Nigel Barnes:

A very warm welcome to everybody. We were on the road at the end of 2021 with the financials team from Denker Capital, and there was a consistent wave of interest in new fintech, the crypto segment, and what seemed to be a lack of understanding and a huge amount of uncertainty amongst the audience as to where this was all going. Just when we thought we’d got our heads around Bitcoin, out comes a new industry buzzword – ‘DeFi’ – which stands for decentralised finance. So, what is this all about? How could it change the landscape for banks and other financial institutions, and what are the opportunities, threats and headwinds?

I’m very pleased to be joined today by Steven Sidley, co-author of a new book titled Beyond Bitcoin: Decentralised Finance and the End of Banks.

Thank you, Steven, for joining us today. I’m also very pleased to have Kokkie Kooyman with us who, as most of you know, has over three decades of experience in managing investments in the financial sector and manages the Denker Global Financial Fund. I’m sure when he read the title of the book, the final words being ‘the end of banks’, he probably had a few sleepless nights. So Kokkie, welcome.

Steven, I’d like to start off with you. Let’s go back to the beginning and explain to our audience: what is DeFi and where did it start? Most of us have read quite a lot about Bitcoin and have a basic understanding of the concepts, but could you give us a short history of this, how it all began with cryptocurrency and what’s happened along the way?

Steven Sidley:

So, before we lose some of your listeners as they roll their eyes when they hear ‘the end of banks’ – by that statement it was not meant to be the end of banks totally. It’s a metaphorical statement meaning that banks, as we know them, will have to change under an onslaught of new financial services that are cheaper, better, fairer and more trustworthy. So, in order to answer your question about what DeFi is, I need a small launch pad.

The launch pad begins in 2009, when a pseudonymous programmer by the name of Satoshi Nakamoto wrote an extraordinary and startling nine-page paper that solves all the problems that had bedeviled financial researchers and cryptographers for 40 years, in order to replace the fiat currency with a digital equivalent. Nobody had been able to do it for 40 years and he solved all the problems in one paper. You will recognise words like ‘decentralisation’, ‘trustlessness’, ‘permissionlessness’, ‘immutability’ and ‘nonaccountability’. That was not the beginning of DeFi. The beginning of DeFi was about six years later when a skinny, Russian-Canadian teenager by the name of Vitalek Buterin decided he had a better idea. He would build a blockchain, very much like Bitcoin, but he would add a single technology layer on top of the blockchain. That technology layer was a simple programming language that everybody could understand. His big idea was offering all the fabulous things that you get with blockchain and Bitcoin, but on top of that, there’s a programming language, for whatever applications might be useful to people. And he put it out there to the public. So, the crypto community, which is very small, took a look at this development in 2015 and started doing little experiments.

In 2017, DeFi was started by a guy named Rune Christensen and a project called MakerDAO. He takes a look at what banks are doing. The core business of the bank is to lend and borrow money: they take deposits, give an interest rate, venture money out to somebody else, and get interest paid back to them. The gap in the middle is their profit. Banks of course do many other things. They facilitate payments, sell securities, etc. But their core business, since the Medieval times in the 1200s is to lend and borrow. So Christensen says, I can do a better job than the bank by putting together a lend-and-borrow algorithm on top of the blockchain using programming languages. That’s what he does, and he finds that there is massive demand for people with cryptocurrency to lend their cryptocurrency out or provide access to this for people who want to borrow cryptocurrency.

This exploded immediately, and after 2017, many other people joined the fray. They looked at the financial institutions, which are banks, exchanges like stock exchanges and bond exchanges, insurance companies, and others. And they said: what targets can we put on banks’ backs to provide citizens with a better, faster, cheaper, and more trustworthy experience for their money? The years from 2020 to 2022 in particular saw a dizzying explosion of these protocols. So, to end my answer to your question, what is DeFi? DeFi is a set of cryptography-fueled blockchain resident applications that takes on the core business of the traditional financial industry.

