For those new to the cryptocurrency market, 2018 has been a psychologically trying period. The close of 2017 consisted of the exciting climb of Bitcoin’s price to its eventually peak at an all-time-high of over $20,000. Since then, current prices have shed approximately 70% of the value reached at peak. While no one individual can provide definite explanation to the cause of this fluctuation, industry experts hush drastic movements like these as mere market corrections. Due in part to this dilemma permeating the Bitcoin and cryptocurrency ecosystem is an ominous uncertainty existing with regards to cryptocurrencies in the regulatory sector. Despite this many countries have begun to forge their path, having vocalized support for cryptocurrencies, while many others are in consideration to follow suit. Behind closed doors companies too are swift to capitalize on these emerging trends, with crypto-novices at Goldman Sachs in deliberation to launch a cryptocurrency custody service, and veterans at Coinbase expanding their custodial services to include new cryptocurrencies. You would have to be blind to miss the increasing interest of institutional investment into cryptocurrency in 2018.
Here are 5 reasons that elucidate cryptocurrencies as the “next-big-thing” for institutional investment.
1. Adoption of enhanced custody services
Coinbase, the largest American-based cryptocurrency exchange, has recently released a statement recounting their consideration of adding additional tokens to the platform including Stellar Lumens(XLM), Basic Attention Token(BAT), Zcash(ZEC), Cardano(ADA), and 0x(ZRX). Established in May, Coinbase Custody, a self-described digital asset custody for institutions, allows the user to hold coins currently supported by Coinbase’s traditional platform, for the purpose of storage only. Support for ERC-20 tokens has been announced by Coinbase and is expected to arrive before the end of the year. Currently Coinbase only provides support for Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.
In a similar vein, Goldman Sachs seeks to fill the cryptocurrency investment void for institutions, helping to overcome the lack of “trusted” custodianship in the industry, with the adoption of their custodial service.
2. US SEC divergence on crypto assets
Cameron and Taylor Winklevoss, founders of US based cryptocurrency exchange Gemini, have been in the news recently following the US Securities and Exchange Commission (SEC) rejection of their proposal for a Bitcoin Exchange-traded fund(ETF). On the bright side of adoption, it is exceedingly evident that the SEC is not in consensus about this issue. SEC commissioner Hester M. Pierce even went as far to express her formal dissent from the decision. You can find the entire transcript here.
Apparently, the proposal’s disapproval did not rest on an evaluation of whether or not Bitcoin and blockchain technology is valuable as a technology or an asset, instead owing to the apparent inadequacy of available tools for preventing fraud and manipulation with customers.
In addition, Kin-Wai Lau, the CEO of Fatfish Internet group recently recounted in an interview that the world is experiencing a second wave of cryptocurrency demand which is being driven by institutional investors, and it is just a matter of time before the SEC opens its doors to cryptocurrencies. This vision, although possible, has yet to be seen.
3. Regulated cryptocurrency ETFs in the pipeline
Following the rejection of the Winklevoss brothers’ Bitcoin ETF, the United States SEC will be looking at 9 ETFs in the next two months and announce its final decision of their status(es). The SEC highlighted that it is open to the possibility of approving crypto-derivatives in the future. Meanwhile in Europe, Amsterdam-based fintech company, Flow Traders NV, announced that it was expanding its trading products to exchange-traded notes (ETNs), which are based on Bitcoin and Ethereum.
In Asia, the Singapore-based Huobi exchange had revealed in June that it was creating its own ETF. With all these efforts being made to launch ETFs, the day when the world will see its first regulated crypto ETF approaches closer.
4. Historical performance of cryptocurrencies
Investors in the cryptocurrency space often experience extreme highs and lows. One of the market’s more favorable outcomes has been the rapid growth is it has witnessed since its inception. Bitcoin, between 2012 and 2016, witnessed a yearly growth of around 106%, which is 6.5 times more than regular tech stocks. In fact, just the last year, Bitcoin saw a growth of 1,318%, with its highest at $19,783 on December 17th, 2017. On the other hand, Ripple (XRP) was the largest gainer of 2017 with 36,018% growth.
The CEO of Kraken(another US based exchange), Jesse Powell, has predicted the market value of cryptocurrencies to touch 1 trillion this year.
5. Global consensus of favorable cryptocurrency regulation
The urgent need for a archetypical regulatory framework in the cryptocurrency (especially regarding Initial Coin Offerings, or ICOs) space has become impossible to ignore for those parties interested in leveraging blockchain technology all across the globe.
In Japan, Bitcoin is a legal tender and the country officially recognizes a multitude of cryptocurrency exchanges. Japan also had a government-backed study group develop guidelines for ICOs, which are being evaluated by Japan’s Financial Services Agency and may become the law in the coming future. Earlier this year in Switzerland, the Swiss Financial Market Supervisory Authority (FINMA) released guidelines for conducting ICOs. Thailand and the Philippines have recently launched a regulatory framework for ICOs which dictates that entities seeking to conduct an ICO must file an application and submit the requisite documents to the regulatory bodies of the respective countries for evaluation. This regulated environment for cryptocurrencies and ICO projects encourages some portion of investors to explore the market with rising confidence.