Two spheres cohabit within every society or group within societies: the Sacred, and the profane. The sacred sphere, being esoteric, wields control over mysterious powers, only accessed and enjoyed by the initiated. It is imperative these happy few restrict access and keep the mystery alive as it is the key to their power. The profane, by contrast, is enjoyed and available to all. As long as the profane sphere does not threaten the sacred sphere, it is left alone to prosper as it wants, under the watchful eye and rules of the sacred.

In the Middle Ages, the Catholic church held a monopoly on the sacred; divinity was the sacred sphere. Mass was celebrated in Latin, the Bible was written and copied by monks in Latin. Knowledge and power accrued to the Catholic Church based on esoteric frameworks and strict rules for the dissemination of that knowledge. Indeed, it was illegal, even dangerous to challenge the Catholic Church with fanciful ideas such as the translation of the Bible into the vernacular. Be that as it may, a few fearless souls undertook this endeavor in the 13th and 14th centuries, and translated the sacred text into English, French or Czech, as a political act of defiance and a direct challenge to the Church’s authority. These transgressive souls might be banned, excommunicated, or burned at the stake for their trouble.

Even then, the heretics’ reach was limited as, even if the Bible were translated into the vernacular, it could  not reach the masses as handwritten reproduction was slow and expensive. That is, of course, until a little-known German inventor birthed the printing press in the mid 15th century, upon which  one of the first books printed was the Bible. This technological revolution was one of the reasons that led to the democratization of knowledge and the Catholic Church’s loss of its monopoly of “sacred power”. Many schisms later, we now have a very varied Christian landscape, and more importantly, a political and legal subordination of Church to State in all industrialized countries. [NOTE: Church and state are not “separated” as such in most of Europe, many countries of which (Italy, Greece, UK) have established religions. The religious apparatus is however subordinate to the secular political apparatus]

Modern society too has its own interlocking sacred spheres. One deals with the creation of money by central banks and large commercial banks. This sphere is indeed sacred and rules over the health of our economy, over the money we use in our daily lives, over the sacrosanct macroeconomic black magic governing of economic growth, inflation and employment. Central bankers are the new Catholic Church and the color of the smoke emanating from their periodic conclaves is scrutinized by many, understood by few, and praised by the initiated.

In my line of work, a most profane one, I deal with fintech, that is financial technology. Fintech busies itself with efficiency. Fintech has pedestrian goals: cheaper, faster, better service, more transparent, more insightful. Fintech is utilitarian. Indeed, some fintech startups only a few years old are increasingly finding themselves challenging large banks or insurers for dominance over users and customers. Others will challenge incumbent service providers in servicing the banks and insurers of tomorrow. Most of these activities are, currently, profane;  Central Bankers and large banks alike will lend a distracted eye towards the proceedings, sometimes making solemn pronunciations about “the need for a level playing field” and “adequate regulation and consumer protection.” Be that as it may, no one in control of the sacred sphere has lost sleep over fintech in its aggregate form or at the margin. Not yet.

Fintech is catholic in its own way. I hold a “big church” view of the space, and as such include the entire “blockchain” ecosystem and its unruly  twin, the “crypto-assets” ecosystem, within it. For the purposes of this post, I use the term blockchain to include all flavors and stripes of blockchains and distributed ledgers and will narrow “crypto-assets” to only include cryptocurrencies. Simply put, cryptocurrencies can be supported by permissoned and permission less blockchains or distributed ledgers and other types of crypto-assets – crypto-equities, crypto-securities, tokens… are rather profane.

Now that we’re all speaking the same language, it is my belief that cryptocurrencies have the potential to challenge the current sacred sphere of money creation, and that viewed from this vantage point, the borderline hysteria exhibited by most if not all central banks, financial regulators and various governments is a very normal and expected reaction. A reaction borne out of fear on the one hand, and outrage at what is perceived, rightly so, as an existential challenge.

To be clear, to date, the hysteria has hidden itself behind a justifiable criticism of the numerous alleged nefarious activities which bad actors have undertaken in the cryptocurrencies space. More sober criticism has centered around the limitations of the underlying technologies powering these cryptocurrencies as balanced against the marketing used to sell them. Both the promoters and the cynics are in their own way correct, yet do not be fooled for one second that the sacred sphere has not seen the threat and is actively building up its defenses in the hope of definitively crushing it.