Nigel Barnes:

Thank you. So, the landscape has changed and is changing rapidly as this technology is applied to these old-age challenges. Could you be more specific in terms of where it’s already disrupting the status quo and give us some conceptual and practical examples?

Steven Sidley:

Sure. We started writing the book in the deep, dark lockdown of January 2021. I wanted to do it mainly because I had to find something creative to do, rather than just sit in my house. Simon Dingle, my co-writer, had a crypto company and so we thought we should go with that. We did a very non-scientific poll in early January among my banking friends and found that almost nobody had heard of DeFi in January 2021. If you speak to a banker now, everybody’s heard of it and everybody wants to know more. If you look around specifically at what is happening at the great financial institutions in the world, i.e. the largest banks and investment companies (Goldman Sachs JP Morgan, Morgan Stanley, BNP Paribas, ING), all of them have not only started experimenting with crypto, but they are accelerating their explorations. They are now actually releasing products to their client bases, whether it be institutional investors, high-net-worth investors, retail investors or businesses – all of these companies have multiple blockchain initiatives. Moreover, 120 countries in the world are experimenting with what is called central bank digital currencies. So, this has taken on a life of its own and grown so fast, that it’s quite difficult to fully digest what has happened over the last year.

Nigel Barnes:

Kokkie, bringing you in here. You’ve been an investor in JP Morgan for a number of years. It’s the largest holding in the Denker Global Financial Fund. Your thoughts on how these big organisations have been dealing with this?

Kokkie Kooyman:

Steven is absolutely right. The banks were sitting on their heels to a large extent and were also protected by the regulators, which inhibits innovation. The DeFi and blockchain space has been a very rude awakening for them. As Steven said, JP Morgan for example has done a few things [in this space]. Although they were initially reluctant they now increasingly offer crypto investment products or crypto-related investment products. They’ve also launched their own JP Morgan coin that is effectively a crypto coin. It allows clients to have the same benefit of a crypto coin when making payments. To facilitate this they’ve launched their own blockchain called Onyx, which enables clients to make payments between each other 24/7 within 30 seconds, similar to the crypto space.

So, they are starting to offer all the advantages that DeFi is offering. Obviously JP Morgan is a huge bank and has got so much capital they can afford to do this; some of the smaller banks are battling. Although, there’s another small bank in which the Denker Global Financial Fund is also invested, Signature Bank, who is doing the same for their clients. They launched a Signet platform and a Signet coin and are showing the fastest growth in the US. Effectively they are a crypto bank, but not with all the bells and whistles that crypto offer you. But they are in the regulated space and that’s the big advantage. I’m sure we’re going to cover that later – how the regulator is going to react.

Nigel Barnes:

Thank you. Steven, you talked about the pioneers behind all of this, and there are always going to be winners and losers as we move forward. But what are the real risks and headwinds for DeFi and any other specific components that we should be thinking about in relation to the threat to banks, as you mentioned in the title of your book?

Steven Sidley:

Yes. So, I haven’t got to throw on the table all the wonderful things about DeFi, and maybe we’ll get to that. Let me talk about some of the problems with DeFi, because the problems with DeFi inhibit it from expanding as fast as some people would like. So I’m going to name some of the big ones. The first one is regulation. Regulations are made to protect consumers. A traditional financial institution sits under the hard cocoon of regulations and laws and has to comply, otherwise they lose their license. Those regulations and laws are not meant to be elastic. They are hard, that’s why they are laws. So, when the regulator is faced with a set of new products, institutions, projects or programmes that is outside of these regulations, it is not easy for them to change the regulations at the speed of the internet. I’ll give you one example. There is a particular DeFi initiative called Y’earn, which was written by one person in a couple of months. And it now already has over R300 billion sitting in this single investment product. The regulators cannot move at that speed, which creates a regulatory vacuum. In January 2021, we had real regulatory vacuum. The regulators hadn’t heard of the DeFi; and most of the banks had not heard of it yet either. And yet there were these sharp-toothed dogs snapping at the heels of these financial institutions by offering products that could deliver yields and returns that were orders of magnitude higher than what you could get from a traditional deposit.

