The Big 4 in the hot seat, Part II: Opportunity gaps, the institutional wave, and bear market resilience

Following last week’s coverage of the Big 4’s plans to take on blockchain, we end the series by sharing their thoughts on the future. Where do they have skin in the game and what do they think is brewing on the horizon? We summarise their thoughts in a reconstructed quick-fire Q&A.

Are institutions coming?

Yes.

The good news is the Big 4 all agree institutions are coming. Eventually. But there’s no denying it’s been prematurely over-hyped.

“We were expecting more institutions to come. We spoke to our clients and expected a certain level of interest,” said KPMG’s lead Kiran Nagaraj. “In 2018, I think people were overly optimistic. I think it’s still coming [and needed], just perhaps a year late or so... While the price action is clearly bearish, it’s not necessarily a measure or reflection or where the space is.”

He added:

“These things take time. It needs a certain level of infrastructure and service...I am hoping that the institutional promise kicks in [in 2019]. That creates trust, that creates scalability. ”

EY also hinted they were not surprised that financial institutions – which make up most of their client base – got cold feet.

“Only about 25% of companies have working products a year after ICO. In the world of IPOs, it's almost unheard of for a company not to have a product, especially a tech company, in time for your IPO,” EY's lead Paul Brody said. “I think the market has to flip around...When we get back to an era where 90 to 100% of offerings meet these standards, then I think investors will come back.”

Brody also said crypto has to focus on two other standards, beyond having a working product; 1. Give explicit rights and responsibilities to token holders, and 2. Get the infrastructure that supports both security and privacy.

Deloitte leans towards agreeing with EY in terms of expecting a longer institution time frame.

“What we need is a little bit of patience,” said Linda Pawczuk. “I think we're going to see some significant shifts in the next 5 to 10 years,” comparing the space to the likes of Amazon, which boomed from a book supplier to a “massive distributor.”

“[Institutions] do care about digital assets…But it’s still less than 1% of the total capital of the world,” she emphasised.

Still, PwC rationalise that blockchain’s potential benefits – namely providing “faster, better, cheaper” services – means adoption in trade finance is in the cards “this year.” Indeed, predictions show blockchain could drive a $1 trillion boost in trade alone over the next decade.

But, its lead Steve Davies emphasises, that doesn’t necessarily mean all banks will get behind the tech, and notes there isn't "homogeneity" around institutions' current outlook, having met some organizations whose leadership clearly "wants it to go away.”

He also warns that the lack of corporate collaboration in the space so far has been a large factor in its delay. He calls this the "consensus conundrum: The need to get everybody together to agree on something and to a very deep level." 

What do you expect for 2019 and the bear market?

By all accounts, to every journalist’s dismay, this year is going to be slow in crypto, according to the Big 4.

“The coming couple of years are going to boring. I personally think that any idea of some kind of quick [price] bounce-back is ridiculous,” says EY’s Paul Brody, which the company’s board and its clients are reportedly comfortable with. “You’ve got to have something substantive to invest in.”

“Fatigue has set in,” agrees Deloitte’s lead. “Everybody built a shiny object and they're not spending time re-thinking what the business model looks like,” she said of crypto companies who may find themselves in troubled waters now.

KPMG take a slightly more creative approach, anticipating changes in the crypto space beyond the bitcoin boom.

“We are starting to watch for the pivot [unexpected outcome]. Bitcoin is just a combination of 4 or 5 things. A different combination of that is called stable coins, [or] tokenized offerings. Those pivots, we are watching closely,” says Kiran Nagaraj.

“You don’t have to adopt bitcoin the way it was designed,” drawing on the Facebook analogy which started as a dating site before inventing the social media paradigm.

PwC’s Steve Davies added:

“We came into this year looking at it as more of a head's down or the chance and the opportunity for the blockchain community to get its head back, to start to work on some of the solutions that have been going on in the background and to throw a spotlight on those.”

He also noted that while the crypto hype may be dampened, PwC’s clients could use the slow-down to get the word out to the masses, and more importantly, to focus on real-life use cases rather than price.

“I think one of the challenges blockchain has and still has is its messaging…There is a lot to do around explaining the story better around what blockchain can do and the power of it,” says Steve Davies.

Finally, what are you excited about?

In terms of seeking out untapped opportunity, for Deloitte it’s firmly about enterprise blockchain.

"This is [triggering a] complete re-definition of a business model,” says Pawczuk. “It is about data and it is about solving for the adjudication of information and looking for a material opportunity around the efficiency layer.”

For PwC, blockchain’s best asset is its ability to provide supply chain verification and reduce inaccuracies or fraud – where relevant and necessary. And for Davies personally, it’s blockchain’s potential to change the world for the better, including refugee tokenization and better aid dispensation, as well as the areas which “normal” people can see.

“It’s things that I suppose my mom or my brother could look at and say, "Okay. I understand this now. I can see what you have done." Those are the things that I think I'm really excited about.”

In terms of exciting geographies, KPMG says start at home.

“I’m pretty excited about the US, although it gets critiqued a lot. The US is quite open to business. The opportunity is much bigger, there’s a lot of potential unrealised.”

He’s also bullish on Japan and China. “Look at the size of their economy; I’m definitely watching China”

Lastly, EY’s Brody is particularly excited about two key areas.

“I think healthcare and life-sciences are a potentially huge opportunity,” he says, noting they’ve been slow so far.

He also looks forward to seeing global adoption of smart contracts, helping enterprises make secure transactions.