Whither Blockchain in Finance?
Reports of its seeming demise have been, as with Mark Twain, greatly exaggerated.
I am a great fan of Bloomberg’s Joe Weisenthal and I am always happy to read his work. In a short paragraph from a few days back though he attacked the general expectation that blockchain technology will succeed despite whatever happens in the cryptocurrency space, saying that “…in the real world…there’s not much evidence of that happening.” While I haven’t seen any more complete writing from Mr. Weisenthal on the topic the short analysis he presents in his description seems to miss the point, and I invite him to visit Hex Trust to see first-hand examples of blockchain adoption in financial markets.
In a Bloomberg e-mail Joe Weisenthal, their news director, shared his view that blockchain does not seem to be going anywhere in finance. I have only seen a short paragraph description, but the claim is made that “…in the real world…” there is little evidence that blockchain is advancing in the financial industry outside of the crypto space. As the only apparent evidence offered for this Bloomberg points to a chart of Google searches on the word blockchain, and points out that these searches have been falling since the crypto bubble burst in 2017. Mr. Weisenthal expects that any resurgence of non-crypto blockchain adoption would generate a subsequent rise in search popularity, and therefore deduces that there is no such activity.
On the factual point of a falloff in search activity, he is undoubtedly correct. US-based searches were extremely high in 2017 and have plateaued at much lower levels since.
But is a peak in internet searches on a topic indicative of its relative importance? As an example, let us look to searches on the word Trump. As can be seen here, searches on this word peaked in November of 2016 when he someone by that name won a certain election, and have since fallen in a fashion quite similar to that of searches for blockchain, both now hovering around 20% of the peak (the data provided by this Google Trends tool measures interest relative to the peak value set to 100.) Despite this apparent fall in Google interest, one would be hard-pressed to suggest that this serves as evidence that the word Trump is not having a significant impact on our world.
That, of course, assumes that the importance of a topic, or its likelihood to drive change, can be measured by mass-market internet searches. While this is likely the case for consumer-driven topics, the adoption of new technologies is most often involves decisions made by industry specialists, with consumers only viewing the results. Given this one might not be surprised to see important topics seeing a spike in search queries when they are first released, then a falloff to a steady state as people become familiar with them. As an example of this particular to finance the example of FATCA comes to mind. While well known to American’s overseas (or anyone of any nationality trying to establish a bank account outside of the US) FATCA is hardly a topic most retail clients of financial institutions would think of, yet it is undeniably of continuing and great importance to any bank’s compliance and onboarding teams. Here though the falloff in search interest is even more severe.
Does this suggest that the importance of FATCA has in any way fallen off for global financial firms? Regrettably, no. It simply points out that after a peak level of interest further investigation necessarily dies down, and especially when the focus of attention shifts from the broad mass of the people to those who have a specialist interest in a topic, that fall can appear precipitous.
As one final example, consider the attention paid to Y’ue Bao. This is currently the world’s largest money market fund, with AUM of hundreds of billions of dollars. What is more, it has achieved this incredible position through its links to one of the world’s preeminent technology firms and a prodigious use of big data and analytics. There is certainly no lack of interest in what Alibaba has achieved with Y’ue Bao, yet using the proxy of Google interest the most recent month’s measure was zero.
There are several reasons for this apparent complete lack of interest. First, the unusual situation that Y’ue Bao is a powerhouse in China, and China is, of course, one of the few markets where Google is not typically used. Even were Chinese searches to be somehow included though the chart would probably appear similar to what all of the previous ones have shown — a peak of interest at the beginning, followed by an apparent decline. This decline does not necessarily (or even likely) point to a decline in the importance of that topic. It could simply mean that the broad, initial excitement has drifted off, but now the key decision-makers and business leaders are focusing on making things happen.
Here at Hex Trust we certainly believe, admittedly from a biased viewpoint, that the latter is the case for blockchain in finance. The recently completed Hong Kong and Singapore Fintech weeks provided strong evidence of companies using blockchain technologies to solve important problems. The greatest friction to adoption is the critical task of marrying the potential of blockchain technology to existing systems and processes. Banks, in particular, run old, intertwined, complicated technology that takes time to link to or replace. Blockchain will not be a revolutionary and instant change for finance, but will instead be a steady shift to greater adoption as these two worlds are bridged by firms like Hex Trust.
I could well be missing something in Joe’s argument (and if that paragraph I saw is based on a fuller article, then I clearly haven’t considered his entire thesis.) However, I suspect that the impressive-looking chart has steered him astray. Blockchain is indeed pushing ahead to change how the finance industry delivers services to its clients. It has an undeniable facility to improve the speed, quality, and accuracy of delivering financial solutions. If he has some spare time we would love to invite Mr. Weisenthal to visit us to see some of this first hand. Regardless though, we respectfully suggest that he look past the excitement factor measured by Google Trends and consider the broader range of signals detailing blockchain’s future in finance.
About The Author
Chris Lobello has more than 20 years of experience in Asian financial markets, in roles ranging from risk modelling to quantitative analysis to country and regional management.
As the Head of Strategy at Hex Trust, Chris drives the effort to meet customer needs by bridging blockchain technology capabilities and traditional financial systems. He serves as an adjunct professor and lecturer at several of Asia’s top business schools, teaching courses on decision making, risk management, business ethics, and of course fintech.
Chris also serves on various industry boards and committees, including several of the FTSE global advisory committees and his work as a board member for CQAsia, the Asian branch of the Chicago Quantitative Alliance. Chris earned his bachelor’s degree in physics and mathematics from Illinois Benedictine College and his MBA from INSEAD.
About Hex Trust
Hex Trust is the Asian leader in enterprise-grade custody for digital assets. Led by innovators from the institutional financial services space, Hex Trust has built a proprietary platform that delivers a modern custody solution for financial institutions, asset managers, and corporations to safely and efficiently operate in the blockchain ecosystem. ZeroKey(TM), a proprietary technology, enables seamless transacting and fast access to assets stored on multiple blockchains while maintaining the highest levels of security of cold storage solutions. As a registered Trust Company under the Hong Kong Trust Ordinance and holding a Trust or Company Service Provider (TCSP) license under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Hex Trust offers a truly end-to-end digital asset servicing solution. Visit www.hextrust.com to learn more.
Enquiries: media@hextrust.com
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