3 predictions for the digital financial future

The financial industry is going through a sea change. So many aspects of it are under scrutiny: from debates over cashless societies, to universal basic income, and the implications of digital currencies. Money has always been a hot topic, but it has become even hotter.

Blockchain changed the conversation

The advent of blockchain technology is in part a reason for this sudden increase in interest. As Lauren deLisa Coleman writes for Forbes, we are seeing financial giants like JP Morgan enter the digital currency space, alongside Facebook and IBM. And she points out, “But amidst such vast activity around digital currency overall, there is a specific and growing interest toward trend shifts pertaining particularly to token exchanges.

Talking about Token Exchanges

Coleman reports on the discussions at a New York event: Token Exchanges: The promise of liquidity, compliance and stability, where lawyers comprised the majority of the audience. Joel Telpner, partner and Chair Fintech & Blockchain Practice at Sullivan & Worcester LLP, addressed the issue of turbulence in the digital currency space: “We’re all collectively paying the price at the moment, but it’s important to keep in mind that this is not a bad thing. Most all new forms of technology have experienced a high level of unreasonable exuberance in the early days and after that period, business becomes much more stable.”

A more mature environment

Interestingly, he also suggested that now is the time to create a new ecosystem with new players: “”We’re at the end of the beginning,” he remarked. “This is about moving from the wild, wild, west to a more mature level of the digital currency space and tokens. Those that remain have to work hard and understand that success will come from fundamental principles in business and governance, and it will certainly pay off.”

3 key things to watch out for

He then identified what he believed are the three key regulatory areas to watch this year that could be game changers:

1. He believes the US Securities and Exchange Commission (SEC) will make a statement about the status of digital currencies and tokens — which are tokens and which are not.

2. The CFTC (Commodity Future Trading Commission) will become more involved in the token space given that this collective regulates commodities.

3. Stablecoins will come under a regulatory spotlight and decisions will be made about how to regulate this particular type of digital currency.

The event also revealed that a consensus of opinion indicates the issue of custodianship will come under focus this year as well. In addition, there will also be an eye to how trade is conducted in this space and how securities are managed securities once they are issued.

But, one of the most hotly debated topics in the industry is which jurisdiction will establish itself as a leader in the space: Telpner’s response to this was: “”But this approach was wrong in 2017, 2018 and still wrong to think like this in 2019, because all countries are working hard to regulate this space. Stop chasing jurisdiction.”

Is the crypto market history repeating itself?

1_44y-gHFOTuPUMnqBV84qeg

At the turn of the twentieth century, Jesse Livermore wrote a book titled “Reminiscences of a Stock Operator.” It’s about his life as a trader. One of the things he said back in 1900 was this:

 “When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators to-day differ from yesterday. The game does not change and neither does human nature.”

And he also wrote: “I used to think that people were more gullible in the l860’s and ’70’s than in the 1900’s. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings.”

Doesn’t this sound familiar? It does to me. It’s pretty much what people are writing about the cryptocurrency market. It’s a bubble, it’s a Ponzi scheme, it’s another boom and bust.

But the most important point he makes is this: that the game doesn’t change and neither does human nature.

The derivatives market provides us with a good example of the sameness between what is happening in crypto now and markets of the past. A derivative is “an arrangement or product (such as a future, option, or warrant) whose value derives from and is dependent on the value of an underlying asset, such as a commodity, currency, or security.” Derivatives trading has been around since ancient Mesopotamia. For example, a tablet from 1809 BC documents a Mesopotamian merchant borrowing silver, promising to replay it with sesame seeds “according to the going rate” after six months.

The Briitish South Sea Company of 1711 led to a wave of new joint-stock companies with dubious business plans that created one of the first bubbles, alongside the Dutch tulip fever.

What emerged from this was the realisation that derivatives, and now the crypto market, need governance and regulation. Self-policing must be encouraged, and work in tandem with government-enforced rules. Bad actors must be kicked out of the market, just as they were in early days of the London Stock Exchange.

