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  • The World’s Oldest and Largest Custodian Bank – BNY Mellon – Builds Platform to Revolutionize Digital Asset Custody Services

    BNY Mellon, founded by Alexander Hamilton in 1784 – the first US Treasury Secretary – has announced they are continuing to build out a highly advanced, robust, and secure digital assets custody business.

    “Touching more than 20% of the world’s investable assets, BNY Mellon has the scale to help our clients reimagine financial markets through blockchain technology and digital assets. We are still in the early days of this evolution, but the possibilities are exciting. Today’s announcement marks a step in what we see as an ongoing innovation journey for our firm, our clients and the rest of the financial industry.”

    -Robin Vince, CEO of BNY Mellon

    BNY’s custodianship business is based on some of the very principles Hamilton wrote about in the late 1700s. They are both the largest and the oldest custodian bank in the world, with approximately $45T (Trillion) in Assets Under Custody (AUC). With their experience, brand recognition, and unique ability to utilize economies of scale – coupled with what appears to be a recent renewed peaking interest in digital assets – this move is an example of exceptional business strategy.

    The Timing of BNY Mellon’s Announcement

    The timing of the announcement is interesting for a number of reasons. Firstly (likely the primary reason), the Sibos Update conference, which initially lasted from 10/10-10/13. BNY had a very large presence and rolled this news out in parallel. Secondly, we’re at an absolutely critical point in macroeconomic policy. Will the Fed’s decision to hike up rates to deflate the inflation work? Did they start too late? What’s the impact on US and global financial markets? Presently, those questions are central to investors every single day.

    Generally, during recessionary cyclical economic times, at-risk assets don’t do well (to say the least). Cryptocurrencies and digital assets are in the heart of today’s at-risk assets category – though that may be slowly changing. Regardless, during such a time of economic uncertainty, rolling out a high-tech, revolutionary custodianship service for digital assets is interesting. That leads me to the next timing overlap.

    The SEC’s Ongoing Persistence of Rejecting Bitcoin Spot ETF Proposals

    The SEC has been on a roll with rejecting Bitcoin spot ETFs. Coverage of this began intensifying when they rejected Grayscale GBTC’s conversion request from a SEC-approved Bitcoin Trust to an SEC-approved Bitcoin spot ETF. Grayscale immediately retained Donald Verrilli Jr., who subsequently filed a quick appeal. Verrilli is best known for making a successful oral argument to the US Supreme Court in favor of the ACA (Obamacare). Afterwards, any new Bitcoin ETF – especially spot ETFs – were widely covered by the media and enthused investors. This announcement came on October 11th, 2022, the same day WisdomTree’s Bitcoin spot ETF application was rejected by the SEC, which is also coincidentally the same date the SEC had a deadline to respond to VanEck’s appeal of their previously rejected Bitcoin spot ETF. To note, the SEC has now missed their 45-day deadline to respond.

    Bear in mind, VanEck is not heavily exposed in digital assets at all. They are a highly reputable institutional investment firm, with one SEC-approved Bitcoin Strategy ETF on the market. As all other currently SEC-approved Bitcoin ETFs, VanEck’s Strategy ETF is a Bitcoin futures ETF. Nonetheless, BNY Mellon – very likely coincidentally, admittedly – announced this launch on the same day as two highly anticipated SEC rulings on digital asset products.

    Expected Impact for the Digital Asset Market

    The impact, especially in the longer-term, is potentially massive. Let’s remember the primary, above-and-beyond, number one reason the SEC is rejecting Bitcoin spot ETFs: security. Grayscale’s SEC-approved GBTC Bitcoin Trust advertises and details the product’s custodianship. The custodian is Coinbase Custody Trust Company, LLC. In other words, at least from the branding, the custodian of the cryptocurrency product is a cryptocurrency-specific custodian. Continuing with the Grayscale example, this makes their rebuttal to the SEC more difficult. Is there any remotely tangible security added if a cryptocurrency product is in the custody of another cryptocurrency-specific firm? I don’t doubt Grayscale’s ability to make a compelling and technically robust argument, but I seriously doubt the SEC’s acceptance.