What has happened in the past year is that the regulators have started to sit up and take notice, and I’m talking about regulators and para regulators. For example, the International Monetary Fund and the World Economic Forum (which is not a regulator at all, but surprisingly put out a paper on DeFi in July last year, before anybody had heard of it). All the bank treasuries and legislators throughout the world are all battling in various ways on how to regulate this. They want to regulate it from two perspectives. Firstly, governments need to collect taxes. If there’s a way to avoid taxes, they don’t want you to do that. So, they want to find a way to determine what profits you’ve made. That’s on the tax side. On the other side – which is perhaps more important – governments cannot run their economies unless they can see the movement of money through the economy, and can control money supply and interest rates. That’s the mandate of a central bank. So, they want to be able to regulate it so that they have a handle on what this money does, how fast it moves, what it does to prices, what it does to employment, etc.

Currently, regulation across the world is at various stages of maturity, from those countries that have banned cryptocurrency and will throw anybody who mentions the word into a dark hole, all the way through to a country like El Salvador (albeit a small country) that has declared Bitcoin as legal tender, just like the dollar.

In between you’ll find various states of stringency. Even for those of us who have been in this from the beginning and are DeFi zealots, we want the regulation to come, because institutional money will not into this sector until they have regulatory clarity, even in our country. In South Africa, as you know, we have four big banks and a couple of fairly big banks around them. There are only a couple who are prepared to talk about this. Without mentioning any names, one of the big banks said they’ll deal with the cryptocurrency phenomenon if you have a cryptocurrency exchange or clients can use their deposit or EFT capabilities. Others have said, don’t talk to us until the governments and the regulators have rules. This can be by the end of this year or even possibly before that, because there’s a white paper in front of the South African government, and there are all sorts of legislation that is imminent in the United States, England and Switzerland. Portugal, by the way, has now said that there is no capital gains tax on cryptocurrencies. So, there are all sorts of different initiatives. We believe that the floodgates are about open.

Nigel Barnes:

So, there’s a lack of consistency.

Kokkie Kooyman:

Yes. I’m enjoying listening to you, Steven. I read the book and it was my foundation for learning about the space and exploring from there; it was fascinating. Now, we must remember that the founder Satoshi and the group that followed him was, a community of libertarians if I can call it that?

Steven Sidley:

That’s exactly what they were.

Kokkie Kooyman:

They hated control, and detest government control. And that’s why they came up with the system where we don’t have to trust banks or central banks. But the timing of their paper is very important. His paper was published in February 2009, just after the big global financial crisis and before quantitative easing, where they anticipated the central banks to just debase a currency – and a lot of this was aimed at that. But I think what you touched on so well is that the reason why it could grow so fast, is that you didn’t have a regulator inhibiting it. It attracted the best minds who just innovated and were financially rewarded for innovating. And that’s really what’s driving the space – the innovative minds that are being drawn to it.

Steven Sidley:

Nigel, you asked about the headwinds and I left out a big one, which is crime, hacking, grifting and scams, and the things that you read about in the newspapers. This is an immature industry that has been alive for a proverbial second in the march of finance over the last couple of thousand years. The entire mediation of these financial products is a single piece of computer code sitting on a blockchain, and code is by default immature when it is launched. Any programmer will tell you that, that no programmers write a programme without bugs. So first of all, you’ve got a set of mediated programmes that are handling billions of dollars, which have bugs in them. And it’s not only on the blockchain. It’s also in the wallets that are outside of the blockchain, and on the PCs in which you sort of talk to these things at the front end – all of them are part of the ecosystem. All of them are open to grifters and scammers. The smartest crooks in the world are in DeFi, and the reason for this is that the stakes are enormous. As happened a couple of weeks ago, you can pull out $320 million in about 15 seconds. It’s very difficult to do that in the world of traditional finance. However, the point that I’d like to note about the scammers and grifters and hackers is that, in the world of traditional finance, the amount of malfeasance is immeasurable.

