Fintech Fridays Episode 32: Rallying behind Bitcoin with Frederick T. Pye

NCFA Canada | May 24, 2019

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Ep32-May 24:  Rallying behind Bitcoin with Frederick T. Pye

HOST: Manseeb Khan, Fintech Friday's show host

GUEST:  FREDERICK T. PYEPresident & CEO3iQ Corp (Linkedin)

BIO:  Fred kick-started his career as a precious metal and foreign exchange trader at Guardian Trust. In 1986, they were the first to list gold, silver, and platinum certificates on the Montreal Stock Exchange. Fred later joined Fidelity Investments, where he was part of a team that saw its assets rise from 85 million to over 7.5 billion. Through the launch of creative and exotic investment products, Fred started his own firm, which worked diligently with Canadian regulatory bodies to establish the first mutual fund in Canada that was allowed to take short positions. Finally, as founder and CEO of 3iQ, he and his team have worked cooperatively with the OSC for the last 2 and a half years to launch the first regulated Bitcoin fund in Canada. This fund will be the first major exchange-traded cryptocurrency fund in North America.

About this episode:  On this week's episode of NCFA's Fintech Friday Podcast, our host sits down with Frederick T. Pye from 3iQ. The chat about bitcoin trusts, ETF's and rallying behind bitcoin.  Enjoy!

 

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Transcription of Interview

Intro: Welcome fintech Friday's a weekly podcast brought to you by the National Crowdfunding and Fintech Association of Canada and partners.Covering all things fintech block chain be AI and alternative finance.

Manseeb Khan: Thank you so much for sitting down today.

Frederick T. Pye: Great. Thanks for having me Manseeb.

Manseeb Khan: Yeah for sure. So, Fred for I guess the five or six audience members that may not know essentially who you are and the amazing work that you do at three IQ. Could you just give us a real quick rundown?

Frederick T. Pye: Yeah well first of all I think I'm probably one of the oldest guys in crypto so that's why most people would know me from that and I guess my claim to fame was I was part of a team back in the late 80s that took Fidelity Investments from 80 million to 7.5 billion and really put them on the map in Canada with a lot of people don't know is before that I was actually the first one to list gold silver and platinum certificates on the Montreal Stock Exchange for a way to give investment advisors to buy gold and silver and platinum for their client portfolios. And it was really funny because back in the early 80s when we're trying to do that the Securities Commission as the regulator said well hang on a second gold is speculative it's volatile. It's used for illegal purposes. And you know why it’s would not in the public interest to have gold listed on an exchange. And funny enough flash forward 30 some odd years later I'm trying to do the same by listing Bitcoin ether in somebody other digital assets on the exchanges.

Manseeb Khan: Right. That's. It's funny how times have changed. Right now, it's gold and silver are probably the most secure investment that you probably are getting to. Exactly. For a lot of the audience members that may not know  3iQ actually works with the Ontario security regulation. Fred could you just talk about your dealings with that you guys also work with not only the Ontario securities commission, but you guys are also partnered up with the Canadian securities exchange. Could you just talk about just the relationship between that, how that happened and pretty much what can the audience expect when it comes to a timeline with both partnerships?|

