Content adapted from this Zerohedge.com article : Source
While the wholesale disappearance of retail traders from stock markets is hardly a novel observation, it has taken on a whole new meaning in Japan, where the lack of carbon-based investors has prompted Deutsche Bank to ask if "Japan's stocks are still traded at all by humans."
As Deutsche strategist Masao Muraki writes, since the US presidential election, Japanese stocks (in this case the TOPIX index) have been almost entirely defined by just three things: US stocks (S&P 500), the implied volatility (VIX), and USDJPY. This is shown in the model correlation chart below.
And while some observers think that foreigners are buying Japanese stocks on hopes for Abenomics following the Lower House election, this aspect is not apparent in the Figure above according to Deutsche. Instead, according to the German bank, it is the 10Yr US yields that determine relative performance of Japanese and US financial stocks most directly. Additionally, interest rates, forex, and option prices (implied volatility) are defining absolute share prices for Japanese life insurers and banks, as shown in the charts below.
Furthermore, while financial institutions delivered some surprises in earnings announcements and shareholder returns and major developments took place in bank and insurers capital regulations in 2017 too, Deutsche notes that it "cannot find any indications of active change in allocations to life insurers and banks by investors due to these factors."
These observations prompt Deutsche to ask "a basic question", namely "whether the power of price decisions for Japanese stocks (particularly financial stocks) have shifted from people to algorithms or AI." Some additional thoughts:
Shift to passive fund management has accelerated, partially due to the impact of the Department of Labor's fiduciary rules, and the trading share of active funds, which follow decisions led by human, is declining. With reduced influence, active funds appear to be focusing on sectors with drastic fundamentals changes (such as technology sector). In fact, more than 70% of inquiries from overseas equity investors to our insurance, securities, and other financial sectors team in December were about SBI, which indirectly owns cryptcurrencies. Reduction of active management costs due to MiFID2 might accelerate this activity.
And since Deutsche is clearly correct that increasingly more, if not the vast majority, of trading decisions and execution has shifted from humans to machines, the outcome is concerning, because as the German bank notes, "if the price formation based on model is prolonged, the gap between price and fundamentals will be wider. Thus, stock price correction may occur periodically."
Yet while Japanese equities may no longer be interesting to local humans, the same can not be said for bitcoin, where as the same DB strategist "discovered" two weeks ago, it was mostly "Mr. Watanabe" trading the world's most popular cryptocurrency:
An 11 December Nikkei report stated that 40% of cryptocurrency trading in Oct-Nov was yen-denominated. Japanese traders have reportedly come to account for nearly half of cryptocurrency trading since China started to shut down cryptocurrency exchanges, and this is said to be widely known among industry insiders (various estimates exist). This report shows that Japanese men in their 30s and 40s who are engaged in leveraged FX trading (or who used to trade but have stopped) are driving the cryptocurrency market.
This in turn prompted us to wonder, tongue-in-cheek, if Bitcoin wasn't a secretive ploy by the BOJ - which has had a far more permissive approach to bitcoin cryptocurrencies than its central bank peers - to boost Japanese animal spirits, which had been squashed by three decades of chronic deflation and disenchantment with rigged equities. Today, Deutsche Bank poses a similar question when it asks "Will Bitcoin ignite the "speculative spirit" of Japanese people?"
Reveal spoiler
We will be closely monitoring the risk-taking stance of Japanese retail investors in 2018 in light of the management of ¥900trn of the ¥1,800trn as deposits in overall personal financial assets. Japanese retail investors eagerly purchased certain assets at prices with little support from fundamentals during the bubble period in the 1980s and the IT bubble period around 2000. Symbolic choices were NTT shares that listed in February 1987 for the former and Hikari Tsushin shares that listed in 1999 for the latter (Figure 1).
** **
The emergence of "Bitcoin wealthy" might ignite the "speculative spirit" of Japanese people with strong follower aspirations.
Taken to its extreme, encouraging speculation in bitcoin - and in general any asset that is up over 15x YTD - would be a perfect way to rekindle not only animal spirits, but Japan's reflationary impetus. One can see why the BOJ could, if not would, be behind such a "wealth creation" mechanism.
Finally, as Deutsche accurately points out, "of course, speculation at prices with flimsy fundamentals support unleashes strong backlash once asset prices weaken. Overly leveraged trades, in particular, are a concern. Cryptocurrency prices plunged on 22 December, and we think this impacted retail investors using margin trades."
Well, not really, because the December 22 plunge is now long forgotten, and the real question one should ask is whether the Bank of Japan had anything to do with the sharp rebound in bitcoin which plunged as low as $10,500 last week before surging back to $16,000 earlier today...
