The capital markets industry saw significant and surprising changes 2017. 2018 will bring more of these changes and some new twists. Here are the 5 top trends to look out for:

1. Thar’s ‘gold in dat thar Bitcoin!’

People are rushing to get in on the Bitcoin “gold rush.”  It’s not only Bitcoin – the most recognizable of cryptocurrencies – but Ethereum, Ripple, Litecoin, and others. With futures exchanges bringing liquidity and reducing credit risk, cryptocurrencies are now a core holding in the portfolios of legendary managers.  Even the Bank of England is launching its own digital currency. New investment vehicles provide opportunity for early adopters to profit, and this gold rush is no exception. Flyer is ready, will you be?  If you are still a skeptic, you might want to take a second look at this new gold rush or else place a bet against these volatile new assets.

2. Blockchain technology is transforming all aspects of finance

Blockchain is the underlying technology of Bitcoin and other cryptocurrencies. In simple terms, blockchain is a distributed ledger system that allows multiple parties to share and validate data.  Instead of reconciling, your version of data is always in sync. 2018 will be a massive year for blockchain tech firms.  Secondary business models and an ecosystem of technology vendors and platforms have quickly evolved into significant use in Finance and other Industries.  If you think private industry is starting to change fast, you ain’t seen nothing yet.  Take a look at how your business partners and counterparties are moving to blockchainecosystems.

3. Artificial intelligence and machine learning are growing in importance

Outperforming your peers in searching for alpha is all about reducing your cost of information.  Extracting knowledge from data gives you an edge to improve performance. AI give access toknowledge from unstructured data, and thus provides a leg up over competitors.  If you are not already employing machine learning strategies, you need to catch up to your peers, because 2018 is the year when AI hype becomes a reality.  Check out this WSJ article.

4. As bond ETFs go mainstream, is active management worth the cost?

ETFs will provide the liquidity needed for smart-beta strategies in Fixed Income. The search for liquidity in Fixed Income has created opportunity for active managers to engineer ETFs that give investors easy access to trade Fixed Income.  Fixed Income ETFs are much younger than their Equity brethren, but already some managers are creating the equivalent of Smart Beta fixed income funds.  This is a big change.  Many question whether active management is still worth the added cost.  The answer will come when markets start to turn.  Will that be sometime this year?

5. Rules are for suckers, at least here at home

With the current political climate, US regulations are going by the wayside compared to the rest of the world, leading to regulatory divergence. Congress continues to chip away at Dodd Frank while Europe rolls out Mifid II.  Will you be able to take advantage of this divergence?

What top trend do you see in Capital Markets?

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