Like superstorms, there are few forces better at separating the weak from the strong than global financial markets. But just as the hurricane that struck cryptocurrency markets last year wiped out businesses that ranged from the tenuous to the apparently fraudulent, the collapse also clarified where innovations in currency, payments and markets may endure.
If you have avoided this subject as a colorful fad, you may feel smug at the collapse of bitcoin's price and the arrest of crypto's most colorful entrepreneurs. But the White House announcement Jan. 27 of a "road map" for better regulation underscores the promise that still lies ahead. Crypto markets so far have been dominated by day traders and bloggers, but what remains after the most recent shakeout looks durable enough that institutional investors need to start paying attention. Those elements of the industry that still survived will likely shape the future of finance significantly.
Yes, money moves just fine today. But if you have even passing engagement with the thick web of back-office systems, correspondent banking relationships and contractual commitments that undergird the current flows of global finance, you might agree that even incremental simplification can be transformative.
For more sophisticated, long-term and institutional investors, this creates opportunities in new business models that will take advantage of money that moves cheaply and securely, much like those that emerged when the internet began moving data in the same way. Some digital currencies will succeed better than others, which means the immediate targets will be those firms building the infrastructure for these new flows. For now, think the suppliers of "picks and shovels" rather than betting on the next new railroad.
At the same time, institutional investors will want to take a hard look at their own operations and where these technologies can give them an edge on lower costs and better margins.