Dear Reader,
Yesterday, the entire early stage tech and biotech industry let out a massive sign of relief.
With the Federal Reserve and the U.S. Treasury agreeing to backstop Silicon Valley Bank (SVB), by agreeing to making all depositors whole, every company that had money at SVB can rest assured that it will get its deposits back in full.
The events of the last few days have already been a fantastic development for the eight U.S.-based, global systemically important banks (G-SIBs), namely: Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs Group, JP Morgan Chase, Morgan Stanley, State Street, and Wells Fargo.
This is nothing other than a flight to perceived safety. Founders and entrepreneurs don’t want to risk going to through the same thing again, despite the government backstop that has been offered. No one likes the hassle and stress of having to rush to find a new bank and open up new accounts.
Not surprisingly, the S&P regional banking index (KRE) had dropped 30% since the beginning of this month, the majority of the drop happening since last Wednesday.
It’s a massive fall in such a short period of time. And it shows us the significance of the monetary-policy-induced crisis in regional banking stocks. The news from the government on Sunday afternoon provided some relief, but the index is still down about 21% since March 1.
But with all eyes on SVB and regional banks right now, something else major has been at play. And it looks and smells like an industry takedown.
While SVB was experiencing its bank run last week, Silvergate Capital quietly announced that it was shutting down and would liquidate all assets. Silvergate was one of the top banks in the industry catering to the blockchain/cryptocurrency industry.
One might assume that it got taken out by the FTX debacle. But that wasn’t the case. Silvergate didn’t have any loans out to FTX, nor any investments. And its exposure to BlockFi, another tragedy in the crypto space, was very limited.
The reality was that the negative impact on the entire industry driven by the highly antagonistic regulatory environment towards digital assets was largely the culprit. Given Silvergate’s heavy exposure to the digital asset industry, when most of the industry is down, by default, so is Silvergate. It got so bad that the bank had to announce that it is closing its doors on March 8.
Just days before SVB’s collapse…
And then there is Signature Bank. Over the weekend, New York regulators stepped in to shut down the crypto-friendly bank. That makes Signature the third largest banking failure after SVB now.
Ironically, one of the directors of Signature Bank is none other than Barney Frank, one of the notorious figures behind one of the worst pieces of legislation in history – the Dodd-Frank Act. And Frank’s comments yesterday were clear, he believes that the move against Signature was political.
In his own words, “there was no insolvency based on the fundamentals.” It was designed to send an “anti-crypto message.”
Whether we agree or not, that is the message that has been sent. After all, Silvergate, Signature, and SVB were the top three crypto friendly banks in the U.S. It wasn’t easy to open accounts for blockchain companies at these banks. The standards were high, but they welcomed the business and provided banking services to blockchain companies.
What’s so incredible is that this all happened within a matter of days. It’s not a coincidence. And effectively this means that most cryptocurrency companies have been locked out of the tradition financial system.
Some of us may agree that this had to be done. I believe most of us don’t, however. This kind of regulation through backhanded enforcement will only drive jobs, investment, and innovation to other parts of the world where it is treated better.
But perhaps that’s the point.
I believe that the current powers in office are effectively clearing the deck. They’re sanding down the wood floors and putting on new stain to get ready for the big announcement.
The digital dollar and its infrastructure will be designed and controlled centrally by the government, not by private industry. “They” will set the framework, the rules, the guardrails, and name banking partners as they see fit. Not the other way around.
The details are coming, and I doubt we’ll have to wait long.
OpenAI just released a new mission statement that gives us some insight into how fast artificial intelligence (AI) is moving. The paper is called “Planning for AGI and Beyond”.
AGI stands for artificial general intelligence. As we’ve discussed before, that’s the point at which an AI can perform general tasks as well or better than humans in just about any discipline we can imagine. It’s where AIs can become experts in any field. And AGI will have the ability to even solve tasks that it is unfamiliar with and has no prior learnings, much in the way that humans solve problems.
This has always been science fiction. Until now.
Many analysts said that AGI would remain in the realm of science fiction for decades to come. Most of them said we won’t have to worry about AGI until at least the 2040s.
Personally, I went on record back in 2019 and predicted that we would see AGI by 2028. And OpenAI’s new paper suggests that my prediction is right on track.
We’ve been talking all year about generative AI and OpenAI’s incredible ChatGPT. If we remember, OpenAI just released ChatGPT back in December. It’s brand new.
Yet, we’ve seen a flurry of developments since then. And we know that OpenAI already has an upgraded version of ChatGPT in beta testing right now based on its bleeding edge, large language model GPT-4.
Everything’s been moving unbelievably fast. And get this – OpenAI says that the pace of development is about to get even faster. That’s hard to imagine.
In the paper, OpenAI points out that two things are driving AI towards AGI. One is the rapid development of computational infrastructure designed specifically for AI. The other is an improvement in the data inputs that AI’s learn from. Combined, these two factors are likely to produce AGI before the end of the decade.
