How Cryptocurrency Is Garnering Attention From Traditional Financial Gatekeepers”
With cryptocurrencies gaining traction, it should come as no surprise that the gatekeepers of the traditional financial markets are starting to take notice.
As I attend conference calls with C-Suite executives at the largest financial institutions in the world several times per month, I am witnessing the movement continuing to grow. Banks and technology services companies are realizing the real potential of both cryptocurrencies and the underlying distributed ledger technology behind them as important assets for their organization.
Cryptocurrencies have a bit of a troubled past, there’s no denying that. With some of the earliest adopters being drug and arms dealers hidden in the depths of the internet, Bitcoin had a rocky beginning; however, things are drastically shifting in the fintech field for crypto assets and their usage with the public.
With many of the new coins and tokens coming to market, some are beginning to go back to the traditional roots of the movement: currencies. Not all cryptocurrencies are behaving like speculative “bubbles” or securities. In fact, many are making the push to embrace the “currency” in “cryptocurrency.” Of this specific class of cryptocurrencies, the market has seen projects like the recently announced development of the Sovereign (SOV) token, coming to the public not as securities to be bought and sold like stocks but rather as an actual medium of exchange. Additionally, now Russian officials are considering the release of their very own state-controlled cryptocurrency to function as a medium of exchange: the cryptoruble.
Cryptocurrencies that are actually functionally and legally used as currencies could be the tipping point for banks beginning to shift their attitude towards the growing technology, but haven’t some already done that?
Commodities And Asset Management
Take Goldman Sachs as one case. One of the fintech companies backed by Goldman Sachs, Circle, recently purchased one of the most well-known and largest exchanges on the market, Poloniex. Most of us have likely seen the exchange before, even if we haven’t used it. CNBC’s “Fast Money” used the platform to show the public how to purchase cryptocurrencies and get involved in the industry, but what are they planning on doing with the exchange?
Aside from the use as an exchange for cryptocurrencies, Circle has plans for both scaling up the platform as well as taking advantage of the concept of tokenized assets. By taking the distributed ledger technology, the company can develop a significantly more efficient and trusted platform for selling, buying and trading certain assets.
One of the ways banks and other financial institutions can take advantage of this shift is by utilizing the tokenized assets for easier management of already existing assets. For example, many have already considered its usage in stocks and commodities, such as Peter Schiff of Gold Money.
There is a question going around about whether a cryptocurrency is inherently a commodity or not, but there’s no doubt that through tokenization, banks can use the coins to buy, sell and trade commodities by backing tokens with real assets.
The Lending Coin is bringing the same technology to the real estate market by focusing on utilizing the system for refinancing commercial real estate. Ultimately, the Lending Coin is planning on expanding to other areas of the real estate market including residential properties and creating a way of disrupting traditional mortgage payments and home refinancing in the industry.
Other companies are revolutionizing microloans and credit scoring for the unbanked by utilizing artificial intelligence to create a risk score tailored to an individual consumer or even buying existing commercial and personal liens on the property with the ability for parties to pay their mortgages with tokens instead of a traditional bank loan. In the not so distant future, banks and insurance companies will utilize a similar methodology in their business models, according to my conversations with industry leaders.
Bond On Blockchain is a Securities and Exchange Commision-exempt crypto-bond offering that is similar to traditional bank style bonds except in crypto-token format. Mainstream financial service providers like Japan’s Fiscoand Norway’s largest online-only bank, Skandiabanken, have already announced their intention and begun development to create financial products like bonds purchased via Bitcoin and linking a traditional bank account with a customer’s crypto asset holdings. Additionally, fund managers are beginning to bring cryptocurrency investments into the mainstream by offering tremendously successful crypto hedge funds that soared in 2017.
There’s really no denying the movement and its growth in the past year alone, and that’s something banks have become acutely aware of. Regardless of what direction these original gatekeepers of the financial industry head in, the usage and acceptance of cryptocurrencies in the broader financial markets speaks to its importance and relevance in the new economy.
Be on the lookout for new products, new use cases for cryptocurrencies and new opportunities including precious metal backed currencies in this coming year. As more regulatory distinctions are made clear and continued legislation addresses additional regulatory needs, you should expect to see more financial product offerings from mainstream banks and investment brokerages, which will continue to bring legitimacy to the industry as a whole.