the circle goes.

Look, agencies aren’t at fault that they can’t get to the core of your business and understand niche-specific technical terms. It’s humanly — no one knows everything, and no one should know everything. Their fault, however, is that they make you believe they can.

What happens if you decide to rely on such service providers is that your marketing budget gets ripped off unnecessary for content creation services that don’t really reflect what you are paying for. The agency serves as an intermediary that connects your business with the one who is actually responsible for handling the job while it charges you an “agency premium”.

Real examples why you should avoid the “jack-of-all-trades” service providers

All the theoretical scenarios aside, let’s get more practical and dive into two cases, where I had to help my clients conclude projects after they had already struggled with content creation agencies.

Case 1: The struggle of a financial software development company

The business of my client is focused on the development of whitelabel solutions to serve the needs of the world’s leading investment banks, brokerage companies, and exchanges. The niche the company operates in is small and competitive, and the deals struck there are usually worth millions.

The client approached me to create marketing materials in the form of short-form brochures that summarize the core characteristics of their trades execution software. In this case, we were talking about a very complex and niche-specific solution.

The company has offices in the USA, Switzerland, France, and the UK. This means it has access and resources to hire top-tier content creation agencies. Before reaching out to me, however, they had already gone that road and failed. A couple of times. The reason? Most agencies usually lack niche-specific expertise. Do you think a broad-knowledge content creator can:

• Tell the difference between order processing of 15 μs and 1 ms, and what financial implications can it have for the client?
• Explain how such software eases the clients’ trading needs when it comes to sophisticated algorithm matching logics like AON, IOC, TOM, GTC, GTD, GTT, Iceberg, Dark, BOCO/OOCO/OCO, Peg, etc.
• Nail-down the pros and cons of different protocols for order entry, market data, and configuration of real-time market management built-in the software solution;
• Communicate the importance of having access to scalable capacity for order throughput and how this affects the client’s business;

All this aside, to succeed in this task, the content creator should also be able to tackle the pain points of the service provider’s key target markets and appeal to the needs of interdealer brokers, banks, and exchanges. This requires being familiar with the current state of their respective niches, their competitors, what they aim to achieve, the expected short- and middle-term industry trends, the external systemic risks, and so on.

Needless to say, all this shows why the content marketing agencies my client had tried failed to deliver. To market a product in this case, you need someone who knows the industry inside-out and is familiar with the inefficiencies of existing solutions.

Otherwise, you will fail to capitalize on your product’s potential and have it marketed the same way a pair of shoes or organic soaps are. And, trust me, this is the last thing you want when you are targeting big-money clients.

Case 2: The final letter of a crypto exchange

A few months back, the co-founder of a crypto exchange got in touch with me with quite a specific task — creating a final letter to the investors in their ICO and the existing clients. The exchange was closing shops.

“Paint me surprised — a failed ICO”, you might say. And in most cases, you will be right. Here, however, the co-founders were let down by one of their years-long partners and couldn’t overcome the consequences. This is not to say they gave up without a fight, though. They did their best to save the business, including cutting costs to a minimum, reaching out to large-scale investors, introducing a buy-back framework to get their clients their funds, attracting top talent, and even investing over $2 million of their own money. However, in the end, some of the obstacles were outside their control, and they couldn’t steady the ship.

The material had to touch some very painful points and not spare even a single detail. In an industry covered in controversy where over $2.7 million are being stolen from crypto exchanges daily, my client wanted to send an honest and transparent message.

Before contacting me, they struggled with several agencies. The reason, once again, was their lack of inside knowledge. They weren’t familiar with the state of the crypto industry, the nature of the scam schemes taking place there, in what way this case was different, how untypical the actions of the co-founders were, and things like this.

Crisis PR — sure, plenty of agencies can do it. Niche-specific crisis PR? You should be careful, especially when you don’t want to sweep everything under the carpet and plan to build your way up again, like in the case with my client.

