• Microsoft inks first deal for clean fusion energy

  • The world’s largest stablecoin is not so stable

  • Apple’s early success in financial services

Dear Reader,

With every new generation of wireless technology comes great anticipation and excitement, as well as disappointment.

The excitement comes from the technology companies, standards bodies, and wireless operators as they present the vision of what the technology will enable and what it will mean for consumers.

Wireless operators of course aggressively market their new wireless networks – like “nationwide 5G network coverage” – while leaving out those pesky little details about the technology, network, and frequency bands. The pronouncements that “5G has arrived” give the impression to consumers that it’s like a giant light switch; just flip it on, and we’re done.

This is why consumers experience a period of disappointment after the initial network launch.

It may come as a surprise, but from a technology perspective, we’re only now at the mid-point of the development of 5G standards. I know that sounds crazy. After all, we saw very early deployments of 5G technology in the U.S. back in 2018 and Europe in 2019.

How could this be? The reality is that wireless technology standards for any given generation happen over the course of roughly a decade. The very first 5G standards, known as 3GPP Release 15, began on June 1, 2016, and were finalized in June of 2019. This is what enabled those early 5G network deployments.

This is actually a big year for 5G wireless technology. The current standard that is being worked on right now is Release 18, Stage 2 of which has just recently been locked down. Release 18 is exciting because it is the first set of standards that will enable the advanced capabilities of 5G technology that were touted by the industry early on. As a result, we’ll probably start to see the below logo pop up here and there in the coming months.

Each release of standards is an immense undertaking that takes years to finalize. Release 18 began in September of 2019 and is expected to be finalized by June of next year. And within each standards release, there are different stages of implementation.

This year’s standards are exciting because they enable and support the deployment of technologies that we’ve been covering closely in The Bleeding Edge. Notably:

  • Extended and augmented reality services

  • Advanced edge computing applications

  • Support for artificial intelligence (AI) and machine learning applications

  • 5G systems with a satellite backhaul

  • Support for uncrewed aerial vehicles (e.g. drones and autonomous eVTOL aircraft)

  • Personal IOT networks

  • Support for autonomous vehicles

And this is just a short list of capabilities that are consumer-facing and relatively easy to understand. The upgrades to the underlying 5G technology as applied to the management, control, and enablement of the physical 5G network infrastructure are even more numerous. 

This year, on a global level, there will be about 1.4 billion 5G enabled devices. That represents only 10% of the 13.1 billion total wireless devices around the world. It might be hard to believe that after about 5 years of 5G, the world is only at about 10% market share of devices.

Of course, developed markets that got an early start deploying 5G have much greater penetration. For example, in the U.S., last year was the first year that 5G smartphone sales exceeded 4G sales.

This year about 75% of all smartphone sales are 5G. And more than 60% of all smartphones in the U.S. are now 5G enabled.

When an individual market swings to having the majority of devices supporting the latest generation of wireless technology, that is when things start to get interesting. In parallel, the wireless operators have been spending tens of billions frantically building out their 5G infrastructure.

And this latest Release 18 Stage 2 standard has come at an exciting time. Waymo and Cruise have already put their autonomous ride-hailing services in operation in a few metropolitan markets around the U.S. with more to follow. And Tesla’s latest full self-driving software looks to be remarkable and capable of driving just about anywhere.

We’re also now days away from Apple’s Worldwide Developers Conference where it will announce its much anticipated Reality Pro extended reality eyewear and operating system upon which XR/AR applications can be developed.

And the major eVTOL players have been making impressive progress towards FAA certifications. Not to mention, the delivery drone sector has active pilots running in several markets around the country.

The mid-point of wireless standardization is where things get really exciting. Consumer hardware that leverages the advanced features of 5G technology is built and consumer applications are designed to take advantage of this advanced technology.

We have so much to look forward to this year. And tomorrow, I think we’ll check in on some of the latest developments in 6G technology for fun.

The first nuclear fusion power purchase agreement…

Microsoft signed a power purchase agreement with nuclear fusion company Helion Energy. This is exciting as it is the first of its kind.

