Blockchains and Digital Currency Wars: Implications of Counterparty Risk-Free Digital Assets for Capital Allocation

by John Dwyer, May 31, 2017
Industry Trends
Global

Abstract

This is the third in a series of three research reports investigating the impact of Blockchain / Distributed Ledger Technology upon movements of value and the capital markets.

Celent has released a new report titled Blockchains and Digital Currency Wars. The report was written by John Dwyer, a Senior Analyst with Celent's Securities & Investments practice.

We are witnessing extraordinary innovation impacting means for transferring value. This is creating a new digital asset class which can be moved on a peer-to-peer basis, with optimized settlement-cycles, thus reducing or even eliminating counterparty risk.

The next wave of digital assets could finance the architecture of a new decentralized Internet and, for those investments that are successful, are likely to generate financial returns which are unparalleled in nature.

Titled assets can be moved on a P2P basis with optimized settlement cycles and settlement finality.

These include permissionless cryptocurrencies, permissioned cryptocurrencies, and precious metals integrated on a Blockchain/DLT. Baby boomers turn 71 this year and will be legally required to begin taking Required Minimum Distributions from their retirement assets.

The impact on volatility, liquidity, and overall capital allocation as baby boomers monetize their retirement assets will be a key period for the capital markets to digest.

This is coinciding with the emergence of a new digital asset class which can offer extraordinary upside. Financial institutions need to think very carefully and creatively about how they tailor their digital strategies to address these key trends.

“The extraordinary price action of cryptocurrencies cannot be ignored. These remain high-risk assets given the issues around Proof of Work, 51% attacks, and privacy, among other issues. However, a combination of asset, monetary policy, and technology trends are converging which are redefining the global financial system. The Enterprise Ethereum Alliance is one very good example of how enterprises are actively engaging with this ecosystem,” Dwyer commented.

“We are in the early stages of a new wave of digital assets which have the potential to create, transfer, and even destroy enormous amounts of wealth. The theme of Decentralization is going mainstream, and its impact is going to be profound,” he added.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Highlights

1

 

Key Research Questions

3

Introduction

4

 

Currency Wars 1.0 — The Great Depression

4

 

Currency Wars 2.0 — The Great Recession

4

 

Currency Wars 3.0 — The Great Decentralization

4

Digital Assets

6

 

Permissionless Cryptocurrencies

6

 

Permissioned Cryptocurrencies

9

 

Enterprise Ethereum Alliance (EEA)

10

Micro Gold

11

Counterparty Risk-Free Digital Assets

12

 

The Digital Asset Spectrum for Value Transfer

13

Baby Boomers — The Digital Asset Tipping Point?

15

 

Required Minimum Distributions (RMDs)

15

 

Calculating RMDs

15

 

Demographic Picture of the United States

16

 

Disadvantages of Agile Methodology

17

 

The Biggest Short-Fall Trade Ever

18

 

Snapshot of Baby Boomers and Retirement Assets

19

Global Capital Allocation

19

 

Financial Asset Pyramid

19

 

Innovation by Asset Class

20

 

Key High-Level Takeaways

21

Digital Strategy Implications

23

Concluding Remarks

25

Leveraging Celent’s Expertise

26

 

Support for Financial Institutions

26

 

Support for Vendors

26

Related Celent Research

27

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