    What if the scenario remains the same, with the only change being the custodian. With very few exceptions, in my opinion nothing really changes. That is, unless the custodian is BNY Mellon. Some, including myself, might argue that turns the dynamic in the other direction. If GBTC is held in the custody of BNY Mellon, would the SEC still cite security concerns? Unimaginable. BNY Mellon’s brand is iconic when it comes to custodianship services in global banking. Through this core offering, BNY Mellon alone winds up touching over 20% – or more than 1 out of every 5 USD (or global currency equivalent) – throughout the entire world. That’s astounding. Keeping in mind they are the oldest bank and the oldest publicly traded company, BNY must be doing something right in custodianship services.

    Security Has Always Been Paramount in Custodian Banking

    With custodianship banking generally, security is definitely mission critical. BNY has provided this service, highly successfully, arguably longer than any other service offered by any institution. They’ve been evolving the custody banking sector since the late 1700s. Back to the SEC, if I’m looking at GBTC in the custody of BNY Mellon, I don’t see any compelling argument for security concerns. If anything, I’d see that as more of comical reasoning. The SEC could always pivot to another, more plausible concern if (when) that were to happen, but it’s still a huge win for the digital asset market – as well as BNY Mellon.

    As a final note here, the SEC is rejecting Bitcoin spot ETFs at an increasing rate, meaning applications are growing. More and more firms are attempting to get SEC-approved Bitcoin products into the marketplace. Clearly, they’re prognosticating an increase in investor demand for digital asset products and are attempting to respond accordingly. Let’s also be clear – investors and investment firms aren’t required to get SEC clearance to sell Bitcoin derivatives.

    That said, of course it’s highly preferred. In an asset class still largely plagued by uncertainty, SEC approval is an immediate, gigantic game-changer. BNY Mellon holding custody of digital assets on an in-house, BNY Mellon digital assets custody platform changes cryptocurrency market dynamics. It also likely puts cryptocurrency-specific custodians out of business, amongst other market effects. One would think it’d have to alter the SEC’s position substantially and broadly on digital assets. In turn, that should similarly substantially and broadly alter investor perception of digital assets.

    Could Anything Go Wrong?

    Always. On a more serious note, even Alexander Hamilton was famously quoted saying, “I never expect a perfect work from an imperfect man”. From my perspective, BNY Mellon is not only the biggest risk-taker here; they are the biggest by a landslide. This is a company that was founded by the first US Treasury Secretary and has only improved their initial, core offering over time. The SEC also isn’t raising concerns over security as a completely illegitimate excuse. We’ve seen Ethereum wallets hacked, viruses created to successfully steal Bitcoin, cyber-attacks against crypto exchanges, and more. BNY Mellon will have the sole responsibility to ensure none of that occurs on their watch, so to speak. What if they fail? That’s exactly the point at which this could all go terribly wrong.

    BNY Mellon built a brand with the core focus on custodian banking spanning the course of over 225 years. They are widely considered to be the most prestigious and critical institutional investment services firm in the world. Now they’ve made a major move into the digital asset space, an admittedly enticing and potentially extremely lucrative strategy. However, in banking, all it takes to bring down a reputation built over 225 years is one mistake in seconds.

    To be sure, there’s added nuance here. Digital assets are naturally going to be more susceptible to evolving technologies as digital assets themselves are an evolving technology. Cybersecurity preventability measures and the sophistication of cybersecurity attacks have both increased. In the age of digital transformation, I believe this is a correctly calculated risk for BNY Mellon.

    Extent a Momentary Error Could Hurt BNY Mellon’s Core Business

    While there can be little to no doubt a security issue coming from BNY’s digital asset custody platform would be detrimental to the company – potentially in a very large way – the same can be said for the likelihood of that instance actually bringing down what BNY’s built in over 225 years. Even if the world’s most secure custodian has a security malfunction, I don’t believe it would even impact their current business model. It may take them out of digital asset custody services – I think even that is reaching – but again, I don’t see it majorly tarnishing the brand.

    All-in-all, this is a win-win scenario, statistically speaking. Yes, something could go wrong. When this platform is ready for go-live and it’s used broadly, we’ll get a better sense of the impact. But BNY especially would not dramatically – out of character – launch a futuristic digital assets custody platform that didn’t meet the mark from a technology perspective.