Frederick T. Pye: Yeah well, I would say that we've been we have been working with the Ontario Securities Commission for a few years now to get this fund to the market and it's kind of come to a head and I'll explain that in just a bit. But to give 3iQ or a bit of a background we actually started in 2012. I was working with Landry investment management we were running a global multi asset portfolio. And when you're running these global multi asset portfolios you've noticed that everything just was becoming completely correlated. So as a hedge fund manager I was always looking for perfect non correlated asset class and sure enough I fell down the rabbit hole and stumbled on it on bitcoin at the beginning of 2015 and it was shortly after then that Chris Bronski and Adam White wrote a white paper saying ringing the bell on a new asset class. And Chris I knew from Arc invest quite well and I read this white paper and I said hey now we can create a product out of it. So, we were going to just do acquire a fund that was already listed on the  Toronto Stock Exchange and de facto do an RTO and end up with a Bitcoin Fund on the Toronto Stock Exchange in 2016 circa three-hundred-and-fifty-dollar price of Bitcoin. We went to those securities regulators in November of 2016 and said you know we can go in the backdoor or we can go in the front door and we'll go in the front door if you want to be first then if you love the asset class and you should move ahead and the guy by the name of John Mountain said absolutely we want to be first. We can do this we can get through all the hurdles that we have to do. So, we filed in in April of 2017 the first Bitcoin Fund to be listed on a major exchange like the Toronto Stock Exchange. All of a sudden we went back and forth two or three times just getting the custodian right getting the insurance right getting the clearing right getting all of the pieces right and then all of a sudden it hit a brick wall the fund got to hit a brick wall because Ontario created something called the launch pad. The launch pad if you read their website it says they're there to facilitate and reduce the regulatory burden to get crypto funds to the market around exactly the opposite happened. And we got thrown into regulatory hell from April 2016. We then launched a hedge fund called a Global crypto Asset Fund which is an exempt market fund. They asked us to pull back. We said Well it's an exempt market and it's not under the regulatory purview of the OSC. They said no but we as money managers are. So, Canada went the route to try and regulate money managers instead of regulating the funds which is what they should have done. And unfortunately, when you take a look at the Price Waterhouse study that comes out there's 250 asset managers running 10 billion dollars in the United States of crypto assets. In Canada you have to know you know it's absolutely silly. There were three. There were four. ROSS SMITH From Calgary a close shop. And the third one. First block capital with their bitcoin trust. We just recently purchased the bitcoin trust from first block capital, and we bought their ETF from them and First Block made an investment in  3iQ. So, we're just kind of teaming up together. But having said that after two and a half years we finally got a firm rejection and we have applied to go to a public hearing on June 3rd. So, we encourage all your listeners to look that up and come and join us at the Ontario Securities Commission and see our center to get the first bitcoin fund listed in Canada.

Manseeb Khan: Yeah. No, I think many of the audience members would be very excited to join you. And it was June 3rd. You said right. `

Frederick T. Pye: June 3rd Yeah.

Manseeb Khan: Yeah. Okay cool. We'll definitely. Well we circle back when the date comes closer just to give everybody  a little bit more of a rally call. So, I want to touch a little bit. So, I'm going to put a pin in the First Block and just essentially what a bitcoin trust is. Could you guys talk a little bit more of your current initiatives right now that you have now with the dealings of the Ontario Securities Commission with First Block. So, I guess could you talk a little bit of what the current initiatives at 3iQ are.

Frederick T. Pye: So, when one First Block launched the bitcoin trust it isn't again exempt market when we say exempt market it means it's for accredited investors and that's an absolutely ridiculous component because the people that understand bitcoin are 35 or 40 years and under. And you know they don't necessarily make two hundred and fifty thousand a year for the last three years. They don't necessarily have amassed five million dollars in assets. So, you know a completely misses the audience on crypto funds. However, it's the only option we have at this time. Clients are investors such as yourself can open up an account. It's a discretionary account at 3iQ and our company is portfolio managers can buy a free RSP or your TFSA. But because First Block had the bitcoin trust we didn't launch an exempt market Bitcoin trust because we're going for a public Bitcoin Fund. Yeah. So right now, in the exempt market in meaning in the accredited investor market we have the bitcoin trust. And we also have something called the  3iQ global crypto asset fund. The Global crypto asset is 50 percent Bitcoin, 35 percent ether and 10 percent lite coin. And this fund obviously is absolutely on fire. Now I think its up 100 percent year to date. So, we're hoping that the whole crypto market settles down for a bit because 100 percent good for a 12-month return. I don't need any more this year.

Manseeb Khan: Yeah you exceeded your targets and then some.

