Digital Finance Is The Future: It Is Global And It Is Advancing Rapidly

Summary

• Binance, the world's largest cryptocurrency exchange, is really trying to secure its position in the world as it moves to get several sovereign wealth funds to invest in it.
• Binance wants to gain approval of banking regulators so as to be able to operate in a world that is dominated by central banks.
• Binance is showing that this rapid development is exposing the fact that the United States has fallen behind in its efforts to "keep up" with how finance is developing.
• Investors must keep up with these developments, not only for their own investment purposes but also to be up-to-date with how they manage their financial affairs.

Igor Kutyaev/iStock via Getty Images

There are two basic understandings I work with relating to the new world of banking and finance.

First, banking and finance are all about information. As the technologies associated with information growth and spread develop, the nature of money changes to build on these developments.

Second, information and information technology is spreading rapidly around the world. Therefore, digital finance is the future.

Right now, we are in the midst of another burst in the growth and spread of information and as this transition takes place, we are learning more and more about how information technology comes to dominate.

But, the spread of digital currencies and digital payment systems is just one part of the picture.

The creation of cryptocurrencies and their spinoffs is just another part of the rapidly evolving world of technofinance.

And, although the speed at which all this is taking place may be slowed down, from time to time, the advancements will not be stopped.

The real question concerns how this evolution will work itself out. Investors need a real-world example so as to understand how the macro-aspects of the industry can be understood.

The Growing Global Play

Binance is the world's largest cryptocurrency exchange. And, it is constantly seeking to expand its position. Right now, Binance is in discussions with sovereign wealth funds, talking with them about taking a stake in the company.

The reason for doing so is to help Binance improve its "perceptions and relationships" with various government regulators and supervisors.

The ultimate objective is to increase "trust" in what Binance is and what Binance can do. Binance wants to strengthen its case so that governments and regulators will sense the presence of Binance and will feel the weight that the company brings to the table in discussing the future.

Changpeng "CZ" Zhao, the founder of Binance, wants his organization to be a player in this future and is attempting to assemble all the cards necessary to be a serious partner with governments and regulators. He believes that who he works with, who invests in Binance, and what Binance can do will go a long way toward helping Binance establish and maintain its credibility.

Mr. Zhoa knows that he is going to have to have the regulators on his side and so he is doing almost everything he can to position himself and Binance to show regulators that he is someone they need to deal with.

In terms of "weight in the market," Binance is currently recording daily transaction volumes of $170 billion. This is up from $10 billion to $30 billion two years ago. The revenue run rate is "in the billiions." Binance is profitable.

The China Example

China has banned crypto mining and transactions within the crypto space. China is focusing solely on the digital currency being generated by its own central bank. China is still looking at competing with the U.S. dollar for international dominance.

Mr. Zhoa, however, believes that the market of the future is going to include more than just digital currencies supported by central banks. He believes that there is a whole other space available and this relates to the non-centralized cryptocurrency industry.

That is what Binance is shooting for and this is what investors need to understand. And, that is why Mr. Zhoa is moving to make Binance more regulatory-friendly.

China, which had been very successful in advancing the world of digital finance, along with companies like Alibaba and Tencent, has now moved on to focus on the central bank aspects of digital currencies.

Consequently. Mr. Zhoa is working to avoid being shut out of other geographic areas as nations advance in this crypto-space. The call is for more regulatory scrutiny and Mr. Zhoa wants other major countries with major central banks to get further engaged this year in the evolution of modern finance, and this includes Europe, Asia and the UK.

The United States

It seems as if the United States is moving a little slower than the rest, and this is important to understand.

On Tuesday, a group of federal agencies announced that they planned to begin, next year, to lay out how banks can legally "get involved in the growing field of cryptocurrencies.

Next year!

This group, composed of the Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency, represent the whole regulatory area of the U.S. government.

Next year!

"The emerging crypto-asset sector presents potential opportunities and risks to banking organizations, their customers. and the overall financial system."

"The agencies involved undertook what the statement called a 'policy sprint'... to broadly assess the field."

"Beginning next year, staff from the agencies will address the possibility of banks acting as custodians, faciitatinig consumer purchases and sales, making loans collateralized by cryptocurrencies and processing payments using cryptocurrencies such as stablecoins."

The Importance of Globalization

The U.S. regulatory agencies do not seem to understand how fast this digital transition is moving. This movement is a global movement. It is a movement that is going to happen. What we don't know is exactly how this movement is going to work itself out.

The major point is that the movement is going to happen. And, the movement is going to take place sooner rather than later. The United States, regulators and bankers combined, seem to be somewhat "out-of-sync" with the rest of the world.

What investors must focus on what is happening in the rest of the world and then compare this to what banks and regulators in the United States are doing.

Let me suggest to the reader two articles written this year that seem to capture this spirit.

The first is by Niall Ferguson and is titled, "Don't Let China Mint the Money of the Future." This piece appeared in Bloomberg on April 4, 2021. The other article was written by the economist Eswar Prasad, and appeared in the New York Times on July 22, 2021. It was titled, "Cash Will Soon Be Obsolete. Will America Be Ready?"

Both of these articles express concerns about the fact that the United States appears to be lagging in this space. In other words, the major advancements are taking place elsewhere around the globe and the United States has fallen behind.

Bottom Line

The United States needs to get going. And that is why investors should be aware of companies like Binance.

Digital is happening. Digital is the future. Digital is going to be here before you know it. Investment in the intangible is where it is at.

Investors need to keep abreast of this evolution because it not only impacts what they should be investing in, but it also is going to impact how their conduct their own money and investment management.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.