    There shouldn’t be doubt BNY made budgetary concerns a main priority, or even an obstacle, of this project. The team they’ve assembled is comprised of the brightest, most experienced, innovative SME’s in their respective areas. This continuing work-in-progress originated in 2019 and is just now starting to be publicly rolled out in a significant way. BNY likely took 3 years to ensure they had capacity to build a product worthy of publicly announcing is work-in-progress. They notably take perfection seriously; I doubt many disbelieve they’re going to rollout an incredible product. Whether perfection in digital assets custody is attainable is a separate discussion, but if anyone could, it’s BNY Mellon.

  • The World’s Oldest and Largest Custodian Bank – BNY Mellon – Builds Platform to Revolutionize Digital Asset Custody Services

    BNY Mellon, founded by Alexander Hamilton in 1784 – the first US Treasury Secretary – has announced they are continuing to build out a highly advanced, robust, and secure digital assets custody business.

    “Touching more than 20% of the world’s investable assets, BNY Mellon has the scale to help our clients reimagine financial markets through blockchain technology and digital assets. We are still in the early days of this evolution, but the possibilities are exciting. Today’s announcement marks a step in what we see as an ongoing innovation journey for our firm, our clients and the rest of the financial industry.”

    -Robin Vince, CEO of BNY Mellon

    BNY’s custodianship business is based on some of the very principles Hamilton wrote about in the late 1700s. They are both the largest and the oldest custodian bank in the world, with approximately $45T (Trillion) in Assets Under Custody (AUC). With their experience, brand recognition, and unique ability to utilize economies of scale – coupled with what appears to be a recent renewed peaking interest in digital assets – this move is an example of exceptional business strategy.

    The Timing of BNY Mellon’s Announcement

    The timing of the announcement is interesting for a number of reasons. Firstly (likely the primary reason), the Sibos Update conference, which initially lasted from 10/10-10/13. BNY had a very large presence and rolled this news out in parallel. Secondly, we’re at an absolutely critical point in macroeconomic policy. Will the Fed’s decision to hike up rates to deflate the inflation work? Did they start too late? What’s the impact on US and global financial markets? Presently, those questions are central to investors every single day.

    Generally, during recessionary cyclical economic times, at-risk assets don’t do well (to say the least). Cryptocurrencies and digital assets are in the heart of today’s at-risk assets category – though that may be slowly changing. Regardless, during such a time of economic uncertainty, rolling out a high-tech, revolutionary custodianship service for digital assets is interesting. That leads me to the next timing overlap.

    The SEC’s Ongoing Persistence of Rejecting Bitcoin Spot ETF Proposals

    The SEC has been on a roll with rejecting Bitcoin spot ETFs. Coverage of this began intensifying when they rejected Grayscale GBTC’s conversion request from a SEC-approved Bitcoin Trust to an SEC-approved Bitcoin spot ETF. Grayscale immediately retained Donald Verrilli Jr., who subsequently filed a quick appeal. Verrilli is best known for making a successful oral argument to the US Supreme Court in favor of the ACA (Obamacare). Afterwards, any new Bitcoin ETF – especially spot ETFs – were widely covered by the media and enthused investors. This announcement came on October 11th, 2022, the same day WisdomTree’s Bitcoin spot ETF application was rejected by the SEC, which is also coincidentally the same date the SEC had a deadline to respond to VanEck’s appeal of their previously rejected Bitcoin spot ETF. To note, the SEC has now missed their 45-day deadline to respond.

    Bear in mind, VanEck is not heavily exposed in digital assets at all. They are a highly reputable institutional investment firm, with one SEC-approved Bitcoin Strategy ETF on the market. As all other currently SEC-approved Bitcoin ETFs, VanEck’s Strategy ETF is a Bitcoin futures ETF. Nonetheless, BNY Mellon – very likely coincidentally, admittedly – announced this launch on the same day as two highly anticipated SEC rulings on digital asset products.

    Expected Impact for the Digital Asset Market

    The impact, especially in the longer-term, is potentially massive. Let’s remember the primary, above-and-beyond, number one reason the SEC is rejecting Bitcoin spot ETFs: security. Grayscale’s SEC-approved GBTC Bitcoin Trust advertises and details the product’s custodianship. The custodian is Coinbase Custody Trust Company, LLC. In other words, at least from the branding, the custodian of the cryptocurrency product is a cryptocurrency-specific custodian. Continuing with the Grayscale example, this makes their rebuttal to the SEC more difficult. Is there any remotely tangible security added if a cryptocurrency product is in the custody of another cryptocurrency-specific firm? I don’t doubt Grayscale’s ability to make a compelling and technically robust argument, but I seriously doubt the SEC’s acceptance.