I’ll give you one example of a Danish bank sometime at the beginning of last year. They got together with an Estonian bank and a bunch of Russian oligarchs, and they laundered $300 billion in one day. It barely made the newspapers. The amount of cover-up of taxes that we found when the Panama papers was recently uncovered is in the many hundreds of billions of dollars. The amount of crime that goes on in the traditional world with bad actors is incalculable compared to the $15 billion or so that has been sold over 11 years in cryptocurrency, which is absolutely nothing. It just happens to sit on the front pages of the newspapers because the amounts are so big for so little effort.

Nigel Barnes:

That brings me on to my next question, which is one of the things that is often talked about in the crypto space, is the media hype and the media noise around this. Is that a headwind?

Steven Sidley:

Yes, media creates a narrative, as you will know. The public narrative is driven by media, not only in the world of cryptocurrency, but in politics, public health, etc. The things that the media have clearly locked onto are some of the crimes that have happened, the fact that various companies are banning cryptocurrency, and the fact that some people have gotten rich very fast (if you look at the world of NFTs or non-fungible tokens, the amount of wealth that has been created is just crazy). The other one that is out there, which is a near irrelevancy at this point, is the energy usage in (proof-of-work) mining, which is Bitcoin. (Ethereum is moving away from that.) I predict that the energy usage narrative will be gone by the end of 2022.

Here is the reason: at the beginning of 2021, 36% of mining was clean; by July/August 2021, it was 56%. It will be near 80% by the end of the year. That makes crypto mining energy greener than the car that I drove in to get here, than your fridge, your computer, your electricity. It’s a non-issue in terms of the future and will cease to be a narrative on the front page of the papers. So, when you get to the media, there is a tendency, as you know, to grab readers. And when you need to grab readers, you need to talk about the things that are the most sexy or most outrageous or most horrifying. And those are the things that generally end up inside people’s heads.

Nigel Barnes:

So, just to recap: the regulation is inconsistent across the world at the moment. But we’ll maybe start to see some consistencies as we have done, for example, in the collection of taxes across the world – tax authorities getting together and being more consistent and working together. Will we start to see that?

Steven Sidley:

There may be consistency across the world to a certain extent. But if you look at a country like China –  China will use digital currency to surveil their citizens. That won’t work in one of the Western democracies. So, there may be some sort of common approach moving towards a common goal of some consistency, but countries will deal with this differently. The most obvious example is, what is cryptocurrency? Is it personal property? Is it foreign exchange? Is it a commodity? Is it a security? There are four things right there. There’s no agreement worldwide.

Kokkie Kooyman:

It’s interesting, the philosophical background. China has banned cryptocurrency as a method of payment or a method of investment even, cracking down and going down, as Steven says, the road of offering their own central bank digital currency, a Chinese currency. Whereas the US has said, look, let’s not stifle innovation now. Let’s apply it on the ground, let’s debate it, and regulation will come. So, the two ideological backgrounds play a role. But I think, as you said, if you define crypto as a currency, you can’t have capital gains tax on it. So, a lot of authorities want to define it as an asset, because then you pay a tax on your yield and you pay tax on the capital gain. That’s why the route Portugal has gone is very interesting – obviously they want to attract lots of people who will bring their crypto there and go and live there and invest there. So, they’ve gone the route of saying they treat it as a currency and there’s no tax.

Nigel Barnes:

Portuguese authorities have a history of that in the last few years, in terms of their regulation and taxation around pension funds, etc.

Kokkie Kooyman:

Yes, they want to attract people. So, the background of each country will determine the approach.

Nigel Barnes:

Steven, back to you. I didn’t want to skip over the positives. We’ve talked about some of the potential headwinds and the issues that the space is facing. Let’s talk about the positives.

Steven Sidley:

So, in order to get rid of some of the red herrings, let’s assume that it gets hardened against crime, and that it gets regulated so that nation states can see what’s happening and tax and manipulate appropriately. What are the positives of DeFi?