That has important implications, good and bad.
On the positive side, we’re getting very close to the point where AI could take over a large percentage of all the work that humans are currently doing. The great news here is that this will free up human labor for higher-order tasks.
This is an important point because it doesn’t necessarily mean job displacement because it will result in dramatic improvements in labor productivity. Said more simply, the human workforce will be able to accomplish even more without having to work additional hours.
An artificial general intelligence could prepare our taxes, develop new drugs in a matter of weeks, predict and support our daily needs. And when embodied by a humanoid robot, the technology can even perform menial, time consuming, and dangerous labor.
The bad news is that our society doesn’t have a roadmap in place to deal with such a monumental disruption.
As I often say, human beings are good at adapting to linear change. But we struggle to cope with exponential growth. I’ve shared the below chart before, but it’s a good illustration of this phenomenon.
Are human beings prepared for an artificial intelligence that’s “smarter” than any known human being? How will our society respond to such a thing? And what does that world look like?
I’ve said before that one of the greatest challenges of our generation will be to manage through this incredible disruption, and to employ an ethical and safe framework for the use of this powerful technology. We have now officially entered that window of disruption. Pandora’s box has been opened and there’s no turning back.
The moment of AGI is closer than most realize. And given what’s happened in the last three months I’m beginning to think that my prediction may have been too conservative…
Vodafone just came out with a great announcement. The telecom giant just revealed a prototype that enables just about anyone to deploy their own fifth generation (5G) wireless network.
As regular readers know, 5G networks provide a dramatic improvement in internet speed and latency… in those areas where 5G infrastructure is built out.
The challenge is wireless network operators de-prioritize the build out of the network into many residential areas or areas where there is smaller population density. It is expensive to do with very little return on investment. And some municipalities and towns also make it difficult to install new base stations for 5G.
So right now, many neighborhoods still lack 5G coverage. That’s where Vodafone’s new device comes in handy…
Vodafone’s 5G Base Station
Source: Vodafone
As we can see, Vodafone’s new device looks a lot like a mini router. It’s small enough to sit on any tabletop.
And get this – the device is built on a simple Raspberry Pi. These are tiny open-source computers that cost less than $100.
As such, Vodafone will be able to sell these personal 5G base stations at a low price. I imagine they will cost no more than $250 or $300.
And that paves the way for anybody to set up their own private 5G network that will connect to Vodafone’s wireless network. It’s as easy as buying this device and plugging it in at the house or the office. In essence, Vodafone is attempting to “crowdsource” a portion of the 5G network rollout.
There’s an important implication here…
First, this will likely accelerate the adoption of 5G devices and applications that make use of 5G speeds. As a reminder, blockbuster consumer applications like Instagram, Waze, and Uber have 4G networks to thank for their success. Without the speeds and relatively low latency of 4G, these companies would either not exist or would be a fraction of the size they are today.
We’re going to see something similar with 5G. New consumer products and services will spring up that make use of the new wireless network. Many will be incredible investment opportunities, and they will have 5G networks to thank.
The United States Air Force just made an interesting announcement. It’s using AI to give drones the ability to recognize individual faces, even from high altitudes.
This comes from a recent agreement between the Department of Defense (DoD) and a tech company called RealNetworks.
Interestingly, RealNetworks was originally known for its video streaming technology. In fact, it was one of the leading companies in the earliest days of building streaming media technology.
That product faded into the background years ago and RealNetworks has significantly diversified its product lines. One of its growing product lines has been its Secure Accurate Facial Recognition (SAFR).
Originally it was designed as a biometrics solution for infrastructure security. For example, it can be used to recognize faces in order to gain entry to an office building. But the technology had the ability to be extended to other applications, in this case the defense industry.
It’s hard to imagine, but camera and imaging technology has become so advanced, with incredible resolution even at altitudes of tens of thousands of feet, that this kind of application is possible.
I know what probably comes to mind when we think of defense or special ops… identify the target and taking it out. This is a highly controversial application to some, who have rightfully raised concerns that the technology will be misused for lethal purposes, or that there is a risk of identifying the wrong person to targets.
While that’s certainly possible, there are a much larger number of less lethal applications.
Facial recognition can be used to track the movements of targets, both friend and foe. It can also be used for security purposes over a much larger perimeter, proactivity identifying bad actors.
While this kind of technology is revolutionizing warfare, it is also changing the workplace. Facial recognition technology, whether we know it is present or not, is already widely in use in both public and private facilities.
In fact, anywhere we see a security camera is where this kind of technology can be employed. This may be disconcerting. But the reality is that for any of us that commute to a city or an office for work, we are probably captured several times a day on video.
And of course, they already know where we are at all times given that we all carry tracking devices with us no matter where we go (i.e. smartphones). Real privacy has become nearly impossible to come by these days. And the sacrifice in convenience to achieve it is impossible for almost all of us.
Regards,
Jeff Brown
Editor, The Bleeding Edge
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
