Smart

…and, institutional capital, a.k.a. smart money, could possibly usher in this new season.

Technological disruption in many industries

Regulators recently have been constructive about crypto

Cryptocurrencies provide an attractive combination of returns and volatility

Institutional custody solutions set to come to market soon

There is an urgent need for qualified custodians to safeguard the growing amount of crypto assets. Very few crypto custodians meet the strict security requirements demanded by regulators and institutional investors. Coinbase, one of the more popular exchanges, has launched custody services by partnering with Electronic Transaction Clearing (ETC), a regulated broker-dealer.

Cryptocurrency futures, derivatives, and forward contracts

The volatility of crypto prices at the beginning of the year dramatically boosted demand for crypto derivative products. With derivatives, investors do not need to hold the underlying crypto asset, but they can still enjoy the potential benefits while possibly minimizing loses, much like they hedge regular currencies. While many exchanges do not yet allow direct sales of Bitcoin, investors can speculate on cryptocurrency pricing by trading futures on exchanges like BitMEX and OKCoin.

Regulatory approval for a crypto ETF is likely to happen

There is an obvious need for a sector or a market-based exchange traded fund to help investors diversify risk. Several crypto companies, such as Gemini and Bitwise, have filed for crypto ETFs, but so far, regulators have not approved any. However, my vote goes only to physically backed Bitcoin ETF.

Large financial institutions are moving ahead with crypto products

Crypto assets have drawn the attention of institutional investors. Large institutions, such as Goldman Sachs, Fidelity and Blackrock, have started to develop cryptocurrency products and the underlying Blockchain technology. Industrial and Commercial Bank of China: Filed patents using Blockchain technology to verify digital certificates instead of a trusted central authority | Bank of America: Working to automate the process of creating letters of credit using the Ethereum Blockchain | Royal Dutch Shell: Working with BP to create an energy commodities platform | and the list goes on. We expect to see more institutions enter this industry and offer a variety of crypto-based derivative products.

Tokenised Securities

Previous, illiquid type of assets turns into a liquid one

Trade finance stands out in adaption by gaining immensely from distributed ledger technologies (DLT), due to the traceability, transparency, and operational efficiency. Banks are some of the biggest advocates of the technology because it is secure and accessible to a select group of trusted parties. It allows for more transparency around trade transactions and operations, including everything from tracking invoices to digitizing documents.

Tech giants like IBM, Oracle, and Amazon are developing already their own DLT.

Industry is seeking more efficient and effective ways to manage their value chain. Blockchain is made for Enterprise Resource Planning (ERP) and Supply Chain Management by revoluzionezing IOT (Internet of Things) decentralised security and traceability.

The smell of ROI. VCs have entered the crypto world with confidence, resulting in exploration of switching from classical model and investment sectors into crypto.

41.1% growth with tendency shift into early stages and technology growth

A great example is Robinhood, a zero-commission stock trading and cryptocurrency app, ranking 6th in terms of top VC funding rounds in 2018, with whopping $363 million raised in their Series D.

Strong financial-resource deal-flow growth during 2018

2016 — $667 million; 2017 — $1 billion (x1.5); 2018 (Q1-Q3) — $3.9 billion (x3.9)

Median deal size of blockchain investments has increased by more than $1mil in 2018

Smart money is coming, and improve overall market performance. This, in turn, will contribute positively the image of the industry over the middle- and long-term perspective. Businesses and investors will run lower risks when entering the industry, and the market will get additional participants and resources for development.

Sources: crunchbase, Applicature, CB Insights, Forbes, Diar

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