Accordingly, we are treated with the threats of bans in some countries, actual bans in others, the threat of litigation and prosecution for bad actors in all, the threat of heavy handed regulation in many. Most within the sacred sphere are quick to point how they do believe in the positive aspects of blockchain technology, but not its current applications. This is further proof that the profane is seldom seen as a threat.

Nation states enjoy a monopoly over violence and over money creation. Money creation is backstopped by taxes on the people and the state monopoly on violence ensures a more or less orderly collection of taxes. Remove the monopoly over money creation and the nation state starts to vacillate on its pedestal. As such cryptocurrencies that challenge fiat currencies are an existential threat that cannot be allowed to propagate. Many pundits will rightly point out that all cryptocurrencies suffer from congenital malformations and do not pass the test of a means of exchange or a store of value as they are either too volatile, too expensive to create, too expensive to exchange or all of the above. They too are correct and these criticisms are a reflection of the current level of maturity of the various technologies underpinning cryptocurrencies. If there is one thing we can count on, it is human ingenuity, and the crypto field will find solutions and solve these defects over time. What we all hear is the sound of inevitability in the form of fitter cryptocurrencies to come.

Other pundits will also point out that even if technologies issues are fixed, cryptocurrencies will always suffer from a lack of backstop properties. That is, they are not, will not be backed by taxes. This is true. A currency cannot be stable if it does not enjoy such backstop. It is also true that money is what individual decide to use amongst themselves. As such, a backstop with a currency that loses the “trust” of the individuals that have access to it is as vulnerable and maybe even weaker than a currency that lacks a backstop. I will even venture to state that once the proper “trust” in the form of a usability/monetary policy paradigm has been programmed into a protocol, a cryptocurrency may prove vastly superior.

The first cryptocurrencies have shown several important points, some new, some we may have forgotten:

  • Money can be programmed
  • Money is a social construct that comes to life when individuals believe in it, equally so for programmable money
  • Programmable money (cryptocurrencies) is cheap to develop
  • Programmable money is cheap to fork
  • Censorship resistance is worth promoting

Cryptocurrencies have yet to show the following:

  • appropriate scalability, adequate latency
  • appropriate monetary protocols for wide usability
  • appropriate fiscal protocols for wide usability
  • appropriate fungibility
  • appropriate privacy & bearer qualities
  • appropriate energy usage

Cryptocurrencies hold the promise of:

  • a more efficient means of exchange
  • a more efficient store of value
  • infinite customization
  • novel ways to conduct monetary policy
  • democratization of payment transactions, decentralization and dis-intermediation of the financial services industry
  • at the margin, accruing more power to individuals instead of more power to the state

The threat for the current dominant sacred sphere is that of being dis-intermediated its oblivion, or of seeing its power gradually blunted and diminished over time.

It is difficult to envision a complete dis-intermediation whereby central banks and large banks, as central agents of money creation would completely disappear and be replaced by pure p2p interactions. After all, the Catholic Church did survive the democratization of knowledge, the loss of latin as an instrument of esoteric power and the printing press and its offspring. The Catholic Church is indeed alive and many other religions have successfully “forked”. It is just not as powerful as it used to be.

The Catholic Church’s actions starting with the 13th century also show us that full or partial bans do not work. There is no reason to believe that a full or partial ban on cryptocurrencies will work better than one on translating or printing the bible into the vernacular (the US prohibition also ended in failure).

It is easier to predict that central banks will embrace cryptocurrencies by issuing their own “fiatcoins”. We know several central banks are studying such an endeavor. These fiatcoins may be used as a means of exchange and unit of value between financial institutions and central banks, between a central bank and individuals, and between individuals. In any of these examples, fractional reserve banking may be irremediably changed and the losers will be large commercial banks. Indeed, central banks may find it easier to borrow directly from individuals and lessen the money creation role of banks. Individuals may themselves take on the role of lenders and money creators by aggregating supply and demand in a decentralized way – maybe with the help of central agents whose roles would be that of a new age credit bureau for example.

Further, once the current hysteria is over, it is not inconceivable that fiatcoins would co-exist with private cryptocurrencies, whether issued in pure p2p form or issued by private institutions. This would presuppose a new regulatory landscape, both national and transnational, in order to solve for endemic fraud, illegal transactions, scams, ponzi schemes, while promoting genuine economic activity.

