Citi’s Chief Economist: Bitcoin a Complete Failure; Davos Elites Talk Bitcoin & Blockchain

The World Economic Forum discussion on financial services at Davos in Switzerland this week centered around popular financial technology, including Bitcoin and the blockchain.

While some of the Davos elite believed such intense focus on the emerging technology is premature, others believe the sector is swiftly growing and should be a consideration in the wake of the financial crisis which engulfed Davos discussions in prior years. Despite increased emphasis on rising payment technologies, the general feel for the global economy remained neutral to optimistic.

“If you look at the amount of capital, oversight, and approach to risk in the banking world today, I strongly believe that the banking system is a lot more solid than it was,” said Andrea Orcel, president of UBS investment bank.

“Trying to get the appropriate risk-adjusted returns from banks given the state of the economy, regulation, markets, and the necessary transformation of both business models and cost structures is a challenge — and competition is rising,” says Mr. Orcel.

 

The largest competition to mainstream banking comes out of the fintech space. Increasing the attention of digital currency at Davos was a recent International Monetary Fund white paper on digital currencies. The IMF demonstrates such markets are still very small in scale (a paltry $7 billion in market value compared to the $1.4 trillion value of US paper currency in circulation). The global body did confirm they are growing so fast policymakers and bankers need to start educating themselves on the innovations in payments. Major banks have entered into the digital currency space by designing their own fintech solutions. Still, there are diverse opinions on nascent payment technology.

“We know that bitcoin itself is a complete failure and shows the number one law of programming and software: that anything that can be programmed can be hacked. So nothing is completely secure,” said Willem Buiter, Citi’s chief economist.

The cyber boys . . . they believe that this is something that can just work on its own and allow a seamless web of costless transactions across the world. Forget it.

Executives from Morgan Stanley, Deutsche Bank and the International Monetary Fund said  that Bitcoin was still a nascent technology and still posed risks for consumers, and technological hiccups preventing its mainstream adoptions.

“It’s not going to change everyone’s life tomorrow,” said James Gorman, the chairman, and CEO of Morgan Stanley.

“I wouldn’t be so worried,” said John Cryan, co-chief executive of Deutsche Bank. “Blockchain technology is interesting. Bitcoin, I don’t think is.”

Since the theme of this year’s Davos is technological innovations, it makes sense fintech and Bitcoin were at the center of discussions.

“If you’re going to be in the finance business, the finance regulation should be the same for everyone,” says Cathy Bessant, chief technology officer at Bank of America. Ms. Bessant believes banks need to make their move to the cutting of the banking sector, including new fintech innovations. A top MasterCard executive told Business Insider at the World Economic Forum that the company was “very, very interested” in the technology.

“Like the rest of the world, we’re interested in seeing where blockchain technology goes, and that’s why we invested in DCG,” Garry Lyons, MasterCard’s chief innovation officer, told Business Insider.

“It’s connected to 15 different others and they have their fingers in the right pies, so we’ve got the right engagement right now to see people experimenting with the underlying tech,” Lyons said.

It’s not just the industry that’s excited about blockchain — it’s the world, everyone. Even at Davos, every single tech panel I have gone to mentions blockchain, and some people call it the second coming. But while we think it’s very interesting, we don’t want to, and no one wants to, be blindsided by rushing into it.

Other topics touched on at this year’s Davos includes Britain’s role  in the EU, the risks of a downturn in the Chinese economy and differing stances on the EU refugee crisis. Significantly, leaders also spoke about a possible collapse of the European Union  due to several concerns facing its members collectively.

Images from Shutterstock.