    What if the scenario remains the same, with the only change being the custodian. With very few exceptions, in my opinion nothing really changes. That is, unless the custodian is BNY Mellon. Some, including myself, might argue that turns the dynamic in the other direction. If GBTC is held in the custody of BNY Mellon, would the SEC still cite security concerns? Unimaginable. BNY Mellon’s brand is iconic when it comes to custodianship services in global banking. Through this core offering, BNY Mellon alone winds up touching over 20% – or more than 1 out of every 5 USD (or global currency equivalent) – throughout the entire world. That’s astounding. Keeping in mind they are the oldest bank and the oldest publicly traded company, BNY must be doing something right in custodianship services.

    Security Has Always Been Paramount in Custodian Banking

    With custodianship banking generally, security is definitely mission critical. BNY has provided this service, highly successfully, arguably longer than any other service offered by any institution. They’ve been evolving the custody banking sector since the late 1700s. Back to the SEC, if I’m looking at GBTC in the custody of BNY Mellon, I don’t see any compelling argument for security concerns. If anything, I’d see that as more of comical reasoning. The SEC could always pivot to another, more plausible concern if (when) that were to happen, but it’s still a huge win for the digital asset market – as well as BNY Mellon.

    As a final note here, the SEC is rejecting Bitcoin spot ETFs at an increasing rate, meaning applications are growing. More and more firms are attempting to get SEC-approved Bitcoin products into the marketplace. Clearly, they’re prognosticating an increase in investor demand for digital asset products and are attempting to respond accordingly. Let’s also be clear – investors and investment firms aren’t required to get SEC clearance to sell Bitcoin derivatives.

    That said, of course it’s highly preferred. In an asset class still largely plagued by uncertainty, SEC approval is an immediate, gigantic game-changer. BNY Mellon holding custody of digital assets on an in-house, BNY Mellon digital assets custody platform changes cryptocurrency market dynamics. It also likely puts cryptocurrency-specific custodians out of business, amongst other market effects. One would think it’d have to alter the SEC’s position substantially and broadly on digital assets. In turn, that should similarly substantially and broadly alter investor perception of digital assets.

    Could Anything Go Wrong?

    Always. On a more serious note, even Alexander Hamilton was famously quoted saying, “I never expect a perfect work from an imperfect man”. From my perspective, BNY Mellon is not only the biggest risk-taker here; they are the biggest by a landslide. This is a company that was founded by the first US Treasury Secretary and has only improved their initial, core offering over time. The SEC also isn’t raising concerns over security as a completely illegitimate excuse. We’ve seen Ethereum wallets hacked, viruses created to successfully steal Bitcoin, cyber-attacks against crypto exchanges, and more. BNY Mellon will have the sole responsibility to ensure none of that occurs on their watch, so to speak. What if they fail? That’s exactly the point at which this could all go terribly wrong.

    BNY Mellon built a brand with the core focus on custodian banking spanning the course of over 225 years. They are widely considered to be the most prestigious and critical institutional investment services firm in the world. Now they’ve made a major move into the digital asset space, an admittedly enticing and potentially extremely lucrative strategy. However, in banking, all it takes to bring down a reputation built over 225 years is one mistake in seconds.

    To be sure, there’s added nuance here. Digital assets are naturally going to be more susceptible to evolving technologies as digital assets themselves are an evolving technology. Cybersecurity preventability measures and the sophistication of cybersecurity attacks have both increased. In the age of digital transformation, I believe this is a correctly calculated risk for BNY Mellon.

    Extent a Momentary Error Could Hurt BNY Mellon’s Core Business

    While there can be little to no doubt a security issue coming from BNY’s digital asset custody platform would be detrimental to the company – potentially in a very large way – the same can be said for the likelihood of that instance actually bringing down what BNY’s built in over 225 years. Even if the world’s most secure custodian has a security malfunction, I don’t believe it would even impact their current business model. It may take them out of digital asset custody services – I think even that is reaching – but again, I don’t see it majorly tarnishing the brand.

    All-in-all, this is a win-win scenario, statistically speaking. Yes, something could go wrong. When this platform is ready for go-live and it’s used broadly, we’ll get a better sense of the impact. But BNY especially would not dramatically – out of character – launch a futuristic digital assets custody platform that didn’t meet the mark from a technology perspective.