In an industry where the majority of entrepreneurs launch ventures with no real goal to reach the ICO stage, put Ryan Gosling in charge of their design team, or fancy a single-word communication with their investors, you simply can’t use a one-size-fits-all approach.

a shitcoin startup called Prodeum just exitscammed with millions of investor dollars and left them the following message on their site pic.twitter.com/q5R4QAxvwU

What you need is field specialists

The idea of all this is not to paint the situation too grim. Just the opposite — it is that wake-up call that you can do things differently and start looking for the best bang for your buck.

What you need is someone who is a good story-teller with practical experience in the field you operate in. Although this might sound like you are in search of the Bigfoot, don’t forget you are paying for personalized, company-specific marketing materials. You don’t want to pay for some general stuff where the agency tries to shoehorn your brand in a framework that works for others and isn’t explicitly designed and tailored to your needs. Never compromise on that.

Bear in mind that even the agency’s top wordsmith or the best content creator putting the highest-effort won’t get you the same results as a field specialist. That is why you should seek either content creators with niche-specific expertise or agencies specialized in serving the needs of your particular industry. Not generalists.

Although the leading content creation agencies try to attract field specialists to help them on particular projects, the thing is this still isn’t a guarantee for satisfying results. In the end, the agency’s only role is to serve as a bridge between you, the client, and the content creator hired as a contractor. Instead of helping the process, the presence of an intermediary may further complicate it. You never get in direct contact with the one doing the real work for you. This means the agency is a pointless stumbling block that just makes you overspend.

Why? Because, in the end, the supervision will still come from your team. In many cases, those on the agency side have no idea what you and the contractor are talking about and lack anyone on their side capable of checking the contractor’s work quality. All they do is try to summarize your needs in a brief for the contractor, and then get his message back to you by losing as less crucial information as possible. And after that, they will ensure you get a plagiarism-free piece with correct grammar and a “brand-specific” style. Not much different than what Grammarly or ProWritingAid can do for you, is it?

Do your best to find those who make things stick and put in the real work, not those who pass it around.

In the end — you are the client, and this is your budget. Do whatever you like. Just keep in the back of your mind that marketing an electric drill is quite different from marketing trading infrastructure.

Jack-of-all-trades content creation agencies are worthless. You need niche specialists was originally published in The Startup on Medium, where people are continuing the conversation by highlighting and responding to this story.

Hunger, poverty, lack of clean water and electricity, terrorism, local ethnic and religious conflicts, corruption, disease outbreaks — this was Africa’s story till the early 2000s. During the last two decades, however, the continent has made remarkable progress and embarked on a road to a brighter future. The improved political situation, ambitious economic plans, and much better living conditions have paved the way for Africa’s much-needed revival.

Although today some of the widely-known problems are still around, their overall effect has been widely mitigated. What is left for Africa to solve may still be a long-enough list, but thanks to technology, entrepreneurship, and globalization, the future of the continent seems brighter than ever.

Africa’s painful past and hopeful future

The scars of Africa’s painful past are still evident today. One of the significant problems tormenting the continent is the unstable and opaque political environment. Most countries have gone through two liberation periods in their recent history. First, they had to shake off the effect of Europe’s colonization. Next, there were local dictatorships that had to be dealt with. Today, it is the battle for establishing fully-functioning and transparent democratic governments to rule in the long-term.

This is critical as countries with weak democratic foundations have proven to be the perfect environment for corruption to flourish and penetrate local governing and private structures. The problem is so severe that in 2015, Transparency International estimated that approximately 75 million Africans had paid a bribe during the past year. What is more concerning is the fact that the majority had done so just to get access to basic services that should otherwise be publicly accessible.

Despite African leaders’ commitments that 2018 would have been the year of anti-corruption, Transparency International’s Corruption Perceptions Index (CPI) paints a gloomy picture as the region’s average score was just 32 out of 100.

Another major problem for Africa’s future is the high level of unemployment. Although the average unemployment rate for the continent is 6.1%, according to data from the World Bank, there are countries like South Africa and Botswana where the numbers reach 27.0% and 17.9%, respectively. The more concerning fact is that, according to the International Labour Organization, the youth unemployment rate on the continent exceeds 30%.

