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.”
For example, Hockey said, in the United States, if you buy property, you register a land title with the government and it holds on to your deed. “You go to places that don’t have a trusted governmental system, their land registry system is weak, if even existing. The best way to create enormous wealth in developing countries is actually to free up the value of the assets that are literally walked upon every day,” Hockey continued. “You can actually have a trusted third-party system with others, without having to trust your government, with this technology. The technology will unleash your ability to say this is my asset, the land that I live on, and all of a sudden you’ve got trillions and trillions of dollars being unlocked overnight. That could not have happened with existing ecosystems under the old regime. That’s the transformative nature.”
Edelman agreed that emerging countries will be able to grow and innovate faster using these technologies than the U.S. “An illustration is the telecom market,” Edelman said. “We’ve wired our country and when you go to other countries, you go from the 1800s to the 2000s. They skipped the 1900s because they didn’t bother wiring the nation. They went right to wireless. So they were able to adapt a lot faster than we can.”
Another example he offered was the rise of mobile payments. Last year, he said, the U.S. had about about $600 million in mobile payments; China had $9 trillion. “The fact that they’ve lagged us for so long is becoming an advantage for them,” he said. “It’s another argument for global investing.”