 

 

 

Stop Focusing On Short-Term Results

Firms get very excited when their half-year results are good, but what does six months of great profits and soaring stocks really mean in the bigger picture. Is there a good reason to feel things are going so well that there is no need to consider a downside? I don’t think so. But, the short-term should not be your focus when markets are buoyant, or when they in a decline.

markets

Let’s say you look back at what was happening a year or two years ago. Perhaps your business was doing well, but did you make any changes as a result of improvements in performance. On the whole, large and small businesses tend not to do anything; they feel content with the status quo. And there is a good reason for this.

The media creates panic

Even political activity that makes the markets jittery is just a lot of noise in the media. The markets react in their own way. As I’m writing this, North Korea has just fired a test missile over Japan and newspapers report that the Dow Jones opened at lower average and buying of physical gold is up. Whatever happens, there will always be a short-term response to the situation. But that is just today’s story. There is another picture to consider.

Currently the markets are pretty strong –the response to North Korea aside –but everyone who invests knows that what goes up can also come down. I’m not sure when the markets might start to be more ‘bear’ than ‘bull’, but one thing is certain – it will happen.

The history of ups and downs

You only have to look at history to know this is true. For example, Capital Research produced an overview of market declines based on the Dow Jones Industrial Average from 1900 to 2016 and they found something interesting:

  • There is a decline of roughly 5% three times every year
  • About once per annum there is a decline of around 10%
  • Approximately every two years, the 10% decline will become a 15% decline
  • Every 3.5 years the market decline will reach 20%+

So, what does this tell us? First, that there are declines every year and that makes them ‘normal. The research also shows that 2015 was the last year in which there was a 5% decline, and this means, based on probability, that there will be one coming soon. And, finally, even though we have declines, things always pick up again.

Focus on the long-term

This is important information to consider when you’re investing for the long-term. Accept that there will always be a downturn and factor that into your investment plan. Don’t panic when a market starts to drop, and don’t suddenly pull out unless you really have to, because as the research shows, sooner rather than later, your investment will be back on track again.

I hope you enjoyed this and found it useful. Please subscribe to my blog if you’d like to receive an alert when I post new content.

 

 

Future World Governments

Political systems go through change, as history shows us, and as technology and society advances and changes, we are certain to see some alterations in the style of government around the world. There are a few ways that our governments may look dramatically different in the future and some of them are potentially terrifying. Here are five possible scenarios.

WGS17

A Noocracy

This is a political system based on the “priority of the human mind.” The concept comes from the Jesuit mystic Teilhard de Chardin, who saw this as a possible evolution of democracy that would create “a flexible and adaptable system comprised of conscious, systematic, and institutionalized elements which will operate in decentralized autonomous subsystems.” The upshot of a system like this is the development of a hive-like civilisation brain that integrates all individual minds, both human and AI, through information networks.

A Cyberocracy

In this system, governments would rule by the effective use of information. This could take two forms: one that supplants bureaucracy and technocracy as we know it, and or one that redefines the relationship between the state and society. It will be driven by decisions based on information, which means a government will seek to obtain as much information as possible about everyone and every entity. It is likely to result in a bureaucratic system run by administrative AIs.

A democratic global government

A global liberal democracy will be one capable of “ending nuclear proliferation, ensuring global security, intervening to end genocide, defending human rights, and putting a stop to human-caused climate change,” says George Dvorsky. We are already on the way to this in terms of culture and economics, but we have yet to reach the political stage. The European Union is an example of this type of government on a small scale.

A Futarchy

This system is the creation of economist George Mason and futurist Robin Hanson. They say that under a futarchy we would “vot on values, but bet on beliefs.” How does that work? Hanson says: “Elected representatives would formally define and manage an after-the-fact numerical measure of national welfare. Market speculators would set prices that estimate national welfare conditional on adopting proposed policies. When the market estimate of welfare conditional on adopting a policy is higher than the estimate conditional on non-adoption, that proposal becomes law.”

Post Apocalypse Hunter-Gatherers

Finally, there is the possibility that we will experience a catastrophic event – natural or man made– that forces us back into a paleolithic political system in which we will return to living in small tribal groups, existing by hunting and gathering for our existence.

Which type of futuristic government would you prefer if you had a choice? I look forward to hearing your views.

I hope you enjoyed this and found it useful. Please subscribe to my blog if you’d like to receive an alert when I post new content.