I do realize the above may appear like pure science fiction given the current state of affairs. What makes me intrigued and hopeful for a future where cryptocurrencies will play a central part in our lives is the fact that we seem to be nearing the end of the current economic paradigm that has ruled since the end of Bretton Woods. It is clear that hyper-globalization, floating currencies (for the most part), the $ as a reserve currency, and free capital flows have led to a series of financial shocks. More voices are now calling for a new system, coincidentally so as the world of blockchain and cryptocurrencies, after having been unleashed by Satoshi Nakamoto, has ascended (the recent correction in prices withstanding).


Incidentally, we still do not know if Satoshi is one or several persons. I for one believe he may be the sum of modern day John Wycliffe, Jan Hus and Johannes Gutenberg. A trinity of democratization of the language of money (translation in the vernacular), re-thinking of the theology of money (white paper as a political act) and programming of the language of money (printing at scale in the vernacular).

ps:  I would like to thank Preston J Byrne for his editorial help with this post.





This article appeared first under the title “Where Will the Crypto Craze Lead? A Venture Capitalist’s View” on ProMarket.org, the blog of the Stigler Center at the University of Chicago Booth School of Business.

Reprinted with permission from ProMarket of the Stigler Center at the University of Chicago Booth School of Business.

I would like to thank Luigi Zingales for having invited me to contribute and Samantha Eyler-Driscoll for her editing prowess.


Can individual cryptocurrencies be programmed with stability in mind and if so, could a plethora of cryptocurrencies exhibit, in the aggregate, stable behaviors?

By now, unless you’ve just returned from a multiyear retreat to Mars, you should be familiar with Bitcoin. You may even have an inkling of the mania currently surrounding Bitcoin prices. And if you’re really curious, you may even have heard of the world of cryptocurrencies.


To recap the basics: it all started with the release of the Bitcoin protocol as an open source software in 2009—the novel breakthrough being how brilliantly its founder, Satoshi Nakamoto, meshed together tried-and-true technologies to come up with a blockchain concept that creates trust where it does not pre-exist between agents, in a persistent and non-censorable way. From those singular beginnings, Bitcoin has inspired crypto-coders to such an extent that we now find ourselves in a world with over 1,300 cryptocurrencies, with an aggregated value nearing half a trillion US dollars—quite the Cambrian explosion if I may say so. Technology costs being what they are, the cost of building a protocol underpinning a new cryptocurrency is so low that the barriers to entry or the frictions of forking an existing cryptocurrency are minimal. It’s thus not unrealistic that cryptocurrencies will number several thousand in the near future. It also seems, so far, that cryptocurrencies exhibit a power law distribution, with the top 10 representing the majority of aggregate market value.

Behind the Boom

Besides their extraordinary proliferation, the year 2017 brought skyrocketing prices for Bitcoin as well as other cryptocurrencies. Clearly, cryptocurrencies are becoming mainstream and attracting interest from different constituencies. At first purely driven by cypherpunks and libertarians and later by early individual adopters and the underbanked, interest eventually expanded to a few early venture capital funds across the globe and some emerging markets, where these cryptocurrencies were viewed as a substitute for local currencies that were either failing or not trusted by the general public. The most recent stages of adoption have seen widespread excitement from punters in South Korea, Japan, and China as well as more traditional institutional actors, with Fidelity, Goldman Sachs, CME, and CBOE being but a few examples. The market is structuring at such a furious pace that regulators, central bankers, and legislators are having a hard time keeping up.

As with the dotcom boom of 1999–2002, exuberance, manipulation, and fraud have reared their ugly heads as well as poor governance and lack of transparency. Add a touch of geopolitical horse-trading and it is difficult to figure out exactly what the reasons are for the price appreciations; they appear to have more to do with sentiment than fundamentals. The market is fragmented across exchanges across the world, with price discrepancies that are difficult for the average investor to take advantage of. There is alleged manipulation from various actors, including a few exchanges and various “whales” who hold vast quantities of Bitcoin or other cryptocurrencies. The open religious wars between believers in Ethereum, Bitcoin, Ripple, or Bitcoin Cash–to name but four of the main cryptocurrencies–as well as the internal wars between Bitcoin actors (miners, core developers, investors), produce an inordinate amount of noise.

“For the first time in history, a financial instrument, be it money or an asset, has not been created institutionally and is thus highly suspect to institutions.”

