Good morning!
Just like that, we’re only two weeks away from 2021. While many might say good riddance to 2020 - and for good reason - I’m hopeful that our collective trauma will subside over time.
Who knows? Someday in the not too distant future, as we sit in traffic on our commutes to work, we might look back fondly on months-long stay-at-home orders. Something about the grass always being greener?
Looking back on the year, I’m thankful for all of The Saturday’s readers. I’ve truly enjoyed writing these columns and the great response has made it an even more rewarding experience.
As a token of my appreciation, I promise to… stay out of your inboxes for the next two weeks! But first…
It’s Saturday December 19, 2020.
Save The Children
2020 has been a whirlwind of a year for Robinhood, the popular stock trading app who pioneered mobile, commission-free trading.
Beginning the year with 10 million users, the app added 3 million new users in the first five months of 2020; a meteoric 30% increase. As money poured in, however, so did criticisms of the platform and its investor base.
This week, the SEC fined Robinhood $65M for inadequately disclosing revenue it generated from sending investors’ orders to specific trading firms, resulting in some investors not always getting the best price.
This is a pretty big no-no, as brokerages owe their clients a duty of best execution, meaning that the broker must seek the best possible terms for their clients.
On Wednesday, Robinhood was also hit with a more questionable suit filed by the Massachusetts securities regulators, who accused the company of using aggressive tactics to attract younger investors and of gamifying investing.
For those who have never used the app, the complaint took aim at Robinhood’s practices of (i) giving new investors a free share of a random company upon sign-up, (ii) encouraging investors to sign-up for its cash management program (which provides users FDIC-insured interest on their idle cash), (iii) providing lists of popular stocks, and - this is my favorite - (iv) for allowing investors to place as many trades as they’d like. The horror!
While some in-app features are admittedly silly - no one ever asked for digital confetti showers after buying five shares of Verizon - acting like “fun” features are a danger to investors is somewhat ludicrous. As far as I know, swiping to purchase a security isn’t more hazardous than clicking…
Reading between the lines, however, regulators’ primary concern seems to be excessive risk-taking by unsophisticated investors.
I guess this one comes down to personal views on self-agency and nanny states. To me, the retail investors are dumb narrative feels a bit old and patronizing.
For starters, SoftBank alone lost $2.7B trading call options over the summer, so Robinhood traders don’t have a monopoly on bad ideas.
Second, I suspect many of the critics are also bitter. In July, for example, Omega Advisors’ Leon Cooperman panned Robinhood investors for their “lack of knowledge” and “doing stupid things,” which he believes will “end in tears.”
Well, Robinhood trading volume began surging as equity markets hit multi-year lows; I’d argue buying low is a smart decision, although I can understand why it might upset underperforming managers trying to justify a fee. (Note: Omega is a now a family office and, presumably, no longer charges fees to external clients.)
To be fair, I don’t expect Robinhood day traders to beat the market, but history also suggests that very few people, including professionals, ever do. Why bar one set from participating?
This bull market may well end in tears, but let’s not pretend that tears were never shed on Wall Street before.
Facebook, the Benevolent
I’ve always had soft spot for irony and Silicon Valley’s proclivity for grandiose, self-aggrandizing statements. This week, Facebook did not disappoint.
Already at odds with Apple over App Store commissions, the House That Zuck Built has now launched a new attack on the iPhone maker, this time over privacy concerns. Well, over concerns that Apple might protect iPhone owners’ privacy to Facebook’s detriment.
In early 2021, Apple will roll out an iOS14 update containing the new App Tracking Transparency feature, which will require all apps to tell users what activity they track on their phones and give those users the choice to opt in:
While privacy opt-outs are relatively common, they are seldom used. By requiring up-front affirmative consent to be tracked, however, user permission preferences will likely take a substantial pro-privacy turn.
For Facebook - who was fined a record $5B for violating privacy laws in 2019 - this is bad for its targeted ads business. There’s a reason why the social media giant expects its ad revenue to top $90B next year; it tracks everything you do on your phone.
In light of the upcoming change, Facebook struck back in style, taking out full page ads in the WSJ, NYT, and WaPo on Thursday and Friday, proclaiming itself the champion of small business and declaring war against Apple:
“Small businesses deserve to be heard,” said Facebook, the $780B company that is currently being sued by the FTC and 46 states for anti-competitive behavior.
I’m not mad at this campaign, though. Facebook, Lord Protector of Small Business and Internet Competition is my favorite Facebook.
Cryptostuff #1
Well, it was a heck of a week for Bitcoin.
After beginning the year at just over $7,000, the world’s most popular cryptocurrency blew past its 2017 all-time high this week, crossing the $20,000 threshold for the first time, and trading around $23,000 as of Friday evening.
Granted, it’s not the first time we’ve noticed some… exuberance in the price of Bitcoin. That being said, the 2017 crypto market was largely driven by passionate believers and followers who got a little carried away; this year’s rise feels different.
With trillions being injected into the economy, the dollar index has taken a beating and asset prices everywhere are rising rapidly. It follows that gold and Bitcoin have had good years.
The biggest difference between 2017 and 2020, in my (non-financial-advice) opinion, is that BTC has finally obtained some institutional legitimacy.
Renowned investor Stanley Druckenmiller stated that he is long the cryptocurrency, PayPal reported that demand for Bitcoin on its platform exceeds the entire supply of new coins, hedge fund One River Asset Management announced that it would be purchasing $1B of Bitcoin and Ether by early 2021, business intelligence company MicroStrategy adopted Bitcoin as its primary treasury reserve and recently issued notes to acquire another $650M of it, and JP Morgan is building out an entire crypto division only three years after its CEO labelled Bitcoin a fraud.
This is a different, more conservative breed of investors than those who pumped BTC to $19k+ in 2017. As more whales enter the space and CNBC continues to give the asset class more coverage, I wouldn’t be surprised to see more managers maintain a crypto allocation.
Cryptostuff #2
Speaking of crypto legitimacy, on Thursday, cryptocurrency exchange Coinbase announced that it had confidentially filed a Form S-1 in anticipation of an IPO. Coinbase allows investors to purchase a number of cryptocurrencies, store them in digital wallets, lend out their currencies in liquidity pools, etc., and charges substantial fees for its services.
Perhaps more importantly, and in contrast to earlier cryptocurrency exchanges that have been notoriously lax on AML/KYC/BSA matters, Coinbase touts a robust compliance function, which could prove to be a substantial competitive advantage if and when the industry becomes increasingly regulated.
Backed by Tiger Global Management and Andreesen Horowitz, among others, the company previously raised $300M at an $8B valuation in 2018 and its 35 million current users outnumber those of investment giant Charles Schwab.
Few other details were readily available, but we’ll be sure to follow this story closely in the new year. Barring an unforeseen change, this will be the first major cryptocurrency IPO.
This wraps up the final 2020 issue of The Saturday. I wish you all great holidays, a happy new year, and I look forward to seeing you in 2021.
Have a great weekend!