By Leon Gettler >>

AUSTRALIA’s recession and double digit unemployment seems ripe territory for Grameen bank, the microfinance and community development founded in Bangladesh which provides small loans (known as microcredit or ‘grameencredit’) to the impoverished without requiring collateral.

Adam Mooney, the CEO of Grameen Australia, said the bank was committed to boosting employment through supporting people on low incomes to set up their own small businesses in Australia’s post-COVID future, with a particular focus on women, migrant groups and the Indigenous community.

He said Grameen Australia was bringing a successful model that has worked all across the world to reach over 300 million people, particularly women, to start their own micro-enterprises. 

It is a model that has not only worked in Bangladesh and the Philippines but also in developed economies like the United States.

He said COVID-19 was the perfect opportunity for Grameen to expand into Australia.

“As we see national income support mechanisms like JobKeeper and JobSeeker tapering off, we’re coming into the market at a time to be able to make sure that we’re seeing this incentive to work that the government is so keen on, that we’re also keen on, providing opportunity to work,” Mr Mooney told Talking Business.

WORKING FROM HOME WORKS

Grameen is pitched at micro-enterprises in communities, particularly people working from home. The bank gets invited into communities and targets women and men, forming groups of five or six, to develop their own business idea and get a small loan from Grameen and also receive mentoring and training.

Grameen will approach communities and find two-to-five female leaders that want to form a group.

The Grameen model is unique because it does not take any physical collateral but encourages ‘social collateral’ where the group members feel an allegiance to each other. The group will then present the idea with cash flow analysis, marketing analysis and risk analysis and logistics capabilities and Grameen will look at what working capital and fixed capital they need. For example, they may need loans for weaving looms or sewing machines, and then Grameen provides them with small loans of $5000-$10,000 with payments to start when the income begins to come in.

POWER OF GROUPS

Groups are encouraged by Grameen to come together to share their experience and expertise.

“This is really the best of community led, strength-based economic development and this is what we’re all yearning for in the world right now,” Mr Mooney said.

He said the response around the world had been overwhelmingly positive.

“What we’re seeing all around the world, particularly in the states, is a 99 percent repayment rate for these loans being advanced, but more importantly, we’re seeing a transformation of confidence, of dignity, of control and economic security,” he said.

INDIGENOUS OPPORTUNITY

Mr Mooney said the approach of building communities really lends itself to Indigenous culture and migrant communities where there is strong loyalty and an attachment to clan.

It also has the potential to create social enterprises where communities create businesses that put their surpluses back into the community and bring business into the community.

He said in the last month Grameen had been approached by large banks, insurance companies, professional services firms and philanthropic investors. It is also talking to the Federal and State Governments about grants.

It is also looking at setting up pilot programs in places like Broadmeadows, Footscray and Wyndham in Victoria, and areas like Fairfield in New South Wales, along with communities in Queensland and the Northern Territory.

Mr Mooney said COVID-19 had been an accelerator for Grameen banking services in Australia.

www.grameenaustralia.org

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.  

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THE AUSTRALIAN Small Business and Family Enterprise Ombudsman, Kate Carnell has urged the Federal Government to abolish fringe benefits tax (FBT) for at least two years "to provide a much-needed cash flow boost to the economy and support struggling small businesses".

In a letter to Treasurer Josh Frydenberg, Ms Carnell argued this small change to the tax system would provide a big boost to small businesses in the industries hardest hit by the COVID crisis.

“Small businesses are unfairly impacted by the fringe benefits tax,” Ms Carnell said.

“As it stands, small businesses are required to pay FBT on items that large businesses often provide in-house to retain staff such as meals, gyms and childcare centres. Larger businesses can actually claim some services as business expenses, without paying FBT.

“But small businesses that provide the same benefits to their teams offsite have to pay FBT," Ms Carnell said. “A the same time, high rates of FBT acts as a disincentive to businesses spending with small businesses, particularly those in the hospitality and tourism sectors which are hurting the most right now. 

“A weekend away, lunch at a restaurant or a team bonding game of golf, all attract FBT.  

"FBT is discouraging businesses from spending with small businesses, which reduces the amount of money flowing into the economy.

