Money reinvented: digital assets go mainstream


Money has taken many forms over the centuries, from physical forms such as stones or shells to dematerialized bits and bytes. Money itself has no value except as a medium of exchange and unit of measurement.

Bartering most likely preceded money for easily tradable items such as animal skins and weapons that evolved to become a type of currency. Salt, which was a necessity in hot climates, has been used for bartering and a form of coin for centuries. The word salary derives from the Latin salarium, which was the money paid to Roman soldiers to buy salt.

The introduction of money in the form of coins brought a measure of standardization of transactions. Coins in a form familiar to us today were introduced in the Lydian region (now western Turkey). In 600 BC, King Alyattes of Lydia minted the first official currency, the coins were made of electro, a mixture of silver and gold.

The next significant development in the history of money was the introduction of paper money around 700 BC, when the Chinese switched from coins to paper money. The widespread adoption of paper money in the Western world in the 1600s certainly made life much easier, obviating the need to lug around metal sacks.

Shortly after the end of World War II, the world’s first top-up card was introduced. Although limited in scope compared to today’s credit cards, these cards became increasingly popular and led to the introduction of ATMs and debit cards. With the introduction of the World Wide Web, e-money and payment services were introduced and today we don’t need anything physical, just a stream of 0s and 1s, bits and bytes to conduct business transactions.

Before cryptocurrency there was M-PESA, a phone-based money transfer system created in Kenya by mobile phone provider Safaricom. About ninety percent of Kenyans have no bank accounts and M-PESA is used to deposit funds and transfer them to others as payments, on par with the Kenyan shilling, with low transaction costs. M-PESA requires no cards or terminals, instead uses the ubiquitous mobile phone. This use of day-to-day, readily available technology has been key to the widespread adoption of M-PESA. Mobile payments are being adopted increasingly rapidly in both emerging and developed markets, providing access to digital financial services as a low-cost alternative to traditional banking and payment infrastructures.

Popular forms of cryptocurrency are Bitcoin and Ethereum. Unlike other forms of currency of the time when coins were first minted in Lydia in 600 BC, cryptocurrency is decentralized, not owned by any individual or company. Bitcoin mining is a process similar to the production of one of the earliest forms of money, stone discs finely carved in limestone. Both processes require a lot of resources.

Cryptocurrencies create a decentralized repository of value separate from any government-backed fiat currency. With cryptocurrencies, the key issue is governance: ownership, transfer of ownership and transparency. A cryptoasset, on the other hand, is an asset in its own right and is fungible with other tradable assets

If the traditional use of digital money is about to take off, consumer preferences and needs are paramount, with fast, convenient, secure and cheap payment methods, including overseas payments to the fore. The “trust factor” is essential for digital assets and not just for consumers. To go mainstream and become a central part of the financial services industry, trust is also key.

Although central banks argue that there is no intention to abolish cash, the use of physical cash is decreasing as cashless payments gain ground. COVID-19 has given a boost to cashless payments.

Cryptocurrencies were initially developed to bypass the banking system, however, the next cash development will be the issuance of central bank digital currencies (CBDCs), which already exist for central bank counterparties. China leads the CBDC race and is already testing its digital yuan. China led the way around 700 BC with the introduction of paper money and it is fitting that China is once again at the forefront of smart currency innovations with the introduction of what will be perhaps the world’s first CBDC.

Central banks will not be the only providers of digital currency; global corporations, financial institutions and governments are exploring how to exploit its potential. PayPal allows users in the United States to buy, hold and sell cryptocurrency directly from their PayPal accounts, and Visa has filed a patent for their blockchain-based digital dollar. Facebook’s Libra digital currency struggled with abandoning some of the original members. Shopify, however, recently joined the Libra project. Amazon is gaining traction with a digital payment system, and more and more Big Tech and Blue Blood finance companies are coming on board.