Probably the biggest positive of DeFi is settlement. The problem with traditional finance since the 1200s is that, when you transact with somebody, there is a time period that is mediated by somebody in the center, generally a bank. Or in the case of a bond on a house that would be an escrow agent, or in the case of stock exchanges, the exchange itself. Irrespective, there’s somebody in the centre who makes sure that the counterparties do their job.

So, one guy makes an offer and the other guy sells, and money has to exchange hands. And the person in the centre collects it all together and says, okay, the deal is done. That settlement is an enormous part of the world’s economy. It’s basically what banks and financial institutions do, amongst offering other products. There is no settlement time in DeFi. It is seconds. And the financial impact of a zero settlement time regime is enormous. It’s one of the reasons why central banks are both scared and excited by DeFi, because they suddenly see a world in which there is no settlement time, and no counterparty risk. Banks and financial institutions like Sanlam have teams of people and actuaries who try to calculate what the counterparty risk is and build those costs into the products that they sell, so that they can cover the cost of counterparty risk. It doesn’t exist at all in DeFi or the blockchain, ever since Bitcoin. So that’s one of the big advantages.

The second big advantage is that we pay the intermediaries or financial institutions in traditional finance for their trust. We say, we trust you Mr. Bank because you’ve been around for a long time. We know you won’t lose our money. We know you comply to the law. That trust comes with a cost. And that is the cost of buildings, people, computers, mainframes, networks, ATMs, points of sale machines – massive legacy infrastructures that have been built brick by brick since the 12th century. None of that exists in DeFi. There are no people, except for the original programmers. And there is no infrastructure other than public internet, which everybody has.

If you have a zero or a near-zero cost basis to present a product that allows some people to deposit and other people to lend, the rates that you can get are going to be much higher on the basis that you have no costs. Now, there are things that banks do that are critical and won’t go away. Customer services is one of them – you can pick up the phone and talk to somebody. That is one of the disadvantages of DeFi; they have to solve the usability problem. But using one of these DeFi products gives you startlingly high rates. Right now in the United States and in England (it’s different in South Africa), you get less than 1% on your current account. If I go to a site called nexo.com and others (all well-known initiatives that have been around for a long time and handle billions and billions of dollars) I can get 13%. The banks cannot compete with that. These initiatives can offer those sorts of returns for the very reasons that I stated earlier. And there’s zero risk on that money. It is not exposed to the price volatility of Bitcoin or any of the others. They were pegged to stablecoins and the stablecoins were pegged to dollars, so there’s zero price volatility on those loans. They’re a hundred percent safe. Or rather, they’re very safe investments – nothing’s a hundred percent safe. I have money in there earning 13%. I took a slightly higher risk with one of the more recent ones, written by a South African programmer called André Cronjé. It’s called Y’earn. Just on the yield, I have earned over 50% this year so far. Obviously 50% is not sustainable. Do a little maths and you’ll suck all the wealth out of the universe quite quickly at 50%. So, these rates will eventually come down, but they won’t come down as far as the rates that you get in traditional finance, because this is zero cost base.

Nigel Barnes:

So, a lot of that traditional infrastructure that we’re used to doesn’t exist [in DeFi], such as settlement times etc. Therefore, you have the ability to get better returns from your investment. Kokkie, I heard you disagreeing a bit with Steven there?

Kokkie Kooyman:

First, where Steven is spot on, relates to an analogy I thought of as well. About 30 or 40 years ago we used to communicate with people by sending letters. There was a post office and different post office branches everywhere, and you had people delivering mail to post boxes. Then, with the internet, you suddenly don’t send letters anymore. You don’t need a post office. You don’t need people delivering mail. So, that’s basically what’s happening here. So, the infrastructure and a lot of what the banks built over the years is not going to be needed, or it’s going to be done by smart contracts. But I think where Steven is wrong is the risk. If you just think about what a bank does: it takes deposits and it then lends those deposits out to various institutions and individuals, and it diversifies in terms of the risk and maturity.

