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Speaking of Disruptive Innovation, Much Of Wall Street Won't Be Here In 10 Years!

Reggie Middleton's picture




 

Wall street, pay attention (and Canary Wharf as well)!!! Newspaper magnates and media
moguls, when queried about the prospects of the Internet, proffered disbelief in the early ‘90s. When was the last time you read
the classifieds, rented a Blockbuster movie or called into a radio station? As
the Internet clearly showed us in the ‘90s, when change comes… It comes fast
and takes no prisoners!

“47% of all jobs will be automated by 2034, and no government is prepared.” - Economist

“In the next 10-20 years, 58% of financial
advisors will be replaced by robots and AI.”- Frey and Osborne, Oxford University

I've had difficulty sourcing the expertise that I neede from the bitcoin community, so I sourced it from the general and fintech community, getting them up to speed on Bitcoin. After totally replacing my devlopment team with (4) seasoned veterans from the fintech (hedge funds, trading platforms) and distributed app (Yahoo, Google, Amazon) space, I've come to an interesting conclusion. The vast majority of hardcore technical talent still has absolutely no idea what this protocol is capable of. When I walked my team through what I was doing, they were literally - and absolutely... Amazed. 

This tells me that as the true higher end intellectual talent comes onboard, things will start to become very, very interesting. As it is, shortly after launch, I expect Fortune 5000 companies and data providers such as Bloomberg and Reuters to provide interest. This is for a product category and underlying technology implemention that didn't even exist this time last year.

What does this portend? Well let's look at it via its most simplest attributes.

The Redefining of Business

A promise is a commitment, made now, to perform an action in
the future. All business transactions are essentially a string of promises. The
basic business transaction consists of two promises - the promise to deliver a
product/service and the promise to pay for said delivery. Business can get much
more complex by involving intricate, interwoven models of transactions, which
are essentially just layered… promises.

 

Significant resources are spent ensuring people and business
entities keep their promises to pay, to perform, to honor their words and
contractual agreements. Due diligence, research, lawyers, litigation, mediation,
arbitrators, escrow agents are all methods of doing such, but historically a
promise has always been just a commitment to perform a future act, and nothing
more.

Veritaseum has discovered a way to codify promises in the actual money
used in a business transaction. We make and sell… “Unbreakable Promises”!

What is the typical Wall Street transaction? A string of promises. I agree to pay you $X for Y asset at this date. Whether it's Goldman Sachs selling interest rate swaps to Greece, or Morgan Stanley selling real estate units to HNW expats - it all amounst to the same thing. Unfortunately, so do the meltdowns from the last decade. What if every promise given a government by Goldman Sachs, or a private investor by Morgan Stanley, or... What if everything said was forced to be true?

This is the new world, and it is automated... performed through software, not through $17 million per year traders. I'll opine on the transformation of Wall Street in a later post (or those who are massively curious and can't wait, download this research report) for now I'll continue my PSA on well funded bitcoin startup valuations (reference my valuation estimate of Bitpay, a rapidly growing payment processor), I bring a forensic analysis and valuation of Coinbase, likely the 2nd largest money exchanger in the bitcoin business.

 Valuation Case 2- COINBASE

Revenues for Coinbase is calculated based on global monthly transaction size (US$) of the company. Annualizing the transaction resulted in Total transactions for 2014  

As per the information available, Coinbase charges 1% as transaction fee resulting in the revenue of the company.    

Table 3- Revenue Forecast, US$

 
 

2014F

2015F

2016F

 

Annual Transactions*, US$

1,085,488,973

     1,248,312,319

     1,435,559,166

 

Transaction Fee (%)

1.0%

1.0%

1.0%

 

Total Revenue

        10,854,890

    12,483,123

    14,355,592

 

*Growth assumed under moderate scenario

 

As per the news for funding in Coinbase, the valuation of Coinbase ranged between US$140 million – US$1 billion. Based on weighted average (by applying 70% weight to the lower figure in the range), the above valuation is derived at US$398 million. Applying the multiples at which Bitpay and Circle are estimated to have been funded recently (using average revenue multiple of Bitpay and Circle), the valuation based on 2015 and 2016 revenues is as shown below:

Table 4- Relative valuation

Particulars

2015F

2016F

Revenue ($)

    12,483,123

    14,355,592

Multiple Comparable- Bitpay and Circle

16.0x

13.5x

Valuation (US$mn)

                      200.31

                      194.23

Of course, we feel that these rapidly growing payment processor companies, although now profitable and expanding their reach like weeds, are barely touching the tip of what the Bitcoin industry will look like just two years into the future. 

 

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Thu, 06/19/2014 - 20:47 | 4876126 williambanzai7
williambanzai7's picture

80/20 rule and tittytainment...Wall Street is not exempt

Thu, 06/19/2014 - 15:17 | 4874882 potato
potato's picture

Reggie had an illegitimate son, and his name was phonestar.

