Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


These Cryptocurrencies want to Shake up Payment will Banks let them?

One of my favorite places to search for interesting new cryptocurrencies is Bancor’s (BNT) liquidity network. The network’s homepage provides a list of well-capitalized, advanced cutting-edge blockchain projects that have incorporated the Bancor Protocol into their cryptocurrencies.

Many of those projects are payment-related and some of them have the potential to disrupt the entire payments and financial technology ecosphere – if they succeed. Three projects that have stood out on my last few visits to the Bancor Network were: Pundi X (NPXS), Request Network (REQ), and The RCN Network (RCN).

Being part of the Bancor Network means that these projects’ tokens have it at least some liquidity. More importantly, they can be converted into at least two widely accepted cryptocurrencies; Bancor (BNT) and Ethereum (ETH), that is critical because it means the altcoins can be sold for money. More importantly, the coins will work on a variety of platforms and exchanges.

A brief overview of each of the currencies and a few of my thoughts about them follows. Please understand that these are just my opinions and not investment advice.

Pundi X (NPXS) – a Cash Register for Cryptocurrency?

Pundi X (NPXS) is potentially super-disruptive because it is developing payment hardware for the cryptocurrency ecosystem.

Specifically, Pundi X has created a device, a sort of payment terminal that connects with a user’s phone allowing them to spend cryptocurrency at a brick and mortar store. The ultimate goal would be a sort of Square (NYSE: SQ) for the cryptocurrency payments. That is a device that would function as a cash register for cryptocurrency transactions.

That would be very lucrative if major retailers, banks, and payment processors; like Visa (NYSE: V), MasterCard (NYSE: MA), and PayPal (NASDAQ: PYPL), were to support it. Unfortunately, there is no guarantee there is going to happen anytime soon.

PayPal CEO Dan Schulman is the latest Fintech heavyweight to say no to cryptocurrency. Schulman told the audience at Jim Cramer’s The Street’s Investor Bootcamp that he fears cryptocurrency as a path for fraudsters to rip off PayPal users on 5 May 2018.

Schulman was positively polite when compared with MasterCard CEO Ajay Banga who dismissed all non-government mandated currencies as “junk” in an October 2017 interview with The Economic Times. Given such attitudes it is unlikely any big payment processor will touch cryptocurrency or Pundi X in the foreseeable future.

An even bigger problem for Pundi X is central banks which have the power to block cryptocurrency transactions. The Reserve Bank of India, has barred banks in India from transactions to or from cryptocurrency exchanges. Therefore, Pundi X would only be valuable if it had the support of a major Central Bank.

Pundi X is an interesting solution but it was definitely overvalued at the 1.4¢ Coin Price and $38,521 million Market Volume, Coinmarketcap gave it on 14 May 2018. Disturbingly, Pundi X had no Market Capitalization at Coinmarketcap which is a very bad sign. That means nobody knows what its’ true value is.

The Request Network a PayPal for Ethereum?

The Request Network (RQ) is a decentralized payments system built on Ethereum’s blockchain that has been compared to PayPal.

Just as PayPal allows anybody with an email account to request a fiat currency payment. Request would allow anybody with access to Ethereum to request a cryptocurrency payment. The hope would be to create a PayPal or Venmo type solution that allows users to request and send cryptocurrency payments through social media, text messages, and email.

The Request Network appears to be a side chain similar to the Raiden Network (REQ). It would solve the blockchain scalability problem by building a faster, specialized, highly-encrypted network that will serve as a bypass around the regular Ethereum blockchain.

Present-day blockchain solutions like Ethereum have very limited space. That means they are not very fast and can only process a few dozen transactions a minute. To work as advertised Request would have to process tens of thousands of transactions a minute.

Beyond that Request’s legality is questionable because it would theoretically allow users to bypass know your customer (KYC) and anti-money laundering (AML) safeguards. That would make possible to send money anonymously, something that central banks, tax collectors, politicians, and regulators frown upon.

There is also no evidence that Request has a working solution. Instead, it looks more like a research effort whose members think they can develop or stumble upon a valuable technology. That is neither a safe or sensible investment.

The REQ token was sort of reasonably priced by Coinmarketcap at 21.9¢ on 14 May 2018. Although its Market Cap of $145.303 million and the $2.055 million Market Volume were incredibly unrealistic. Speculators should stay away from Request until its team demonstrates some working technology.

The RCN Network Credit on the Blockchain

The RCN Network (RCN) is yet another effort to bypass the banking system and offer directly to the masses.

The RCN Network will serve as an interface between wallet providers, credit exchanges, loan cosigners, and borrowers. It will facilitate credit transactions by creating smart contracts that will be traded on the credit exchanges. Another interesting feature is that RCN will create its own credit scores.

That sounds interesting but extremely risky. One way to view RCN is an effort to build an unregulated marketplace for subprime debt. Regulators, who remember the subprime crisis of 2007 and 2008, are likely to take a dim view of that.

My guess is that RCN; which is also known as the Ripio Credit Network, would not be able to operate legally in countries like the United States, India, or the United Kingdom. Regulators would be likely to block RCN or demand that it become a bank or act as an agent for banks.

Unless RCN can demonstrate regulatory compliance it simply will not work. Even it does this business sounds a great deal like Lending Club (NYSE: LC). Lending Club’s stock was trading at $3.28 a share on 14 May 2018. Even if its tech works, RCN is likely to as shaky and as unprofitable as Lending Club and risky.

RCN tokens had a coin price of 13.9¢ on 14 May 2018. That seemed fairly realistic, but the $68.0million Market Capitalization and $8.764 million Market Valuation were ridiculous. Definitely keep away from this cryptocurrency, even if it works it is dangerous because it may be legal.

Will Cryptocurrencies Disrupt Payment

Each of these cryptocurrencies provides a cautionary tale for altcoin investors and speculators. The moral of that story is that each of these projects is theoretical and their technologies and business plans unproven.

Frighteningly the promoters of these projects seem to live in a sort of alternate universe where regulation does not affect cryptocurrency. They believe that regulators will let them do whatever they want, and they can safely ignore AML, KYC, and securities regulations. That attitude is likely to invite more attention from regulators and central bankers.

Only persons with money to burn should buy into these schemes. Everybody else should stay away from RCN, Request Network, and Pundi X. Although everybody should watch them, because of these projects has a potentially disruptive technology. Unfortunately, there might be no way to get the technology to consumers, because of the present-day payment industry.