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Bringing cryptocurrency to the institutional masses

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Bringing cryptocurrency to the institutional masses

Obi Nwosu, CEO Coinfloor

The future of cryptocurrencies brings with it exciting possibilities. The innovation is set to broaden the offering of financial services around the world, and tackle everything from financial exclusion to streamlining the delivery of public services. One day, cryptocurrencies will become an integral part of the future financial system and change how we interact with finances forever.

While media headlines tell stories of the rise and fall of Bitcoin, analysts, retail investors and market observers are taking stock of the potential implications of the varying fortune of cryptocurrencies. Society has grown far more aware of them, and this curiosity – both of its potential as a currency and as a store of value – is driving increasing amounts of interest.

However, a mainstream consumer focus is misdirected when it comes to bringing the vision of cryptocurrencies to life. A stable, sustainable long-term future for the innovation will not come down to adoption amongst retail investors, but instead by encouraging the participation of institutional investors.

Setting the stage

Cryptocurrencies are decentralised by nature, which means there is no central authority to put measures in place to govern its price or manage volatility. Institutional investment money flows and volumes will bring necessary stability to cryptocurrencies to make them a viable currency and asset for consumers.

Appetite for cryptocurrencies exists amongst institutional investors and traders; it has been a challenging environment post-financial crisis, and difficult to achieve returns on deposits and short term investments. This has made cryptocurrencies an attractive option for investors, who are seeking alternative investment vehicles to diversify their portfolios. But the volatility of cryptocurrencies and lack of a clear regulatory framework is making it difficult for this group to feel confident that they can capitalise on this asset. For institutions, unpredictable market dynamics create unacceptable levels of risk.

Physically delivered Futures contracts

Appropriate infrastructure also has a vital role to play in making cryptocurrencies an available and attractive investment option for large-scale investors. In recognition of this, Coinfloor recently launched CoinfloorEX – the first physically delivered Bitcoin Futures Exchange. Introducing a commonly understood market-based valuation approach allows institutional investors to confidently hedge their risk against a volatile asset class, allowing them the ability to lock in prices with confidence.

We are proud to be the first cryptocurrency exchange offering physically delivered Bitcoin Futures contracts. Other Futures contracts for cryptocurrency have been available for some time, but they provide cash settlement on the expiry date, which does not meet market requirements for physical delivery of the underlying asset. Physical delivery prevents price slippage on trades at the time of settlement, as well as any risk of manipulation, in comparison to settlement based on an index price created by using other exchanges.

Institutionally focused security

Of course, compliance and security concerns are a major concern for institutional investors. When it comes to exploring a new asset class, confidence is key.

We are the only exchange in the market to provide 100% multi-signature cold storage of Bitcoin, and to safeguard client portfolios from theft, loss or other security issues associated with partially online or online only storage. This was technically and operationally difficult for us to implement, but a strategic decision that we have remained committed to delivering since inception.

We also choose to provide our users with monthly cryptographic solvency audits of Bitcoin balances, setting the industry standard amongst cryptocurrency exchanges for transparency and regular auditing, as well as reassuring investors that Coinfloor has sufficient liquidity to manage market fluctuations.

Alongside this, our client on-boarding process is modelled strictly against industry standards for AML and KYC, with minimum default questions that are much more rigorous than the majority of exchanges.

Regulatory parameters

A clear regulatory framework will play a major role in driving institutional investor confidence and involvement in cryptocurrencies. Policymakers are learning in real-time and are working hard to get their arms around this new technology, and its market implications. In a constantly changing landscape, they are collaborating with companies in the space to shape appropriate and balanced regulation that will promote the long-term sustainability of cryptocurrencies. Our business is taking an active role in propelling dialogue between industry, policymakers and regulators, and we believe that regulation will be implemented over the coming years.

