On December 16, as bitcoin charted new highs, Forkast.News published its paper “The Unstoppable Rise of Digital Assets‘”, a comprehensive report on the state and potential of the digital asset economy – sponsored by AAX.
While we highly recommend reading the report, for those who simply want to get a quick overview, we’ve selected a few key arguments and findings which we will discuss in this post.
The report starts out by sketching an overall trajectory for the industry as it grew from a mere experiment online to an asset class which is now maturing.
Key to growing this industry has been the work around erecting critical institutional infrastructure. The value of a robust and transparent exchange needs little explaining given the outages, withdrawal issues and manipulation that we’ve seen over the years. Furthermore, if the crypto industry is to meet the needs of heavy capital institutional investors, exchanges need the capacity to process very large volumes of orders in real-time to keep up with the demands of the market.
One development the report highlights is the collaboration between LSEG Technology, London Stock Exchange Group’s technology provider, and AAX, the world’s first cryptocurrency exchange to harness the power of London Stock Exchange’s matching engine. The technical intricacies of this deployment and the implications are discussed in depth with LSEG Technology’s Global Head of Sales and Marketing, Lorne Chambers.
In an interview with AAX’s CEO, Thor Chan, we learn more about how the overall market is moving, and how despite the significance of institutional inflow, continued engagement with the retail trading community is of vital importance. Thor also spoke about how he sees education as a responsibility of exchanges and a way to contribute to the growth and maturity of the asset class.
Although one of the key principles underlying Bitcoin and cryptocurrencies in general is the notion of true ownership, where investors hold custody over their own funds, for the industry to integrate with global finance and become better suited for institutional participants in finance, there is a need for institutional-grade custodians. Not just for risk management purposes, but also for improved accountability.
In an interview with Phil Mochan, founder of UK-based custody provider Koine, we learn about the regulatory framework around custody and the technological solutions Koine has adopted to meet those demands.
Along similar lines, the report also notes the rise of dedicated crypto funds that enable investors to gain exposure to the emerging global digital asset ecosystem without the burden of taking custody of the assets themselves.
New York-based Grayscale recorded US$1.4 billion in inflows in the first half of 2020, moving its total assets under management to over US$2.5 billion – 84% of inflows was attributed to institutional investors. Singapore-based Stack, similarly, launched Asia’s first Bitcoin index fund in January 2020, with inflows of US$200 million in the first month and projections to capture US$750 million in assets under management by the end of 2020.
The report deals in great detail with the current state of the market for tokenized assets such as gold, real estate, commodities and currencies, noting that especially the rise of stablecoins has been of special significance at this stage.
The growth of the stablecoin market indicates people are looking for a safe, non-volatile store of value which can be used for payments, remittances or to enter and exit the crypto markets; a familiar medium of exchange that brings all the benefits of blockchain.
The report highlights non-USD denominated stablecoins that cater to local markets as a possible next phase in the growth of the digital asset economy.
Apart crucial insights for business leaders in crypto who aim to develop the industry and institutional investors who are exploring the digital asset market, the report is useful for everyday retail traders as well.
The onboarding of institutional investors means the crypto markets may be seeing unprecedented inflows of capital and for retail investors it is crucial to know where disruption is taking place, where opportunities for growth might be, and also to grow their own ability to explain the crypto industry to others.
For more insights on how digital asset markets have performed relative to traditional assets and what a portfolio that contains crypto might look like, we recommend you to read The Unstoppable Rise of Digital Assets.