A few weeks ago, my friend Harjit, and I decided to start recording our conversations about the economy, startups, and tech in the US and India and sharing it with people that may be interested. We are calling this podcast InvestStream. We’ve done two episodes so far and plan to do it weekly.
We’ve discussed everything from market stats to central bank monetary policy to fund raises by startups to where the blockchain and cryptocurrency worlds may be headed. We would love some honest, critical feedback on this experiment and what we can do to improve it. We are still playing with the format and we could really use your feedback on what you find useful.
We will plan to keep the conversation from 20-30 minutes and we will have both audio only versions on SoundCloud as well as video.
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We’ve also broken up the second episode into snippets around specific topics. This allows for much shorter videos ranging from 2 – 7 minutes and allows the viewer watch only what they find relevant.
Please accept YouTube cookies to play this video. By accepting you will be accessing content from YouTube, a service provided by an external third party.
Please accept YouTube cookies to play this video. By accepting you will be accessing content from YouTube, a service provided by an external third party.
If you accept this notice, your choice will be saved and the page will refresh.
In this first episode of InvestStream, Harjit Singh and I discuss the unemployment report and wage growth in the US, interest rate and bond yields, US economic strength, US-China trade war, Uber’s IPO plans and the valuation, startup funding in 2018 in India, SoftBank and their investments in India, and much much more.
There’s been no shortage of news about the surge in Bitcoin and some of the altcoins (alternative crypto currencies) in 2017. Japan allowing Bitcoins for transactions was a big factor in fueling the demand for Bitcoin as well as increasing odds that other countries, most notably South Korea, may follow suit.
However, there’s an additional factor that is driving up the demand and speculation in Bitcoin and other altcoins. A low volatility and low yield stock market is forcing many people to look elsewhere for volatility and higher yields. More funds are looking at cryptocurrencies as a place to take on more risk for the higher yield. More traders are finding solace in the volatility that cryptocurrencies like Bitcoin and altcoins such as Ethereum offer. The chart below shows the number of confirmed transactions on the Bitcoin Blockchain per day for the last 12 months.
Confirmed Transactions Per Day (click to enlarge), Source: Blockchain.info
The chart below shows the number Bitcoin Blockchain wallets, which have almost doubled over the last 12 months.
Bitcoin Blockchain Wallets (click to enlarge), Source: Blockchain.info
Now let’s look at the chart below, which is the USD equivalent of daily trading volume of only Bitcoin.
USD Exchange Trade Volume (click to enlarge), Source: Blockchain.info
The final chart shows the average daily market price for Bitcoin across major exchanges in USD.Average USD market price for Bitcoin (click to enlarge), Source: Blockchain.info
From these charts, we can see:
The number of Bitcoin transactions is rising rapidly.
The number of wallets, and likely, the number of people jumping into the Bitcoin and cryptocurrency world continues to rise.
The daily trading volume of only Bitcoin continues to increase with wild swings.
Continued volatility in the price of Bitcoin is making it, and in turn, other cryptocurrencies very attractive to traders and speculators.
I expect volatility to moderate a bit in the short term but I also expect more and more traders, investors and technically savvy users jumping into the cryptocurrency world, mostly because of curiosity but also because other high-yield assets have already been widely invested in and the hunt for yield in a near zero interest rate world continues.
The whole ICO market is fascinating, if not highly speculative, and also offers another path to long-term yield. I expect this to add to the volatility and, hence, the increased speculation in the base cryptocurrencies. There aren’t many places that a company can raise $35 million for their company in less than a minute. Come to think of it, I can’t think of any place one can do that.
Emerging markets often leapfrog technologies. For much of Independent India, it was very difficult to get a fixed-line phone. They were expensive and the wait  could be as long as five years. In the 1990’s came the mobile revolution and people across India were able to get a communication device for a relatively small amount of money and they could take the device with them everywhere. Most importantly, they didn’t have to wait years, but only a few hours for the phone to start working.
When it comes to the adoption of non-cash payments, India is in a similar position. Cash has been the preferred source of making and receiving payments since Independence in 1947. Credit cards still have very low penetration across the country. While debit cards have slightly more penetration, mobile wallets (a method of storing credit/debit cards and cash on a mobile phone) have seen quick and widespread adoption. By some estimates, there were 19.9 million credit cards across India in 2014. PayTM and MobiKwik, two of the largest mobile wallet providers in the country, claim to have 20 and 12 million active users respectively.  It’s pretty evident that India is fertile ground for cashless transactions, but also has plenty of room to grow.