Regulation is sometimes criticised as a hindrance to innovation. However, in this instance, the lack of regulation could be responsible for stifling consumer trust. Having rules in place would create more market certainty and ensure that unscrupulous players adhere to common standards which will ultimately boost consumer confidence. The current lack of consumer protection is additionally seen as a concern to institutional investors, serving as yet another issue halting their involvement with cryptocurrencies.

Leading the way

As the longest established group of cryptocurrency exchanges for institutional or sophisticated investors and traders, we are proud to lead the way in both technological advances and regulatory conservation. Our experts span across a range of fields – including technologists, financiers and cryptocurrency professionals – meaning we can track, spot and respond to, and lead, market trends as cryptocurrencies evolve and move into the next phase of their inevitable evolution.

Our goal is to create a safe and transparent environment for institutions to trade and invest in cryptocurrencies, leaning heavily on our values of trust, reliability and security. To do this, we are working to build a connection between emerging cryptocurrency markets and the traditional finance industry. With institutional investors becoming increasingly involved in the area, we will soon see strides towards the sustainability and stability of cryptocurrency, fulfilling its potential as an alternative asset class and monetary system.

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Tax changes, volatility and care: the challenges of later life planning in 2021

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Tax changes, volatility and care: the challenges of later life planning in 2021 1

By Matt Dickens, Senior Business Development Director at Ingenious

Later life planning has become more topical than ever over the past year as our whole industry has worked hard to absorb the changes brought about by the pandemic, progressing financial planning to meet the “new normal”. This article explores three of the greatest challenges later life planners currently have to consider and prepare for, tax changes, market volatility and the cost of care, and shows how a comprehensive later life plan, delivering more than just estate planning for inheritance, is increasingly important.

The threat of tax rises

In 2019, the new Conservative Government, facing the challenge of delivering an orderly Brexit, but not yet dealing with the impact of a global pandemic, promised there would be no changes to Income Tax, National Insurance or VAT. Eighteen months on, they find themselves in an unprecedented economic scenario, with a deficit of £394 billion1 (19% of GDP), its highest level since 1945. While commentators remain focused on the ongoing pandemic and its impact on both lives and livelihoods and when it might come to an end, they also have one eye on the issue of paying for the extreme lengths the Treasury has gone to, to keep the country financially afloat. Likewise, investors are equally mindful of this issue – if the Government needs to balance the books through fiscal policy, how will any decision made now fare in a post-pandemic financial future?

For advisers, there are two clear ways to approach this planning dilemma.

Firstly, one could attempt to foresee the future and plan for the measures that might be implemented in the coming months and years. The problem with this approach is that one would need a crystal ball.

Secondly, one could accept that there is no way to predict the measures that will come into effect and wait until there is some form of clarity. But herein lies the problem of delay in the face of continued uncertainty. For almost a year now, many have held off on vital long-term plans due to the fear of the unknown, yet they need to accept that another year or more of inaction due to the potential of further uncertainty comes with its own real risk. And the longer it goes on, the more risk they are taking.

The simple answer to this conundrum is to embrace a strategy which remains flexible to any possible changes, but in the meantime delivers on the key outcomes the client requires. Any financial planning strategy needs to stack up in line with the wider objectives of the investor, such as achieving investment growth, rather than focusing purely on the tax advantages of a particular strategy, as these could change or even disappear. This is why I believe advisers should be developing a wider later life planning proposition, and not just narrowly focussing on estate planning.

Here is an example of a desired outcome of someone planning for later life;

  • To invest capital in a way that maintains flexibility throughout later life to pay for any unplanned needs, but also consider any potential care needs that might be needed, knowing that their wealth has been successfully grown up to the point of death, so maximising the legacy that will be passed onto the chosen beneficiaries.

Breaking it down into individual objectives, the adviser needs to:

  1. Maximise wealth through continued investment growth
  2. Maintain flexibility and access to the investment, so they can make regular or lump sum withdrawals
  3. Provide both financial and logistical support to the delivery of care needs if ever needed
  4. Reduce the potential for Inheritance Tax (IHT)

Note the desire to reduce any IHT payable is deliberately last on the list of desired outcomes. The danger of focussing on the estate planning part of these objectives is twofold. Firstly, the threat of impending tax changes, or tax relief changes, causes uncertainty as to the efficacy of any purely tax-focussed strategy. And this remains the case whether one feels they can predict the future or not!

