People know that financial institutions think of cryptocurrencies as arch enemies. But with the increase of opinions from financial advisors that the world is on the brink of another financial collapse because of inflation, maybe digital currency are the solution to some of the problems. Although not perfect, digital currency are still developing and will have a far bigger impact that most people give them. So it wouldn’t come as a surprise when financial institutions end up adopting the technology they are so actievly against. For investors, adapting to circumstances has always been the correct way. Different people use cryptocurrencies for different reasons: some want to get rich quick, others want independent control over their financial assets and some idealists desire an entirely new and efficient global economy built on blockchain technology and digital currency.
Whatever a person’s reasons for using crypto and blockchain are, there will always be a huge cultural clash when cryptocurrency holders and Wall Street ideals meet. A huge influx of institutional money would be extremely beneficial for cryptocurreny prices in the short term, but in the long term this will cause extreme volatility. Recently the sixth-biggest fund manager in the world, Fidelity started to offer digital trading services and it shook the landscape even more. The announcement of this project was aimed at the trading demands of large institutional investors. These demands will in turn provide services like “institutional-grade custody”, large scale leverage trading and more, all of which should pump cryptocurrency prices, but will basically just bring more whales to the digital currency free market.
Institutional money will spike Digital Currency prices
People who believe or want to be financially independent from banks will not like this. In fact, most supporters and users of Bitcoin stand firmly behind Bitcoin’s philosophy that you can be your own bank. Developers and investors with insight however, knew that this day would eventually come. Risk management will see those institutions passing off the risk of holding the said assets to outside custodians. Whether cryptocurrency enthusiasts like it or not, an ever-increasing amount of the world’s digital currency holdings are in the custody of “middle-men”. It doesn’t matter if it’s a centralized exchange like Coinbase or a decentralized crypto exchange (DEX). Simply because exchanges don’t share the rightfully deserved criticism of banks and governments, doesn’t mean they are not third-parties. A lot of providers, which started off as crypto companies have now earned regulatory status as qualified custodians. This allows them to go after complacence-sensitive institutional investors as potential clients.
These turn of events created a sort of mania for Initial Coin Offerings (ICOs) and after-ICO sellouts, which were the main cause of the cryptocurrency crash. However a new form of crowdfunding emerged – STO. STO stands for Security Token Offering. It’s by no means as revolutionary as the Initial Coin Offering concept. The governance structure of “utility tokens” sold by ICOs include a cryptoeconomic model for rewards. STOs however, offer a digital version of more traditional assets like bonds and equity. It’s already being labeled as the “third crowdfunding revolution” by R3, the distributed ledger technology consortium founded by big banks. An ironic twist of fate, has the same group, founded by Wall Street companies and significantly downplayed the Initial Coin Offering market hype, now resort to use the very same crowdfunding language.
Digital Currency vs Financial Institutions
STOs will potentially have a huge impact, especially with smart contracts. They’ll help increase the efficiency of cap table management and potentially bypass underwriters in a more honest and direct issuer-to-investor model. Some experts are already speaking about the patterns of these developments. The new custodial and trading services, which are being offered by the biggest, regulated entities are all in preparation for the expected massive influx of new securities. These new securities will use smart contracts and blockchain technology to manage the transfers of more traditional assets. This is all done to welcome institutional investors for their entrance to the digital currency scene. For long term holders, this might be a good news, because the prices are expected to rise sharply. Some might even receive offers from wealthy investors, although this transition will definitely not go smoothly.
The biggest reason for Wall Street types to think of digital currency as a new asset class is because they want to add them next to stocks, bonds and their clients’ portfolios. The crypto community is dominated by retail players of different sizes, for now. When you buy cryptocurrencies you don’t buy a piece of land, you are buying your way into a developing idea. This idea is supported by a young, smart, growing community that would like see the very same institutions removed from the economy. The clash between both worlds will be interesting to watch, but also filled with a lot of investment opportunities.
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