Number of the Week: 30% (explanation below)
Bitcoin’s Gotta Halve It
One of the great financial intellectual questions of recent years has been: What is the relationship between cryptocurrency and the broader economy? After all, Bitcoin and its crypto siblings were initially founded to be a separate haven from the world of government-controlled fiat currency. Many individual investors will tell you that Bitcoin is a “store of value,” a claim that FIN has been skeptical of, but more on this below. When interest rates began rising a couple of years ago, crypto prices fell, suggesting that there is more of a risk-related correlation between crypto and the mainstream economy than the early theories would suggest.
We won’t resolve the big question today, but this month several data points suggest that there is a kind of “Bitcoin effect” on the mainstream economy, and that its impact may be growing. As FIN predicted, the initial introduction of spot Bitcoin exchange-traded funds (ETFs) into the U.S. market sent the price of Bitcoin down initially, but after a couple of weeks the obvious increase in demand has pushed Bitcoin well above $50,000 a coin, its highest level since the November 2021 peak.
This has ripple effects in the “mainstream economy,” notably the revival of the publicly traded crypto exchange Coinbase. As of this writing, Coinbase stock is trading at about $180 a share, its highest level since April 2022:
Robinhood experienced a similar upswing.
One of the factors in Bitcoin’s recent price rise may well be the “halving” of mining fees. A very quick explanation: The planned maximum supply of Bitcoin is 21 million coins. Approximately every four years, the amount that Bitcoin miners earn for every validated transaction is cut in half. Initially, it was 25 coins, then 12.5, and currently 6.25. This will next fall to 3.125, predicted to occur in April. In theory, there will be no Bitcoin left to mine by 2140. Investopedia has a more thorough explanation here.
A recent paper published by Grayscale argues that the 2024 halving will be fundamentally different from previous halvings, in part because of the introduction of spot Bitcoin ETFs in the U.S. While the halving represents a clear challenge to Bitcoin miners, the paper says that “there’s evidence that miners have long been preparing for the financial repercussions of the halving.” It’s a heavy dynamic, because miners hold a significant amount of Bitcoin, and how and when they sell can have a market impact.
A related study from Catherine Wood’s ARK presents a chart that frames the “store of value” argument in a compelling way. In the past few years, FIN has looked at the volatility of Bitcoin’s price as evidence that it can’t be a reliable store of value, but the ARK paper offers this illuminating chart of Bitcoin versus gold, which is considered to be the ultimate store of value:
There are, of course, no standardized definitions for what is or isn’t a store of value. But if Bitcoin’s price keeps holding or going up—which in the near term seems likely—the store of value argument looks stronger than FIN has previously considered.
Who Takes Over After Mint?
A version of this post was previously published on The Financial Brand.
When Intuit announced late last year that it was shutting down Mint, one of the oldest personal financial management (PFM) platforms, it disappointed millions of fans. Mint’s real-time updates of investments and spending changed the PFM game and ushered in a whole new set of expectations around PFM tools.
The problem? As addictive as Mint’s tools were, the company shied away from asking customers to pay to use them. Late in its life, Mint did experiment with paid tiers, but advertising was always its main revenue source. A recent research report from FT Partners concluded, “Most people have not been willing to pay for budgeting tools on a standalone basis.”
The Post-Mint Contenders
To be sure, there is an ample crop of PFM apps that think they can succeed where Mint didn’t. One of the oldest is YNAB, which launched in 2004. It pledges to help users “give every dollar a job,” and charges them $99.99 a year or $14.99 a month, a popular price point in this category. Another is Simplifi, a personal budget spinoff of Quicken (which was once part of Intuit but was sold in 2016), which charges $3.99 a month.
Recent arrival Monarch Money is actively recruiting former Mint users, providing a 50% discount on its normal fees (which are the same as YNAB’s) for those who transfer their account information from Mint.
If the demand for sophisticated personal finance tools isn’t going away, what would successors need to do to stand out?
To answer these questions, FIN talked with Val Agostino, the cofounder and CEO Monarch.