With the recent developments in government, essential steps for promoting the use of electronic payments, including withdrawal of surcharges, service charges, convenience fees on cards and digital payments are soon to be rolled out across the country. While the adoption rate of mobile, card-based, and online transactions is currently lower than many other countries, payments via online platforms still accounted for 14 percent of all spending in India last year.
India, with most other emerging markets, faces the challenge of regulating transactions and removing illegal “black moneyâ€Â from the system. A recent study has India ranked fourth in the world for illicit money outflows with an astounding $51 billion leaving the country per year between 2004-2013 alone. Yesterday, Prime Minister Modi took a bold step in curbing the use of “black money” by changing the status of the ₹ 500 and ₹ 1,000 notes as no longer legal tender. This could have short-term implications on GDP since cash purchases still made up a large chunk of the Indian economy. The Indian government will eventually introduce new notes in addition to the ₹ 2,000 that was just launched.
These changes are going to create a significant amount of intended strain on the country’s parallel “black” economy but it’s a blessing for Indian startups and new age, digital first, financial services solutions. It also helps advance the government’s policy of financial inclusion by bringing the unbanked into the financial system.
The Solution to the Black Economy: Going Cashless
Cashless transactions with the right security measures in place would remove customer reliance on underground markets (also known as the “parallel economy”). At the moment, high transaction fees, time to complete a transaction and potential security problems are hindering the popularity of cashless transactions, but legislative progress on both fronts does suggest a positive outlook moving forward.
Enabling people to make inexpensive and easy payments using a phone or a fingerprint is convenient both for buyers and sellers and offers tighter security. This ultimately limits fraud and decreases the circulation of capital in the shadow economy, which, in turn, will lead to more tax revenue.
Shining a light on the parallel economy is something that has challenged governments all over the world for ages, even in established Western countries. In Italy, these underground activities are believed to make up 21% of the economy.
The Indian government understands that a cashless society will make it easier to curb the illicit outflow of capital and is taking steps to encourage technology solutions that scale with the size of the Indian economy.
Trust in a Transaction: Know Your Customer (“KYC”)
Knowing the parties in a transaction has always been difficult but in the digital age, a whole new level of uncertainty and potential for fraud exists. It’s part of the reason banks make customers jump through hoops for seemingly minor and mundane information to authenticate identity.
The ongoing work by the Unique Identification Authority of India to collect biometric data and issue all residents a universal ID number (called the Aadhaar) is unprecedented and early results are promising. The program has continued to grow rapidly over the last seven years with recent enrollment passing one billion citizens. However, the infrastructure needed to effectively implement Aadhaar throughout the country still needs work; access to localized bank branches and ATMs, for example, is not readily accessible to millions – yet. Though the program is still in the early stages of implementation, it represents a major leap towards a financial infrastructure with strong safeguards in place.
The tweet above by Sanjay is indicative of how Aadhaar is going to change the way verification of parties in a transaction (“eKYC”) and transactions themselves take place for more than a billion people. The largest mobile wallet in India, PayTM, has reduced paper based KYC to 1%.
In order for cashless transactions to catch on, mobile-to-mobile payments also need to be streamlined. Last year the National Payments Corporation of India launched the United Payment Interface (UPI) to make mobile-to-mobile payments easier. The system allows for the quick transfer of funds across different banks with the use of a single identifier, removing the need to exchange sensitive personal information during financial transactions.Â
All you need to do is download a UPI enabled app and let the fun begin. Startups like Instamojo have been pushing the limits of how digital payments can be made or received for years. Now, with the policy finally catching up, they can make it even simpler to send money or receive payments with nothing more than a cell phone.
Transparency and Portability
The Aadhaar number is a good step in bringing a scalable identification system to an incredibly diverse population of more than a billion people. However, coupled with blockchain technology, solutions providing more financial transparency to the entire country can easily be developed. With blockchain, an open ledger of all transactions could be recorded in a secure and transparent network linked to the legacy banking system.
With a blockchain, customers could have account number portability when moving between banks. That portability is something that politicians in India are already calling for. Imagine, switching banks or brokerage accounts to a new service provider and taking your account number with you. Potentially, not having to deal with changing routing numbers or providing your employer with new banking information ever again.