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The financial world will be more and more automized on the big money, so that we´ll be mostly looking at prices determined through bots and AI instead of real human investments. That´s at least my opinion on this topic.
Regarding BTC I´m pretty sure that big organizations already got their fingers in the game and are affecting the price actively eventually. We won´t know for sure but the suspicions aren´t too far fedged I guess...
Blockchain is going to obliterate the financial sector....it already is happening.
The BOJ sidling up to Bitcoin is no surprise. Just wait until an outfit like BTS really gets some steam going forward. The pace that it destroys entities within the financial community will be astounding.
In a couple years, you will see a lot of empty building that use to house financial institutions. This process started a decade ago with FinTech and it is only accelerating.
True, True & True. People are looking for more freedom and control regarding their financial decisions as well as less influence from the top. BTS will for sure be a major player very soon whenever people start moving in while leaving centralized exchanges.
Yes I was thinking that even the hedge fund guys could be drawn to decentralized exchanges....
They cannot like all the regulation and looking over their shoulder.
Those guys are looking to skirt every corner they can...decentralized exchange seems like their paradise...especially once they can get on there with a degree of anonymity.
big money able to act without leaving a trace mostly doesn't mean anything good to happen though...
Other than wealthy people learning not to trust those sharks.
Sometimes the only way to learn not to touch the stove is not to touch the stove.
Awesome comparison 😂
I don't think that it will happen that fast. Financial institutions have very powerful lobby's and they will not give up without a fight. With the money they have - it will be bloody. The revolution will happen, but it will take a lot more than few hundred thousand people trading crypto to make some $. Most of them don't really care about the fundamentals. We need a far more informed community, so we can fight the big guys
It isnt crypto that is going to wipe them out...it is blockchain...and there are millions involved in that...some very big players with interests opposing the banksters.
This is the key...that is why something like BTS and decentralized exchanges are so dangerous....do you think companies like paying huge fees to go public...or to garner financing...or having the feds watching over them....
A lot of this changes and it isnt because there are joes like us using crypto...that is the tip of the iceberg. Our cup of coffee or measly phone bill means nothing...what means a lot is the 80% of the money that still goes through the banking system...things like payroll and money sent to suppliers....that is the big bucks where 2% or 3% means a great deal.
Even so, it won't happen that fast. Also banks are building their own blockchains, so we will see where they come at in the end. They are smart, we shouldn't underestimate them.
I think you will be surprised.
3 years is a lifetime in the world of technology these days. And yes the banks themselves are implementing blockchain...to cut their clearing costs in hopes of increasing profits.
However, that does nothing to lower the pricing for their customers....and when you see what some of these corporations pay in fees, once there is a viable alternative, they will jump at it....
Corporations have just as much greed as the banksters.
Bitcoin has little to do with it.
The Japanese economy is a fine example of fascist economy.
Worse than the US', and preceded only by the likes of China and Russia.
The Japanese government and central bank took charge of its stock market long before Bitcoin existed.
It did have volatility in recent years, but I think that volatility was the Japanese stock market bull throwing the last human riders of its back.
Now it is almost entirely the government.
Whatever AI is left riding it, is partially still privately owned, which in Japan is government owned too.
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the adoption of a digital/gov fiat in your country, that would lead to a one world currency. Game over. They win. It's brilliant marketing, if you think about it; appeal to the idealism of youth Millennials with a script of bad bankers, the bad/evil system, throw in some bank for the early adopters, and the rest will literally stampede/walk over the others to get their piles of fiat. It is exactly the same script they use to get volunteers for their wars. Only an idiot would think they have a long term advantage big enough to overcome trading fees and taxes.
I got a secret information in 2018 or will the bitcoin price increase?
thanks for share
Nice post.
we moving toward the future, this is hilarious too
This isn't surprising, I have been saying and I would continue to say we are moving towards a tokenized economy... These yields are far greater and investors stand a better chance of multiplying their investment... The Stock market would still be around for some time but it would struggle attract retail investors....
Its wise for these owners of exchanges to invest some money into one of a few of these exchanges to continue to build their base moving forward..
Humans proved over the centuries how poor they are at handling power and that they are even worse at making decisions. People complain about how AI and computerization is taking over things yet, ironically, the world is becoming a better place when you look at metrics such as poverty, starvation, and infant mortality rates. Even the advancement in war capabilities means less people are dying in wars (look at all those killed during WWII versus the "War on Terror" which has gone on twice as long with a lot less deaths.
Automation is always better for society...the only downside is it kills jobs.
Blockchain and other technologies are going to clean up the corrupt financial system. The entire system is rigged which is bad enough...then you add in unethical, profit seeking people who lie, cheat, and steal.
Time for them all to go....and that time is coming.
Thanks for your crypto news @zer0hedge