“Fringe benefits tax accounted for less than 1 percent of government revenue in 2019/2020 and that figure is likely to be even less in the current financial year due to the economic downturn," she said.

“Abolishing the FBT would cost no more than $4 billion a year to the government but it would be an effective support measure for small businesses and also stimulate cash flow into the economy at a time when we need it most.

EY modelling done on behalf of Tourism Accommodation Australia (TAA) and the Australian Hotels Association (AHA) indicates suspending FBT on accommodation, meals and beverages alone, would produce economic returns of up to 3.8 times the direct cost to government.” 

www.asbfeo.gov.au

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THE Australian Small Business and Family Enterprise Ombudsman, Kate Carnell said small businesses would be more likely to take out a revenue contingent loan, than seek finance under the government’s current small-to-medium enterprise (SME) loan guarantee scheme.

The small business revenue contingent loan, as recommended in the Ombudsman’s COVID-19 Recovery Plan, would be Federal Government-funded and capped at a percentage of the small business’ annual revenue.

Repayments would be required once turnover reached a designated level and calculated on a percentage of turnover.

“Access to finance is critical to small business survival, particularly with a number of support measures scheduled to end or begin phasing out in the coming weeks” Ms Carnell said. 

“Right now, small businesses are scared to take on any additional debt because they don’t know what’s around the corner and how any possible further lockdowns might impact their capacity to make loan repayments.

“A revenue contingent loan would operate in a similar way to HECS, with small businesses only required to start repaying once turnover recovered to an agreed level. If revenue was to drop below that level, payments would cease," Ms Carnell said.

“Even in the best of times, many small businesses struggle to secure finance, with a recent Sensis report revealing that of the dwindling number of small businesses that applied for a loan in the past three months, about one in four had been knocked back.

“That research also showed about three-quarters of SMEs surveyed reported a drop in revenue, with more than 40 percent expecting sales to decline significantly.

“Even with Government taking on 50 percent of the risk under its loan guarantee scheme, loans continue to be subject to bank credit assessment processes, which means small businesses with falling revenue have an uphill battle to secure finance," she said.

“Of course, the proposed revenue contingent loan would require businesses to satisfy a viability test to be conducted by an accredited financial adviser.

“A revenue contingent loan would give small businesses the confidence they need to seek funding to get them through this crisis, so they can grow and employ.”

www.asbfeo.gov.au

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THE NUMBER of registered financial advisers in Australia decreased 16 percent through the 12 months to June 2020, dropping to 22,334 in total, according to Rainmaker Information’s Financial Adviser Report.

During the June quarter, 556 financial advisers registered with new licensees while 1,460 ceased registrations. This resulted in a total number of advisers, joining new licensees for the year, od 3,997.

Rainmaker Information executive director of research, Alex Dunnin said further analysis of these results indicated that nearly 7,500 advisers ceased registrations with a licensee in the same time period. This number is down 14 percent from the previous 12-month period of June 2019. 

“These movements continue to follow the trend that the financial advice industry has experienced since the release of recommendations from the Royal Commission,” Mr Dunnin said. 

“This was followed by tighter education requirements and exams mandated by the Financial Adviser Standards and Ethics Authority, while COVID-19 has no doubt impacted the industry as well.

“This is the seventh consecutive quarter of decreasing financial adviser numbers, bringing the size of the industry back to June 2016 numbers," he said.

“Financial advisers aligned to banks continue to exit the industry in greater numbers, falling 25 percent in the 12 months to June.”

Institutional or bank-aligned licensees account for 52 percent of advisers, down from 58 percent a year ago. Non-institutionally owned licensees now hold 48 percent of advisers, up from 42 percent through the same period.

The five licensees with the largest number of new advisers are State Super Financial Services, Fortnum Private Wealth, Synchron, Lifespan Financial Planning and Interprac Financial Planning.

 

About Rainmaker Information

Rainmaker Information is a privately held Australian company founded in 1992. The company has established a reputation as a leading financial services information publishing house in Australia providing marketing intelligence, research and consulting services on the wealth management industry and forms part of the Rainmaker Group of companies.
www.rainmaker.com.au

 

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THIS SATURDAY, June 27, is World MSME Day (Micro, Small and Medium-sized Enterprises Day), a celebratory day declared by the United Nations and an initiative of the International Council for Small Business (ICSB).