In addition, the sudden governmental decisions to ban exchanges in China or facilitate trading in South Korea or Japan have created a “Wild East” atmosphere in which Asian retail investors have eagerly risen to prominence. It should be noted that Asian retail investors have traditionally been quite active in the forex margin trade, which can explain the sudden popularity to a certain extent. Furthermore, due to the deflationary nature of Bitcoin, most investors have a tendency to hold. As a result the market is quite frothy, with an explosion of new punters while sellers are far and few in between.

As for market manipulation, certain firms and investors located in jurisdictions not easily reached by either US or EU enforcement are indulging in wash trading, painting the line, creating phony accounts across exchanges, spreading rumors, and in some cases allegedly issuing new tokens purportedly backed by fiat currency to inflate prices and trading.


Code Is Law

Notwithstanding all the above, what’s clear is that cryptocurrencies are now starting to compete with other asset classes or currencies. Cryptocurrencies have an advantage, which is the programmatic way their “money supply” policy has been set. Code is law for a cryptocurrency; this should prima facie make them immune to human interference and more “trustworthy” compared to other traditional asset classes or currencies (which are subject to human intervention). Nonetheless, cryptocurrencies are of course imperfect as they stand. Critics will point to the lack of transparent or appropriate governance, the inherent instability of decentralized power structures, technical faults that may leave some vulnerable to attacks, or the fact that open source code should not be used to underpin systemically important financial systems. Then there also is the not so little issue of energy consumption for any cryptocurrency based on what is called a proof of work protocol, which may undermine long-term viability.

Undeniably the swift course of recent events is not optimal for the short-term health of the space, but it does not detract from the fundamental promises of programmatic money or store of value along a more distributed intermediation power structure. In other words, even though the promise of cryptocurrencies in its purest form is to disintermediate trust and transition it from being purely human and institution based to being more code based, we have not yet arrived at that end point, nor do we know if such an end point is either desirable from a societal point of view or technically feasible. But we do know there is considerable interest in alternative means of exchange or stores of value, that the financial services industry may gain from such innovation, and that even though unhealthy price appreciation and extreme volatility have been recent ledes, so far—and based on a consensus of economists’ and central bankers’ views—cryptocurrencies do not represent an existential threat to the established order based on size alone.

Undoubtedly, market interactions will hold the key to success by allowing technologists to address the drawbacks and crypto-believers to go on believing anew. There are, however, a few salient points we should bear in mind: competition and market structure stability.


Crypto Competition

On the first point, I see three types of competition: competition between cryptocurrencies, competition between cryptocurrencies and fiat currencies, and finally competition waged by fiat currencies issuers embracing cryptocurrencies themselves. Each case raises several crucial questions:

Firstly, in a world where new cryptocurrencies are birthed with relative ease, how can we definitively declare a winner among them? Will network effects achieved by the current leaders be enough or will the inherent weakness of governance, decentralized protocols, inflation, lack of stability, or deflation mean that new entrants can overcome the first-mover advantage with a superior protocol? Further, will competition bring out excessive profit seeking human traits, designing cryptocurrency protocols to maximize either seignorage or fees to the detriment of usability?

On the point of competition between crypto and fiat currencies: nation states do not easily relinquish the monopoly they hold on violence, which itself protects the right to tax. It follows that, should a given cryptocurrency achieve widespread use and end up challenging a fiat currency, it may become a clear and present danger to fiat currency issuers that they seek to check by all means possible. Banks may also be threatened because of their money-creating privilege. Not surprisingly we are currently witnessing central bankers and bankers across the world vocally expressing their displeasure at the rise of Bitcoin. They use arguments of greater or lesser validity ranging from cryptocurrencies fomenting fraud or Ponzi schemes, facilitating illegal activities, lacking credibility as an open source software, to outright serving as a harbinger of chaos. The irony here is that for the first time in history, a financial instrument, be it money or an asset, has not been created institutionally and is thus highly suspect to institutions.

On the third point, how will private cryptocurrencies behave once central banks start issuing their own digital or crypto coins (so-called fiatcoins)? Can there be peaceful cohabitation? Will fiatcoins precipitate the end of the daily use of private cryptocurrencies at scale, either due to market forces or due to a fiat diktat? Will cryptocurrencies be resilient enough due to their inherent properties, or because they hold a geopolitical utility to one country or another? Incidentally, introducing a competitive vector to the world of fiat currencies can only be viewed as a positive given the latest monetary development of the past 20 years and the slow erosion of trust towards financial intermediaries and central banks.

