Cryptocurrencies have no or small correlation to traditional financial instruments and that is a big thing for an investor following principles of modern portfolio theory. Recent paper by Seng, Silva and Saerbeck investigate hedging capacity of cryptocurrencies… and find that they can be useful despite the volatility.
According to modern portfolio theory the only free lunch is diversification: the less there is correlation between instruments in the portfolio the better. Investor seeks for the best risk/return combination. As traditional financial instruments are increasingly interlinked and have limited expected returns at this point of time, investors seek for alternative investment targets. Cryptocurriencies could be one alternative (roughly the same goes for VC funds and non-listed start-ups by the way).
Well there is a big if though. It is the fact that cryptocurriencies are not financial instruments. So legitimate investor might find it difficult to invest into them. Never mind the volatility and security issues in cryptocurrency exchanges.
…But opportunity to diversify investments is lucrative indeed and serves as a driver to expand the horizons of the financial system.
Excellent paper by Bolton and Huang (see here) about Nations and the role of fiat money a.k.a currency as equity of a nation. It follows the path of applying principles of micro economics to macro economics and does it well.
However the paper applies to me as an individual, too. I have income, assets and debt just like firms and nations. I have equity too: human capital, assets etc.
So I want my own currency. I will do my own ICOs (initial coing offering). My currency will be trustworthy and tradable since I go to work, earn income, I have assets to back up my coins. Holders of my currency will trade my coins to other currencies like Euro/USD/Bitcoin/Yen/whatever-you-choose-to-currency. I promise to buy back my currency, sell my assets or give my assets to those who claim. Or I can buy lender-of-last-resort services as an insurance. I need to be very careful with the issuance of my coins. Too much coins leads to collapse of the value of my currency (just like currenciens in the analog world). And all my start-ups will have their own currencies and they are tradable in algorithm-based liquid global currency markets. And so will be everyone else’s currencies.
No intermediaries are needed. I pay with my coins which value equals the economic strenght of my existence. Naturally when I work for someone else’s firm I can accept its coins as a pay-off. However I need to consider the bankruptcy and other risks (of which the analysis is provivded to me by my AI assistant) and then I trade it for food/clothes/whatever-I-choose-to-currency.
Euro (or USD for that matter) as a currency gave us scale-economies in an analog world. But in a digital world those economies of scale vanish because of full transparency and zero transaction costs.
Minimum requirements for the digital set-up to operate are the following: suffient data (check), computing power (check), market rules (not yet). Rules and oversight will be strict and fully automated. Difficult but totally doable.
Couple of years back I had a discussion with a colleague and friend. He was investigating blockchain, and was very enthusiastic already then. I was gloomier and said that virtual currencies / blockchain are not relevant because you have to change the whole financial system to make it work.
But now it happens in front my eyes. Bolton&Huang paper just gave a wording for a plausible vision for the next financial system. OMG.
Such a good reading in The Economist December 3rd 2016… All that is going on also happened just 100 years ago. The rolling 1920s with blooming international trade and wonderful inventions like telephones which were about to improve everything. But what followed was stagnation and protectionism, finally war. The masses reacted. The elite and intellectuals continued to underestimate the culture of common people and made differences between social groups worse. That led to rise of populist leaders and finally ”dictators in the name of people”. Well, the last one just died in Cuba. Time is ripe for the next ones.
History always repeats itself. Or have we learned anything?
Please stop judging and mocking Trump, LePen, Soini and others. Learn, hug, understand and love. Change is hard for us all.
We all desperately need insight and solutions to avoid that already chartered path to protectionism.
We live great times. All of the sudden there is so much at stake.
I had a discussion with my teenage son about all this. I asked that if people are afraid of all new stuff like Snap, FB, AI, Siri, Robot-cars and their jobs, wars, migration, violence, EU regulation, climate change and general insecurity what needs to be done. He said: ”make it simple that always helps if you are afraid”. There are two ways to make things simple
- Explain it and make it understandable
- Change it to be simple
I cannot explain digitalisation, migration, EU regulation, wars and climate change in a simple way. It is very complex. Thus the way forward is to make everything simpler. Like hockey players say ”keep it simple ”.
One alternative is to start simplifying things back to what they used to be like Trump tries to do in the US or May with UK Brexit to the extent it is possible, of course.
But then my son went on:” once you try something and it does not work, you must try something else”. Western world technocrats had a decade time to resolve 2008 financial crisis. They did not deliver. So we need to try something else. But let that be something else than war and protectionism this time, please.
Suurimman joukkorahoitustoimijan Lending Club:in toimitusjohtaja erosi tällä viikolla. Ruotsalainen Trust Buddy haettiin konkurssiin aiemmin tänä vuonna. Syynä olivat työntekijöiden rikkeet. Joukkorahoittajien toimintaa ei valvota riittävästi – vielä. Innovaation matka jatkuu epäonnistumisten kautta kohti vakiintunutta toimintamallia.
Ad Economics (Atso Andersen Economics) perustettiin vuonna 2006. Ajatuksena oli tehdä ”platform economics”-konsultointia, luennointia, tutkimuksia ja valikoituja projekteja. Vuosien aikana hienoimpia projekteja ovat olleet:
- APV-toiminta: Sijoituspalvelututkinto ja Sijoitusneuvojan tutkintoja on tehty yli 10 000 ja sijoitusneuvojien ammattikunta on muodostunut Suomeen
- Eläkelaitosten sijoitusmenestyksen vuosittaiset analyysit: todella mielenkiintoisia tuloksia ja vielä mielenkiintoisempi vastaanotto eläkelaitosten suunnalta
- Luennot ja koulutukset: kokonaiskuvan ymmärtämiselle on ollut kysyntää läpi vuosien
- Aivoriihet ja sparraus niin IT-talojen kuin eturivin finanssilaitosten kanssa
Ollut hienoja hetkiä kaikkien asiakkaiden kanssa! Tällä hetkellä toiminta on painottunut koulutuksiin sekä suomenkielisen sijoituspalveluita koskevan materiaalin tuottamiseen.
Jenkkien makrotalouspolitiikka siirtyi uuteen vaiheeseen. Ohjauskoron vaihteluväliä korotettiin 0-0,25% (nollataso) 0,25-0,5 prosenttiin.
Bloobergilla hieno tiivistys tilanteesta.
Suhteessa 1930-luvun suureen lamaan korkopäätöstä osattiin lykätä. Silloin etenkin koronnosto laukaisi konkurssikierteen ja loi massatyöttömyyden. Katsotaan miten etenee. Toivottavasti hitaasti.
9.10.2015 Arvopaperimarkkinoiden rakenteet ja tuotteet koko päivän koulutus Suomen Pankissa. 15 vuoden jälkeen ympyrä sulkeutuu ja onnistunut päivä vanhan työnantajan tiloissa!