Australia and the UK's Institute of Public Accountants (IPA) is encouraging people to celebrate the importance of small business on Saturday.

“The IPA is urging people to support their local small businesses by buying their products or services as a reboot to Australia’s economy during this COVID-19 pandemic,” IPA chief executive officer, Andrew Conway said. 

“The COVID-19 pandemic has affected all of us and the way we live.  Small business is doing it tough and for those businesses affected by the 2019/20 bushfires, followed by this pandemic, the toll has been devastating. 

ICSB data indicates that MSMEs make up over 90 percent of all firms and account on average for 70 percent of total employment and 50 percent of GDP, on a global basis," Mr Conway said.

“Please let your local small business know how much they are appreciated for their ongoing contribution to our nation’s economic wellbeing,” he said.

The IPA, formed in 1923, is one of Australia’s three legally recognised professional accounting bodies.  In late 2014, the IPA acquired the Institute of Financial Accountants in the UK and formed the IPA Group, with more than 37,000 members and students in over 80 countries. 

The IPA Group is now the largest SME focused accountancy organisation in the world. The IPA is a member of the International Federation of Accountants, the Accounting Professional and Ethical Standards Board and the Confederation of Asian and Pacific Accountants. 

www.publicaccountants.org.au

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BUSINESS experts and economists expect a rise in the number of business insolvencies, according to Australian comparison website Finder, following on from the conclusion of JobKeeper payments at the end of September.

In tthe latest Finder RBA Cash Rate Survey – the largest of its kind in Australia – 43 experts and economists weighed in on future cash rate moves and other issues related to the state of the Australian economy. 

While all experts surveyed expect a cash rate hold in July (43/43), those who weighed in on insolvency (19) foresee an average of 805 businesses folding after government aid dries up in September. 

Several investment and credit-reporting firms have warned that 'zombie companies' – those kept alive only by pandemic stimulus – could collapse over the next six months as stimulus measures are reduced.

According to CreditorWatch, around 550 insolvency actions were issued in April and May this year due to government stimulus relieving some pressure.

Finder insisghts manager, Graham Cooke said many more are on the way this quarter.

“At this point, it is more of a question of ‘when’ than ‘if’ many companies become insolvent," Mr Cooke said. “Referring to them as ‘zombies’ kept alive only by taxpayer money is a convenient way to remove the human component of the coming pain.

“The people affected will not be the undead, but they will be those who were trying to cross the so-called ‘bridge to the other side’ only to find that they ran out of time,” he said.

Mr Cooke noted that around 800 insolvency actions were initiated in both February and March. 

“Economists aren’t predicting an enormous influx of insolvencies right away in September, but the 800 prediction is deceptive because many expect the worst to come in the months that follow,” Mr Cooke said.

Rebecca Cassells from Bankwest Curtin Economics Centre actually predicted a drop in insolvencies in September to 450, but said this is more due to scheduling than optimism in the viability of Aussie companies. 

“We will likely see a spike in the number of insolvencies in October and November as supports are removed,” Ms Cassells said.

Saul Eslake of Corinna Economic Advisory, who also predicted a drop in insolvencies, said the same.

“I think banks and other creditors will hold off pursuing insolvency cases until after the debt service payment moratoria have expired (which isn't until the end of September),” Mr Eslake said.

Rich Harvey, the CEO and founder of Propertybuyer, said he expected 1,400 insolvencies in September.

“Many companies will not be able to sustain their cost base without government support and low revenue,” Mr Harvey said.

THE TRUMP FACTOR

Only about 4 percent of experts surveyed by Finder predicted  Donald Trump would be re-elected as US President in November.

Only one out of 27 experts who weighed in (4%) predicted a Trump victory in November.

Nearly 3three in five (59%) predicted that Joe Biden would become the 46th president of the United States, with 37 percent saying it iwas too close to call.

“The politics and attitude of the leader of the US has huge implications for the Australian economy, global trade and the value of the Aussie dollar around the world," Mr Cooke said. “With many traditional conservative voices now joining the Democrats in calling for an end to Trump’s tumultuous administration, our survey shows that Aussie economists have little faith in Trump securing re-election.

