bitFlyer’s Co-Head and COO Andy Bryant shares four insights on the fintech (finance & technology) space. The sector is growing at a fast pace with many innovations, buzzing words and technologies thrown around on a regular basis. Enjoy the read!
by: Silicon Luxembourg
featured: Andy Bryant
Listen to article (Part I)
Prediction #1. China will launch the first CBDC.
The People’s Bank of China will make history by becoming the first national central bank to issue a CBDC (Central Bank Digital Currency) in 2020. While being initially limited in scope (substituting just cash-like M0 money, and not M1 or M2 money which includes bank deposits) and limited in reach (focusing on domestic, not international payments) it will nevertheless be a major milestone in monetary history and a turning point for the global financial system.
Meanwhile more countries around the world will formally announce that they are developing a CBDC. Countries include the US, Russia, Canada, Singapore, Turkey, Sweden, Uruguay, South Africa, Thailand, the Bahamas, and others.
Once governments are in a position to launch their own retail CBDCs, the private sector is likely to be invited into the fold in order to fill for capabilities central banks do not possess and have no desire to cultivate. Large corporates will be able to provide important intermediate services, including onboarding, distribution, security provisioning, and customer-facing functions. The emergence of such public-private undertakings in the sovereign currency sphere will also be a landmark shift.
The particular design of each CBDC (whether or not it bears interest, for instance) will have profound implications on its effectiveness as a monetary policy instrument. This, plus the difficult questions of interoperability, cross-border use, and regulatory demands will become hot topics of discussion.
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Prediction #2. Libra will not see a full launch in 2020.
Unlike the relatively lower adoption of traditional cryptocurrencies such as bitcoin, Libra has the potential to be instantly credited to the almost 2.5 billion Facebook users in over 190 countries. This has catapulted the topic of global money to the top of government agendas around the world, prompting much-needed discussions over how to respond to the Libra initiative. Since Libra, it would be the first time in human history that a form of world money has been created by the private sector, with the reach and expertise to distribute it across the planet. Of course, governments took notice!
Perhaps somewhat controversially, because of this, I am not convinced that Libra will launch in 2020. This is driven by the fears of governmental institutions who say that a) Libra presents risks to financial stability and b) it is currently untenable from a regulatory perspective. That’s not to say Libra won’t happen, but first, there are many questions that will need to be answered, such as:
- How can AML/KYC controls be implemented across multiple jurisdictions?
- Won’t mass adoption in countries with inferior currencies decrease the effectiveness of those domestic central banks’ operations?
- During the initial buy-in of Libra, won’t holders of volatile domestic currency encounter continued weakening of their domestic currencies against Libra?
- If users do not have a direct claim on the Libra Foundation reserves, won’t they lose out if the reserve were to be liquidated?
- If the entire system loses stability, who would (and could) bail it out?
Until these questions (and more) are answered, I can’t see Libra seeing a full launch in 2020, at least not in its current form.
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Prediction #3. DeFi will get bigger and faster.
DeFi – or Decentralised Finance – is a natural evolution of the Blockchain ecosystem that is doing to finance what cryptocurrencies did to money. With a diverse array of applications already running, it’s typical to measure the scale of the DeFi industry in terms of the amount of value that has been ‘locked’ in DeFi-related smart contracts. The amount of value has grown from less than $2m in November 2017 to more than $650m in November this year.
I believe this trend is only just getting started. In the same way that email was only the first building block of the internet, cryptocurrency is only the first building block of blockchain technology. And, while many people might have been focusing on coin prices to think about what would be next, for me this has always been what blockchain is about! Completely new, decentralised financial constructs, including lending, derivatives, payments, asset management and other services. This is DeFi, and it’s going to get much bigger and faster in 2020.
Listen to article (Part IV)
Prediction #4. Bitcoin’s safe-haven status will be put to test.
Typically, when investors want to defend their portfolios against future volatility, they buy so-called ‘safe haven’ assets, which benefit during times of economic turmoil, such as gold, US treasuries, or the Japanese Yen.
What about bitcoin as a safe-haven asset? This will be a question that will be increasingly discussed (if not tested) in 2020.
On the one hand, bitcoin is still an extremely volatile asset with 5-10% daily price swings still commonplace, and as such is naturally considered as a high-risk investment under normal considerations. As such, we would expect it to be subject to the same ‘risk-on, risk-off’ investor sentiment as other high-risk assets such as equities or options/derivatives.
On the other hand, bitcoin has consistently shown that is in fact uncorrelated with most traditional financial asset classes. This is quite an interesting property, which means that bitcoin’s price does not necessarily follow other asset classes off the cliff when there is a large market downturn. As such, uncorrelated assets are popular tools with investors to hedge their portfolios.
Being an uncorrelated, censorship-resistant asset, it is possible that bitcoin will increasingly adopt the identity of a safe-haven or a lifeboat for capital when the wider markets go sour. Nevertheless, it’s also possible that, when it comes down to the crunch, it will be dumped along with other high risk assets in favor of traditional safe-havens. I suspect the former, although it really depends on whether bitcoin has had enough time to acquire investors’ comfort and safe-haven identity before this is put to test.
In any case, I think we might find out in 2020.