    There shouldn’t be doubt BNY made budgetary concerns a main priority, or even an obstacle, of this project. The team they’ve assembled is comprised of the brightest, most experienced, innovative SME’s in their respective areas. This continuing work-in-progress originated in 2019 and is just now starting to be publicly rolled out in a significant way. BNY likely took 3 years to ensure they had capacity to build a product worthy of publicly announcing is work-in-progress. They notably take perfection seriously; I doubt many disbelieve they’re going to rollout an incredible product. Whether perfection in digital assets custody is attainable is a separate discussion, but if anyone could, it’s BNY Mellon.

  • Financial Markets Outlook Q4 2022 – Thoughts on Late September/Early October Bear Market Rally

    As the sell-off of stocks intensified into late September 2022, the S&P 500 lost all gains from the previous calendar year in September 2021. Coupled with an annual slump of 24% – the lowest since November 2020 – many were quick to point out the likelihood of a short-term bear market rally. This wasn’t (and isn’t) unjustified at all. During inflationary periods, as we entered this year by definition after two consecutive quarters of negative GDP growth, current stock market trends seemed to point to a classic “bottoming out”. An asset that has “bottomed out” reached its low point and could be in the early stages of trending upward. That’s the real question most investors are asking. Given all the global financial market dynamics that have been putting downward pressure on prices, are they ready to rebound? Will it be a short-term bear market? Will there be any noticeable rebound at all? What are the chances of a long-term bear market cycle? These are all questions investors are keen on getting more insight into daily.

    How Are Financial Markets Looking for the Remainder of Q4 2022?

    Shaky and unpredictable, at best. Specifically looking back at the S&P 500 trends, October, like September, tends to be a comparatively volatile month. This is coming off a year where more than half the trading days saw movements above or below 1%, indicating high general volatility.

    Before we get to the Fed policy, let’s quickly mention something many people are overlooking; current problems plaguing the UK. When we’re talking about the general trend of global financial markets, the US and UK generally follow similar patterns. In 2008, when the US recession hit, did the UK not feel the impact too? Ominously, the UK has already been in recession for a full year. Furthermore, S&P Global is predicting a “tough winter” for EU markets. Add that to the ongoing currency crises the GBP and EUR are currently experiencing and one would not be out of line at all to believe that the UK, as well as struggling countries in the EU, will fall into an even deeper recession. Surely – if that were to happen – it would obviously not bode well for US financial markets.

    But more realistically, actions taken by the Fed regarding inflationary concerns are what investors are eyeing more closely. Let’s take a deeper look at the Fed’s policy to combat inflation and how that’s impacting financial markets.

    The Fed’s Continuously Shifting Narrative on Inflation

    It’s important to first point out the Fed’s inflation narrative and, accordingly, their policy has shifted dramatically the past year. In fact, just last year Fed officials said inflation “wouldn’t be a problem”. Shortly later, the Fed promised us it would be “transitory” inflation. Now, they’re shifting to a “soft landing” inflation for the economy, amidst hiked up rates and economic downturn. As evidence of the deflationary attempts being rejected mounts, the Fed will undoubtably continue to move the bar.

    Why is that concerning for financial markets and moreover, market participants? Generally – intuitively, this should be especially true during times of economic uncertainty – investors often look to the Fed for guidance. Meaning, the majority of market participants will react to news from the Fed in real time. Even more specifically, they’ll take a bearish or bullish position based on what the Fed is saying at that time. David Schassler, Head of Quantitative Investment Solutions for VanEck, noted the same.

    “Market participants have been slow to catch up with the party line — and that’s reflected in the wild volatility. The market has failed to recognize the threat of inflation. Unfortunately, we think the idea of a soft landing is a bit of a fairy tale, and investors can expect a lot more volatility”.
    -David Schassler, VanEck Investments
    Tweet

    But what’s more concerning is that even the Fed knows, for deflation to be successful, there also has to be a drop in demand. It doesn’t appear, nor is anyone really reporting, that there is any drop in demand. That’s starting to have – quite significant at that – ramifications on the global supply chain. Regardless of the reason – it could be the “COVID-10 lockdowns” J.P. Morgan hypothesized – at this point we know we are heading towards a global supply chain “crisis”. On top of a potentially botched deflation, we could see increased – rather than decreased – demand meet supply shortages, which would equal very rapid, upward prices until demand swings back down. Factoring back in how shaky the global economy looks at present, I think it’s extremely difficult to confidently say we’re definitely not going to have a financial crisis-like recession sometime in 2023. As many have said, time will tell.

