This Finadium report looks at how much big capital markets players – banks, custodians, asset managers, hedge funds and institutional investors – should get excited about crypto as a business model extension. Aside from the bragging rights of telling your neighbor that you trade bitcoin, is there enough meat on the bones of the nascent crypto industry to make it interesting to get involved? Some firms have already publicized their actual or pending participation, but should every firm be launching a crypto desk and facilitating ICOs?
Cryptocurrencies and Internet Coin Offerings (ICOs) continue to make waves in the minds of investors and in the popular press. Bitcoin, the most notable of the cryptocurrencies and generally considered the first in existence, competes with ether, monero, stratis, ripple, litecoin dash and more for investor attention and a search for functionality in transactions. Valuations of the leading currencies have gone through a classic boom and bust cycle, jumping from $98 billion in September 2017 to $480 billion in December 2017, then falling to $170 billion in August 2018. This is a rise of nearly 500% then a drop of 65% as measured in US dollars. Still, the industry has grown by leaps and bounds in a short amount of time. This is a far cry from Bitcoin Pizza Day, when 10,000 bitcoins were used to purchase a pizza in 2008.
As the value of crypto assets fluctuate, they are being pursued by a well-known investor class in financial markets: hedge funds. Where there is volatility, there is opportunity, and hedge funds have streamed into the crypto space. These funds in turn need service providers, which has pushed both crypto firms and traditional banks and brokers to broaden their offerings.
Crypto players and the traditional securities industries are each moving toward a middle ground that involves and engages both sides, along with their relative end-user constituencies, in a regulated crypto industry that mimics elements of the securities industry. This is where the big money is: if crypto assets can bring in major fund complexes like Vanguard or Fidelity through trusted service providers like Goldman Sachs and Citi, it untaps trillions in institutional investment and legitimizes both cryptocurrencies and ICOs as a genuine asset class. It remains to be seen however if the crypto space is attractive enough to generate this type of broad-based engagement.
This report should be read by securities markets participants evaluating their opportunities in crypto, and by crypto market participants looking to engage with large securities markets participants.
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