“While the initial actions from the White House resulted in a surge in the US stock market, Trump’s performance combating COVID-19 could spell the end of his presidency,” Mr Cooke said.  

CASH RATE TO HOLD AT 0.25%

With the short-term economic future very uncertain, most economists are  also sure that the RBA cash rate would go no lower than its current 0.25 percent.

Two-thirds of experts (28, 66%) said they eventually expect the rate to increase, but only one, Tony Makin of Griffith University, expected a rise this year. 

“If the virus is satisfactorily contained, and assuming no second wave, the economy should be recovering by the December quarter," Mr Makin said.

“In the context of a domestic and global recovery, the high money growth stemming from public debt monetisation should put upward pressure on the price level, necessitating a monetary policy response. 

“Additionally, the huge issues of government bonds to fund large pandemic-related budget deficits that have not been monetised by central banks here and worldwide, would normally put upward pressure on longer term world interest rates,” Mr Makin said.

COMMENTS BY THE EXPERTS:

Nicholas Frappell, ABC Bullion: "The RBA have indicated that they will keep the rates low for a long period. At the moment it's too early to have a view of when the rates will tighten again, although 'sometime' in 2022 would be reasonable..."

Shane Oliver, AMP Capital: "The RBA will remain on hold. There is little to no value in taking rates to zero or negative and given the recession, high unemployment, uncertainty about the recovery and inflation running way below target, it's way too early to think about raising rates. In fact, it's unlikely to be able to raise rates for the next three years at least."

Alison Booth, ANU: "Hard to pinpoint when there might be changes, since there's so much uncertainty and the RBA will be making decisions as necessary to keep borrowing costs low and credit available."

John Hewson, ANU: "[These are the] worst economic circumstances since Great Depression."

Malcolm Wood, Baillieu: "RBA on hold until back close to full employment and underlying inflation sustainably in the 2-3% YoY band."

Rebecca Cassells, Bankwest Curtin Economics Centre: "Any decision by the RBA to either increase or lower the cash rate is highly unlikely for some time and we can expect the cash rate to remain exactly where it is now for at least the next two years. The most likely direction the cash rate will head eventually is upwards, but we will need some fairly solid and consistent signs of recovery in the labour market before the RBA starts to consider this change. Towards the fourth quarter of 2021 we should be well on our way to more positive signals here, but much will depend on the level of government support and stimulus committed to jumpstart the economy and our ability to minimise and prevent COVID-19 outbreaks. Both are very uncertain right now."

David Robertson, Bendigo and Adelaide Bank: "The RBA have very clearly flagged that rates will be on hold at 0.25 percent (for both official cash and the three-year bond) until well into 2022. The next move beyond there should be up when inflation finally rises and labour markets tighten."

Sarah Hunter, BIS Oxford Economics: "The RBA have made it clear that, for now at least, they don't see negative rates as being necessary or effective. So I think the next move will be up, but it will be quite some time into the future – beyond the end of the forecast horizon in the survey (Q4 2022)."

Ben Udy, Capital Economics: "We suspect the RBA will come around to our view that inflation will be below the bank's target for years and therefore launch more stimulus. We expect the RBA to eventually expand quantitative easing with a quantity bond target aimed at the longer-dated end of the yield curve."

Peter Boehm, CLSA Premium: "Now is not the time to move interest rates – there's too much economic uncertainty, and clarity around the Federal Government's existing and future planned response to COVID-19 is needed before further rate movements should be contemplated."

Saul Eslake, Corinna Economic Advisory: "Could be that the RBA keeps rates on hold until after Q4 2022."

Craig Emerson, Craig Emerson Economics: "The RBA Governor has publicly stated that the cash rate will remain where it is for a long time."

Trent Wiltshire, Domain: "The RBA won't be increasing the cash rate until the unemployment rate is near 5 percent, which is unfortunately at least a couple of years away."

John Rolfe, Elders Home Loans: "I do not believe the RBA will entertain a zero or negative cash rate. The banking industry is not in need of lower rates and even if provided, there will not be any rate reduction passed on to the customer. There are still QE opportunities to stimulate the market if needed."

Angela Jackson, Equity Economics: "There is significant uncertainty around the timing of a vaccine for COVID-19 which impacts the point at which the Australian and global economy will start to recover."

