In 2017, the ICO boom helped propel crypto assets to record levels only to fall almost as precipitously. With that history it is perhaps only natural that 2020-21’s extraordinary increase in activity has been greeted by mainstream attention, albeit with some hesitancy from media commentators who are yet to be convinced that the crypto-sphere is anything more than hype.
However, as The Economist’s recent cover story analysis of DeFi shows us, the tide is turning on this narrative, perhaps reflecting the sustained interest from institutional players, which has become a key theme for Digital Assets in 2021.
Fidelity Digital Assets Research shows institutional interest in digital assets
Fidelity Digital Assets released research this month showing that US and European interest in digital asset investment products had increased by 12 percentage points year on year.
In the US, the survey revealed that investors prefer accessing products through traditional financial firms, reflecting the current convergence between institutions and crypto.
“The interest expressed in both owning digital assets directly or through a variety of investment products is yet another indicator of the maturation of digital asset markets, the diversity of participants and progress in how these investors are viewing digital assets’ role in portfolios,” said Tom Jessop, president of Fidelity Digital Assets.
The survey also looked at which segments were leading in levels of investment, showing that in the US, family offices and financial advisors adoption rates had increased by 20 and 28 percentage points respectively, year on year. In Europe, high-net-worth investors and financial advisors were investing most actively after crypto hedge funds and venture capital funds.
Investors were also asked about their views on USD-backed central bank digital currencies (CBDCs), revealing a strong feeling that we would likely see the emergence of a digital dollar within the next five years.
“The data continues to show that institutional investors expect the digital assets industry to more closely mirror that of other asset classes – whether that’s multiple product types covering a variety of investment strategies or the ability to access digital asset investments through traditional financial firms,” said Peter Jubber, Managing Director, Fidelity Digital Funds.
Fidelity Investments itself shows its continued interest in digital assets, revealing that it plans to increase its crypto team by 70% in 2021.
SFOX unveils first Hedge-Fund Specific Crypto Trading Platform
In response to the increase of interest from institutional players, San Francisco Open Exchange (SFOX) released its cryptocurrency trading product built specifically for hedge funds and asset managers. The broad suite of services will allow hedge funds to execute sophisticated trading strategies at scale.
To meet the demands of institutional-grade trading in crypto, SFOX provides traders with one destination for trading digital assets from the major exchanges, OTC brokers, market makers.
Says Akbar Thobhani, CEO and Co-Founder of SFOX: “When a market and regulatory environment are already fragmented and constantly changing, it makes running a crypto fund even harder. We want to be an ally to every hedge fund embracing cryptocurrency investing and trading.”
ETFs triple in value, but SEC continues to delay approvals
The Financial Times reported that the total assets held globally in crypto ETFs reached $9 billion as of June, up from $3 billion in 2020.
Market Insider revealed that Fidelity Digital Assets officials met with the Securities and Exchange Commission (SEC) to push for its bitcoin ETF to be approved, arguing that the products hold massive appeal, and that the market has matured and can support such funds. ETFs are currently available in other markets, including Germany, Switzerland, and Canada.
As investors await decisions from the SEC on crypto ETFs, we can look to Gary Gensler’s past experience in the Commodity Futures Trading Commission (CFTC), where we can see that market manipulation and shared market surveillance will be a key focus for the chair of the SEC. “If you read any of the SEC’s rejections to bitcoin exchange-traded fund (ETF) applications – and I read most of them – you know that market manipulation is a major concern for the SEC,” says Solidus Labs’ Chen Arad. “Those concerns are already addressed in other markets through shared-surveillance and data repositories, like the ones Gensler helped promote and enable in swaps and future markets.”
Not just Trad-Fi: Challenger banks and fintech are playing an increasingly important role in adoption
We often speak about the key stakeholders in the crypto ecosystem, from crypto-native firms, to traditional finance, regulators, and policy makers. Challenger finance outside of crypto is not always given the same attention. Perhaps predictably, tech companies who have already made their marks on traditional financial services and the development of embedded finance are playing an important role in the adoption of digital assets.
This month, Google confirmed its partnership with Dapper Labs, helping it to scale, and acting as a network operator by providing developers on the Flow network with the digital infrastructure needed to process high transaction volumes.
As the NFT market continues to boom, Visa has also moved into the space, buying a ‘CryptoPunk’ for $150,000. New NFT marketplaces are popping up, both from established crypto companies such as FTX, and from the likes of Rakuten and Alibaba, who dominate online shopping in Japan and China.
HSBC backs CBDCs, but remains skeptical about crypto
Noel Quinn, HSBC Group Chief Executive, penned a letter on growth and new forms of money, in which he highlighted the importance of the innovation in Central Bank Digital Currencies (CBDCs). He expressed a commitment to supporting the development of CBDCs for cross-border banking, but followed this with skepticism over crypto and stablecoins, noting that they will require appropriate regulation and will need to be held up to current standards of financial crime prevention if they are to be considered a reliable means of payment.
HSBC was one of many British banks that chose to block payment channels to Binance earlier this year due to customer risks. Aside from the skepticism expressed, HSBC’s commitment to CBDC projects in the UK, France, Canada, Singapore, China, Hong Kong, Thailand, and the UEA, reflects their overall interest in distributed ledger technology.
In February 2021, HSBC became the first players to move their Corda project, Digital Vault, to Google Cloud. “[This] will help us prepare for the future, in which the full transaction lifecycle could be stored on a distributed ledger,” said Gaurav Aggarwal, HSBC’s Head of Distributed Ledger Technology and Tokenization, Markets & Securities Services.
Global Digital Finance is an industry membership body that promotes the adoption of best practices for cryptoassets and digital finance technologies through conduct standards developed in a shared engagement forum with market participants, policymakers and regulators. Over 140 global organizations are members of GDF and over 350 industry professionals from around the world have worked on developing the GDF codes of conduct, the only global standard in this emerging sector.