    Conclusion for Q4 2022

    Concisely, we’re likely entering even darker waters than we’ve been in. That goes for capital markets, equities, indices, and related securities. Savvy investors will start looking at alternative investment products, while at-risk assets continue to have a negative long-term outlook. During times of financial uncertainty, investments in real estate (physical assets, more broadly) are usually a better value risk. High-value commodities, like gold, are known to do well in recessions (no, not Blockchain technology). High-value commodities such as gold in general are a quintessential hedge against a deflating dollar (USD) value.

    While we want to make it abundantly clear if there is a bear market, we expect it to be a short-term bounce back. To reiterate, the long-term macroeconomic outlook right now looks bleak. However, we also don’t want to give the incorrect impression that we are predicting a 2008-like financial collapse. Many have speculated that today’s CDOs are the mid-late 2000’s MBS products that led to the widespread 2008 financial collapse, however the comparison is a false equivalency.

    The safeguards we’ve put in place since 2008 prevent the kind of collapse we witnessed during that time. We have new volatility ratios that dual-acting (depository/investment) banks must strictly maintain. We have new regulatory reporting and compliance procedures banks have entire departments of staff dedicated to. The biggest investment banks in the world have literally thousands of dedicated employees specifically for regulatory reporting and compliance projects. My genuine belief is most active market observers understand we’re smart enough to learn from 2008 and avoid a repeat.

    However – needless to say – we’re still imperfect. With the way the global financial system now operates, there can only be winners if there are also losers. That dynamic is becoming more apparent at an upward trajectory. The biggest winners are becoming bigger (wealthier) and the biggest losers are becoming poorer. Interestingly, according to Fox, the last few recessions have statistically benefitted the “rich of the rich”.

  • Is India’s UPI (Unified Payments Interface) Technology Worth Selling Overseas and to Western Countries?

    The Unified Payments Interface (UPI) was created by the National Payments Corporation of India (NPCI) for purposes of “enabling digital payments and settlement systems in India, is an initiative of RBI and IBA”. As announced in Bloomberg in June 2022, the NPCI is looking to take UPI to overseas markets. This implies that a) the technology has been tested thoroughly and successfully in Indian markets and b) there is currently no real competitor to UPI in overseas markets. At one point, NPCI CEO Ritesh Shukla compared it to a “home-grown alternative to SWIFT”. For those who aren’t familiar, SWIFT is a Belgium-based cross-border payments system operator.

    Has the Product [UPI] been Thoroughly Tested in Indian Markets?

    Based on our research, yes UPI has been tested both rigorously and successfully in Indian markets.

    “We have displaced cash in India to a large extent and are now looking to repeat the success in cross-border corridors. Overseas Indians can use our rails to remit money inwards straightway into their bank accounts, and for the markets where Indians travel frequently, we will build acceptance for our instruments.”
    – NPCI CEO, Ritesh Shukla
    Tweet

    Not only has the technology behind UPI been proven and tested, but the methodology has also succeeded. At least that’s the quantitative claim Shukla’s making. The World Bank data seems to support the analysis too. Indians overseas remitted $87 billion in 2021; the biggest inflow for any country that was tracked by the World Bank.

    Under the RBI’s “Liberalized Remittance Scheme”, all resident individuals (including minors) are allowed to freely remit up to USD $250,000 per year. This is from April-March, for any permissible current or capital account transaction, or a combination of both. Further, resident individuals can avail of the foreign exchange facility, for specific purposes within the limit of USD $250,000 only. The RBI’s “Scheme” was introduced on February 4, 2004, with a limit of USD $25,000 (BusinessDesk, Bloomberg). Since then, the LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions. Notably, the “Scheme” is not available to corporates, partnership firms, HUF, Trusts etc.

    Are there Any Notable Comparisons to India’s UPI Abroad (not factoring in SWIFT)?

    Of the $87 million in remittances India received in 2021, the US was the biggest source (World Bank). According to the World Bank, US remittances to India accounted for over 20% of the $87 million in 2021.