But in the end, when you place your deposit with a bank, you are trusting the bank in terms of the process and the risk profile of who they lend to. And we’ve had quite a few bank failures in South Africa, for example Saambou and African Bank. If the bank is poor at judging that risk and clients cannot pay back the loans, your deposits are left with no yield. So, I think the risk in the DeFi space with these high-yielding products is that we have no insight into where the deposits of the Bitcoin or other currencies are going. That is why they call it staking – they stake what the institution is doing with it. Because to pay you 13%, it is lending it out at 15% or 16%. So, someone is paying 16% for the privilege of a crypto loan. That part is not supervised or regulated, so you face counterparty risk. That is, you’ve made your deposit with an institution and you risk that one day you suddenly find that the institution placed a lot of its Bitcoin with somebody that was either hacked or lost the money, or it was stolen, and your money is gone. There’s no regulator you can turn to, or a politician or central bank. For example, Saambou clients still had the deposit guarantee scheme, which gave you your money back. There’s no payback with DeFi. The same with stablecoins. It’s important to be careful because it’s still not regulated. That’s why it’s growing and attracting the innovation. But your stablecoins are only worth something if they are backed by reserves, like dollars or gold. There have been instances when audits have been done where an institute was saying that the coin is a stablecoin because it’s backed by X percent dollars or its backed by gold or Yen, and the audits found that was it wasn’t backed up. So because there are no audits, there are no forced audits to substantiate your claim. And that’s the risk, which always comes with a fast-growing system. There are cowboys as well. So be careful.

Nigel Barnes:

Sure. As Steven had also mentioned, we need to see that development of regulation.

Kokkie Kooyman:

Hopefully not too much regulation, because then you’ll kill it.

Nigel Barnes:

Yes. I remember going back now a year or two watching an interview with one of the earlier adopters and investors in Bitcoin who made a great comment saying, if you’re looking to test this out, do so with your beer money and not your rent money.

Steven Sidley:

Exactly. That remains true. Before I forget, you asked for a couple of the positives, I just wanted to do two short, sharp ones, but they’re very important. And the positives are in comparison to traditional finance. The first is, let’s say you receive a note from your bank saying they’re increasing your transaction fees on your current account from 3.8% to 4.2% a year. If you tell them that you disagree or object or ask how they calculated these fees they will tell you to go away. The same will happen if you say, the interest rate you’re offering me on my deposits is not very high and the loan amount is too much; I don’t want to pay that much. Can I see how you calculate that? Can I see the actuarial calculations? They won’t respond. That is their IP. In the world of DeFi, all that is open. There is no closed source. There is no IP. Everything is available to the public. So you can see all those calculations. In other words, the intermediary software is not a black box. A bank is a black box.

Secondarily, there is a claim that we make in the book that it’s fairer. What do we mean that DeFi is fairer than traditional finance? There’s quite a simple example to prove the point. If you have R200 and you go to a bank to open on account, you will be treated differently than if you had R200 million. The bank treats people who give them better profits better than those who don’t. They get their calls get returned. They get taken out for a meal or even a game of golf. If you’ve got R200, you get nothing. This is not true in DeFi. It is completely fair and flat.

Nigel Barnes:

So, greater transparency and an equalisation of the consumer or user in the process. Steven, we’ve talked about some of the headwinds and the positives. Is there anything else to comment on?

Steven Sidley:

Yes. You will now find a grey area in the middle in which the financial institutions are beginning to offer against all sorts of areas in their bank. Now, one of the famous DeFi initiatives is called Aave, which is a lend-borrow product, very much like a bank lend-borrow product. They are now offering an institutional version of that product to sell to banks – and it’s being snapped up all over the place, particularly in Europe. So, banks are now seeing the advantages of the things they’ve stopped objecting to it based on inherent reluctance and ossification. They’re saying, maybe there’s something here.