Secondly, the danger of ignoring the other higher priority objectives, as many tax-focused strategies are a one trick pony and restrict the potential for wider benefits. In this case, the investor may have to forgo any long-term investment growth, or the flexibility to easily and predictably access the investment to pay for care, for instance.

So, when considering the threat of tax changes to later life planning, the approach should always be to allow the investment rationale and wider utility of the service you recommend to lead the planning decisions, rather than just narrowly focusing on the tax benefits.

Ongoing volatility

Another challenge that is particularly unwelcome in later life and particularly visible in the current environment is the potential for continuing investment volatility. In this phase of their lives, investors are unlikely to have the flexibility to “time the market” when they want access to their wealth. For instance, making a withdrawal to help family members in need, pay for care requirements or ultimately passing the investment onto beneficiaries upon death. These are not predictable events. Reflecting upon the volatility of markets in 2020 and the uncertainty of 2021 and beyond, investors may well be minded to forgo any potential upside of an investment, perceiving them as too risky.

However, an alternative, as many asset managers have been doing over the last decade, is to look to private investments that are not exposed to market sentiment in the same way as listed investments are. While on the face of it this sounds riskier, certain investment strategies can provide investors with an appealing level of security and predictable returns. One way to do this is via private companies that engage in secured lending. By their nature, loans carry lower risk than equity investments as they do not fluctuate in value over time. Senior, asset-backed loans provide the investor with additional protection against any loss in value. Executed within sectors that are demonstrating strong resilience to the pandemic and any ongoing Brexit effects, these loans can provide an attractive return with low volatility. Such companies are common investments for Business Relief qualifying services where services should be valued on their “fundamentals” not reliant on positive investor sentiment.

The ever-increasing demand for care services

In the same way that the increasingly maturing cohort called the baby-boomers have recently come under detailed discussion by advisers with respect to their intergenerational planning needs, the same level of consideration should also be given to their increasing need for long-term care. During the pandemic, the importance of and reliance upon the UK’s care system has become very clear, yet there is an insufficient level of planning taking place to ensure that people are prepared. Research shows that the majority of family members who have experience of a loved one being in care were not satisfied with their experience. One of the factors that can surely make this unfortunate outcome more comfortable is being prepared, both financially and through being armed with knowledge or advice on this complex sector.

This is why it is more important than ever to flexibly have access to one’s wealth in later life. It is impossible to predict what any one person’s needs are going to be in the future and so separating money to prepare for care and to prepare for estate planning is futile. At the same time, perhaps the need will not arise and so the money could be contributing to the investor’s other objectives rather than being held back from an investment. So, undoubtedly a flexible posture to later life planning is key and if the investment can gain value over time to contribute to paying for life’s needs then all the better. The final benefit that could assist with this challenge is a specialist care advice service, which is included for all Ingenious Estate Planning (IEP) investors. As well as advising clients and their families on the vagaries of the UK’s complex care system, the IEP Care Service helps investors to make decisions in a time of need and stress. Specialist, independent advisers give individuals and their families invaluable support, liaising between the NHS and care providers to achieve the best possible care outcomes.

Only by considering any changes to the legislative landscape, delivering consistent and attractive risk-adjusted returns and considering any future needs and costs of our clients, can we deliver a truly robust and value-adding financial later life plan for investors who need it.

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Chinese fintech platforms expected to meet capital requirements within two years – regulator

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Chinese fintech platforms expected to meet capital requirements within two years - regulator 2

BEIJING (Reuters) – China’s financial technology companies are expected to meet capital adequacy requirements within a maximum of two years, said Guo Shuqing, head of the China Banking and Insurance Regulatory Commission (CBIRC) on Tuesday.

