Can ICE/NYSE Fix Wall Street with Crypto Custody and Payment Services
ICE, Parent Of The New York Stock Exchange, Is Entering The Bitcoin And Crypto Business
ICE, the parent of the New York Stock Exchange (NYSE), is entering the cryptocurrency and bitcoin business. ICE will process crypto and bitcoin for both institutional and retail payments.
As reported by Forbes, ICE’s entrance into the crypto space is a big deal:
“ICE’s move throws a curve ball at the crypto industry and Wall Street incumbents alike. So now what? And what does this imply about Wall Street’s enterprise blockchain projects, now that a giant infrastructure player has embraced cryptocurrencies for trading, clearing and settling transactions.”
“ICE’s move renders many of Wall Street’s enterprise blockchain projects obsolete,” Forbes contributor Caitlin Long added.
ICE announced the news last Friday. Although some would assume this is good news, the price of bitcoin slumped through the weekend with the slump continuing through the week. The fact that ICE is launching crypto payments is a double-edged sword. Yes, it signals the start of big financial giants accepting crypto, but it also could introduce problems like “fractionally-reserved bitcoin”.
Thanks to ICE’s latest project, natively digital blockchain assets are officially coming to Wall Street. This could be a huge boost to Wall Street. Today, the financial system relies on a series of siloed ledger systems. These ledger systems aren’t in sync. This has led to problems in the past – like the infamous Dole Food issue where Wall Street’s ledgers created 33% more shares than what actually existed. By scrapping this old infrastructure and using digital, blockchain-based assets, we can avoid problems like this in the future.
ICE’s Move Is A Double-Edged Sword Because It Could Create Fractionally-Reserved Bitcoin
One of the advantages of bitcoin is that when you have the private key, you have your bitcoin. As long as you have your private key, you can safely store your bitcoin or spend it.
When you hold your money in a bank, you don’t get the same benefits. Sure, you might login to your online banking dashboard and be able to view the numbers in your account. However, the bank is lending the vast majority of that money to other people. Our modern economy is built on fractional reserve banking, where only a small portion of the money we spend actually exists.
ICE’s decision to launch blockchain-based infrastructure for institutional and retail payments could introduce fractional-reserve bitcoin to the crypto community. Here’s how Forbes explains the issue:
“We are about to see “fractionally-reserved bitcoin” en masse for the first time—more paper claims to bitcoin (created off-chain) than there are real bitcoins on-chain—and these paper claims will offset bitcoin’s natural scarcity to some degree, thereby suppressing bitcoin’s price. Indeed, this may be why bitcoin’s price dropped after the ICE announcement on Friday.”
A fractionally-reserved bitcoin system would mean that people are trading bitcoin that doesn’t actually exist on-chain. There are only 21 million bitcoins in existence, but a fractionally-reserved bitcoin system could increase that number to over 1 billion – at least digitally.
Obviously, in this type of system, a private key with ownership of a real, on-chain bitcoin would be much more valuable than a “digital bitcoin” on some third-party ledger. If there’s ever a “run on the bank”, then holders of the real bitcoin would be in the best position.
What’s Next After The ICE Announcement?
ICE’s announcement is a big deal in the crypto and bitcoin community. Here are some of the things that could happen next, according to Caitlin Long at Forbes:
- “Real money” institutional investors, including pension funds, mutual funds, endowments, foundations, and insurance companies, will quickly start revising investment guidelines to permit asset managers to buy cryptocurrencies, guided through the process by their investment consultants
- Corporate issuers will turn to cryptocurrency capital markets in a big way; they’ll use these markets to raise cheap capital, something that will likely happen first in bond markets
- ICE will likely become the dominant listing and trading venue for corporate coins (i.e. security coins or utility tokens), with the migration occurring first in bond markets
- Over time, corporate coins (i.e. security tokens) “may become ICE’s most profitable business as corporate securities migrate toward issuance in natively-digital blockchain form, which is issuer-friendly and investor-friendly,” explains Forbes
- Investment banks are already scrambling to hire cryptocurrency teams; financial giants like Goldman Sachs already have crypto teams
- There will be an increasing shortage of highly-skilled developers as firms rush to hire top talent
- The State of Delaware will lose a lot thanks to ICE’s announcement; Delaware had been moving towards registration of natively-digital assets under its previous governor, but slowed down its “Delaware Blockchain Initiative” after a change of administration; Delaware is the dominant state for corporate registrations, but companies will now register wherever it’s cheapest to do so and issue asset-backed coins from any domicile, thanks to ICE’s platform
- ICE may become the first “qualified custodian” for cryptocurrency assets
- Investment advisors and compliance officers will need to increasingly learn about crypto to prepare with surging demand from clients
Again, all of this seems to be good news for bitcoin. Nevertheless, crypto prices have slumped across the market through the weekend and the first half of this week.
The full writeup from Caitlin Long at Forbes.com is worth a read. Long is a 22-year veteran of Wall Street specializing in bitcoin and blockchain news.