    “Flows to India (the world’s largest recipient of remittances) are expected to reach $87 billion, a gain of 4.6 per cent with the severity of COVID-19 caseloads and deaths during the second quarter (well above the global average) playing a prominent role in drawing altruistic flows (including for the purchase of oxygen tanks) to the country”.
    – World Bank Spokesperson, World Bank Migration and Development Brief, 2022
    Tweet

    In terms of total global remittances, India is followed by China, Mexico, the Philippines, and Egypt (World Bank). In India, remittances are projected to grow 3% in 2022 to $89.6 billion. This is reflective of a drop in overall migrant stock, as a large proportion of returnees from Middle Eastern countries are still awaiting return (World Bank).

    Remittances in low-and-middle-income countries are projected to have grown a strong 7.3% to reach $589 billion in 2021 (World Bank). This “return to growth” is far more robust than earlier estimates. Following the same resilience of flows in 2020, when remittances declined by only 1.7% despite a severe global recession due to COVID-19, according to estimates from the World Bank’s Migration and Development Brief. Lastly, the brief in its entirety can be found here, from the World Bank’s website.

    Outside of evaluating the micro-differences to SWIFT, there are no current notable competitors to India’s UPI we could find. Without any doubt, no possible comparisons would come close in terms of size or scale.

  • Is India’s UPI (Unified Payments Interface) Technology Worth Selling Overseas and to Western Countries?

    The Unified Payments Interface (UPI) was created by the National Payments Corporation of India (NPCI) for purposes of “enabling digital payments and settlement systems in India, is an initiative of RBI and IBA”. As announced in Bloomberg in June 2022, the NPCI is looking to take UPI to overseas markets. This implies that a) the technology has been tested thoroughly and successfully in Indian markets and b) there is currently no real competitor to UPI in overseas markets. At one point, NPCI CEO Ritesh Shukla compared it to a “home-grown alternative to SWIFT”. For those who aren’t familiar, SWIFT is a Belgium-based cross-border payments system operator.

    Has the Product [UPI] been Thoroughly Tested in Indian Markets?

    Based on our research, yes UPI has been tested both rigorously and successfully in Indian markets.

    “We have displaced cash in India to a large extent and are now looking to repeat the success in cross-border corridors. Overseas Indians can use our rails to remit money inwards straightway into their bank accounts, and for the markets where Indians travel frequently, we will build acceptance for our instruments.”
    – NPCI CEO, Ritesh Shukla
    Tweet

    Not only has the technology behind UPI been proven and tested, but the methodology has also succeeded. At least that’s the quantitative claim Shukla’s making. The World Bank data seems to support the analysis too. Indians overseas remitted $87 billion in 2021; the biggest inflow for any country that was tracked by the World Bank.

    Under the RBI’s “Liberalized Remittance Scheme”, all resident individuals (including minors) are allowed to freely remit up to USD $250,000 per year. This is from April-March, for any permissible current or capital account transaction, or a combination of both. Further, resident individuals can avail of the foreign exchange facility, for specific purposes within the limit of USD $250,000 only. The RBI’s “Scheme” was introduced on February 4, 2004, with a limit of USD $25,000 (BusinessDesk, Bloomberg). Since then, the LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions. Notably, the “Scheme” is not available to corporates, partnership firms, HUF, Trusts etc.

    Are there Any Notable Comparisons to India’s UPI Abroad (not factoring in SWIFT)?

    Of the $87 million in remittances India received in 2021, the US was the biggest source (World Bank). According to the World Bank, US remittances to India accounted for over 20% of the $87 million in 2021.

    “Flows to India (the world’s largest recipient of remittances) are expected to reach $87 billion, a gain of 4.6 per cent with the severity of COVID-19 caseloads and deaths during the second quarter (well above the global average) playing a prominent role in drawing altruistic flows (including for the purchase of oxygen tanks) to the country”.
    – World Bank Spokesperson, World Bank Migration and Development Brief, 2022
    Tweet

    In terms of total global remittances, India is followed by China, Mexico, the Philippines, and Egypt (World Bank). In India, remittances are projected to grow 3% in 2022 to $89.6 billion. This is reflective of a drop in overall migrant stock, as a large proportion of returnees from Middle Eastern countries are still awaiting return (World Bank).

