2018 trends in Capital Markets, Wealth and Asset management

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A strange macro year is ending! The traditional predictions for next year are part of the preparation before we Westerners indulge in chocolates, champagne, gourmet platters, family, and friends.

A wealth of remarkable experiences dominated 2017.

The ending, strange and remarkable year has seen a peak in FOMO in crypto-blockchain world and a clear, underlying shift towards Decentralization. The race is on to build the necessary infrastructure for the next generation of Capital markets to operate in the Decentralized new era.

2018 is the year that innovation in Capital Markets and Wealth-Asset management will see increased funding and focus. T-zero aims to raise $500mil in their upcoming ICO to create a blockchain platform for tokenized equities. The number of hedge funds in the blockchain-cryptocurrency space is growing exponentially. 2018 will be the year that private banks offer managed account services for their HNW clients in the Blockchain-crypto space. Since most of them don’t have and don’t want to have that offering inhouse for now, they will partner. Such talent will be in extremely high demand.

Equity tokens will see growth and I foresee that by the end of 2018, the first exchange for qualified investors will be up and running and regulated. Will it be built by Tzero, Lykke, Equibit, 20|30? Such regulated equity tokens will offer exposure to private ventures with a certain lockup period.

In debt markets, the largest OTC markets, the blockchain platforms are already being built (e.g. Dharma, Nivaura). This part of the capital structure will also get some attention, albeit less than equities, because of its size and its and its institutional clientele.

2018 is the year that exposure to private markets versus public markets, will increase. This is a significant shift that cannot only be measured by the flows but more importantly, should be accounted for as a cultural shift. Blockchain is underpinning this shift. I foresee that soon we will find ourselves instead of thinking of asset allocations between stocks and bonds, to be thinking of allocations between private and public markets. Risk/returns in private markets will look much better with the new tech built to tokenize equities, bonds, trade ICOs, cryptocurrencies.

The lending subsector will continue to suffer in 2018 due to its maturity and the rising rate environment.

The crowdfunding subsector will be in the spotlight in 2018 because blockchain is the tech enabler for the next generation of crowdfunding (from donation to equity) and for creating network effects (new value) within the existing communities. There will be an explosion of tokens on existing crowdfunding platforms (i.e. a utility token for members to exchange values – a la Kickico) but also more crowdfunding platforms offering the capability to their members to ICO on the crowdfunding platform (e.g. Indiegogo in partnership with MicroVentures).

There will be an explosion in the adoption of wallets. Much like challenger banks use the number of pure mobile accounts as the main metric for adoption, the reports of the large 4 consultants that keep track of high-level trends, will be tracking in 2018 the numbers of new wallets. I am only referring to true wallets not the accounting aliases of the mobile-only banks. This is not only about Coinbase wallets for holding a few coins. Wallets for holding real estate, insurance, commodities, fiat currencies, tokenized funds, art,….

There will be more tokenized funds, from ETFs, VCs and hedge funds. ARKInvest was the first regulated investment manager to include Bitcoin in one of their active ETFs. In 2018 there will be a more than a dozen investment managers that include either tokenized ETFs, tokenized VCs, or tokenized hedge funds in their holdings.

2018 will be the year that at least one Central bank will issue a digital coin of their own. Will be it an island, a small developed country or from the MENA region?

AI & ML will gain more footing in wealth and asset management. China will continue to dominate both in the consumer banking subsector and the wealth management subsector. Robo-advisory services will continue to dominate at the B2B level. The search for alpha will continue although the market is pointing to the crypto-blockchain space. 2018 will not be a no-brainer for making money in altcoins. AI and ML will be needed for decent risk management. Risk management skills for the new alternatives will be high in demand.

Incumbent banks will be looking to hire crypto-analysts to cover the space.

Incumbents will reduce their investments in innovation PR activities and increase their investments in launching their own “other” business entity that is digital from design. In other words, more of the medium to large players will decide to add to their innovation portfolio their own home-grown Fintech platform. More competition in the ecosystem. All is good for ends users.

2018 will be the year that it becomes clear that governments are in heads on competition. Gibraltar just this past week approved a law for a bespoke license for fintechs using blockchain tech. Switzerland, the crypto friendly ecosystem, has competition from new jurisdictions like the Netherlands, Luxembourg, Estonia, and of course, Singapore the other top contender.

Jurisdictional competition is another positive side-effect of the Decentralization attractor swirling globally.

Where are the looming swords of Damocles?[1]

Damocles-sword1-1

Cybersecurity is the big in-house beast with growing powers. While we are all afraid of the cultural and ethical ramifications of robots overtaking us, there is a more real danger lurking behind the scenes. Regulators will grab the swords if needed and there will be no mercy.

Trade wars from geopolitical tensions can, on the one hand, empower the decentralization attractor but also result in investment bloodbaths in the new hyped crypto area. This may happen at the retail level or at the institutional level. This mighty sword includes also the “Net Neutrality” war that has already started and can affect the Fintech&Blockchain evolution.

Happy Holidays in strange times

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Strange times in many ways; enjoy but we cautious. Last December the focus was more about reduced investment fees, commoditized services, and transparency. APIs were not yet under our skin and my social circle did not care at all about what I specialize in at work. Fintech was cool only to the ecosystem.

Well, today try to stop others from asking about Bitcoin and Blockchain! Impossible.

Dear readers, thank you for following us all year long. Thank you for always finding ways to recognize our contribution to the ecosystem. We deeply appreciate this. Enjoy the holidays with friends and family.

[1] Damocles is a figure featured in a single moral anecdote commonly referred to as “the Sword of Damocles”,[1][2] an allusion to the imminent and ever-present peril faced by those in positions of power. The “sword of Damocles” as a modern expression, means a sense of impending doom, the feeling that there is some catastrophic threat looming over you.

Image source

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

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