It is known.

Thu, 06/19/2014 - 14:24 | 4874604 spooz
spooz's picture

A bitburn advertisement instead of a much more timely account of the Bitcoin mining pool monopoly issue?  ZH is obviously not the place to go for truth when it comes to Bitcoin, but Bitcoin boosters will find plenty here to prop up their confirmation bias.

http://www.businessweek.com/articles/2014-06-16/could-bitcoin-miner-ghas...

Thu, 06/19/2014 - 14:46 | 4874736 crazytechnician
crazytechnician's picture

That is a non-issue.

Thu, 06/19/2014 - 15:27 | 4874915 spooz
spooz's picture

I see. Kinda like that "noise" Yellen spoke of.  

Thu, 06/19/2014 - 13:18 | 4874342 Matt
Matt's picture

Does your UltraCoin ride on the Bitcoin blockchain, or its own blockchain?

If it is on the main Bitcoin Blockchain, how do you keep them from removing it? The developers have taken a hard stance against other projects bloating theirs.

Or is it dual-mined alongside bitcoin? How will your coin be mined?

 

Thu, 06/19/2014 - 14:11 | 4874575 crazytechnician
crazytechnician's picture

Matt - The name is slightly misleading , it is not a coin like Mastercoin etc , it is a way of using a new type of wallet app which allows the creation of smart contracts which reside on the bitcoin protocol layer. The contract data is embedded into the bitcoin blockchain.

Thu, 06/19/2014 - 14:20 | 4874601 centerline
centerline's picture

causing blockchains to approach infinity at an even faster rate!

Thu, 06/19/2014 - 14:46 | 4874730 crazytechnician
crazytechnician's picture

Once bitcoin scales up properly the blockchain will be growing at around 4TB / day. Small potatoes when you think that every financial transaction on the planet will be running over it.

Thu, 06/19/2014 - 14:06 | 4874554 centerline
centerline's picture

How do I make a shit load of cash off of it in a short amount of time?

Thu, 06/19/2014 - 13:16 | 4874332 crazytechnician
crazytechnician's picture

I wrote this in another story on here but it fits 100% to reggies post.

Our core business is robotics , automation and maintenance of such. It is a growing area and as well as destroying 'dumb employment' it is also creating 'smart employment'.

We are looking into the future and can see clearly that cryptographic currencies ie bitcoin have the potential to massively disrupt and completely automate and transform finance. Just think , no more accountants (somebody who simply counts your money then takes a cut), lawyers (a large criminal element who simply use their knowledge of the law to fuck people out of their money), banks (have now become simply zombie parasites extracting value from the global economy and sending it into a vacuum) , just like those poor unrequired weavers of the 18th century they will all be replaced by software applications. They will need to smarten up. It will be possible to replace entire government departments with automated software , plus voting systems and things we have not yet even thought of. The entire parasitic and inefficient banking system will become a thing of the past.

 

Thu, 06/19/2014 - 13:37 | 4874437 SAT 800
SAT 800's picture

Dear Reggie; I'm forseeing 100% unemployment on Wall Street, and all the rest of the streets within 10 years. Have a nice day.

Thu, 06/19/2014 - 13:01 | 4874258 lasvegaspersona
lasvegaspersona's picture

I guess the real question for every person and especially parent and grandparent is how do I and my clan fit into the new system? How do we find a way to make a contribution worth of getting paid? We watch as job after 'career' is made obsolete and have to wonder if there is a place for us. Robots and over capacity seem to be the memes that destroy a clear path to future action.

Thu, 06/19/2014 - 13:15 | 4874325 doctor10
doctor10's picture

Heck-the right iPhone app could allow you to buy any commodity anywhere in the most profitable currency. Who needs a central bank?

Thu, 06/19/2014 - 12:57 | 4874237 lasvegaspersona
lasvegaspersona's picture

Bitcoinish stuff...will never be my store of value. I really don't care how the 'evil bankers' run the medium of exchange racket.

Thu, 06/19/2014 - 12:06 | 4873980 RaceToTheBottom
RaceToTheBottom's picture

Reggie, this is another of your titles I agree with.  You cannot have an indistry with some many overpaid clerks without putting bulls eyes on their backs.  Engineering goes through this every 7 to 15 years and WS is way overdue.

My beef is none of the bulls eyes will be on the ones that deserve them.

Thu, 06/19/2014 - 12:24 | 4874054 centerline
centerline's picture

The switch to digital transactions, which is already full steam ahead, does to banks at the local level what the internet did to many brick and mortar stores.  Even more so regarding banks.

