IBS Journal January 2018 EDITOR’S NOTE THERE WILL BE LOTS TO DO NEXT YEAR, BUT SECURITY IS KEY


IT DOESN’T SEEM LIKE MORE THAN A FEW DAYS AGO IT WAS 2017 AND NOW WE ARE GINGERLY STEPPING THROUGH THE EARLY MONTHS OF THE NEW YEAR. IN THIS ISSUE WE TACKLE THE BIG REGULATORY EVENTS OF JANUARY AND TAKE ANOTHER CLOSE LOOK AT THE FINTECH WORLD


Bill Boyle Senior Editor


billb@ibsintelligence.com


05


T


he coming year will pose many difficult tasks for banks and fintechs alike. The banks still need to get their customers to trust them in order to make a lot of their


planned technology rollouts successful. No customer who mistrusts her or his bank at the moment is likely to take to the water happily with Open Banking. It is more likely that they’ll run a mile warning all their friends ( on social media as they walk to work) to do the same.


The next year in the history of banking technology is also dangerous for banks in so far as the very technology they are developing poses a threat to the nature of banks. These threats don’t come from the usual directions. The surge of interest in Bitcoin, which we have been talking about exhaustively in our weekly video roundups for months, has an underlying reason which is quite fundamntal to the future of the banking industry.


Many people in many countries are losing faith in governments, monetary policy and the soundness of their economies. This starts to explain the Bitcoin bubble. In its short ten-year lifespan Bitcoin has fuelled a massive surge of entrepreneurial activity. There are now many solid crypto currencies while the new entrepreneurs are busy behind the scenes widening the very scope of Bitcoin to the contract world.


Bitcoin is at the same stage the internet was in the early nineties – everyone knew it would cause seismic shocks through every industry and facet of life – but working out how to protect your own industry was impossible.


Most had no way of articulating what that effect would be. We view the world through the prism of our past experiences when the digital world is preparing new pathways for us as our


Big Interview subject Michael Bellacosa of BNY Mellon points out on page 34. Those new pathways can be painful to tread. The dot com bubble was similar to the present Bitcoin bubble. Bitcoin gained almost 5,500% in value in 2013. Just as the dot com boom massively overvalued companies that have been completely forgotten since and had ridiculous business plans, there is no valuation scheme that would justify the increase in its price of Bitcoin by five times in the first 11 months of 2017.


In 1990 the dot com start-up Wolff New Media LLC had revenues of $1 million, losses of $3 million and was worth at least $60 million. As long as they could get a buyer they were looking at a price of $100 million. But there was just one problem – they were about to run out of money in six weeks. Michael Wolff’s book, Burn Rate - How I survived the Gold Rush Y


ears in the


internet, teaches us a lot about bubbles and makes interesting reading for anyone trying to make sense of Bitcoin - it’s too early - just surf the wave.


And that takes us back to trust. Bitcoin growth is being fuelled by huge demand in the Pacific Rim, particularly China where distrust of the government is deep. This is also the case in the US where the POTUS himself is encouraging distrust in the very institutions he presides over. If people see the fabric of their society beginning to peel away, they tend to look for other ways of making their lives secure. And Bitcoin’s infinite upward spiral looks more secure than many currencies. Particularly since the USA is relinquishing the job of being the world’s stable force.


Unless the price of gold starts to rise again Bitcoin could continue to rise in value well into the middle of this year. With trust still eroding internationally, Bitcoin has its market until the next new, new thing appears.


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