Namaste Yogis. Welcome to the Blockchain & AI Forum, where your technology questions are answered, mostly correct! Here no question is too mundane. As a bonus, a proverb is also included. Today’s question, comes from Oswaldo, in New York, and he wants to know what does Moody’s Investor Service (Moody’s) forecast for digital finance adoption in 2024 and beyond?
Oswaldo, you came to the right place. On December 14, the Decentralized Finance office of Moody’s released a report, titled: 2024 Outlook: Digital Finance Slowly, Steadily Moves Towards Interoperability and Standardization. The research was led by Christiano Ventricelli; here is the link: https://www.moodys.com/research/Decentralized-Finance-and-Digital-Assets-Global-2024-Outlook-Digital-finance-Outlook–PBC_1386273?cid=web-ntrnlbnnr-16640 Before jumping into their forecast, first let’s understand who is Moody’s?
Moody’s has been around since 1908 and it offers credit ratings, macro-economic forecasting, and several other services, including Investor Service. Moody’s produces research papers across numerous financial topics, including digital finance. With that short introduction, let’s examine Moody’s four findings.
Mass Adoption Will Need More Interoperability and Standardization. According to Moody’s, blockchain technology has numerous potential benefits, including greater efficiency and potential cost savings. Blockchain enthusiasts agree. I concur with Moody’s that until and unless blockchains reach interoperability the benefits of blockchain may not materialize. What Moody’s did not say, but I will, is blockchains need a “Wi-Fi moment”. Imagine if Wi-Fi was not seamless and users had to switch constantly to maintain a connection? What a mess! This is the state of public blockchains today. There are bridges under construction to connect blockchains, but most are too tiny, weak, and not suitable at enterprise scale.
Asset tokenization will keep growing, but reliable digital cash options remain elusive. Yes, asset tokenization will result in convergence between traditional and digital finance. Agreed. And, yes, it’s true there are tech and regulatory risk considerations. However, I part ways with Moody’s regarding digital cash adoption options. Moody’s believes Central Bank Digital Currencies are better positioned to be a secure form of digital cash over stable coins. In the USA probably true. However, across the globe government creditability on matters of monetary policy is at rock-bottom; hence, let’s withhold judgment.
Cryptocurrency market’s revival hinges on monetary policy and service operators’ regulatory compliance. There are dozens, perhaps hundreds, of industries whose viability hinge on monetary policy. Cheap money is positive for crypto, and all assets. What drives crypto goes beyond interest rates and monetary policy. Crypto is also an ideological movement. Crypto enthusiasts want a new monetary policy–an alternative that Jerome can’t control. Hence, suggesting the crypto market hinges on traditional finance is missing the point.
As former federal bank regulatory compliance officer, I am unaware of any industry that can operate at scale outside regulatory compliance other than organized crime! Holy criminal enterprise, Batman! Hence, the findings are not surprising. And yes, crypto needs clarity. Is it a security? Is it a commodity? Etc.
Digital asset regulatory frameworks advance, though regional differences will persist. Bingo, Moody’s is on target. Europe, Singapore, and the United Arab Emirates are all establishing regulatory clarity. Therefore, regional differences will arise in crypto as they do in traditional securities regulations. The U.S. Securities and Exchange Commission (SEC) is expected to approve a spot Bitcoin ETF soon. An Ethereum spot EFT is on the horizon. The SEC recently sued Coinbase, the largest crypto exchange in the USA, for selling unregistered securities. Between the Coinbase case, and the 2024 Presidential Election, clarity maybe on the horizon.
I close with a proverb from Moldova: Wine is a traitor. It starts as a friend and ends as an enemy.
Until next time,
Yogi Nelson
Blockchain & AI Forum 