David Garrity on Bloomberg Radio: Blockchain is being implemented in the real economy

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Twitter Axes 70mm Accounts As Fake, 21% Of 336mm Monthly Active Users

 After the justifiably incessant criticism from liberal democracies around the world, Twitter announced yesterday that it has been moving to eradicate accounts from its platform that are determined to be either automated (i.e. “bots”) or fake in an effort to manage better its content quality and traffic statistics while hopefully minimizing the outright manipulation that occurred in the run-up to the 2016 U.S. general election. Among social media platforms, Twitter with more than 336mm monthly active users (MAU) at the end of 1Q18 ranks at #6 worldwide and at #4 in the U.S. where it is Trump’s favored social media outlet. The 70mm accounts purged represent roughly 21% of Twitter’s 1Q18 MAU. Among other things it would be interesting to see how many of the 70mm accounts are based in the U.S. and what are their professed positions on various political and social issues. This as a measure of how public discourse has been biased and manipulated on Twitter. We should be concerned about how social media platforms and their initially tenuous business models wherein people likened them to benign social utilities veered into echo chambers of mass influence and oversimplification, at once shirking the rules of trade that bind traditional media and technology companies, while at the same time hiding behind the social utility argument when queried. This effort to self-police by Twitter is commendable, but in our view does not serve to obviate the ongoing need for social media platform regulation and oversight.

While Cryptocurrency Values Decline From Year-end 2017, Interest in Blockchain Application Grows

While Bitcoin (BTC, $6,354) is off -67% from its $19,205 peak, investors should note that the total cryptocurrency market has lost -$594bn (-72%) in value from its 2018 peak. However steep the decline, investors should also note that over the last year BTC is still up +219% from its 52-week low ($1,992). True to form for an emerging asset class, cryptocurrency is exhibiting the requisite volatility and investors should accordingly exercise proper caution. One particular issue accounting for the broader decline is U.S. regulators’ increased scrutiny of initial coin offering (ICO) activity with the FBI thought to have 130 separate investigations underway. Separately, the high energy requirements for cryptocurrency transaction verification, limited payment acceptance for cryptocurrency generally and incessant security breaches in both wallets and exchanges leading to substantial investor losses have further spurred regulatory concerns and tempered broader investor enthusiasm. These are all areas of substantial concern that need to be remedied before cryptocurrency sector values can recover appreciably.
Nevertheless, despite cryptocurrency issues, enterprise interest in possible blockchain applications is growing. Relative to account identity issue for Twitter highlighted above, a blockchain application could serve to establish certifiable identity when accounts are opened and be updated to reflect the veracity of user posts. In the process, Twitter could employ a utilty token approach for users and viewers to access its social media platform. While the anonymity that initially characterized internet use would be eliminated through such an application, the resulting integrity would more than likely serve to enhance the social media platform’s value. Meanwhile, in an application useful to combating global warming, IBM in March 2017 launched the Hyperledger Fabric blockchain in conjunction with Energy-Blockchain Labs, as a means of tracking carbon assets in China. This creates a measurable and auditable system for tracking emissions, and facilitates a tradable market for companies seeking to offset their energy consumption whilst incentivizing greener industrial practise. Blockchain technology potentially has broad application. Look for successful blockchain deployments to underpin and support the value of the related cryptocurrency tokens.

With Room To Raise 3Q18 Estimates, Look For Tech Sector To Continue To Provide Market Leadership

As 2Q18 earnings season kicks off, it is useful to quickly assess the attainability of current Street estimates in an effort to see whether analyst estimates will increase following the release of results. Currently, Street estimates for the S&P500 2Q18 results call for +20% year/year earnings growth (which will end up around +23% if companies beat by usual margin, but will be below 1Q18’s +24.8%) off +8.7% revenue growth (a record going back to 3Q11). The sectors expected to show above average growth are: 1) Energy (+143%), Materials (+49%), Telecom (+27%) and Technology (+25%). Expected 3Q18 S&P500 earnings growth now stands at +21.7% on +7.6% revenue growth. Against this backdrop, consensus Technology 3Q18 estimates call for +15.4% EPS growth, well below the 2Q18 +25% expectation. To the extent Tech can put up better than forecast 2Q18 results, the Street has ample room to raise 3Q18 estimates and so support continued Tech sector stock leadership going into 2H18.