As connected and regulated infrastructure connects to institutional and consumer applications for digital assets, with transparency and trust, trust in this asset class will grow on a global scale. On July 22, 2020, the U.S. Office of the Comptroller of the Currency (OCC) issued an interpretative letter clarifying the authority of national banks and federal savings associations to provide cryptocurrency custody services to clients. The OCC has specifically recognized the importance of digital assets and the authority for banks to provide custody for those assets since 1998. The July letter simply concludes that providing cryptocurrency custody services, including the holding of associated unique cryptographic keys to cryptocurrency, is a modern form of traditional banking related to custody services.

Digitization is now fully underway, irreversible and accelerating. The financial instruments will be fully digitized. Digital assets are increasingly being adopted by investors globally. Of paramount importance for the market and of prime importance for attracting money from institutional investments, which is the new Holy Grail of cryptocurrencies, are regulated and efficient investment products. In recent years, companies like CryptoCompare have built the data infrastructure to deliver these products. Charles Hayter, CEO of CryptoCompare, said: “Institutional-sized price feeds and benchmark rates are a crucial component in building products that are suitable for institutional investors. Over the next decade we expect to see the majority of resource allocations. by institutions through ETPs, ETNs and other regulated products “.

The father of the financial futures market is Leo Melamed, former president of the Chicago Mercantile Exchange. Léo Melamed, said Bitcoin is likely to become a new asset class and will attract major investors. “This is a very important step in the history of Bitcoin… We will regulate, we will make Bitcoin neither wild nor wild. We will tame it into a normal trading instrument with rules,” he told Reuters in November 2017.

In 2017 MV Index Solutions (MVIS) launched the first standard financial benchmarks for digital asset markets. These indices provide institutional-grade investment benchmarks to the largest and most liquid digital assets and are rule-based, transparent and investable. The MVIS Digital Asset Index family now includes more than 30 standard and custom indices and more than $ 500 million of licensed assets track an MVIS index. “We are proud to be the leader in the digital asset indices arena and are committed to continuous innovation in benchmarking the dynamic cryptocurrency space,” said Steven Schoenfeld, CEO of MVIS.

CME Group launched its first bitcoin futures product in December 2017, and Bakkt, backed by ICE, launched Bitcoin futures contracts in December 2019. These futures contracts involve a reliable pricing process that investors can rely on. .

Singapore Exchange (SGX) is partnering with CryptoCompare to launch cryptographic indexes under the SGX iEdge index suite. The new indices – iEdge Bitcoin Index and iEdge Ethereum Index – mark SGX Index Edge’s entry into the digital currency asset class. “The rise in sophistication in the digital assets industry has gone hand in hand with the rise in institutional participation across Asia,” said Simon Karaban, SGX Senior Vice President. “The timing of the launch is appropriate given the growing propensity of institutional investors in Asia to participate in digital assets as an alternative asset class.”

Towards the end of 2020, cryptocurrency investments are becoming mainstream among professional investors. Fund managers, specialist hedge funds and family offices are now active players with blue chip organizations offering enterprise-quality custody and trade execution services for digital assets. Exchange-traded Bitcoin monitoring ETPs allow professional investors to gain exposure to cryptocurrencies in a regulated environment and this is one of the drivers of the recent Bitcoin price hike and a significant step towards mainstream adoption of cryptocurrencies in the conventional financial portfolios.

In November VanEck launched a bitcoin ETN on Deutsche Börse.

“VanEck has a rich history and leadership in financial innovation. The company began offering active strategies in international equities (1955), gold stocks (1968), emerging markets (1993); it added passive strategies in 2006 and is emerged as the top 10 sponsors of ETFs globally. In this spirit, we are committed to experimenting with and supporting Bitcoin and financial innovation focused on digital assets. The company continues to lead in the construction and maintenance of innovative access vehicles, favorable to investments and attentive to regulations “. said Gabor Gurbacs, Director of Digital Asset Strategy at VanEck

It took ten years for financial futures in Chicago to take off. New markets and new asset classes were announced earlier. Some have been successful and others have failed, but this new asset class is well on its way to success. When Leo speaks, the markets listen.

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