Frederick T. Pye: So, we've exceeded our targets at 100 percent this year. But you know it gives us a bit more of a broader post. It's very low for me. I'll turn it over on how Canadians can actually purchase that and just get that off our website it says. Click on the button buy here as accredited investor or they send us a note we'll walk them through the whole process. So that's really the two products we have. We do have an ETF which is the distributed ledger technology adopter’s ETF. They weren't allowed to use block chain in their ETF. So, they use distributed ledger technology adopters. This is more of a US large cap. So, this is this will hold the people such as IBM, Apple and the rest of Amazon the people that have blockchain initiative announced public block chain initiative that fund also does very very well. So, you know we're encouraged about that can be bought under the symbol f b c n on the Toronto Stock Exchange or sorry on the neo exchange from your advisors. Mm hmm.

Manseeb Khan: Awesome. So, you guys are coming out with a stable coin with Mavennet. Could you talk about the I guess how the partnership started. Why you guys considered creating a stable coin and what can we expect from the stable coin partners?

Frederick T. Pye: Well the stable coin is called QCAD and everything 3iQ. Well we'll produce we'll have a Q on the front of it right for the for the just audio listeners. He's actually wearing the QCAD shirt . He just stood up and showed up. Yeah. So.

Frederick T. Pye: About six months ago I noticed Tether and a few of the other stable coins started to proliferate and I started pontificating and I said you know what. The forex markets about a five trillion dollar a day trading market the single largest business and trading market in the world. But you know there's a couple of thousand crypto traders. How do we get the tens of thousands of forex traders to trade crypto and all of a sudden people needed the US dollar stable coin? So, when they were on exchanges when Bitcoin starts to fall, they were somewhere they could hide, you know they could put their accounts into a stable coin, and they could hide and wait for the next rally. Yeah. And I was looking at this and I said Well if you've now got a digital US dollar meaning a digital US stable coin if you have now a digital Canadian Dollar or digital Hong Kong dollar or a digital Japanese Yen all of a sudden the forex traders know how to trade Canadian dollars and US dollars or Japanese Yen or Hong Kong dollars trading them digitally will be very, very easy. And the distance from trading Fiat forex into digital forex or paper forex and to digital forex is not that big a jump. And therefore, once these thousands of people are trading digital forex all of a sudden, the jump from QCAD to QBTC is not very big. They can now start trading Bitcoin or any of the other digital assets right. Kesam Frank and myself wrote a white paper that's on Medium that actually shows that if you take a look at the pyramid of this unstable crypto platform on top of a very stable on top of a very stable forex base it's missing two triangles to stabilize the pyramid to take care of the rest of crypto to the moon. So, though we think that the movement you know stable coins are three and a half billion today I expect them to be 30 billion in the next three years North of 300 billion in the next five years as well. We want to play in that space. So, we're under full development right now Mavennet out of Toronto is easily one of the best blockchain developers that we've had a chance to interview and talk with. And. having said that they're also part of the Eon network and are well versed on Aon is a or an interoperable platform for all block chains to make block chains talk together so it doesn't matter where people place their stable coin at some point in time that they'll be all. Portable between different block teams.

Manseeb Khan: Right. That's really exciting we're actually Mavennet is actually going to be on the show in the next coming up episodes so definitely stay tuned for that. I guess I'll throw it now to you. I mean now that we have not now that we can now, we talked about the Ontario security commission you guys initially starting your partnership with the Canadian securities exchange. Is there anything else that you'd like to at least I guess share with the audience is there's something that we should kind of keep in mind when it comes to crypto investment funds.

Frederick T. Pye: Well you know Canada has a bunch of big challenges in Canada right now. You know you hear that the Ontario government says oh the door is wide open for fintech you know you're pushing on an open door. you know where you want to encourage fintech to Toronto. And if your regulators can't even approve a closed end bitcoin fund it's really tough for us to take them seriously that they're trying to encourage if the Ontario Securities Commission is waiting for the S.E.C. to approve an ETF in the United States they will have lost another opportunity to be a leader and to attract business to Toronto. Yeah, the S.E.C. says it's not about bitcoin it has to do with more the mechanics of how an ETF works a closed end fund with our partners. Gemini and Coinbase and Xapo and Silver Gate Banks and you know we have by far we believe the safest opportunity for Canadian investors to invest in Bitcoin. And when we take a look at something like Quadriga CSX you know where they can trace 26 million of the two hundred some odd million that disappeared how they can say with a straight face that Canada doesn't need a regulated fund is beyond me. Yes, Canada needs a regulated fund. Their job is to protect investors and understand. Now it doesn't matter in the price of bitcoin goes up or down as long as the structure is safe. And isn't going to get hacked and isn't going to get stolen and isn't going to you know be perpetrated by fraud or anything along those lines. And that's why we have these regulated managers and these rules, and you know if you can put gold in a closed end fund you certainly can put Bitcoin in the closed end fund.