The most urgent problem that Africa has to solve, however, is improving the healthcare system. Although a lot has been made in the recent years, Africa remains the continent with the worst medical treatment and living conditions. A direct consequence is the life expectancy of 62.8 years. In comparison, the life expectancy for EU citizens is 81.0 years. But the limited access to adequate public healthcare services isn’t the only reason for this. Such is also the poverty, high prevalence of AIDS, local instabilities, violent conflicts, lack of clean water, electricity deficiency, and more. As Dr. Ola Brown, one of the continent’s leaders, states in her TEDx speech, every single dollar invested in the healthcare system will make a double return in terms of economic output.

Although all these major issues remain on the table, one thing is clear — Africa has the perfect prerequisites to turn things around and capitalize on its potential. The shift to democracy and external initiatives like The Bloomberg Media Initiative Africa, intended to strengthen the media industry and promote market transparency, are fundamental steps that will ensure the long-term growth and sustainable business environment.

In terms of economic growth, the continent is already doing wonders. The positives are a direct consequence of local efforts and international partnerships and growth programs such as the Everything but Arms (EBA), the Africa-Europe Alliance, and the US’ African Growth and Opportunity Act (AGOA). Although the continent is home to 34 of the 48 least developed countries, today, 6 out of the ten fastest-growing economies worldwide are African countries with Ghana on top of the global ranking. Also, according to the World Bank’s 2019 Doing Business index, 5 of the ten most improved countries are in Africa.

Another key positive that should be acknowledged is the massive increase in Africa’s population during the last four decades. Consequently, today it is the continent with the youngest population. In some countries, more than 50% of the citizens are aged 25 or younger.

With the right investments, concentrated efforts, and sustainable development programs, a fact like this can do wonders for Africa’s future.

Technology as the main building block

Africa’s unexplored potential, fast-growing and young population, and the horizon of opportunities present start-ups with a solid foundation for skyrocket success. Local entrepreneurs acknowledge the continent’s problems as issues they are responsible for solving. Furthermore, business leaders are driven by a deeper purpose — to disrupt the status quo and commit to long-term success that will help bring Africa on the world’s innovation map. African entrepreneurs recognize technology as the greatest tool for building resilient business models that can help satisfy the continent’s needs.

• Financial sector

Kenya is one of the countries that have acknowledged the benefits of blockchain’s adoption and its potential to streamline niche sectors like digital payments, governance structures, agrotech, etc. Factors such as the population’s high literacy rate, good existing infrastructure, high connectivity, and welcoming business climate have helped the country establish itself as Africa’s leading blockchain innovation hub.

As a result, Kenya became a birthplace for M-PESA, a mobile money transfer service provider that was key to solving the problem of sending money to unbanked relatives living in rural areas. The good example was followed by other start-ups such as Paga, a mobile payment company based in Nigeria, focused on tackling the problem with the lack of access to basic financial services in the region. In 2014, for example, more than 66% of adult Africans didn’t have a bank account. Thanks to companies like Paga, which managed to sign up more than 8 million users in less than ten years and currently processes over $2 billion in payments, the number of unbanked African citizens dropped massively.

Other businesses like Dala and Wala have also embraced the mission of making financial services available to as many people as possible. By running blockchain-based solutions, they have helped many Africans make free-of-charge transactions. The results are staggering — today, Africa has more than 120 million active mobile money accounts. This remarkable progress is projected to add more than $300 billion to the continent’s GDP by 2025.

Let’s now focus on a sector that is in a way bigger need for improvements than financial services.

• Healthcare

The health sector in Africa presents some worrying statistics. Africa accounts for more than 65% of all deaths related to pregnancy and childbirth on a global scale, while one child in 9 dies before the age of 5, simply because of the lack of diagnostic tools. The reason — if you look at a satellite photo of Africa at night, you will find it hard to distinguish the mainland from the ocean. Due to the concentration of big cities in particular areas and the lack of electricity all over the continent, two-thirds of its territory is covered in darkness. The regions that are off the grid suffer from healthcare issues as the hospitals find it impossible to store medicine or vaccines.