NASDAQ is currently testing blockchain technologies in a trial program. Last year, nine of the world’s biggest banks announced a partnership to create a blockchain framework that could be used globally.
The Future
With all of these developments on the horizon, disruptive technologies and solutions around payments, financial inclusion, remittance, public market investing and broader financial services are going to be boundless. As India adapts and implements the proper security measures and makes bold policy decisions, digital transactions will continue to become accessible, easier, less expensive, and, hence, more frequent.
Customers will have peace of mind about their accounts being protected thanks to biometric security. Business professionals will also find comfort in knowing that blockchain technology records all transactions and protects them from fraudulent activity.
Arguably the biggest winner of all will be the Indian government. With such a system in place, it could greatly reduce its much-derided bureaucracy. The government will also be closer to it’s goals of banking the unbanked, stamping out corruption and black market activities while simultaneously increasing revenues and GDP (by adding in cash transactions that were previously not being captured by official mechanisms).
While India still faces some complex challenges, the country is certainly heading in the right direction with regard to a more sustainable cashless society. If history is any indication, India will, in fact, fully embrace the shift just as it did with mobile a decade ago, though, not without some teething pains.
Not many individuals other than some of the partners from Long-Term Capital Management have spoken or written anything public about their experience. I happened to be up in Greenwich, Ct a couple of days ago to meet with one of the partners from LTCM and I realized that it’s almost 20 years since I started working there.
This isn’t a story of what happened at LTCM. This is a reflection on how I arrived at LTCM 20 years ago, some of what I did while I was there, and what I learned.
The Liar’s Poker Influence
Upon graduating from NYU, there were only a few things most students from Stern did. We went to Wall Street, Madison Ave., or, at the time, the Big Six consulting firms. I chose Wall Street, primarily, because I read the book Liar’s Poker as a Sophomore in high school and was completely convinced I wanted to be a mortgage trader when I grew up.
Plans changed by the end of college. Kind of. While I was in college, I was lucky enough to get an unpaid internship at Merrill Lynch. I picked up writing Excel macros and working with Microsoft Access 1.0. That was my first real experience working with technology and I loved it. I decided to do a double major in Finance and Information Systems.
At the end of my junior year, a friend of mine, Anil, shared my resume with a recruiter at JP Morgan & Co. I got the paid internship. After the internship was over, my boss, Paul, asked me if I’d consider joining after graduating. I was ecstatic and agreed.
Job Hunting
Fast forward a few years and I decided it was time to move on from JP Morgan. I had interviewed at a few places before getting called into LTCM. Once the interview was over, I immediately decided that I wasn’t going to interview anywhere else. Working at LTCM would mean an opportunity to work with John Meriwether (someone I first read about in Liar’s Poker six or seven years prior) and some of the smartest people in finance. That’s where I wanted to be. If you’re in tech, it was the equivalent of getting a job at Google, Uber, 500 Startups, Facebook or Twitter when there were less than 50 employees.
Weeks went by and I hadn’t heard a thing. Weeks turned into over a month. I was sure that I didn’t get the job and it was probably time to start looking elsewhere. Before I started sending out my resume, I got a call. LTCM wanted to see me again. I was very surprised that when they told me I was being considered for an analyst position in the US fixed income risk management group. It was a Friday afternoon and I got a call giving with a verbal offer. A written offer would be faxed over to me shortly. I had to make a decision by the end of the day.
Here I was, twenty-two years old, excited but also scared about going to work for this company that no one had ever heard of. This up-start in finance. This startup. I laid out the pros and cons to my dad and he said to me, “I don’t know anything about your line of work. I’ve heard of and know what JP Morgan is but I can’t tell you what you should or shouldn’t do. You need to trust yourself and decide what you think is right.” I made a decision to take the job. After having been at JP Morgan for two years, Monday morning I handed in my resignation to my boss, Jack (who had been a lifer at JP Morgan).
Long-Term Capital Management
Two weeks later on June 10th, 1996 I started working at Long-Term Capital Management. I was now the youngest employee at the firm, much to Howard’s chagrin. Up until I came onboard, Howard had been the youngest employee at the firm. Being at LTCMÂ was an incredible experience. It turned out to be a lot more than what I had expected. In good and bad ways. A few months after I had started working at LTCM, during the summer of 1996, I suggested to my boss, Lawrence, that we should consider evaluating technologies like the Netscape browser and a web server to build an Intranet. Back in 1996, not many knew what an Intranet or the Internet were. The few that did, mainly used it for email, Yahoo and a few other things. My boss was pretty excited at the prospect of bringing new consumer technologies into the firm. He spoke to two of the partners, Greg Hawkins and Eric Rosenfeld. Greg asked me some detailed questions about my suggestion. At the end of the conversation, he told me to get a prototype ready in a month. I was perplexed. I knew nothing about setting up and creating content for an Intranet. I just knew how to use Netscape (Thanks Marc)!