As a refresher, nuclear fusion is different from the nuclear fission technology we’re familiar with. It’s literally the power of the sun. And the technology will provide cheap, clean, virtually limitless energy to the world.

Regular readers may remember Helion Energy. This is one of the more promising nuclear fusion companies that has a path toward commercialization.

Helion Energy is backed by some smart money that includes OpenAI’s current CEO Sam Altman as well as LinkedIn founder Reid Hoffman. Helion also received an early grant from the U.S. Department of Energy.

The company uses a form a nuclear fusion that I really like. It’s called field-reversed configuration (FRC). From my perspective, this is one of the most promising approaches to commercializing nuclear fusion. Similar technology is also being developed by TAE Technologies.

End View of Helion Energy Fusion Reactor Prototype

Source: Helion

The FRC approach involves two plasma guns on opposite ends of a central chamber. The guns shoot plasma at each other at incredible speeds – over a million miles an hour. The plasmas crash into each other in the middle of the chamber to produce a fusion reaction.

The intense heat and pressure caused by the collision is maintained by a strong magnetic field at the center of the fusion reactor. These fusion chambers are typically over 100 million degrees Fahrenheit which, combined with pressure, is what creates the environment for nuclear fusion.

I’ve long predicted that nuclear fusion was coming much faster than people realized.

In 2019, my prediction was that we would see a working net-energy output fusion reactor by 2024. Most industry experts said this wouldn’t happen until later in the 2030s. I’m feeling more confident than ever that my prediction is going to be spot on.

Last December, a nuclear fusion reactor at the Lawrence Livermore National Laboratory’s National Ignition Facility (NIF) produced a reaction that created more energy than it consumed. This was net-energy production.

While technically this achieved my prediction, the reaction only lasted a few trillions of a second. While significant, we can think of this as a very exciting science experiment. The kind of reactor used is unlikely to ever be commercialized. So I don’t consider this to be a victory yet.

Over the next 18 months, there are a handful of nuclear fusion companies that are building prototype reactors that have the potential to demonstrate a net energy output reaction. And these are the companies that have the potential to ultimately commercialize their technology for grid-level energy production.

Helion is one of those companies, which is actually based in the Seattle area, and that’s why Microsoft entered into the agreement for clean energy.

Microsoft says it will buy at least 50 megawatts (MW) of power from Helion Energy starting in 2028. That’s just five years out.

This is enough energy to power about 50,000 homes a day – though Microsoft will likely use it to run its data centers.

And get this – the agreement outlines some financial penalties for Helion if it fails to provide at least 50 MW of power by 2028. This is telling.

Obviously, Helion Energy is very confident in its ability to have a fully functional nuclear fusion reactor online in the next five years. There’s no way they would agree to financial penalties otherwise.

And Microsoft must believe Helion is on track to meet this timeline as well. Why bother with an agreement if they didn’t believe in the timeline towards commercialization.

This is incredibly exciting for the industry. To think that there will be 100% clean, limitless energy feeding the baseload power grid by 2028 is just incredible. And Helion won’t be the only one. I am confident that several companies will be able to commercialize their fusion reactor designs.

And once the first few reactors come online, it will be a race to upgrade entire power grids and shut down fossil fuel-based power plants as quickly as possible.

Our suspicions around Tether were correct…

An interesting development concerning U.S. dollar stablecoin Tether (USDT) has just been revealed in Tether’s latest attestation report.

As a reminder, Tether is the world’s largest stablecoin. It’s also now the third-largest cryptocurrency in the world by market cap. That makes it critically important to the industry.

Stablecoins, by definition, are supposed to be stable. They accomplish this “peg” to their underlying currency by backing each stablecoin one-to-one with a U.S. dollar-denominated asset.

Put simply, there should be one U.S. dollar in reserve for every one U.S. dollar stablecoin. And that’s the contention that Tether has made for years.

And for years, we have suspected that Tether hadn’t been maintaining this one-to-one backing. This is something we examined in depth last year after digital asset exchange FTX collapsed.

Well, Tether’s first quarter 2023 attestation report shows that our suspicions were indeed correct.

Here’s a look at Tether’s assets:

If Tether were 100% backed by U.S. dollars and dollar equivalents, all of its funds should be in one of those assets listed under Cash & Cash Equivalents. But that’s not the case. Tether has about 15% of its funds in non-cash assets.