Manseeb Khan: I absolutely agree with you And it goes by the circles back to what we talked about a little bit before of This is one of the many things that's going to help kind of close the gap of having all those amazing day traders kind of switch over and also switch to crypto and then that's just going to help with the mainstream adoption that we've been pretty much foaming at the mouth for years now.

Frederick T. Pye: Well if you take a look at all the great development being done out of Toronto or Montreal or for that matter and Vancouver, I wouldn't want to leave them out and Calgary. Yeah you know there's you know there's great exchanges, there great wallet systems, there are great custody platforms these people are developing. They're developing an infrastructure which is an OTC trading desk. But where's the billion dollar an asset manager behind everything that's the customer. We haven't got one. Right now, we want to be the customer. We want to be running institutional money here in Canada. And you know those top 10 hedge funds in the US have gone through Canada to all our institutions they do roadshows and take all the money south of the border. It's absolutely absurd that we can't manage that money here in Canada. Yeah. You know if we had institutional support through an asset manager or Canadian custody solutions you know we'd be running three or four billion dollars of crypto in Canada and have assets to be able to move through the ecosystem in Canada. So, it all starts off in a very simple. you know a very simple place. You just start off with one fund it goes into two funds it goes into three managers all of a sudden will have an AGF and Templeton or Mackenzie or any of these great companies you know managing crypto. But let somebody like us our chairman is Howard Atkinson who was you know former head of Horizon ETF you know  he was really one of the pioneers of ETF's in Canada. And you know him, and I work very closely with these regulators to say look you allowed us to list gold you allowed us to do ETF is actually created the first long short mutual fund in Canada back in 2000. 2000. You know it's people like us and try to do something and move they move the line they you know we're now going past our third year almost our fourth year and four and half million dollars to try and make this thing work. And so, it's an absolute killer for our small cap companies or for startup companies to try and do this. There is no reduction a regulatory burden by any stretch of the imagination.

Manseeb Khan:  I mean unfortunately this has been a pretty big theme of the podcast. Canada has been very traditionally conservative and Canada is just kind of waiting like you said they're just waiting for our brethren in the States just saying what are they going to do? what are the regulations kind of doing and not really giving an actual shot because there's such amazing talent here in Canada. I like you fired off quite a few names and quite a few amazing companies that are doing great work here the fact that they if we kind of keep them if we keep going the way that we're going now they're not going to feel secure in their own country to create a company. They're just going to go off to god knows where they can go to Malta and just kind of create the whole thing, they just start scratch from that right. So, it's starting to get pretty concerning when it comes in the shoes of these companies.

Frederick T. Pye: Yeah, we would have more success if we had set up even in New York Obviously there's bitcoin products available over the counter in the United States with GBTC, so Canadians are already buying it in their brokerage accounts. You know there's a bunch of RTO's from Ether capital to the others that that are all out there but you know the reality is people want something that's come in the front door that's regulated that is plain and simple English you know what you're buying when you when you buy it and you know that the there is a trusted party behind it and it doesn't matter whether you're a you know a to the moon Bitcoin Bull it is completely an uncorrelated asset class the movement you know with the trade problems in the United States right now with China I believe it's definitely the Chinese that are you know if you're a 30 year old in China you're moving your R and B into bitcoin because you're down 10 percent and you're you know you don't want to hold the US dollars so you're definitely buying Bitcoin and what does that do. Puts 50 percent premium on Bitcoin right off the bat.