All are fascinating questions we will undoubtedly have the answers for in the near future.


Can the Market Be Made Stable?

Currency competition leads to a discussion of market stability. Inasmuch as one currency may lead to too much market concentration, competition between currencies, both fiat and private, may lead to either optimal market structure and/or price/value stability. So far, all cryptocurrencies have been volatile, with many critics adamantly claiming this excess volatility de facto kills their value proposition. Can individual cryptocurrencies be programmed with stability in mind and if so, could a plethora of cryptocurrencies exhibit, in the aggregate, stable behaviors? A pure stable coin is what dreams are made of, while a coin less volatile than Bitcoin should be feasible. But we still are left with the fundamental question of how many cryptocurrencies are enough. Given the twin effects of Gresham’s law and the short profit-maximizing goals of private agents, it might not be inconceivable that market stability and equilibrium may be difficult to achieve in a world unfettered by regulatory constraints.

In conclusion, believing that current leading cryptocurrencies will be long-term winners may be premature as the ecosystem is still in its infancy and new entrants or forks of existing cryptocurrencies are to be expected. Fiatcoins issued by central banks are a natural evolution, and too many cryptocurrencies may well be a hindrance. Nonetheless, cryptocurrencies are undeniably bringing innovation and excitement to the world of money and currencies. I argue that such excitement is a positive development, from a competitive standpoint, to challenge the stranglehold of incumbent financial intermediaries and central banks.





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What with all the noise around Google, Amazon, Facebook and Apple (GAFA) encroaching on banking services – and the flury of “Amazon Bank” punditry – I became curious about the employee migration patterns between banks and GAFA. Given the need to detox after the year’s end activities, I decided to pause imbibing my favorite beverages for a few hours and launched into a mini search project on LinkedIn.

First, this is not a scientific exercise, as the LinkedIn search is limited by the quality of the data inputted by LinkedIn members and the fact it probably does not cover 100% of the universe. Further, try as I might, I could not find a way to search by tenure – amount of time spent in current job – which would have refined the output markedly. Be that as it may, I believe the search results are directional as well as unsurprising.

Second, I set my universe of banks as follows: JP Morgan, Goldman Sachs, HSBC, Citi, BNP Paribas, Barclays.

Third, as mentioned earlier, I only searched for the four GAFA companies + Microsoft.

I do realize both universes are small slivers of financial services and technology firms. Still each will serve as a proxy.

Fourth, the search was performed as of January 1 2018.

Fifth, I performed the following six searches:

  • Currently working with any of the 6 banks / Past work experience with any of GAFA
    • total universe
    • filtered by the following keywords: payments, mobile payments
    • filtered by the following keywords: AI, artificial intelligence, machine learning, deep learning
  • Currently working with any of GAFA, Past work experience with any of the 6 banks
    • total universe
    • filtered by the following keywords: payments, mobile payments
    • filtered by the following keywords: AI, artificial intelligence, machine learning, deep learning

Sixth, i broke down the search by level of experience: 2 to 5 years, 6 to 10 years, over 10 years.

Finally, although I could not search by time period, it is safe to say the bulk of the above results probably covers the past 5 years at the maximum, which is the period of time when GAFA started building their expertise around payments in particular and financial services in general.

Here are the results:


Again, no surprise. All searches show a deficit against the Bank universe. There are more former bankers now working for GAFA + Microsoft than the reverse. This holds true whether for the entire search or filtered for AI or payments. GAFA + Microsoft prefer to hire seasoned banking employees over junior banking employees – the more so for the entire universe or for payments, less so relatively speaking in AI. I did not include Visa or MasterCard in the Bank universe, but cursory results show the output wold have been similar. I also did not include the likes of IBM or Oracle in the big tech universe as such an inclusion would not be representative of migration flux around payments, financial services, banking services and the competitive nature of the horse-trading going on at present between both universes.

It would indeed have been quite interesting to sort by time period. We know that the past 5 years have seen GAFA poaching banking and financial services talent to shore up their payments or credit teams. What we should expect is that for the past year and going forward, banks are pushing their recruiting efforts towards software engineers & data scientists. Seeing the migration patterns starting to invert in favor of banks via LinkedIn searches over the next couple of years will be rather illuminating.

