When people ask about if the price of Bitcoin (BTC) will ever go back up. The only answer you need to have in reply is “Do You Believe in Wall Street's Greed?”. If you do, then yes the price will go up and there is but a looming clash between Wall Street and cryptocurrency as a whole.
One of the biggest selling points of cryptocurrencies is that they were created for the sole purpose of decentralization. That, combined with its penchant for transparency, anonymity and encryption, makes it the perfect candidate for transactions in the future.
Traditional financial institutions have almost failed mankind. With precepts like centralized economies, and regulated institutions, they are the perfect antithesis to everything cryptocurrency stands for. Yet, if recent trends are to be considered, it appears that there might be a marriage of sorts between the two. In fact, with the recent moves made by Wall Street, we just might be on the verge of a clash between these two polar opposite institutions.
We’re seeing an increase in the number of “institutional cryptocurrency” being bandied by Wall Street type companies looking to get into the technology that was designed to render them archaic. How this plays out or looks to the average crypto trader and investor, depends on how much you know, and what your game plan is.
For instance, individuals who want total control over their cryptos and have a strong penchant for anonymity or privacy might be alarmed by the trooping in of these companies. But, those who are in it for the purpose of storage of value might actually welcome them, seeing as they might end up adding some sort of legitimacy to the industry as well as drive up the value of solid crypto projects.
Whatever the case, the one thing we can be sure of is an increased tension between big finance and cryptos. And this may not be good, depending on where you stand. A good example of this is huge influx of cash from Wall Street may further impact the volatility of crypto prices.
In fact, whales have been known to pump up the price of cryptos, and cash out after attaining a certain price point. Smart traders who know how to spot these trends have been known to ride the wave, selling around the same time as the whales and cashing out with their profits.
Those who are usually left holding the bag, are often unseasoned investors or traders.
Possibility of Third Party Institutions
Earlier in October, we saw Fidelity –the world’s 6th biggest fund manager- declaring it is intent to get into the crypto market by offering a digital asset trading service strictly for huge institutional investors.
This service is going to be for those trading for or on behalf of large institutions like the NYPD Pension Fund among others. While institutional grade custody might be foreign to most laypeople, the term is pretty commonly used, even among cryptocurrency projects.
For those who hate the centralized nature of banks and got into crypto trading simply because they wanted to be their own bank, this might be upsetting news, considering that this violates the “trustless” mantra that’s largely touted in the crypto space. Yet, if anything, we have seen an increase in the number of third party asset custodians in this space.
In fact, this might soon become a common occurrence if crypto investors are interested in seeing big finance plow some of those huge funds into cryptos –something that’s sorely needed now that the market has become very bearish.
It makes sense that investing at such scale would require that the investing firms transfer the risks of trading at that volume to third parties. Moreso, now that we’re seeing a large chunk of most crypto holdings in the custody of third party operators.
What may separate investments made by these institutionalized investors from conventional finance from that of retail investors, is the emphasis on their products being co-opted into traditional financial products like hedge funds. These funds will then become highly regulated by third party entities like Fidelity, Northern Trust and State Street.
As if that wasn’t bad enough, quite a few companies that had their beginnings in the core crypto space, have evolved into third party entities courtesy of their qualifications as custodians. These firms are now able to pursue institutional investors who are big on their custodians achieving regulatory status and capable of meeting their strict requirements. Two good examples are Coinbase and BitGo.
Also, we’re seeing more financial institutions like the InterContinental Exchange –the parent company of the NYSE- attempt to launch and create their own bitcoin futures trading service.
While this may be similar in function to the services rendered by Chicago Board of Options Exchange and Chicago Mercantile Exchange, Intercontinental Exchange’s service called Bakkt is adding the extra service of handling physical delivery too.
More STOs and Less ICOs
Initial Coin Offerings were the rage in 2017. 2018 however, hasn’t been so good. In fact, the combination of poor investor confidence in ICOs and crackdown by regulatory authorities like the Securities and Exchange Commission (SEC) has led to decreased demand as well as falling prices of ICO tokens.
This move by the SEC has seen a few crypto founders switch from ICOs to security token offerings (STO). These tokens are created in keeping with the SEC’s regulations, thus moving them further away from the decentralized, trustless environment that cryptos dominate.
With STOs, tokens come under the direct purview of regulatory bodies and can be subject to their interference. This increased switch from the utility token based crypto economy to one that’s increasingly coming under the influence of traditional financial organizations is a major cause for alarm.
Unfortunately, that doesn’t look like it’s going away soon, thanks to companies like R3 tagging STOs as the 3rd blockchain revolution. In case you didn’t know, R3 is a distributed ledger technology consortium formed by big finance.
Sadly, the growing popularity of STOs does nothing for the retail investor who prefer the anonymity and discreet nature of ICOs.
Combination of Traditional Finance Frameworks and Blockchain Tech
If there’s a recurring theme here, it’s that these custodians are creating a framework in preparation of the huge funds that will be coming into the crypto space. They are doing this by combining institutional finance structures with the blockchain tech of distributed ledger and smart contracts.
The ultimate goal being in preparation of the receipt of funds from institutional investors in the crypto space. Whether this will be a good thing, still remains to be seen. But, we can be sure that established and popular cryptocurrencies like bitcoin and ethereum, might be beneficiaries of this forthcoming “windfall” once the institutional players get in the game fully. Maybe this is what will move the price of bitcoin into the $100k+ mark over the next 2 years.
At the end of the day, we can expect a lot of “conflict” from the merging of these two polar opposites at first. How the rest will playout though, only time will tell.