Manseeb Khan: So yeah exactly you did touch a little on the fact that you guys are right now you guys can only operate with accredited investors the entire pull when it comes to crypto is the. Anybody and everybody you can invest into it and hopefully when it comes later down the line that and that principle still stays the same. That pretty much accredited investors and just regular investors are on the same playing field. How do you see that happening? How do you how do you see that coming into fruition.

Frederick T. Pye: Well you know there's a lot of things that have to happen a closed end Bitcoin Fund is a proxy. Or like we would own let's say we do a 10 million dollar offering there's 10 million dollars a Bitcoin we buy it and then we list that pool on the Toronto Stock Exchange so we can now buy that pool as a security. So from your discount brokerage account you can buy it in your RSP and your TFSA and it will reflect Bitcoin one for one and basically you know if bitcoin trading at seven thousand dollars the price of our fund is going to be seventy dollars so it will be a one for one out of one hundred. So, people will know what they're buying. They're buying it for thirty-two hundred dollars with their money at ten thousand So yeah. It'll be quite clear for them what they're paying for their Bitcoin. We hope to do the same with ether or any of the top 10 assets. But one thing I didn't mention is Vaneck of New York a 50-billion-dollar asset management. They own a set of series of indexes called the MVIs index is MVIS Gabor Gurbacs runs a bunch of that operation. Vaneck owns 10 percent of 3iQ. They're so convinced that we're going to win here that they've put their money behind us to help us support us and help us fight this this battle. But certainly, the minute that ETF and indexes are crypto indexes are allowed we can go to the Investor Index and we can create a dozen indexes so top 10 top 5 top 10, top 10 out of 100 , top 10 small cap top 10 large cap. We can create and again also active portfolios so we can create a whole series of products. We just have to get that first product done and then the doors will open. You know it's just sad to see that Bitcoin's had to go from three thousand three hundred to an eight thousand. The general public gets access to it. And the reality is when see are our clients are going to be stockbrokers as financial advisors. It's the advisor that understands tech. It's the advisor that understands the Internet. You know it's I watch Kevin O'Leary on the TV yesterday. He clearly has no concept of what Bitcoin is or their future or are doing and you know what. We can let those people be you know have their opinions and we're happy to let them short us all the time as much as they want on it because we'll take all their money. But definitely you know there is a growing part of the population that wants easy access through a registered or licensed investment account and that's really what we're trying to do for everyone.

Manseeb Khan: Yeah like you said when you have the first product up and out of the door then it's about to be floodgates right. Yeah right. Awesome. So, Fred with that I mean is there any last-minute tidbits you want to give us before we wrap this up.

Frederick T. Pye: No I think as I said to keep if you can do two things and tell your investment advisors you'd like to buy our funds  or get them on the platforms because we now have to work with all the brokerage firms and the banks to allow our funds on their platforms but certainly keep an eye out for 3iQ work with the OSC. And when we win then you'll see us on TV you'll see us in all the newspapers. But right now, it's funny the journalists in Canada don't follow it like they do in the United States every time. Hester Peirce or one of the people in the US say something it's covered by all the press. You know we've kind of been under the radar but it's about to go very public and kudos to you for being one of the first to bring us on.

Manseeb Khan: Yeah. No, I'm super excited to have you on and I'm excited to keep having you guys on and just pretty much rallying behind bitcoin with you guys.

Frederick T. Pye: Good. Well happy to be here.

Manseeb Khan: Yeah for sure. Fred thank you so much for sitting down with me today. And we'll be the best way for audience members to connect with you and or some of the amazing team you have behind 3iQ.

Frederick T. Pye: You will definitely go to the 3IQ.CA. We actually run a weekly blog which is the five coolest things that happen in crypto in Canada. Nice you send us a link we'll have this show. There's so linked on our Sunday or Monday blog that comes out and this will clearly be one of the coolest things that happen in crypto this week.

Manseeb Khan: So awesome. I'm super excited to make it on your blog. So.

Frederick T. Pye: Yeah go to 3iq.ca and surf around and take a look at what we're doing.

Manseeb Khan: Awesome.

