Last day is really only a half day, but with interesting sessions. Finally, there was a solid FinTech presentation about cryptocurrencies and then HE came, the one and only, Daniel Kahneman. That was the perfect end of a good conference.
By Kenneth Brandborg, Partner | The 17th of May 2018

Hitchhikers’ guide to the cryptocurrencies

In the cult novel ‘The Hitchhiker’s Guide to the Galaxy’ the equivalent to cryptocurrencies is 42. the answer – but as in the novel it seems that the question has been lost or never really asked.

Normally you have a problem, and then you find a solution. During the presentation by Sandra Ro, it occurred to me that for cryptocurrencies it has been made backwards. At some point someone invented a cryptocurrency, and now everybody is looking for a problem it should solve. Steven Eisman asked one very good question during his session: “The currency market is the most liquid one in the world, so what do cryptocurrencies actually add?”. A very simple question, but I didn’t meet anybody who could answer that question. Actually, the more Sandra explained, the more it seemed that the issues that the cryptocurrencies stumble upon are precisely the issues that are solved by states, bank and regulatory authorities for normal currencies. So, the cryptocurrencies are in need of the very same components that they try to make obsolete.

There is currently so much hype on the subject and when one of Sandra’s most used arguments were ‘there is a lot going on in this area’, I get skeptical. Tell me what is actually going on and why. To be very precise: My skepticism only concerns cryptocurrencies. The infrastructure they are build upon, blockchains, is so mainstream, now it is used wide across the industry, and almost doesn’t qualify as newtech anymore.

Two in a row

Last year I was amazed by John C. Bogle, a man with multiple decades of experience, but still having a sharp and forward-looking mind. This Year Daniel Kahneman played that part. His research within behavioral finance earned him the Noble prize in economics in 2002. Only one thing to say:” He knows stuff – the mind-blowing stuff”. He manages to describe over confidence in so simple terms, and still the concept is so complex, that we all are victims. Basically, our minds do not recognize bad decisions as long as we can understand and interpret the outcome we did not guess. That leads us to believe we know (almost) everything. In a profession were a lot of people makes a living from taking investment decisions on other people’s behalf, this is indeed a disturbing thought.

And there is a lot of other examples, where our rationality is not only questioned, but totally and utterly destroyed.

Does this sound depressing? Maybe, but luckily the last question answered by Kahneman was how to achieve happiness. You could think, that it would be a tough question to answer, but apparently it wasn’t. So here is the recipe for happiness according to Kahneman: “Ask for advise often. And ask someone who likes you but doesn’t care about your feelings”. If that isn’t a fundamental take out from a conference, I don’t know what would be.

Kenneth Brandborg, CFA, Partner in CMP

Kenneth, CFA charterholder, has worked in the financial sector since 2001 with focus on implementation and development of risk management, performance calculation and investment management systems within insurance, pension, banks, Capital Markets, as well as asset management.