Hockey added that so much froth and energy attracts some bad actors. “Those bad actors might color the entire perspective for people. Why? Because they deal in a world of anecdote. They lock on that anecdote and say it’s bad or it's good. It’s a range. Like anything else, it will sort itself out over time. It will mature. The winners will come out and the losers will fall by the wayside. But you cannot ignore the transformative nature of the underlying technology.”
Edelman, responding to a question from the audience on what he tells clients about Bitcoin, agreed that the markets for crytocurrencies are like the Wild West. His firm does tell clients that before they invest in the coins, they need to understand them. “It’s not really Bitcoin, it’s cryptocurrency generally. There’s 2,000 digital currencies out there,” he noted.
The second thing his firm tells clients is to treat these investments like lottery tickets. “You shouldn’t have more than 1 percent of your investable assets in it, if that, because like a lottery ticket, you don’t need a lot of it. … There’s an amazing amount of fraud, an amazing amount of scams. There is legitimacy, but there’s almost a complete absence of regulation. The tax implications are crazy at the moment because the IRS treats it as property as opposed to a security. The SEC is not weighing in on it, yet. So be very, very careful about it. But do learn about it, and we believe it is appropriate to have exposure, even if it’s only from an educational perspective.”
Other speakers went into more detail explaining the status and potential of coin investments and blockchain. Adena Friedman, Nasdaq’s president and CEO, said blockchain definitely promises to transform major elements of the financial system, including the efficiency by which trading occurs and the ability to settle trades very quickly.
“It has the promise to rip out a lot of infrastructure that cause friction, which means there’s a lot of capital trapped in the system today that will be freed up with the ability of blockchain to come in and allow for that settlement and that perfect record of ownership,” Friedman said. “The underlying technology has great, great promise.”
She added that there are amazing applications for the underlying technology. “People are using it already to look at inventories of shipments, making sure they can understand and perfectly track shipping across the world across all of the containers they are having to manage,” she noted.
Regarding cryptocurrency, Friedman said she’s met with a lot of different people in the industry who are looking at it and are using it or are custodians for it. “We are in the process of learning as much as we can. … I think that crypto right now has gone from being a currency to being a nascent, tradable asset class, but over time [it] could become a financial layer on the internet. It could become a global ability to transfer goods and make it so it’s a more seamless, frictionless financial system. That’s the potential. Now whether or not it ever reaches that is the question. There’s so much hype around it right now. It’s being used in ways that people weren’t originally anticipating.”
The United States is unlikely to see the earliest, biggest benefits from these technologies, Hockey said. “The U.S. has the most developed economy in the world; therefore there are a lot of entrenched players who are already defending their turf. At its core, blockchain reduces or eliminates the need for a trusted third party,” he said. “So as a result, the adoption rate in the United States and other first-world countries will be slower than in new, emerging economies because you can jump right over the fact that there’s no infrastructure in place.”