Again, no surprise, GAFA has been building its expertise around certain banking services while banks have had a hard time attracting cutting edge talent from big tech. This LinkedIn search, however crude, gives us directional confirmation.





It is that time of the year where pundits unabashedly flog the predictions market like a stolen donkey. I will not escape this tragic destiny and am adding my two cents to the mix.

I am doubling down on my macro risks optics – see my post for 2017. Indeed, if 2017 added a macro risk angle to the fintech narrative, 2018 will augment this angle and may have even more of an impact.

In as much as fintech is the act of optimizing or disrupting the financial services industry, this act has unfolded, so far, in an era of globalization and free trade. The rise of national economics and populism, which is a direct challenge to the flavor of globalization we have witnessed to date, will have an impact on fintech. Whether that impact is purely qualitative, reshaping the fintech space, or whether it will also be quantitative, restricting the fintech space, remains to be seen.

The “America first” policy the current US administration is espousing has created a leadership vacuum when it comes to multi-lateral trade and has halted further “business as usual” globalization. To be clear, other countries have espoused similar “me first” views to the point where the probability of a clear breakdown in globalization, as opposed to a reset along more balanced perspectives, is becoming more than a fanciful prediction. Extreme outcomes such as outright trade wars between various economic blocks will have a dampening effect on trade, investments and, as a derivative, on how the financial services industry will be impacted and adapt. Cross border activities such as trade finance, remittances, p2p payments and lending may suffer as a result. Further, cross border fintech investments may be delayed or halted (Chinese corporations investing in US fintech startups for example). Although trade friction is currently more of a US driven issue, we also cannot discount fully the unintended negative consequences of a “no Brexit” deal, although the latest indications introduce a ray of hope. Still, a less than satisfactory Brexit deal as it applies to financial services will put a damper on investment activity or will increase the cost of doing business for any fintech startup with pan-European aspirations. Might we see more UK based fintech startups naturally expanding to geographic locations (b2b or b2b2c models) other than the EU?

We are also witnessing the potential end of a regulatory cycle. The US administration has clearly indicated its willingness to repeal what it deems to be overbearing and costly financial regulations. In as much as these regulatory changes will only have a domestic impact, we should expect a fintech boost to all things lending. If these regulatory changes have an international impact (capital ratios, compensation, leverage) we may see the start of further regulatory divergence between US regulatory frameworks and international ones or the treatment and approach to financial legislation. This will have an impact on capital markets, cross border commercial banking activities and reinsurance to name but a few financial activities. We should expect regulatory divergence to both be a risk for regtech (as the cost of doing business rises, while servicing divergent demands from corporate users will be more complex) and an opportunity (as more sophisticated regtech providers, able to handle more complexity, will be in a high demand).

Macro risks also apply to the world cryptocurrencies and the blockchain space. Many blockchain applications are cross border – see my comment on Trade Finance above. How will these applications fare in a world of trade protectionism? As the world of cryptocurrencies defy Newtonian canon, it is attracting the attention of policy makers at an accelerated rate. The price of maturity is scrutiny. The price of maturity in financial services is regulatory oversight. The price of challenging the monopoly on violence a nation state enjoys is financial “excommunication”. The drums of war will beat louder in 2018 as central banks, bankers, regulators and legislators will rise, some to protect consumers, some to pretend to protect consumers in order to better protect incumbents and their entrenched interests. Interestingly so, this macro risk as applied to cryptocurrencies is a double edged sword as, to date, any governmental clamp down across the globe has had the effect of making cryptocurrencies more popular across a given population. Additionally, launching a fiatcoin (digital or crypto currency managed by a central bank, with the proper design and privacy/bearer caveats) may also be viewed as a macro risk, as it would definitely be a macro policy. It is not inconceivable we could witness the coexistence of fiatcoins and private cryptocurrencies. Even in this configuration cryptocurrencies will be subject to macro risk based on the following two statement: “She who controls mining controls the underlying cryptocurrency” and “cryptocurrencies can be an effective addition to a country’s sharp power arsenal” (disrupting a trading competitor’s markets via indirect manipulation of cryptocurrencies markets may end up the night job of various state actors, if it is not already the case). Paradoxically, the ICO phenomenon may be one which will unite legislators and regulators across the world as most have started to verbalize a common theme: stay within current securities laws.

