Daily Fintech Predictions for 2018

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We do this the hard way on Daily Fintech. We first look back on predictions from last year to see how how well we have done. Then we do predictions for the coming year. Apart from humility-inducing embarrassment we think of this as a learning process. We always choose 10 because the 11 dial fell off our machine.

What we predicted in December 2016

With how we rate it with hindsight in italics.

1. The end of the bank-driven phase of blockchain. The attempts by banks to coopt blockchain were like music CD retailers getting together to run MP3 music sharing sites or Post Offices setting up email services. Disruption means pain for some. Blockchain is disruptive to the current Financial Services world. The defections from the R3CEV consortium signals the end of this phase.

Not much data to show this, but nor have I seen much that went from POC to deployment. From incumbent Exchanges yes (e.g ASX) but not from Banks. So I think I got this right but we may need to wait until 2018 to see evidence.

2. We will see blockchain based real time settlement in equities markets move from R&D to live deployments. This may appear to contradict #1. However the disruption will come from a startup, not an existing Bank or consortium of banks. Banks will do well from the move to real time settlement (lower post trade costs) but they won’t drive this change.

Score. See this post for details

3. The InsurTech funding surge will slow down. This is because the early pioneers have to prove real customer metrics to get Series B & C rounds and as it becomes clear that Insurance incumbents are not asleep at the switch.

By number of deals, got this right. Value of deals steady as there are some mega big ones as we enter scale phase for winners.

4. Bitcoin price will go past its all-time peak of $1,242 (from 2014). It will then settle back just below $1,000 for most of 2017. Unlike 2014, we won’t see a major price crash because of # 4 below.

This one falls into the hilariously wrong category! If I had ended with “Bitcoin price will go past its all-time peak of $1,242 (from 2014)”  my prediction would have been golden. Reminder to self: Never. Ever. Predict. Price. I will ignore my own advice and try again for 2018 below – if only for your amusement.

5. Bitcoin moves from its Darknet phase (illegal) to the early adopter Clearnet phase. This is when legitimate people charge in Bitcoin for legal transactions. This will start with cross border digital products. Because this brings new bitcoins into “circulation” with owners who also then want to pay in bitcoin, this starts a sustainable move to mainstream use which supports the price.

Wrong. Maybe in 2018. Bitcoin as a currency or payment rail was useless in 2017 (it was a one legged stool – digital gold).

6. Analysts covering Banks will start referencing Fintech disruption when referring to a drop in profits at a major bank. Carried over from 2016. I believe Fintech disruption was the root cause of the Wells Fargo scandal, but this was not a generally held opinion.

Still too early on this one. Maybe in 2018. The only analysis was here on Daily Fintech. Bank stock prices are still levitating (like Wile E Coyote IMHO). I totally underestimated the power of buybacks to levitate stock prices in the short term. 

7. Uber will not do an IPO and may do a private down round. This will signal the dramatic end of the public private valuation inversion (private higher than public valuations). This started in 2016 and will have its dramatic end in 2017.

Got this one right. Implications will play out in 2018.

8. VC Fintech Funding in China, India, Africa and Latin America (the Rest) will be double VC Funding in America and Europe (the West). Even deals in the West will highlight growth in the Rest. Growth is the prize and growth is supported by a) middle class income growth b) no legacy technology constraints (“leapfrogging”).

That one was too easy. 

9. Most startup digital banks (“challenger” or “full stack” or “neobanks” will fail to get follow on financing. Investors will see more Incumbents get traction with their digital only spin offs and so they won’t see digital innovation as such a competitive moat.

My worst prediction.  I mistook what incumbents banks could/should do with what they will do. What most incumbents did in 2017 was buybacks and other means to award bonuses to CXO suite. 

10. This one left blank for the big surprise. The big surprise may be triggered by macroeconomics and politics (as if we didn’t have enough of these in 2016), but will have a bitcoin element to the story.

Bitcoin price closing in on $20k was the big surprise and yes I do think this was macroeconomics and politics driven. Macroeconomics means it is a Fiat currency meltdown more than a Bitcoin meltup. Politics because populism leads to exchange controls and Bitcoin is best way to move big funds fast.

Predictions for 2018

1. Coinbase IPO. See this post for why. When, my guess is Q1 as they understand the macro picture (we are near end of this bull market).

2. Lightning Network based Offchain Payment Channels go live. See this post for background. This will make the much neglected second leg of Bitcoin (as a currency for every day spending) into a reality.

3. Bitcoin Price Mania goes even more crazy. Is Bitcoin a leaderless Ponzi (go to zero). Or is it digital gold (go 10x to $200k)? I don’t know how it will end but I am confident that we have not seen ATH from this phase yet. Given 2, I think $200k is a bit more likely than $0. No, I am not predicting $200k in 2018; predicting price is stupid enough, but predicting price and timescale is either stupid or pump and dump.

4. Bitcoin Cash (BCH) price will collapse. See 2 for why.

5. Ethereum Use Case 1 (ICOs) will evolve. Why:  most early stage funding market moves to regulated Equity Tokens, with the bar raised for Utility Tokens by regulators (meaning that a few Tokens will prosper as there will be much less “noise on the line”.

6. Ethereum Use Case 2 will be even bigger. This will be enabling mesh networks as end run around lobbyists who killed Net Neutrality.

7. Real Time Settlement will become the norm. T+days or hours will seem like snail mail in the email era – without the quaint retro fun of paper letters.

8. Lending Club will be acquired but at a bargain price. See this Tweetstorm for why. This will mark the end of the 2nd Wave of Fintech and leave room for 3rd wave.

9. Evidence of Neobank success will trigger collapse of incumbent bank stocks. The incumbents left the real market to the Neobanks while they did buybacks to give CXO bonuses. Big Monzo raise is one indicator of Neobank success. Another Neobank success is SolarisBank acting as a platform not an end-user experience. 

10. This one left blank for the big surprise.  My only prediction is that there will be a surprise  – wow that was easy!

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Bernard Lunn is a Fintech deal-maker, author, adviser and thought-leader.

You can reach out directly to discuss our advisory services by sending an email to julia at dailyfintech dot com

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One comment

  1. Happy New Year and keep up the good work in 2017. I really enjoy your blog.

    Not totally sure I agree with #3, in the long run I agree that digital gold is more likely than $0, but I think we might be further from it than the current price suggests. You do point out the timing question… I guess it’s a prediction post and you had to pick 1.

    Also, why pick $200,000 as the price if it becomes digital gold? There’s roughly $7 Trillion of gold in the world… if Bitcoin is worth as much as gold then each coin would be $333K (based on 21M bitcoin).

    Like

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