On Monday, I wrote that bitcoin [BTC] had the potential to become a new ‘safe haven’ asset for the modern era.
It’s an idea we’ve been exploring over at our entry level cryptocurrency investor service — Secret Crypto Network — for a few years now.
Perhaps you thought that sounded like a crazy notion?
Well, it seems the head market strategist over at Invesco, a global investment company with over US$1.1 trillion in assets under management, might now agree with us.
She just said so in an interview at CNBC overnight.
Anyway, I’ll post the link to the interview at the end of today’s article for you.
Also, I want to quickly give a nod to Greg Canavan over at The Rum Rebellion today. Like bitcoin, the old safe haven asset, gold, is on a surge right now.
If you want a blow-by-blow account of what’s happening there, he’s your man. You can access his insights for free here.
Yes, change is certainly in the air when it comes to the world of finance and economics.
And over the last few years, Afterpay Touch Group Ltd [ASX:APT] has been one company making hay from it.
You might be thinking this is an old story. The stock has flown up and has made early investors 10 times their money over the past three years.
But I still think it’s worth considering today.
Let me explain why…
Could these falls be an opportunity to buy?
The former market darling is copping a bit of flack at the moment.
Last week, the Australian Financial Review reported that Bell Potter — the broker behind the recent whopping $317 million capital raising — was reminding clients they’d ‘agreed’ to hold onto new shares for at least 12 months.
Except they hadn’t agreed. Not in any legal sense, anyway.
This email seemed to be a veiled threat of some kind.
You see, the Afterpay raise was a ‘hot’ offer. So, I guess Bell Potter was trying hard to persuade its clients that such offers might not be so forthcoming in the future, if they reneged on their word.
In a Don Corleone sort of way…
Now, the reason for this unprecedented reminder to not break investing ‘omerta’ was due to the recent falls in the Afterpay share price. Falls that came after the capital raise.
That wasn’t supposed to happen!
So, what did happen?
The share price fell when regulator AUSTRAC issued a notice saying the company had to appoint an external auditor to check over its compliance with anti-money laundering rules.
The reason for the almighty stink is that this announcement came just days after the completion of the new capital raise.
And also, after the founders had just pocketed $100 million from said raise.
Whatever the legitimacy of the circumstances, it’s still a huge fail of the investor pub test.
But could it be a storm in a teacup?
Could these falls be a great opportunity for you to jump into now?
Let’s take a look…
Is the AUSTRAC situation fatal for Afterpay?
The first question you’ve got to as yourself is this:
Is the AUSTRAC situation fatal for Afterpay?
My best guess is no. But you’ll have to make up your own mind.
I personally think it’d be remarkably heavy handed of a government regulator to try to cripple one of Australia’s fastest growing international fintech businesses with a massive fine or other restriction on trade.
Although, we’re living in a post Royal Commission world, so who knows? The risk for investors is that they do take severe action.
Remember that the Commonwealth Bank of Australia [ASX:CBA] copped a fine of $700 million from AUSTRAC last year for such breaches.
That’s the immediate danger…
But if that cloud passes over, I think Afterpay could become a pretty hot stock once again.
And it’s all to do with the value of their customer base…
The true value of Afterpay lies here
To ‘Afterpay’ something is now shorthand in Millennial speak for paying by lay-by.
Becoming a verb is a pretty big deal for any business.
Think how you ‘Google’ something when you to search online, for instance. You don’t ‘Yahoo’ or ‘Bing’ it.
And you certainly don’t ‘ANZ’ your home loan!
That’s what’s so exciting about this company.
They’ve captured the imagination of a new breed of younger customers in a way the old banks never could.
This large and important customer base is the true value of Afterpay, in my opinion.
In the old days, banks could rely on new customers literally walking through the door. They’d usually give them a free money box at school and pretty much lock in a customer for life.
But not today…
The finance world is changing so fast you can barely keep up. But the one thing you have to understand is that the best customers for banks are now the younger generation.
After all, these are the customers who will borrow for the years to come. Not the retiree reaching the natural end of his or her banking life (at least, as far as lending profits go).
By having a strong ‘in’ to the lucrative Millennial market, Afterpay has value more than the just the sum of its profits.
Bear that in mind.
The way they’ve achieved this feat wasn’t even that original…
Afterpay is really just a modernised ‘buy now, pay later’ system. But thanks to some savvy marketing, they literally own that old idea when it comes to millions of younger people.
And now they’re taking this concept to the world…
Afterpay is expanding to the US
The recent US roll-out is the key to short-term financial success.
They have over 1.5 million customers in the US and 3,300 merchants already with plans to quadruple their sales volume to over $20 billion by 2022.
At around 4% commission on each transaction, you can easily work out the potential revenue if they achieve this.
Short answer — it’s big!
Of course, there are risks to consider too. And not just the immediate AUSTRAC situation.
Like all successful business innovators, copycat companies are springing up all around them.
You’ve got Sezzle and Quadpay in the US. Zip and Flexigroup here in Australia.
Sceptical investors might see the recent founder share sell downs as a sign the competition is starting to bite.
You’ll have to weigh up the opportunity and risks here…
But whatever happens, there’s no doubt that huge changes are coming to banking and financial services.
Afterpay is yet another sign of how banking will need to change, to meet the needs of the next generation of customers.
Make no mistake, there are fortunes up for grabs for the companies that get that right.
Worth keeping an eye on I say — or maybe even a down payment in Afterpay stock…
Editor, Money Morning
PS: As promised, here’s the link to the Invesco bitcoin interview on CNBC.
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