Business and predictions in the digital age

By Michael Kodari, CEO of KOSEC – Kodari Securities

Decentralised finance (DeFi)

In recent times, de-centralised Finance (DeFi) has become a hotbed of new investor activity, yet increasingly, it is also facing mounting interest from regulators curious to understand and incorporate its benefits.

Generally speaking, De-centralised Finance (DeFi) is a concept emerging from blockchain utility, which uses decentralised ledgers of information to remove any prior reliance on central banking authorities. Operating through its own dedicated and de-centralised community of processors, a blockchain DeFi project provides immutable security and fast transaction ability to its network of users.

By ‘removing the middlemen’, DeFi protocols confer a higher degree of efficiency when it comes to transacting value. DeFi also confers greater transparency for financial transacting and holds the potential to enable greater access to financial services amongst the 1.7 billion people without bank accounts.

As a relatively nascent technology, blockchain ledgers have raised questions as to whether the anonymity it provides would serve only to attract illegal activity. Similarly, a DeFi protocol would also present as a platform through which dubious financing could be carried out without a central authority to vet against it.

As an exciting and novel idea, DeFi protocols have seen a rapid uptake among cryptocurrency investors and enthusiasts. However, this interest has garnered just as much attention from market regulators, especially in the case of national bans on cryptocurrency trading, as seen within countries like India and China.

NFTs

It seems everyone is getting excited about non-fungible tokens, or NFTs. To appreciate what NFTs will mean to business, it’s worth first getting an understanding of the technical elements and where the market is right now. Put simply, an NFT is a token that is a certificate of authenticity attached to a unique digital file, like a digital artwork or a digital version of a sneaker or almost any other digital version of an object. When someone purchases an NFT artwork or other digital entity it’s recorded in a blockchain database where they’re identified as the owner of the digital good, or token.

The NFT market is growing at an exponential rate, with unprecedented liquidity. The market for NFTs recorded sales worth $25 billion in 2021 and one NFT artwork alone fetched a record breaking figure of $69.3 million at a Christie’s sale. Even big brands like Coca Cola and Gucci are getting in on the action.

In traded NFTs, sales topped the $billion mark in a few months, followed by $billion per quarter and only then to be surpassed by $billion per month, according to data collected by nonfungible.com. Already sales have totalled about $11.8 billion in 2022.

However, in saying this, the market is more speculative and volatile than ever before. This kind of growth usually sees market instability, unrealistic expectations and even disappointments. Where business is concerned, NFTs can represent existing physical objects, whether it’s real estate or sneakers, or entirely new creations such as artworks, collectibles, sports memorabilia and other rare objects. Indeed it’s often sports, like the arts, where you find some of the newest trends being embraced — and monetised.

AI and trading

Algorithmic trading (or high-frequency trading) is an automated order execution program that buys and sells shares, according to pre-programmed rules that consider key variables like price, volumes and time. These rules even extend to keywords in announcements made on the stock exchange platform itself.

For example, when a computer algorithm reads the word ‘upgrade‘ within an earnings announcement, the program may instantaneously buy a pre-set number of shares within a pre-set price range, and in a pre-programmed time frame. Why? The reason is simple. The algorithm knows from assessing vast amounts of historical data released by companies who announce an earnings upgrade, that so-and-so company’s share price is more likely to outperform the market over the coming minutes, hours, days and weeks.

This outcome is statistically proven and is, therefore, reflected in the program logic that’s embedded in the algorithm. There are countless, similar examples involving, for instance, buy and sell trades by directors and management. This is because there is a proven, high correlation between these decisions by insiders and future share price performance.

However, the logic can be as simple as reacting to a price rise in a particular commodity, like iron-ore. In this instance, the algorithm may respond to the commodity price news by immediately buying a producer of that commodity, such as Fortescue. The converse applies if the commodity price were to decline.

AI in investment markets comprises literally thousands of these rules that govern investment and trading decisions. These rules are constantly updated as fresh, raw data is evaluated every day.

Putting the augmented in AI

Perhaps if not artificial intelligence, then augmented intelligence, could be the future role of algorithms in investment decision-making.

In this way, a degree of collaboration between artificial intelligence and human intelligence, without replacing human intelligence, may very well be the way of the future when it comes to investment decision-making.

As the saying goes, “Money never sleeps”. And so it would suggest that AI, in some form, is not only here to stay but may become a standard feature of investment decision-making in capital markets around the world.

Can anyone invest?

The key to building wealth is to embrace investment and asset management as an opportunity to feel empowered and not to fear it. Once you move away from the ‘uncertain’ and ‘fear’ factor, you can create powerful, life changing habits to strengthen your financial wellbeing for yourself and your family now, and for the future.

About Author:

Michael Kodari is the Founder and CEO of Kodari Securities (KOSEC), a leading provider of investment services to a substantial and diversified client base, including corporations and ultra high net worth individuals. With over a decade of experience in funds management and stockbroking, Michael has worked with some of the world’s leading value investors and financial institutions. A philanthropist and a prominent expert in the stock market, CNBC Asia has referred to him as “the brightest 21st century entrepreneur in wealth management”.

About KOSEC

KOSEC – Kodari Securities is a leading provider of investment services to a substantial and diversified client base, including corporations and ultra high net worth individuals. Established in 2010, KOSEC exists to empower and equip investors with the best investment opportunities, knowledge, tools and resources, as well as providing the highest level of product/service offering to help them make better and more informed investment decisions.

Find out more at https://www.kosec.com.au/