Morgan Stanley: “Blockchain Still Hasn’t Had A True Test”

Blockchain, FinTech, Innovation, Investing, Regulation | June 14, 2017 By:

Morgan Stanley research analysts have issued a white paper on the financial services sector, stating that blockchain is now “firmly in the middle of the proof-of-concept phase of development.”

The report also noted that there is not a “killer app” for blockchain, something which ‘we think is needed to kick-start adoption.”

The 43-page white paper is a follow-up to a similar treatise issued a year ago. The current release looks at five cases studies of blockchain use that aimed to improve efficiency, something that funds and securities firms will use to reduce headcount and expenses when blockchain is used to clear and settle transactions.

“Early signs are that this is a promising technology, but many of the big questions have yet to be answered, and it hasn’t been tested at scale in a complex, fast-moving business environment,” the paper said. “It is still too early for specific investment conclusions; however, progress is being made, and we may see initial parts of the  shared infrastructure emerge over the next 12-24 months.”

Morgan Stanley saw the years until 2020 to be a time when “shared infrastructure” emerges, with 2021 to 2025 the moment when “assets proliferate.”  Companies that were early into blockchain will reap the benefits of that foresight more than new entries inot the market.

Regarding cryptocurrencies, Morgan Stanley said it’s “not clear why cryptocurrencies are appreciating so rapidly (apart from the appreciation itself drawing in more speculation against a potentially inefficient ability to sell).” It noted that rapid appreciation is encouraging speculative formation of new currencies.

“Many of these new currencies don’t actually have use cases yet, but are intended to be exchange mediums for everything from virtual goods in games to banking mechanisms for products like marijuana where legal implications are not yet fully clear,” Morgan Stanley said. “ICOs are funded with existing cryptocurrencies, hence driving an appreciation circle—e.g., to support/invest in a new currency, one must buy and trade an existing cryptocurrency.”

The white paper also opined that bitcoin was being used in China to avoid monetary controls, which is why that government has been cracking down on mining firms. The legalization of bitcoin in Japan is driving adoption there, but there is no clear reason why Korea is also jumping on the cryptocurrency bandwagon, Morgan Stanley said.