Personal Wealth Management / Expert Commentary

Fisher Investments Reviews How Investors Should Think About Emerging Technologies

Fisher Investments’ Senior Vice President of Research, Michael Hanson, shares why emerging technologies—like AI, cryptocurrencies and central bank digital currencies—may not influence markets as much as many investors think, at least in the short term. Michael explains how when thinking about new technologies, investors should consider if they are in a stage where can be broadly adopted and used widely in a commercial sense. He explains how often, this can’t just happen overnight.

For example, it took decades for the internet to be set up and become a dominant force in capital markets. In terms of cryptocurrency, he shares how currently, the computing power and energy needed for global, widespread blockchain adoption isn’t available. He also discusses how the Federal Reserve is likely far from adopting a digital dollar. To Michael, emerging technologies present long-term problems and opportunities, but in the short term, shouldn’t worry investors.


Paige Tyson:

We regularly heard concerns this year, last year about the impact of new and emerging technologies like artificial intelligence, cryptocurrency and central bank digital currencies. What are your thoughts on these and how do they fundamentally shift how we think about investing, if at all?

Michael Hanson:

Barely at all. You know, I always get this ask this question because I love thinking about this stuff and I, you know, do a ton of talking on that. But we don't need to do a ton of talking because the answer is that it won't change capital markets in the short term very much at all. And I invite people to think of the irony of the question because it's become perennial. We've been asked this forever.

What are new technologies going to do to the capital markets and people not recognizing that that question being asked forever is the answer in itself. Technology loves to find its some of its first uses in capital markets, whether you go back to ticker tape, uses of computers, all those sorts of things, because there's money to be made. And where capital markets are, technology tends to flow. That's always been true, always will.

In fact, we should invite that. So instead of doing all that and talking about, you know, all these types of things, I would just ask clients to think of it this way. If you see a new technology that you somehow believe is going to be pernicious or could change things structurally, then you need to ask yourself, is it in a stage where truly, commercially or in a broad sense, it can be adopted and used in a wide way?

Because one of the interesting things that's a little bit of a breaker to technology, just moving as quickly as it does, is that when it gets into the wider economy or the world itself, it has to be applicable. You have to have the setup for it to happen. You know, it takes decades for the internet to be set up and become dominant as a force for capital markets, for example. These things don't happen overnight.

So if you take something like I or I'm going to take crypto in particular, the setup just isn't there for it. And so you can see it, some of it will seep its way into some of economic life, but not as much as you think. Why? Because crypto, which the blockchain technology behind it I believe is a is a really interesting and in some ways great idea just can't be widely used today. There's not nearly enough energy out there. We would need nuclear energy across the world being utilized in a big way, in order to have the real energy necessary to run a blockchain for the entire world. Let's just put that out there.

The second thing is, there's not nearly enough computing power. I would go so far as to say, and this is a little bit speculative, that we may need to get into something like the age of quantum computing, that type of a leap before you can actually run these technologies in such a broad way that they can just be done instantly, pervasively, the ways that we can think of all these things. And so. Just ask yourself those questions. And a lot of this stuff goes right back into the background.

On the question of digital currencies. It's a little different because some governments are talking about utilizing these, and it does have people, you know, somewhat concerned, and digital currencies are just going to be a tremendous double edged sword for society because on the one hand, they will bring greater efficiency, greater transaction fidelity and all the rest of that speed. On the other hand, there's going to be a decrease in privacy period because one of the reasons governments want to do it, of course, is they cite things like collecting taxes, all sorts of citing, you know, being able to track transactions for what they view as crime and so forth.

Well, that's going to lead to a decrease in privacy. Countries like China already do it. And sure enough, they do. It contributes to things like social credit scores and what have you. Places like the United States have talked about it, but talk is cheap. What the fed is doing is just some testing and they're writing some papers in their various branches, but they are very, very long way from adopting anything like that. If and when the time comes.

I still think it's many years away, perhaps even more than a decade. We'll be looking at it closely and how it does affect how banks do transactions and all the rest. But for now, it's just not something for investors to worry about.

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