    Remittances in low-and-middle-income countries are projected to have grown a strong 7.3% to reach $589 billion in 2021 (World Bank). This “return to growth” is far more robust than earlier estimates. Following the same resilience of flows in 2020, when remittances declined by only 1.7% despite a severe global recession due to COVID-19, according to estimates from the World Bank’s Migration and Development Brief. Lastly, the brief in its entirety can be found here, from the World Bank’s website.

    Outside of evaluating the micro-differences to SWIFT, there are no current notable competitors to India’s UPI we could find. Without any doubt, no possible comparisons would come close in terms of size or scale.

  • Is the US Real Estate Market Finally Starting to Cool Off?

    According to recent trends witnessed primarily in California, but largely nationwide, the supply in the housing market appears to be growing, while the demand is shrinking. This is what experts are counting on leading to a “cool off” period in real estate prices. “Today, week after week, we see more and more inventory come on the market and demand is down,” said broker Justin Itzen. He added, “Buyers have more to choose from, they can be more selective” (Moscufo, ABC News). Taylor Marr, chief economist of Redfin, echoed a very similar narrative. Marr made a distinguishment between expensive coastal markets and cheaper, rural housing markets. As Itzen’s remarks indicated, Marr concurs coastal cities located in California, New York, etc. will witness most of the impact.

    But that still leaves the larger question unanswered; are we looking at a nationwide real estate cooling period? According to an investors report Redfin released at the very start of August 2022, the share of home listings that have been on the market for more than 30 days has increased more than 12% from 2021. Due to inflationary effects, interest rates for average mortgages were between 5-6% in July 2022, compared to 2-3% July 2021. Inflation and rising prices (or rates) go hand-in-hand, but this increase is steep enough to leave tangible impressions. With more listings, dropping prices, and definite near future housing market uncertainty, we’re hopefully finally entering a buyer’s market.

    Importantly, Iesha McTier-Whyte, a broker selling middle to high-end homes in Newark, NJ advised she’s seen the same pattern. However, she doesn’t view it as a bad thing. “It’s nice to see [the market] cool down and kind of go back to the basics,” McTier-Whyte said. “What we experienced last year was like no other”. Itzen’s partner, Gio Helou, remarked “buyers are [now] able to actually go through the natural home buying process”. Assumingely, Helou meant that buyer’s now have the luxury of options. They no longer have to make the same kind of extraordinary sacrifices to simply purchase a family home.

    At one point, “homes were going within days for way over the asking price,” said Tim Sherman, a prospective homebuyer. When he and his wife found a home in Huntington Beach, CA, they began considering liquidating investments to purchase it. Not only “15% over the asking price,” commented Sherman, “but it was now over the market estimates of what the property was worth” (Moscufo, ABC News).

    The end to Sherman’s story really ties into the underlying assertion of this article. That first house fell through, but he and his wife did wind up purchasing a home. As soon as they saw the photos their broker sent them, they put in an immediate offer. Their former home in Dallas then sold in just one day (Moscufo, ABC News). If that’s any indication of the market dynamics moving forward, expect lower prices, more supply, and increased quality listings. A true win-win, both for individual homeowners and for real estate investors. As for the critics who continue to say there’s somewhat of a 2008-like “housing bubble” getting ready to pop, there’s little quantitative evidence to support the theory. Yet even the critics concede:

    “There is now a huge supply of new houses for sale, in all stages of construction, over 9 months’ supply in total, according to the Census Bureau. In terms of the number of houses, by June [2022], there were 463,000 new single-family houses at all stages of construction for sale, the highest since May 2008, and up by over 30%, from a year ago.”

    -Wolf Richter, The Wolf Street Report

    Their perspective is investors need to remain patient, as market conditions are continuing to return to their equilibrium. After what we’ve witnessed with the COVID-19 global pandemic, anything is possible, but conceptually, our economy isn’t close to the same state it was in heading into the 2008 financial collapse. We have far more restrictions on speculative investments, strict leverage ratios, mandatory reporting requirements, etc. The lessons of 2008 essentially taught us how to avoid widespread economic fragility when a significant market starts looking vulnerable. Additionally, the credit worthiness, financial disclosures, and ability to repay have all tightened considerably for buyers. Time will only tell whether we are in the midst of a “cooling off” period, or if we’re about to witness about bubble bursting. From our research and observations, we see it as more of a buyer’s market than a ‘fragile’ housing market.