Each step of the way has been a real eye-opener.  Feels like just yesterday that we actually had to give checks to real people at a bank with a deposit slip.  Then, it was possible to put them in a ATM in an envelope.  Then, just put the thing in by itself.  Now, just take a picture of it on a smartphone?

What is coming is the old green money switch to red money thing on steroids (and the development of a very interesting and expansive black market).

Thu, 06/19/2014 - 12:47 | 4874166 The man with po...
The man with pointy horns's picture

Relax man. The black economy will evolve and incorporate hackers who will create their own private little pools of money hidden from that big bad government and banks. The black markets will always exist.

Thu, 06/19/2014 - 13:03 | 4874260 centerline
centerline's picture

+1.  counting on it.  We all are, one way or another!

Thu, 06/19/2014 - 11:58 | 4873942 worbsid
worbsid's picture

I can understand that the promiss in digital money will be upheld but there is another world of "real" where the goods or services are not virtual and may or may not be delivered as contracted.  That is typically why I require up front money for my product so that after I deliver, I cannot lose overhead and material costs in case the check bounces.  The only difference will be that in the digital money environment, I will demand (and get) 80 or 90 percent upfront and quickly cash the digital check because the digital clearing house may get hacked.  It may very well kill the "real" business of goods and services.  "Who woulda thot?"       

Thu, 06/19/2014 - 11:45 | 4873910 pupdog1
pupdog1's picture

Charles Darwin takin' out the trash.

Thu, 06/19/2014 - 11:39 | 4873876 centerline
centerline's picture

Plain and simple, digital money is coming (as in the elimination of cash/coin money).  But, it wont operate outside of government observation.  Period.  It simply wont be allowed.

Current independent systems might be allowed to exist (for now) because they do not materially threaten the exisiting "system" and serve to "warm people up" to idea of using purely digital money.

Yeah, I agree that the big banks as they currently exist are toast.  Just a matter of time.  They are under attack from all angles at this point.

 

Thu, 06/19/2014 - 11:49 | 4873912 Notsobadwlad
Notsobadwlad's picture

Big banks will be toast? So, you envision BitCoin loans being interet free, right? Or will BitCoin not be loaned or at least not be loaned at interest? How will people finance things and buy over time? Will all transactions need to be Bit-cash?

Will public and private equity cease to exist as well?

Given that JP Morgan holds the patents on BitCoin I get a completely different picture of the future. BitCoin is the banker's wetdream. It is fully electronic, fully fiat, infinitely divisible and if they want they can create serious 2,3,4,5 ... n.

Thu, 06/19/2014 - 14:03 | 4874545 monkeyshine
monkeyshine's picture

How do you leverage a bitcoin? I mean Reggie said a business transaction would have to be valid. Theoretically then all transactions would have to be fully funded in advance either with deposits and/or corresponding promises the lender has pledged to it. No fractional reserves here, right? Unless of course bitcoin is just a passing fancy and FedCoin is the future.

Thu, 06/19/2014 - 13:15 | 4874324 Matt
Matt's picture

Do you have any proof JP Morgan holds patents related to Bitcoin?

My understanding is that their previous patent applications were all rejected?

Thu, 06/19/2014 - 14:49 | 4874753 crazytechnician
crazytechnician's picture

JP Morgan do not hold any patents related to bitcoin , and saying it;s fully fiat prooves this is just FUD speaking.

Thu, 06/19/2014 - 12:17 | 4874017 centerline
centerline's picture

The entire banking system would in essence be redefined.  It is the horde of low-level people that will lose jobs.  The "owners" would remain intact.  At least until the whole thing comes unglued.

Hard to say where it all ultimately leads as soveriegn defaults circle the globe thanks to near-infinity counterparty exposure.  Perhaps the cancelling of current USD and exhange for new currency.  Which would be facilitated rather easily in a pure digital realm.

Anyhow, right now Google has the edge.  Plus, this is also about how owns the necessary infrastructure, hardware, software, etc.  What is to say that the TBTF banks see competition and wind up going to way of Polaroid?  I would not think for one moment that the unholy alliance of bankers and politicians is not one where each will hesitate to stick a knife in the others back to save thier own skin (no honor among thieves).  Shit, thier are even NSA/MIC angles we are not even considering here.

Thu, 06/19/2014 - 11:34 | 4873860 RaiZH
RaiZH's picture

When I read the title, I was hoping to read about how our banking system would have broken down & been simplified by then. 

Thu, 06/19/2014 - 12:01 | 4873957 oddjob
oddjob's picture

Part of the problem cannot be part of the solution.

Thu, 06/19/2014 - 11:32 | 4873849 maskone909
maskone909's picture

sheeeit reggie, we maynot be here either!

Thu, 06/19/2014 - 15:33 | 4874928 Sudden Debt
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Half of the bloggers are already replaced by AI bots....
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