Agostino was actually the first product manager at Mint. The inspiration for launching Monarch in 2018, he said in an interview, “was to help people think about what to do next and create a plan and revolve beyond budgeting into like a more full-featured financial platform.”
A human advisor, he notes, would be able to answer forward-looking questions, which the early PFM tools didn’t do: “Do you have the right levels of insurance? Do you have the right estate planning in place? How do you optimize for taxes?”
Monarch won’t disclose how many subscribers it has, but Agostino said the company is both profitable and growing rapidly. Perhaps unsurprisingly, Monarch got a big boost when Intuit announced that it would shut down Mint. There were even, he said, “a whole bunch of Canadian users that were kind of hacking their IP address so that they could get access.” Monarch swiftly decided to open its services to Canadian customers.
Agostino argues that two related changes in consumer behavior have made it more likely for people to pay for services that they once got for free.
One is that Apple, Google and others have made signing up for subscriptions on apps a friction-free experience, no longer requiring entering a credit-card number.
The other is the growing perception that ad-supported free platforms turn the customer into the product. “I think the general populace is waking up to the fact that, wait a minute, I don’t want to be fueling these giant engines that don’t have my best interests at heart, in many cases,” he argued.
What Will Customers Pay For?
Several PFM companies are looking to move beyond well-established features to innovations for which customers might be willing to shell out subscription fees. These innovations include:
Access to advisors. In recent years, some PFM companies have begun offering customers access to personal advisors, as a valuable service they can’t get from mere budgeting tools. One ironic example is Betterment, which built its reputation as a low-cost “roboadvisor.” Recently, it introduced a premier tier that offers “unlimited support” from a human advisor.
The problem with this model, however, is that human advisors are expensive to pay, and can only handle a given number of client interactions. The Betterment premium service, for example, requires $100,000 minimum balance to qualify and charges a 0.4% annual fee, severely limiting the number of Betterment customers who could afford to sign up. Agostino suggested that a lighter-touch model might succeed, in which the majority of financial planning advice would be automated and supplemented occasionally by a session with a human advisor.
Artificial intelligence. Inevitably, the development of artificial intelligence suggests a powerful way to automate both data-crunching and customer interaction. Cleo is a UK-based app that has mostly focused on the U.S. market; it bills itself as “AI meets money.” Aimed at Generation Z, Cleo is chockablock with emojis, and invites users to ask the app to search through their finance in “roast mode” (tell me what I’m doing wrong) or “hype mode” (encourage me). The company has raised nearly $200 million in venture capital funding, and points to a coming tide of AI use in personal finance apps.
Customization. While Mint and other early players had useful tools for setting goals like college savings, they didn’t really allow for easy planning around alternative situations, such as a divorce or a work sabbatical.
As part of its subscription service, Monarch offers couples the ability to sync up their financial lives, which Agostino describes as a popular attraction. “Oftentimes in households there’s one person that does the money and someone else that doesn’t,” he says. “It’s often a source of tension. We hear this all the time where people are like, oh my God, this is the first time where we’re on the same page about what we’re doing and what our financial priorities are. And we’ve stopped fighting about money.”
FINvestments
🦈Number of the Week: The UK-based fintech giant Revolut reported this week that a detection system it built in-house has reduced fraud on its cards by 30%. The company’s head of fraud said: “A growing number of banks are increasingly restricting or heavily limiting the ability to make card payments to crypto and investment websites. With this advanced feature, rather than completely blocking those transactions, we ensure that customers who want to perform legitimate payments continue to do so, but also intervene to protect those who are being guided by criminals to make fraudulent ones. We are giving our customers both freedom and security at the same time.”
🦈Duetti, a music catalog buyer, this week announced a $90 million funding round. The company’s model makes it easier for artists to access loans and other funding from a digital platform.
🦈The artificial intelligence-driven platform Rasa, which powers chatbots for some of the world’s largest banks, this week announced a $30 million Series C round from investors including PayPal Ventures.