Consensus Round Up
Chris Jenkins, Managing Director, Caspian provides an overview of Consensus Invest Conference, 27th November 2018 New York
This time last year, the Bitcoin price reached its (then) all-time high of $10k, followed shortly by the peak at almost $20k. Though the cryptocurrency markets have seen a downtrend in the last few months, the industry as a whole certainly hasn’t.
This was demonstrated at the recent Consensus: Invest conference (you can find a great write up of the event here). While the promise of crypto hasn’t quite caught up with reality yet, it’s clear that the next year is poised to be hugely significant and confidence is high.
Infrastructure & Institutional Investors
Many seem to agree that 2019 will be the ‘year of the switch on’ for institutional investors, as key components of the infrastructure needed have not been available until now. As 2018 comes to a close, it’s clear that serious investors have a better selection of tools to enter the cryptocurrency space.
It would be naive to assume that we’re about to see a sudden wave of institutional investors. It’s a lot more likely that they’ll arrive incrementally as the suite of resources available to them becomes more sophisticated.
The Elusive ETF
The notion of a Bitcoin ETF has captivated the masses, from seasoned cryptocurrency traders to traditional finance veterans. Many proposals have been submitted to the SEC, though none have been given the green light.
The SEC’s Chairman, Jay Clayton, discussed the topic at the conference and identified two concerns he’d personally like to see alleviated before he’d feel comfortable approving an ETF – price manipulation and the lack of surveillance where crypto exchanges are concerned. He further called for custodial solutions to be improved upon. In light of this, the when is somewhat unclear. These are issues that are currently being tackled, but they’re not trivial – whilst the tech front is thriving, the regulatory one is stalling.
The advent of the ETF will be another huge step towards adoption, stripping away the requirement for a degree of technical know-how to secure crypto-assets and instead allowing investors to trade much as they would with traditional financial instruments – undoubtedly catalysing the entry of a wide range of new investors that were previously sceptical of trading on potentially unreliable crypto exchanges.
Signals Look Good
Crypto as an asset class is certainly not going to vanish anytime soon, especially when you think about how far it has come. What we are seeing now is the maturing of the market, with serious players who believe in the underlying technology who are definitely in it for the long haul.
If you look at the names of those who have entered the space this year, from Fidelity’s custody solution, Northern Trust, Goldman Sachs making select investments in BitGo recently and the Circle acquisition. And more recently, the Yale Endowment Fund and Nasdaq’s announcement to launch a crypto exchange. Despite it seeming small in the grand scheme of things, the signalling is important as it shows there is an increasing interest and people are educating themselves. This puts us in good stead for 2019.
Now Is A Good Time
There is also a tremendous sense of optimism. If you are looking to set up an institutional platform or an institutional fund now is a good time. No one expects all assets to always go up, and you don’t need that. But what you don’t want is a lack of confidence. That is certainly not the feeling stemming from Consensus: Invest.
Reported quotes from Fidelity that ‘the biggest hurdle is the lack of education in the space’, and Goldman Sachs who called for ‘more institutional-levels tools in the crypto space to enable greater institutional participation’ do not reflect a lack of confidence in the asset class – merely an appetite to make sure its established correctly.
Crypto Real World Use Cases
To truly consolidate their worth and to instil confidence in cryptocurrencies as an asset class, real world use cases are required. It’s a very new area, though given their unique qualities (permission-less money, censorship-resistance, etc.), these will surely materialise in due course. We’re witnessing the beginning of this in certain regions – the adoption of Bitcoin in countries like Venezuela, stemming from mistrust in fiat (due to hyperinflation), could serve as an excellent ground zero to showcase cryptocurrencies true potential. When price begins to stabilise and businesses better understand their value, we’ll likely see more merchants adopt them in retail.
As 2018 comes to a close, one thing is clear: Bitcoin’s short-term price is not as relevant to institutional investors as it is to retail investors as they tend to invest with longer term perspectives. Consensus’ conference last year (when dollar value was close to its peak) was overrun with booths exhibiting largely unbuilt tech – many projects were still in the embryonic stage. This time around, ideas and concepts have been fleshed out into working products and infrastructures.
The proverbial table has been set. We’ll kick off 2019 with an extensive toolkit for institutions entering the space. For our part, the team at Caspian will continue to educate investors and build on our current offering to push institutional adoption even further in the coming years.