Assuming readers of this article are exposed to social media, they are all familiar with fake news in its many incarnations. Fake news (disinformation, misinformation, falsified truths, incomplete truths, errors and omissions) have so far been limited to how we consume news. I expect a natural extension of the fake news phenomenon to extend to the financial services industry in a more direct manner. Let us call this trend the “fake data” trend. It is obvious that various actors – private, state sponsored, hybrid – are motivated with sowing confusion and doubt to further various geopolitical goals. We should not be surprised if 2018 will see the rise of similar strategies applies to the financial services industry whether via outright manipulation – see cryptocurrencies – the introduction of fake data, or the corruption of existing data. This prediction becomes even more salient when coupled with cyber attacks. Current cyber attacks should also be viewed as a macro risk – after all the nationality and location of cyber hacks is a mystery – and have so far been passive. By passive I mean they have been for-profit motivated (ransomware, dark markets monetization, fraud). Our imaginations should not be stretched too much by envisioning active cyber attacks augmented with a “fake data” vector, where the goals are wider and deeper, like the destabilization of specific asset classes or markets, or systemically important financial actors. Might 2018 witness such attack vectors? Whether it is the case or not, the opportunity to arm financial services incumbents is an ever growing one. After all, the BIS has listed cyber attacks as its # 1 risk to the financial system for 2018. Fintech startups that address cyber security, the veracity and protection of data will thrive.

The above fake data/cyber attack hydra naturally leads me to my next point: Data.

Regardless which metaphor you are attracted to, “Data is the new oil” or “Data is the new asset class”, the undeniable truth is that the digital world we are building is a data creation engine that thrives on consuming the data it creates to further its growth. Nation states have caught on data’s importance and are presenting us with different macro visions. The EU has opted for stronger consumer protections with GDPR, and to a lesser extent PSD2. This will lead to innovation and growth opportunities for fintech firms and incumbents alike within clear boundaries. China has clearly opted for a more freewheeling approach whereby a more permissive use and monetization of user data is allowed. This will also lead to innovation and growth opportunities, maybe more radical ones. The US is caught in limbo in as much as legislative vision has been absent from the “data” agenda to date. This may mean financial innovation as it applies to the use of data will come from China and Europe rather than the US. This may also mean investment opportunities with innovative fintech firms that handle data may be more skewed towards the EU and China. Additionally, protectionism also applies to data. Russia, China and the EU are very specific when it comes to data generated within their borders and financial services firms with global aspirations need to navigate asymmetric landscapes. As such, fintech service providers that are able to harness these data complexities will thrive.

Let us now address my last macro point: Interest Rates & Stock Market valuations.

Both interest rates and stock market valuations offer risks and opportunities when it comes to fintech. Most analysts expect either 2 or 3 rate hikes from the Fed in 2018. We are undeniably in a rising rates environment across the globe. This is good news for savers, for banks, for institutional investors as they should expect higher yields to pad their respective bottom lines. (Bear with me here and assume either a flat yield curve will still allow financial intermediaries to make money on the short end of the curve, or that the curve will steepen at some point in 2018, making my argument doubly appropriate.) Higher profitability will mean more capital available for further digital transformation which should help fintech startups bent on arming incumbents for a shiny future. On the other hand, higher interest rates introduce more risk into the system. First in lending, where default rates might creep up, and second in how they may impact stock market valuations. So far, the expectation of interest rates has not resulted in major stock market jitters – the strength of the EU economy, the promise of US tax overhaul, stricter Chinese regulatory approaches to an overheated domestic market may have helped. Should this state of contentment not hold – others may refer to a state of complacency – and should rising interest rates, or other macro shocks such as a war, lead to stock market tumbles and worse another financial crisis as banks standings would be threatened, then the risk of the financial system at large may translate into an opportunity for those fintech startups still focused on d2c models designed to challenge incumbents. For that matter, the entire cryptocurrency space would also receive a boost of confidence as consumers at large may feel even more disillusioned with traditional financial services. Incidentally, the BIS also lists current interest rates and stock market valuations as a potential risk to the system.

In conclusion, we are living through a historical realignment both politically and economically. It is safe to assume this realignment will have lasting effects on the global economy and national economies, regardless of which vision steers government. The reintroduction of the political will in the economic sphere is now occurring as new “digital” technologies such as AI, blockchain to name but two, applied to financial services have global repercussions. Fintech startups will have to refine their understanding and sophistication when it comes to these macro risks. Their financial services incumbents are already acutely aware of these risks.