The cryptocurrency market is expected to “go to the moon” once institutional investors join the ranks of high-net-worth individuals and hedge funds in the space. The current number of space based hedge funds is over 400.
While the answer to ‘when this will happen’ is rather blurry, the rationale behind why and how this will happen is rather clear. This could happen sooner rather than later. A number of self-regulatory advancements have been made. These have started to attract interest from institutional investors.
Self regulations appeals to the satisfaction levels of investors. It is a lot more than a marketing keyword. This move is likely to add stability and performance consistency to the market. The crypto market is rather volatile, despite being ripe for the large firms to bite on, the market needs better regulatory mechanisms. These mechanisms help in establishing the freshness and vitality of the fruit ensuring no pest attacks what belongs to the mighty institutional investors. Thus, systems are being reinforced to help achieve self regulation that boosts crypto to the moon and back.
2018 Welcomed a Dramatic Propagation of Security Token Offerings
Regulatory uncertainty around ICOs and the bad apples of the crypto market have taken the limelight since the emergence of initial coin offerings (ICOs) last year. Utility tokens (user tokens that are not designed as investments, therefore exempting them from federal laws governing securities) have dominated the ICO sphere.
Owners have failed to use utility tokens beyond an issuer’s platform. In terms of venture capital, most private assets are relatively illiquid, meaning investors face a difficult and costly time trying to convert these into cash. Or to sell their asset to a trader, due to a cult based demand of the ICO.
Security tokens aim to correct both of these failures. Unlike utility coins, security tokens digitally represent ownership of assets, meaning they are actual financial securities. Security tokens are backed by assets, profits or revenue of a company, providing liquidity to investors. Their underlying structure and intrinsic value addition builds a demand for them. This demand helps in raising sellers when need be. This makes trading smoother and coins more exchangeable.
Security tokens also add a framework for oversight to regulators. Jay Clayton, chairman of the U.S. Securities and Exchange Commission (SEC), stated earlier this year that he believes every ICO should be seen as a security. In order to comply with SEC regulations, “Security Token Offerings” (STOs) are being launched and are expected to attract significant amounts of Wall Street capital in the coming months. SEC also said:
Regulatory uncertainty is a major issue for U.S. entrepreneurs seeking to create a token based business. They are forced offshore to pursue their American dream. Ironic as that is, smart founders have worked out how use global domiciles to remain within the law. Utility tokens and Security tokens both suffer from needing to be compliant.
However, with Security tokens there is at least a path in the U.S. now by complying with U.S. Securities laws using a Reg D or Reg A exemption, said Keith Teare, Executive Chair at Accelerated Digital Ventures.
The Rise Of Fully Compliant Crypto Exchanges
Fully compliant crypto exchanges are also on the rise. The Intercontinental Exchange (ICE) has announced plans to form a new company called Bakkt to leverage Microsoft cloud solutions to create an open and regulated, global ecosystem for digital assets.
The company is working with a group of organizations including BCG, Microsoft, Starbucks, and others, to create an integrated platform that enables consumers and institutions to buy, sell, store and spend digital assets on a seamless global network. This will build the geniality and credibility that crypto markets need in the public eyes. Which in turn, will help the crypto businesses sell to bigger institutional clients.
I believe that custody and regulations are holding institutional investors back from investing in the cryptocurrency market. With regulated exchanges like Bakkt, institutional interest in providing custody from Goldman Sachs and Northern Trust, and security token platforms like Harbor, will pave the way for institutional investors to come into the space in the near future, said Paul Veradittakit, Partner at Pantera Capital.
The Need Of Stable Coins
Stable coins are now being used to attract institutional investors to the crypto grounds. The financial tokenization platform, STASIS, recently launched EURS, a stable coin backed by the Euro. The order volume is projected to reach $500 million by the end of this year.
According to STASIS CEO and Founder, Gregory Klumov, one of the major problems for potential institutional investors in the cryptocurrency marketplace is the volatility of digital currencies. Having a Euro backed stable coin, however, is designed to eliminate volatility associated with cryptocurrency.
Combining all the benefits of digital currencies with the stability, convertibility, and frequent verification of the issuer’s traditional assets, EURS helps users freely move into and out of crypto-economies. European investors now have a reliable counterparty with a transparent balance sheet to get a digital version of EURS.
They can then transfer EURS between different digital assets exchanges to transact in the crypto asset of their choice, or invest in any ICO at a fixed price without volatility risk, said Klumov.
The new EURS stable coin joins the dollar-pegged tether (USDT). It is built on Ethereum’s EIP-20 standard. EURS is backed 1-for-1 by the Euro. It is currently trading on the London-based DSX exchange and Tokens.net, which is a new cryptocurrency exchange founded by the co-founder of the major crypto exchange Bitstamp.
When will the ‘Bitcoin Moon’ show?
Advancements such as security tokens, regulated exchanges and the rise of stable coins are gaining momentum, but this is really just the plantation. The calculations of the crop yield need more time. These advancements are in infancy, they require several reinforcements and supporting crops before a harvest can actually happen.
Insecurity about yield curve inversion, trade wars and peaking tech stocks all contribute to the global appetite for a new uncorrelated asset class, said Miko Matsumura, General Partner with Gumi Crypto Fund. At the moment institutions have too few ways to gain exposure to this asset class, but the dam will break open with the advent of ETFs and regulated security token exchanges. We will likely see this priced in the second half of 2018.
However, in terms of seeing the rise of a “Bitcoin Moon” take place this year, Teare thinks that this requires more time.
I don’t think the Bitcoin moon will be this year. I think we are probably looking at a 5-year horizon for major impact to occur, and there will be spikes up and down during that time period based on individual events. However, the long term will be significantly up and the short-term will likely be spiky on an upward curve. The trading range of Bitcoin will reflect that upward curve.