After work, I hit a few bookstores and tried to figure out whatever I could about  Intranets, HTML and CGI apps. Roughly a month later, with the help of our SysAdmin, Avi, we had the Netscape Suitespot web server in production, hosting all of our US fixed income risk reports. That set off a push over the next 18 months and the little proposal to create and Intranet turned into a team of people dubbed the “ATI” or “Advanced Technology Initiative” building a platform for all reporting and some applications being moved to the browser or Java.
LTCM office in Japan
In early 1998 I moved out of the fixed income research group and ATI into the “systems” group. Here, I took on more of an infrastructure role. My job would morph again to focus almost exclusively on data over the coming months. I had just been given a project that would essentially rip out the whole market data infrastructure of LTCM and replace it with a new PC product from Reuters called Kobra. Essentially, everything affecting trading, research, risk and operations that required prices for various securities would need to be replaced. Every Applix Spreadsheet macro, every Perl script and module, every C library, every MarketVision screen would need to be re-written by December 31st 1998 – the last date the existing MarketVision infrastructure would operate. Then August 1998 rolled around and Russia defaulted and all hell broke loose in every corner of global capital markets.
The Collapse
By September, an offer from Warren Buffet to buy the assets of LTCM had come and gone. The hemorrhaging continued unabated. I kept working on replacing the market data infrastructure, unsure if there would be a need for the infrastructure at the end of it all. The partners took steps to ensure that all of the employees would not need to worry about our salaries. All we needed to worry about was sticking together and getting thru this. Within a few weeks, fourteen of the largest banks on the Street bailed out LTCM. Tough decisions were made by the “Oversight Committee” which was comprised of representatives from each of the fourteen banks. LTCM was scaled back considerably but by December 31st, thanks to everyone pulling together, we had a new market data infrastructure running on Reuters Triarch and Kobra.
LTCM Tokyo Trading Floor
The Aftermath
All of us were in maintenance mode at LTCM for about a year. We were kept around by the OC to keep the place running and fix problems if they occurred.
My friend Ritesh and I caught the startup bug and began working on plans for world domination. I don’t remember what the idea was but we made a trip to Boston to meet with Perot Systems. It didn’t work out but I had my first taste of a tech startup. Looking back, it was convenient that in October 1999, I got laid off from Long-Term Capital Management. It bothered me. A lot. Fortunately, though before the end of the year, I was back to working with Hans, Tom, Ira, Jim, Ritesh, Peter, Nandini, Marek, Rob, Claudette, Kin, Graham and many others on GlobeOp Financial Services.
I frequently tell people that I’ve been very lucky and fortunate in my life. My time and experience at Long-Term Capital Management has a lot to do with it. I was privileged to work with some of the best and brightest in the industry and lucky to learn some very important values very early on in my career at LTCM – humility, integrity and most importantly loyalty.
As I continue working on 500 Kulfi, I hope to build something that embodies these values as well as our core values at 500 Startups with Dave, Christine, Bedy, Khailee, Soaib, Shalini and everyone else in the #500STRONG family.
Up until I came onboard, Howard had been the youngest employee at the firm. Being at LTCMÂ was an incredible experience. It turned out to be a lot more than what I had expected. In good and bad ways. A few months after I had started working at LTCM, during the summer of 1996, I suggested to my boss, Lawrence, that we should consider evaluating technologies like the Netscape browser and a web server to build an Intranet. Back in 1996, not many knew what an Intranet or the Internet were. The few that did, mainly used it for email, Yahoo and a few other things. My boss was pretty excited at the prospect of bringing new consumer technologies into the firm. He spoke to two of the partners, Greg Hawkins and Eric Rosenfeld. Greg asked me some detailed questions about my suggestion. At the end of the conversation, he told me to get a prototype ready in a month. I was perplexed. I knew nothing about setting up and creating content for an Intranet. I just knew how to use Netscape (Thanks 
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