Mark Brimble, Griffith Uni: "The economy will need monetary policy support for a long time to come."

Tony Makin, Griffith University: "If the virus is satisfactorily contained, and assuming no second wave, the economy should be recovering by the December quarter. In the context of a domestic and global recovery, the high money growth stemming from public debt monetisation should put upward pressure on the price level, necessitating a monetary policy response. Additionally, the huge issues of government bonds to fund large pandemic-related budget deficits that have not been monetised by central banks here and worldwide would normally put upward pressure on longer term world interest rates."

Stephen Miller, GSFM: "The headwinds to growth are strong and I do not think that inflation will be comfortably within the current 2-3 percent target range until the end of 2022. I do not think the RBA will lower rates. If they wish to ease further they will employ some other mechanism."

Alex Joiner, IFM Investors: "The RBA is going to have its current policy settings in place for an extended period of time as it needs to support the economy while the labour market repairs. It is difficult to envisage a rise in the cash rate before the end of 2022 in my view as not only do unconventional policies need to be unwound first, it is abundantly clear the RBA won't want to be ahead of other central banks in removing their huge stimulus programs and therefore putting undue upward pressure on the AUD."

Leanne Pilkington, Laing+Simmons: "We have years of low interest rates ahead of us and the banks themselves have sharpened their pencils in recent times, cutting their rates on various products to remain competitive. The pandemic continues to cast a shadow over the economy and the outlook is meagre, but for those whose income remains secure, a real estate purchase is comparatively affordable at present."

Nicholas Gruen, Lateral Economics: "It will be a long road back, especially as the government appears to be keen to reduce the extent of the stimulus."

Mathew Tiller, LJ Hooker: "It's unlikely that the RBA will drop rates further and is expected to continue to support the economy via other stimulatory measures until the full impact of the COVID crisis passes."

Geoffrey Harold Kingston, Macquarie University: "Current monetary and fiscal policies, along with abatement of the virus, will see a gradual emergence of inflationary pressures."

Jeffrey Sheen, Macquarie University: "Consistent with signalling from RBA."

Stephen Koukoulas, Market Economics: "The post COVID-19 recovery will be in place and inflation will edge up toward the RBA’s target."

John Caelli, ME Bank: "The RBA have indicated they will keep rates where they are for a long time."

Michael Yardney, Metropole Properties: "The RBA have indicated it will not raise interest rates until unemployment levels fall to around 4.5 percent. This is many years away."

Mark Crosby, Monash University: "I don't think that further moves in the cash rate would be effective, and given uncertainty around COVID, the timing of future moves is highly uncertain, but doubtful rates will move before 2022."

Julia Newbould, Money Magazine: "I think that the government will need to see what happens when the stimulus payments end and the economy finds its new position."

Susan Mitchell, Mortgage Choice: "I expect the cash rate to remain unchanged at the Reserve Bank’s next monetary policy meeting until progress is made towards the RBA’s goal of full employment and the inflation target. The historic low cash rate continues to support an extremely low cost of borrowing and we are seeing a surge in the number of borrowers choosing to refinance and lock in a fixed interest rate."

Dr Andrew Wilson, My Housing Market: "Monetary policy will continue to be sidelined over the foreseeable future with no logical purpose served by a further cut to zero percent and the prospect of a rise fanciful given economic conditions set to worsen."

Jonathan Chancellor, Property Observer: "Despite their signalling that rates will not be lowered, I think circumstances will warrant the decision to take rates to zero."

Rich Harvey, Propertybuyer: "Far too much volatility and uncertainty to see any movements in interest rates at the moment."

Noel Whittaker, QUT: "This is so difficult – there are so many uncertainties. But, of course, if a vaccine is found the economy may boom."

Cameron Kusher, REA Group: "As much as the RBA is insistent that the current cash rate of 0.25 percent is their floor, depending on the recovery from COVID-19 it may necessitate taking rates lower. Remember that just last year they were saying they didn't believe in QE's effectiveness. Even if they don't cut interest rates further, a hike in interest rates seems likely to be a long way off."

Jason Azzopardi, Resimac: "Clear guidance given by RBA the current monetary policy will remain."