Micro lenders, consumer finance firms and banks operated by internet platforms should all have adequate capital like other financial institutions, Guo said at a news conference.

Chinese financial regulators have rolled out a slew of measures since last year to tighten the oversight of online lending practices in the country, particularly of technology firms looking to expand into the financial space, moving away from its once laissez-faire approach.

The drive scuppered Ant Group’s $37 billion initial public offering last year and has seen Alibaba’s fintech affiliate formulate plans to shift to a financial holding company structure.

“Starting a business needs capital, so does starting a financial business,” Guo said.

“As long as internet platforms conduct financial operations, the requirement of capital adequacy ratio on them should be the same as financial institutions.”

Financial regulators have set various grace periods for different internet platforms, according to Guo. Some have until the end of 2020 and others until the middle of 2021 to meet capital adequacy requirements, he said.

“But by a maximum of two years, (the capital adequacy of) all platforms should be back on track,” Guo added.

With regards to Ant Group’s restructuring, Guo said there were no restrictions on the financial business it develops but that all of its financial activities should to be regulated by laws.

Ant Group is in talks with other shareholders in its new consumer finance unit to bolster the firm’s capital as the fintech giant prepares to fold in its lucrative micro-lending businesses, Reuters reported last week.

It would need an additional capital of 30 billion yuan ($4.64 billion) to meet regulatory requirements, according to the report.

($1 = 6.4714 Chinese yuan)

(Reporting by Tina Qiao, Cheng Leng and Ryan Woo in Beijing; Se Young Lee in Washington; Editing by Christian Schmollinger and Ana Nicolaci da Costa)

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Oil rises as vaccine and U.S. stimulus boost demand outlook

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Oil rises as vaccine and U.S. stimulus boost demand outlook 3

By Laila Kearney

NEW YORK (Reuters) – Oil prices were up on Monday on rising optimism about COVID-19 vaccinations, a U.S. economic stimulus package and growing factory activity in Europe despite coronavirus restrictions.

Signs that Chinese oil demand is slowing kept prices from moving higher.

Brent crude rose 51 cents, or 0.8%, at $64.93 a barrel by 11:29 a.m. EST (1629 GMT), and U.S. West Texas Intermediate (WTI) crude gained 28 cents, or 0.5%, to $61.78 a barrel.

Both contracts finished February 18% higher.

“The three major supportive factors are the prevalent vaccine rollouts, the optimism about economic growth and the view that the oil balance will get tighter as a result of the first two points,” PVM Oil Associates analyst Tamas Varga said.

Support also came from a $1.9 trillion coronavirus-related relief package passed by the U.S. House of Representatives on Saturday.

If approved by the Senate, the stimulus package would pay for vaccines and medical supplies, and send a new round of emergency financial aid to households and small businesses, which will have a direct impact on energy demand.

The approval of Johnson & Johnson’s COVID-19 shot also buoyed the economic outlook.

Manufacturing data from around the world was mixed.

China’s factory activity growth slipped to a nine-month low in February, sounding alarms over Chinese crude buying and pressuring oil prices.

“One negative is more and more talk about Chinese oil demand maybe faltering, that they bought all the oil that they’re going to need for a while,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. “There’s some talk that their strategic reserves are filled up and so some people are betting against the Chinese continuing to drive oil prices.”

German activity, on the other hand, hit its highest level in more than three years and Euro zone factory activity raced along, driven by rising demand.

OPEC oil output fell in February as a voluntary cut by Saudi Arabia added to agreed reductions under a pact with allies, a Reuters survey found, ending a run of seven consecutive monthly increases.

The Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, meet on Thursday and could discuss allowing as much as 1.5 million barrels per day of crude back into the market.

(Additional reporting by Bozorgmehr Sharafedin in London, Jessica Jaganathan and Florence Tan in Singapore; Editing by Jason Neely, Edmund Blair, Barbara Lewis, David Evans and Will Dunham)

 

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