Outro : you've been listening to fintech Fridays brought to you by NCFA and partners. Tune in weekly for the latest fintech Friday podcast by subscribing to this channel. The National crowdfunding and FinTech Association of Canada is a non-profit actively engaged with social and investment fintech sectors around the globe and provide education research industry stewardship services and networking opportunities to thousands of members and subscribers. For more information please visit and see if a Canada dot org. Oh yea.

 

End of Podcast

 

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NCFA Jan 2018 resize - Fintech Fridays Episode 32:  Rallying behind Bitcoin with Frederick T. Pye The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Q1 fintech insights FTP - Fintech Fridays Episode 32:  Rallying behind Bitcoin with Frederick T. Pye
Crowdfund Insider | JD Alois | Oct 15, 2019 Last week, Crowdfund Insider reported on the Securities and Exchange Commission (SEC) enforcement action against Telegram and the issuance of Gram tokens. The move by the SEC is a doozy and telling. First, Telegram sold about $1.7 billion in a SAFT (simple agreement for future tokens) that appeared to abide by the rules. Telegram filed a Form D and apparently only sold to accredited investors in the US. As CI has heard, the token offering was wildly popular at the time of the offering. But the SEC’s “emergency action” was predicated on the expectation the Gram tokens would be available to the general public and thus akin to an initial public offering (IPO).  Once the Grams hid various and sundry crypto exchanges – anyone would be able to purchase them – not just the accredited investor types. In the US, an IPO requires registration with the SEC, a significant undertaking. See:  Your Complete Guide to Security Token Exchanges We have received several comments on the SEC’s move to target an issuer that is not US-based but sold to US investors, approximately 39 purchasers who committed in total $424.5 million, according to ...
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Telegram and SEC - Fintech Fridays Episode 32:  Rallying behind Bitcoin with Frederick T. Pye
Sky News | Robin Scarborough, Deloitte Digital | Oct 14, 2019 The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org ...
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open banking interview sky news 1 - Fintech Fridays Episode 32:  Rallying behind Bitcoin with Frederick T. Pye
National Post | Andy Blatchford | Oct 5, 2019 The letter was drafted by a lobby group representing signatories run domestic firms that employed more than 35,000 people last year and generated more than $6 billion for the economy OTTAWA — More than 110 Canadian tech CEOs have signed an open letter urging political parties to take action to strengthen the country’s innovative economy, and avoid falling further behind international peers. So far, major parties have put forward pledges in areas like affordability, first-time home-buyers and climate change, but the campaigns have offered few promises designed to drive economic growth in the digital age. “We’re writing because Canada’s productivity is lagging and our future economic prosperity is at risk,” reads the letter addressed to Liberal Leader Justin Trudeau, Conservative Leader Andrew Scheer, NDP Leader Jagmeet Singh and Green Leader Elizabeth May. “You can help by developing economic policies that advance innovative Canadian companies, including increasing their access to skilled talent, growth capital and new customers.” The letter was drafted by the Council of Canadian Innovators, a lobby group representing some of the country’s fastest-growing companies. Combined, its signatories run domestic firms that employed more than 35,000 people last year and ...
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liberal trudeau and innovation - Fintech Fridays Episode 32:  Rallying behind Bitcoin with Frederick T. Pye
CarefulCents  | Ryan Friend | Sep 17, 2019 Of all the types of insurance out there, health insurance is perhaps the most important. After all, without our health, it’s difficult to do much else in life. However, in the United States, which relies mostly on a private health insurance system, costs are high, and it’s often very confusing to know how much you can expect to pay. This is because you can get health insurance in many different ways. You can buy it on your own, receive it from your employer as part of your compensation package, or get it from the federal government. However, just because the world of health insurance is confusing, it does not mean you need to pay more than you should, and knowing the average costs of the many different types of health insurance can help you understand if your premiums are fair or if it’s time for a change. Below we’ve outlined all the different factors that determine the cost of your insurance and also identified the average rates for the various options out there. In addition, you will find some tips to help you save on your insurance so that you can get ...
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health insurance - Fintech Fridays Episode 32:  Rallying behind Bitcoin with Frederick T. Pye