So, they’re offering DeFi products and cryptocurrency exposure to their clients, sometimes retail or sometimes only high net worth clients. They’re offering settlement services, which are much faster than they’ve done before. They’re offering insurance. Stock exchanges are beginning to say, we can’t compete; we’re going to have to do blockchain-based exchange. So, it’s happening all over the place and it’s happening very fast, which has both threats and opportunities. With anything that moves fast, some stuff will come off the rails. For the stuff that doesn’t come off the rails, there will be a new regime.

Nigel Barnes:

Thank you. Kokkie, as I said, right at the start, you’ve been an investor in companies in the financial sector for a number of years. I’m sure this both excites and also causes you some concerns. It also means that the analyst team have had to dig into a new area. Can you give us some closing statements?

Kokkie Kooyman:

Yes, sure. I’m just as excited as Steven about what’s happening and the developments. Sometimes I get so excited, people think I’m saying you must invest. But it’s still very early days. There’s still a lot of fog; it’s difficult to see who are going to be the winners and that’s a different topic. The developments are happening very fast. We can’t invest yet from a regulatory point of view. If you do invest in the space, it’s literally, as you say, beer money. It’s about taking a chance, but not a Warren Buffett type investment where you can see the future. It’s interesting. I’ve started reading a lot of research on various initiatives and with all of them, when the buyer recommendation is made at the end, it’s not done on future profitability or valuation – it’s on growth potential.

What’s more, it’s profitless growth, and in an environment of sharply rising interest rates, profitless growth might not be sexy for a while. But I think the most important thing for listeners that we’ve been advocating is to start thinking about it, start reading about it, start getting involved. And that’s why we were excited when we were recommended to read the book. Our whole team has read the book and it’s a very good foundation. It gives you a lot of things to think about, and we certainly hope to do a lot more in the space for clients as well. So, get involved and start thinking.

Nigel Barnes:

Yes, sure. As you say, from your perspective, this is a new space, it’s a new development in your sector. So, you have to take notice. It’s fast moving, as Steven has alluded to, which comes with threats and opportunities. And by no means, are we looking to provide advice to the listener or the consumer. This is really just an educational component about the developments in this new space. So, thank you, Kokkie for your comments. Profitless growth sounds very similar to the tech sector, going back over the last couple of years and some of the issues there and how it unravelled.

So Kokkie, to finish off, you run a fund that invests in listed entities. And you know from what we’ve heard from Steven and from yourself that this is fast moving and unregulated, and therefore it’s limited in terms of the listed entities involved, if there are indeed any that are involved in this. So, apart from Signature Bank that you mentioned, how have you found opportunities to gain through investing in this new development?

Kokkie Kooyman:

It’s a good question. So, bear in mind, we ourselves have only really been digging deep into this in the last four months. But even before that, with digitisation and fintech, we were very aware of which banks are on the front foot. The big thing we are looking for is to make sure you’ve got management teams who are encouraging and not stifling innovation and who are not bureaucracies. In that regard, Signature Bank was one of the first. That’s why we actually increased our investment, despite it actually having gone up another hundred percent. We believe these guys are so on the front foot, they can still do well.

So, the biggest risk to any investor now is the famous FOMO – the fear of missing out, where investors get dragged in right at end when everybody’s making money.

Maybe a good example to end off with is Microsoft. At the end of the dotcom bubble, Microsoft traded at a PE [price to earnings ratio] of 80. And I remember I had friends who then bought Microsoft and Cisco because there were good salesman who were telling you that you have to own these stocks. There was nothing wrong with the company – it was a great company doing very well. But if you’d invested then, it took you 10 to 13 years before the share price recovered to where it was at the height of FOMO. So, just be very careful in what you’re investing in. And that’s really what we’re doing – we’re just investing in companies that are on the front foot, but the benefits are not in the share price – so at good valuations.

Nigel Barnes:

Kokkie, thank you. Steven, thank you for joining us. It’s been absolute pleasure. I’ve certainly learned quite a lot. Steven, there are a couple of book launches coming up, I believe one in Cape Town and one in Johannesburg. What are the dates and venues for those?