Once again, technology comes to the rescue with plenty of successful start-ups turning things around already. The British start-up, Babylon Health, for example, operates in Rwanda with more than 600 000 clients. For less than a dollar, Rwandans get access to a phone consultation with a doctor, which helps improve disease prevention and treatment efficiency.

Leading tech companies like Philips and IBM are also helping improve Africa’s medical sector. The Dutch electronics firm, for example, has designed a portable Doppler ultrasound machine that needs no power and helps reading out a fetus’s heartbeat patterns. This methodology has proved to be much more efficient when compared to traditional Pinard horns. A trial test in Uganda, for example, revealed that more than 60% of the scanned patients needed urgent treatment. The innovative solution now comes as a solar panel-powered pack with another useful tool — a mobile chest monitor that tracks babies breathing and prevents pneumonia.

Another inspiring and highly-valuable medical device is the Cardiopad, which tries to solve the problem with the lack of cardiologists on the continent. To put in perspective how serious the issue is — in Cameroon, there are currently 60 cardiologists for a population of 22 million (or one cardiologist per every 366 666 people). The Cardiopad works as a remote examination device that conducts a standard ECG test and records the data on a server to help with the prevention and further treatment of cardiology problems.

IBM, on the other hand, employs AI to fight malaria and drug-resistant tuberculosis. The positive example is followed by the medical charity Médecins Sans Frontières which also helps diagnose malaria with the help of smartphone cameras.

The lack of professional medical staff that the healthcare industry in Africa suffered from for many years is now tackled with the help of robot doctors. The Helen Joseph hospital in Johannesburg, one of the busiest HIV clinics on the continent, accepts more than 750 patients per day. Due to the lack of medical staff, robot pharmacists are proving to be a real help in bringing treatment to as many patients as possible by prescribing and packing drugs. This has helped reduce the waiting times in the clinic from 4 hours to 20 minutes.

Other companies like Zipline have developed specialized drones to process blood, medicine, or industrial cargo deliveries to hard-to-reach regions. These types of solutions help with the safe and timely delivery in military zones, rural areas or for emergent situations, while at the same time cut transportation costs.

Another remarkable project healthcare project is Flying Doctors Nigeria — a medical emergency service with about 20 charter aircrafts, specializing in air ambulances, medico-logistics services, medical infrastructural development, and medical training services.

• Talent development

Thanks to technology, Africa is now making the right steps towards reducing youth unemployment as well. The first step in the process, proper education and self-development is taken care of start-ups like Kytabu — a company that makes it possible for students and teachers in underprivileged schools or low-income regions to lease textbooks on mobile devices.

There are also companies like the Uganda-based Fundibots, focused on improving technical education among young students by bringing robots to classrooms.

The positive trend continues with high-tech firms like Andela, working with leading global corporations, and helping them find talented programmers. Andela recruits African developers, trains them, and connects them with employers from all around the world, mainly US tech giants. In the long-term, such a policy will result in the establishment of a talented community of developers and business professionals, who can become the spine of Africa’s future. Indirectly, the chance to earn a higher income by working for companies from abroad results in more spending power among young Africans, which further contributes to the local economy.

Africa’s only direction is forward

Africa’s story is a remarkable one. The innovations are born out of necessity, not out of the capitalistic driving forces. Local entrepreneurs have grown up in poverty, hunger, and violence, which have proven to be the most efficient motivators. The majority have seen and been through the worst, and their only trajectory is upwards. Foreign investors and companies also contribute actively to solving Africa’s leading problems. The fruitful combination of local talent and inspiration with international know-how and resources paves the way for Africa’s sustainable growth.

The continent, with its abundance of resources, growing young population, and continuously improving business climate is a perfect investment opportunity for foreign companies to invest and expand their operations there. And with the promising economic growth in some African countries, it may be just a matter of time before we see the next leading innovation hub.

This story was first published in Issue #2 of the International Investor magazine.