There’s $140 million in corporate bonds. Nearly $3.4 billion in precious metals – most of that being gold. Tether has $1.5 billion in Bitcoin. It put $2.1 billion in “other investments.” And it deployed $5.3 billion in secured loans.

So Tether is only 85% backed by dollars. The rest of the funds are in more volatile assets.

Here’s the thing – this approach has paid off for Tether recently. The company booked a profit of nearly $1.48 billion in the first quarter of this year. That’s amazing.

That said, a lot had to go right for Tether’s investments to generate such a large profit for such a simple business like a stablecoin. Yet in just the same way, if the market turns against Tether’s more volatile holdings, we will see a big swing in the other direction. Tether could easily run a billion dollar-plus loss if the tide turns.

If that were to happen, we would almost certainly see the digital asset equivalent of a bank run. Investors would begin to wonder: Is one USDT (Tether’s native token) really worth one dollar? Perhaps its only worth a fraction of that. This could lead to a de-pegging of Tether to the dollar, which could bring about a quick end to Tether.

And because Tether is so integral to the underpinnings of the digital asset space, any steep decline in USDT would have ripple effects for the entire market.

So this is a very dangerous path that Tether is walking. The company is treating 15% of its assets as if it were a hedge fund. It’s not hard to imagine some scenarios where Tether’s non-cash assets could turn into massive losses. 

And nobody wants to be caught holding Tether during a collapse. We saw what happened with Terra Luna, and it was a disaster. For that reason, I just wouldn’t be comfortable holding Tether. For quick and agile traders and hedge funds, it’s probably okay. But for more conservative investors who want to hold a stablecoin U.S. Dollar Coin (USDC), Circle is a better choice.

Apple quickly crosses the $1 billion mark in deposits…

Earlier this month we noted that Apple opened up its own savings account. What stood out about the offering is that Apple’s account would pay people a 4.15% yield on their savings. Meanwhile, the average savings rate offered by traditional banks was just 0.24%.

Well, Apple just released an update on its launch of a savings account. Perhaps not surprisingly, the tech giant took in $1 billion in savings within four days of making its savings account available. That’s remarkable – especially considering we’re talking about a tech company here, not a bank.

It doesn’t look like Apple has released updated numbers, but I wouldn’t be surprised if it has taken in several billion more in savings since those first four days. The offer is just too good for people to pass up.

After all, 4.15% is better than the yield we’d see from a 10-Year Treasury (3.5%). It’s better than the dividend yield we see from most stocks, including Apple itself.

We may ask – how is this even possible? How can Apple beat the banks at their own game?

The answer is that Apple takes the money that comes in and invests it in money market funds, which in turn allocate capital to reverse repurchase (repo) agreements. These are the same cash equivalents that we looked at in Tether’s attestation chart above. And right now, the repo agreements are paying over a 5% yield.

That’s why Apple can offer such a compelling rate. The company can generate about 100 basis points in margin on the “spread.”

Plus, Apple’s savings account is seamlessly integrated with the iPhone and Apple’s credit card. All of a sudden, our iPhones can also become our personal bank.

Meanwhile, traditional banks have huge overhead. That means they are far less profitable than Apple… which is why their savings rates are so low. Also, Apple has about $24.6 billion in cash and equivalents on their books. And because the accounts are backed by Goldman Sachs, they are also covered by the FDIC. In other words, there is no risk at all to depositors parking capital in an Apple savings account.

So Apple is quickly becoming a major player in the financial services space.

As I shared earlier last month, I use Apple’s credit card myself. It’s a fantastic product. And I plan on giving the savings account a try as well.

What I find so interesting about Apple’s success is that it demonstrates a new entrant into traditional financial services. Apple is simply building on its brand loyalty and trust to deliver more sticky services to its customers. 

And it’s not trying to create some new form of financial service. It started with credit cards, and now has stepped into basic savings accounts. The company is hitting the traditional banks right where it hurts: their client deposits. And not surprisingly, Apple is doing a better job at it than they are…


Jeff Brown
Editor, The Bleeding Edge

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