Significant steps have been taken towards building mainstream infrastructures around blockchains and digital resources, writes Block.one President Rob Jesudason
The recent dramatic fall in the price of Bitcoin and other cryptocurrencies has sparked considerable debate about their future. Aggregating a previous strong downsizing at the beginning of the year, the decline was seized by detractors as further proof of a more permanent disappearance in cryptocurrencies.
This caused a real consternation in the market and 2018 could go down in history as the year when the heat came out of the cryptocurrency market, with an important re-evaluation of all asset class crypts. But if it does, it should perhaps also be seen as the year when both regulators and companies have taken significant steps to interact with cryptocurrencies, announcing what should be a greater adoption of this asset class as a legitimate reserve of value.
One of these steps is exemplified by the Gemini stivecoin launch in dollars from Gemini, an exchange founded by Cameron and Tyler Winklevoss. Marketed with the support of the US dollar, this new currency is overseen and regulated by the New York Department of Financial Services (NYDFS), which has been described as "the strictest regulatory regime of crypts"It joins a similar currency from the fintech Paxos company, which must also be regulated by the NYDFS, and the encrypted finance company Circle said it was also establishing a new "USD currency""As stated in the 16th Financial Times of 16 November, "Stablecoin is the next big bet in the cryptographic sector".When more regulated activities such as these come into play, the appetite for real institutional investments increases.
Away from the coins themselves, exchanges also begin to receive a normative blessing. Among them is Coinbase, a licensed and regulated cryptocurrency exchange that has demonstrated solid security standards. In May, it accelerated the adoption of cryptocurrencies by the institutions acquisition the Keystone Capital savings management company and is introducing professional-level trading instruments for institutional investors. In October, after his last round of financing, he was assessed a US $ 8 billion – a significant milestone for this thriving industry.
And among the same financial institutions there have also been positive indicators, which have taken this sector more and more seriously. Fidelity Investments – a fund manager with over US $ 2.5 trillion of assets under management – has announced the intention to launch Fidelity Digital Asset Services (FDAS), a subsidiary focused on cryptocurrency that will try to channel customer demand into Bitcoin and other cryptographic resources.
Meanwhile, Goldman Sachs became the first bank to create a digital resource commercial operation, while others include JP Morgan is Morgan Stanley they have made assumptions that suggest they are preparing to follow the example.
In fact, all indications point to the continuation of institutionalization as structural barriers fall to adoption. Globally, regulation is slowly but surely bringing clarity and transparency to the cryptocurrency markets. At the same time, custody and liquidity concerns are addressed: Fidelity's FDAS will include "custody" services for institutions, while Goldman Sachs and The Intercontinental Exchange (owner of the New York Stock Exchange) have also proposed solutions. The Bakkt service of the latter will offer "a scalable ladder for institutional, commercial and consumer participation in digital resources."
Another thing that the skeptics of cryptocurrency is missing is that in many examples on the financial markets, a price boom is often followed by a correction. The cryptocurrency markets have no reason to be different, and indeed the last strong drops in the crypt have been reflected in many other activities this year.
For example, significant volatility was observed in the share prices of Deutsche Bank and General Electric, the Turkish lira exchange rate and the performance of the Shanghai composite index.
The fact is that price volatility in 2018 was probably influenced by both the macroeconomic and geopolitical environment as well as the specific concerns of assets. With the US Federal Reserve raising interest rates and Washington on the precipice of a trade war with Beijing, uncertainty is causing the risk of going out of the markets in general. As expected, yields on 10-year US Treasuries have increased year on year.
Looking beyond these fluctuations, it is also useful to consider the pattern of how previous market corrections have taken place in recent years. After the collapse of dot.com at the turn of the century, we have witnessed a long recovery in the technology sector while today's technology giants of Google, Baidu, Facebook and Alibaba have settled. Likewise, after the 2008 financial crash, the stock market recorded a bullish run that has not completely eased. Some of the best performing companies in the last decade have been Internet companies, while others come from emerging industries such as biotechnology.
The lesson here is that key industries – and key companies – count and can withstand macroeconomic volatility, and the same can be said for financial assets. In fact, the point at which markets collapse is often the time when big companies find their way. For investors, it is an opportunity to identify the industries that will last and to support emerging global leaders.
At the moment, the companies involved with cryptocurrency and blockchain technology are part of an emerging sector. It is an industry whose potential to revolutionize digital commerce, improve security and protect identity has already stimulated markets. But the uncertainty remains around how it will be adopted in everyday life and how it can be regulated in order to allow it to prosper.
What is certain is that companies that provide answers to the application for adoption and work with regulators to arrive at meaningful frameworks will probably succeed. What is also clear is that the infrastructure that will put the blockchain on a stable growth trajectory is already taking shape. Blockchain is an industry that will last – and the foundations laid in 2018 will go far beyond the iron lining that endurance.