Golden Hedge: Bitcoin Will Likely Rise in the Next Recession
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Even though technology at the protocol layer created a ton of value, the application layer has ultimately captured most of the mindshare and the value. Meanwhile, the television industry has seen a different, but related, phenomenon play out.
For many years, cable operators and telcos served as intermediaries between consumers and content. They bundled packages of cable networks and sold them as monthly subscriptions. But with the proliferation of high-speed internet in the household, companies like Netflix began to instead sell and deliver content directly to the consumer, avoiding cable distribution entirely. The same patterns are emerging in financial services.
New consumer-facing financial applications are being built on top of old banking infrastructure, while other startups are going around financial infrastructure altogether. Together, they are unbundling the roles of banks and other financial incumbents. In recent years, financial services architecture has opened up in a way that we have never seen before.
The combination of this development at the infrastructure layer, with what my partner Sarah Tavel notes as the growing distrust of traditional financial institutions, has created an opportunity for fintech startups similar those in internet and television: In fact, the next billion dollar fintech startup may not look like a traditional fintech company at all.
Transferring money between two parties was one butbitcoin price can still be manipulated the earliest problems to plague peer-to-peer commerce on the web. Paypal was the first breakout success in this category when it created a payment system that enabled transactions on eBay, and it remains an important part of financial infrastructure today.
With the advent of mobile, butbitcoin price can still be manipulated new crop of startups emerged to enable p2p money transfer beyond commerce: These applications have not only created sticky social networks, but have also habituated consumers to exchanging value back-and-forth via mobile. In doing so, they have created an opportunity for a third wave of innovation within social finance. For example, Tilt enables users to collect money from friends in a simple, friction-less way.
Splitwise allows individuals to split expenses and exchange value via a shared cloud-based ledger. Splitwise takes p2p money transfer over-the-top: But what about settling into real money? Rather than rebuild payment pipes, Splitwise allows its users to settle via its integrations with Venmo and PayPal, which are increasingly open architecture themselves. In the past, creating a new wealth management offering required some heavy lifting: But recently this ecosystem butbitcoin price can still be manipulated been vastly simplified and startups no longer need to develop the entire stack themselves.
And now there is a second wave of infrastructure development simplifying the wealth management butbitcoin price can still be manipulated even further: Companies like Tradier and Third Party Trade enable startups to avoid building the broker-dealer altogether and focus on developing a differentiated customer experience.
Among financial service verticals, insurance stands out in its ability to resist change. Yet even here there has been an opening of the industry architecture that has begun to allow for a new wave of innovation.
In an MGA the re-insurer maintains the balance sheet while the startup focuses on customer acquisition, experience, and product design.
Such structures have enabled the emergence of startups like Ladder in life insurance, Hippo in home insurance, and Jetty in renters insurance. On the other hand, several startups are utilizing p2p networks to, at least partially, go over-the-top of traditional insurance balance sheet providers altogether. Lemonade here in the US and Friendsurance in Europe are examples of this approach. By doing so, they create greater alignment of incentives, reduce fraudulent claims, and save money for their policyholders.
The most striking example of over-the-top fintech is Bitcoin. By design, it is a system of record that avoids intermediation butbitcoin price can still be manipulated traditional financial institutions and instead allows for value transfer directly between two parties.
But Bitcoin itself is a protocol that, as my partner Reid Hoffman points outcould enable an entirely new wave of innovation in the years to come. One early example is Abrawhich enables money transfer between any two mobile phones in the world by utilizing Bitcoin on the back end.
Users of Abra never need to know they are using Bitcoin to send money to friends and family. The opportunity butbitcoin price can still be manipulated improve financial services has always existed, but founders today can get to market much more quickly by leveraging existing infrastructure or circumventing it altogether. Matt Heiman is an investor at Greylock Partners.