Christine Williams, Smarter Property Investing: "Unstable economy at the moment."

Janu Chan, St George Bank: "RBA will keep its accommodative stance for some time while unemployment remains high. Indeed, the risk is towards additional monetary stimulus measures but the RBA will look to other measures. The cash rate is as low as it can go."

Besa Deda, St George Bank: "The RBA has provided forward guidance about its use of unconventional policies in several speeches since March. During questions following one of these speeches, Governor Philip Lowe has indicated that the cash rate will not be lifted before the three-year bond yield target has been lifted. In addition, he said that the bond yield target will not be removed until progress was being made towards the RBA's inflation and unemployment targets. This is estimated to be at least three years away."

Brian Parker, Sunsuper: "A rate hike is beyond the survey's time horizon."

Mala Raghavan, University of Tasmania: "It is difficult to predict now due to the high uncertainty surrounding the COVID-19 crisis and the subsequent economic crisis. The focus of the policymakers at this stage should be stimulating the economy, but there is not much room in the monetary policy space for that. At this stage, the government's fiscal stimulus is much needed to spur the economy."

Other participants: Duncan Macfarlane, Firstmac. John Smith, Economist.

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By Leon Gettler >>

BTC MARKETS, the largest, most liquid Australian bitcoin exchange with 260,000 Australian customers trading more than $8 billion, has a growing market, particularly with self-managed super funds.

Its primary market is in Bitcoin, along with XRP and Etherium, and Litecoin. XRP technology, combined with BTC Markets, uses blockchain to transfer funds in seconds and for a fraction of the price found elsewhere.

BTC Markets’ clients are in retail with everyday Australians using the platform. It also specialises in self-managed super funds (SMSFs).

“We’ve got a specialist on-boarding team specifically for the SMSF market,” Caroline Bowler, the CEO of BTC Markets told Talking Business.

“Then we have our high-net-worth institutional players. They are increasingly coming on board but they are a smaller part of the market.”

She sees enormous growth in the SMSF market.

“From our point of view, we would anticipate SMSFs in this market would probably place about 5 to 10 percent of their portfolio in a product such as ours, and again, everyone’s portfolio is different depending on their risk appetite and according to their own needs,” Ms Bowler said.

”But we are a growing asset class, an exciting asset class and there is plenty of opportunity for scale and growth if you’re looking for long-term investment.”

CLIENTS SELF-MANAGE

BTC Markets’ clients manage their own funds as BTC Markets is not licensed to be a financial advisory firm – but it does help facilitate the trade of these cryptocurrencies and tokens.

Ms Bowler said volatility in cryptocurrencies was just part and parcel of that market.

“But if you want to talk about volatility, I think you need to look at what happened in the oil market recently and see the damage that the derivatives did there,” Ms Bowler said.

“There is volatility across all kinds of different market sectors but for currencies such as Bitcoin and others, volatility is just part of the game. But in that, there is opportunity and if people get educated and are savvy, they can ride out those waves.”

Bitcoin is now increasingly being used as a preferred payment option for money transfers and merchants. 

“It’s the liquidity, the fact that it’s global, it’s borderless, it’s swift and it’s efficient. There’s lots of benefits to using a currency such as Bitcoin as form of payment,” she said.

“But’s it’s also considered as a store of value, as an investment asset, so you have two sides to the coin, if you pardon the pun.”

EXPLAINING DIGITAL ASSETS

Ms Bowler acknowledged there was some negative perception out there in the market towards some digital assets. BTC Markets sees its role as going out to explain some of the opportunities that exist with cryptocurrencies.

“We’re only 10 years of cryptocurrencies in existence and in that time, the ecosystem that’s been built around it with the technology is just fantastic,” Ms Bowler said. “And it’s kind of naïve to think that that genie is going back into the bottle or that this isn’t going to progress, particularly if you look overseas and see what’s coming out of China in terms of central bank digital currencies and the digitalisation that’s coming out of Europe and what’s happening in the US.

“There’s a building of momentum behind this.

“It’s reached that tipping point where it will go into the mainstream so, from my point of view, the education piece is about explaining to people this is what’s happening, so that people can engage with it in a safe way.”

www.btcmarkets.net

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness

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