Steven Sidley:

The launch in Johannesburg is the 24^th of February at Exclusive Books in Rosebank, and the launch in Cape Town is the 3^rd of March at Exclusive Books at the V&A Waterfront. And the book will be on shelves the 18th of February.

Kokkie Kooyman:

You’ve got to reserve a spot.

Nigel Barnes:

How do listeners register?

Steven Sidley:

They can RSVP on the Exclusive Books website.

Nigel Barnes:

And listeners who attend can meet you and chat about this subject in more detail, and you will sign a copy of your book. As a reminder, the book is titled Beyond Bitcoin: Decentralised Finance and the End of Banks. Steven, thank you for joining us.

Steven Sidley:

Thank you for having me.

Disclaimer

The opinions expressed in this podcast are those of the participants and do not necessarily represent those of Denker Capital. This podcast does not take the circumstances of a particular person or entity into account and is not advice in relation to an investment. Please do not rely on any information without appropriate advice from an independent financial adviser. The value of investments may go down as well as up, and past performance is not a guide to future performance. Denker Capital is an authorised financial services provider in South Africa (FSP number 47075).

This information does not constitute financial advice as contemplated in terms of the South African Financial Advisory and Intermediary Services Act of 2002 (FAIS Act). Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision as not all investments are suitable for all investors.

The Denker Global Financial Fund is a sub-fund of Sanlam Universal Funds Plc, a company incorporated with limited liability as an open-ended umbrella investment company with variable capital and segregated liability between sub-funds under the laws of Ireland and authorised by the Central Bank. The Manager of the fund is Sanlam Asset Management (Ireland) Limited (Beech House, Beech Hill Road, Dublin 4, Ireland, Tel + 353 1 205 3510, Fax + 353 1 205 3521) which is authorised by the Central Bank of Ireland, as a UCITS Management Company, and an Alternative Investment Fund Manager, and licensed as a Financial Service Provider in terms of Section 8 of the FAIS Act. Sanlam Collective Investments (RF) (Pty) Ltd is the South African Representative Office for these funds. Deemed authorised and regulated by the Financial Conduct Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website (notes 1, 3 and 4).

The Sanlam Universal Funds Plc full prospectus, the fund supplement, the minimum disclosure document (MDD) and the KIID are available free of charge from the Manager or at www.sanlam.ie. This is neither an offer to sell, nor a solicitation to buy any securities in any fund managed by us. Any offering is made only pursuant to the relevant offering document, together with the current financial statements of the relevant fund, and the relevant subscription/application forms, all of which must be read in their entirety together with the Sanlam Universal Funds Plc prospectus, the fund supplement the MDD and the KIID. No offer to purchase securities will be made or accepted prior to receipt by the offeree of these documents, and the completion of all appropriate documentation. A schedule of fees and charges and maximum commissions is available on request from the Manager.

Collective investment schemes are generally medium- to long-term investments. Please note that past performances are not necessarily an accurate determination of future performances, and that the value of investments / units / unit trusts may go down as well as up. Changes in exchange rates may have an adverse effect on the value, price or income of a product. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in the portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of the portfolio and the investor will differ depending on the initial fees applicable, the actual investment date, and the date of reinvestment of income as well as dividend withholding tax. Forward pricing is used. Additional information of the proposed investment, including brochures, application forms and annual or quarterly reports, can be obtained from the Manager, free of charge. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The performance of the portfolio depends on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-div date. The Manager has the right to close any portfolios to new investors to manage them more efficiently in accordance with their mandates. Lump sum investment performances are quoted. The portfolio may invest in other unit trust portfolios which levy their own fees, and may result is a higher fee structure for our portfolio. All the portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No 45 of 2002 (CISCA). The portfolio management of all the portfolios is outsourced to financial services providers authorized in terms of the Financial Advisory and Intermediary Services Act, 2002.