Bitcoin and blockchain are often pitted against each other, but I come from both worlds and believe that both are game-changers in their own right.
I first learned about bitcoin in 2012 through liberty-oriented channels, which I’d discovered during a search for answers about the financial crisis in 2008. But I also took a deep dive into enterprise blockchain in 2014 while at Morgan Stanley, as a side interest to my day job of running its pension solutions business. In August 2016, I joined Symbiont full-time.
When I look ahead, I see 2018 as a year of maturity for both the bitcoin and enterprise blockchain parts of the space. Bitcoin will yet again prove its anti-fragility, more corporates will embrace it for payments, and the community will successfully resist its financialization. Enterprise blockchain will gain wider acceptance in production applications.
Bitcoin goes corporate
Bitcoin will increasingly be used for B2B foreign-exchange payments by multinational companies in 2018, as bid-offer spreads continue to tighten, daily liquidity consistently exceeds $5 billion and corporate new entrants gain comfort with liquidity providers (which enable corporates to use bitcoin for “cross-currency” transactions without touching the bitcoin itself--in other words, as an intermediary currency for foreign exchange in illiquid currencies).
Corporate bitcoin use will remain predominantly for payments in markets where banking systems are not well-developed. A tell-tale sign that corporate demand is sustainable would be this: when foreign exchange (FX) trading desks start making markets in bitcoin non-deliverable forwards (NDFs).
When that starts – possibly within the next 2 years – Jamie Dimon will admit his mistake and encourage corporate clients to route payments through JPMorgan’s foreign exchange desk, which will become one of the most active market-makers for cross-currency FX involving bitcoin.
Cryptocurrencies will continue to attract users as more folks learn about distortions in mainstream financial markets that just don’t make sense, such as this: household net worth in the U.S. was $96.9 trillion, up $7.2 trillion in the year ending September 30, 2017 (according to the Fed’s latest Z.1 report).
This means the U.S. economy supposedly generated wealth at a rate equal to roughly 40% of its annual income (GDP), despite Americans consuming virtually all of their income and saving very little. Wow, that’s a miracle!
Remember this: all prices are fractions. Prices can go up either because numerators go up or because denominators go down (such as when central banks dilute fiat currencies). So...are financial markets climbing because we're truly getting richer, or because of central bank-induced asset price inflation? Are quantity-constrained cryptocurrencies a safe-haven alternative? Time will tell, but I predict cryptocurrencies will broadly benefit as more folks come to understand what’s driving distortions in financial markets.
One of the "big 3" cross-currency central banks will announce in 2018 that it is preparing to issue its currency on a blockchain. The “big 3” are the “super-regional” central banks through which most “cross-currency” foreign exchange transactions settle, including the Fed, the Bank of England and the Bank of Japan. The Fed is behind the curve, but in 2018 either the BoE or the BoJ will step forward to allow tokenization of its currency to be executed by institutions in regulatory sandboxes. Corporate treasurers around the world will cheer at the prospect of same-day FX settlement through one (or two) of these “big-3” currencies because it will free up hundreds of billions of capital currently trapped on corporate balance sheets, due to payment system latency.
Yet for all bitcoin’s strengths, I believe advances in the enterprise blockchain will outpace those of bitcoin in 2018.
Let’s face it – enterprises are slower to move than the cryptoasset sector, which moves-fast-and-sometimes-breaks-things.
I believe 2018 will be the year in which a watershed event happens: an enterprise blockchain platform passes a CISO (chief information security officer) audit and is deployed inside the firewall of major financial institutions.
Enterprise goes live
Consensus 2018 will be "back to the suits." Let’s face it: attire at industry’s biggest conference has been a pretty good barometer of what's hot in the space. At the inaugural Consensus conference in 2015, bitcoin t-shirts dominated the audience. In 2016, business suits dominated as bankers discovered the space. In 2017, the dominant attire swung back to t-shirts, but this time for ethereum and ICOs. In 2018, I predict it will be "back to the suits" as enterprise blockchain accomplishments will again dominate the sector’s headlines, late-followers will scramble to catch up, and corporate treasurers will attend en masse.
The first institutional bond offering will be issued on a blockchain in the U.S. in 2018. Bond markets, not stock markets, will see the first U.S. institutional-level securities issued on a blockchain. Because the regulatory requirement to issue securities in “depository-eligible” (indirect) form does not apply to bond markets, the first institutional securities issued on a blockchain will be bonds – something I’ve predicted for years. In 2018, I believe it will finally happen. Yet, the coming clash between the federal securities laws that govern equities (which contemplate indirect ownership via the DTCC’s Cede & Co.) and state corporate laws (which contemplate that shares are owned directly by shareholders) will not happen yet in 2018.
No new blockchain consortiums will be formed in 2018. If 2017 were the year of forming new consortiums, 2018 will be the year of bilateral projects. Blockchains are networks and therefore suffer from the proverbial chicken and egg problem – consortium first and then project, or project first and then consortium? Consortiums now exist across a wide variety of industries, but – at least for now – more action is happening outside of consortiums than inside them.
Enterprise blockchain adoption will advance beyond incremental-type uses in production, such as sharing of data, to include transformational uses, such as custody of institutional financial assets that only ever exist on a blockchain. This will shine light on quality differences between platforms -- and separate those that are decentralized and offer transformational benefits from those that don’t quite. A big gap will open in 2018 between the "haves" and "have-nots" in enterprise blockchain.
2018 will be a consolidation year as the sector matures. The sector came of age in 2017, as adoption broadened in both bitcoin and blockchain. In 2018, both will strengthen and deepen further. And property owners the world round will rejoice.