With the emergence of new technologies and new forms of digital assets (like “crypto”) come questions and skepticism. What is the value of cryptocurrency? Is it here to stay? What’s the impact on my business and my clients? The fact of the matter is that there are still many fundamental questions that need answers and gaps that need to be filled before digital assets are more broadly adopted at the institutional investor level.
It’s easy to write off cryptocurrencies for a number of reasons. They are not backed by governments or supervised by regulators. Supply levels vary significantly and trade is conducted on new unregulated and illiquid markets. We have also seen significant price volatility, little to no investor protection, and very inconsistent, diverse regulatory approaches around the world. There is much for people to question given the general uncertainty about its legitimacy, the fear of fraud and cyber hacking, and the potential use by criminals.
So then what is cryptocurrency really worth?
Naturally, many people are skeptical, arguing crypto is a Ponzi scheme propped up by miners and speculators. Someone will be left holding the proverbial “bag” when it falls apart. Others are strong supporters, arguing crypto will wipe out existing currencies. Many just want to know what the heck a “bitcoin” is. Amidst all of this commotion and conflict, I think there is a very real opportunity for businesses to pause, watch, and study these digital assets more closely.
Right now, in my eyes, cryptocurrency is a spectator sport. Perhaps the greatest value cryptocurrency can offer to our business is what it can teach us about the emergence of new digital asset classes. The excitement of making a fortune from investing in the crypto market must be isolated from the true purpose and meaning of the digital and crypto business models and their underlying technologies. Why have these technologies come about? What problems do they seek to solve, and what new possibilities do they aim to create?
The market will evolve. There are now clear signs that regulatory and legislative changes are emerging, bringing greater market stability and investor confidence, so new asset types and operating models will challenge the status quo. As digital assets become more accessible and more accepted, businesses need to be engaged with industry, infrastructure and technology partners to contribute actively to crypto initiatives and developments, and potentially be ready to enter the playing field.
Agile, digitally-savvy Fintech firms have been actively looking to fill gaps that more established financial firms have not yet been able to address. To stay ahead, custodians need to establish guidelines around the servicing of cryptocurrencies and digital assets so that when the open questions are answered and the gaps are filled, they can step up to the plate and seize potential business opportunities.
I personally won’t invest in crypto because I can’t imagine that the overwhelming majority of the 1300 cryptocurrencies available today will exist in the future. That being said, while the jury is still out on what the real value of crypto is, we should take a closer look at what’s in front of us, understand why it’s here and what it means to us today and in the future.