Elvina Kamalova

@elvinakazan

5 trends to guide your blockchain investment strategy

January 9th 2019

Here are 5 blockchain sector movements to help you strategize your investment framework in 2019.

#1 An increasing maturity level within blockchain development and adoption

According to Deloitte’s Global Blockchain Survey, 40% of Deloitte’s Global Blockchain Survey respondents reported that their organization will invest $5 million or more in blockchain initiatives in 2019. Traditional companies realize that blockchain technology can help disrupt current inefficient systems by optimizing their internal processes through blockchain’s reliability, speed, and transparency features. Thus, more traditional businesses will start working with this technology and the companies that offer blockchain solutions.

What does this mean? This trend will increase the number of partnerships between traditional and blockchain companies. In turn, it will bring blockchain further to the mainstream awareness and adoption, as well as reduce discomfort associated with investing in blockchain projects. As a result, with the support of financial resources and a rising competition, an increased number of new robust use cases and innovations will emerge.

#2 The rise of security tokens

The rise of security tokens will bridge the gap between crypto and traditional investments. The ability of security tokens to tokenize data markets and asset classes such as revenue, debt, equity, real estate, precious metals (with the support of security issuance platforms such as Abacus, Securitize, and Harbor) will not only accelerate the growth of and often bring a completely novice type of capital and ownership structure into the various industries. But crypto securities will also broaden the pool of investors globally, making investing more accessible than ever before. This will be fostered by the anticipated launch of digital asset trading platforms such as Open Finance Network, tZERO, or Templum.

In addition, this trend will bring together crypto and traditional finance industries’ professionals to leverage their expertise and create asset classes that we might not have even thought of yet. Shortly, security tokens may well become an integral piece of Wall Street, the Square Mile, Rothschild Boulevard, or Hong Kong’s Central. Thus, local and national wealth can turn into global liquidity, which can emerge a shared and interconnected global financial system.

What does this mean? With more than quadrillion dollar worth of illiquid assets globally, the opportunity for supporting security tokens is massive, as they are laying the foundation for trading equity, debt, real estate, and other digital assets — owned partially or in whole.

#3 Arrival of institutional money

Bakkt, a product of the Intercontinental Exchange (ICE), is a regulated digital assets ecosystem where consumers and institutional investors can buy, store, and spend digital assets, plans to launch its bitcoin futures product in early 2019. (Note: During the Earning Call in early February 2019, ICE has confirmed that the service will launch in late 2019).

Nasdaq, the world’s second largest stock exchange, plans to launch cryptocurrency products later in 2019. (Note: In a press release of March 13th 2019, Nasdaq announced that the first full-stack cryptocurrency exchange Bcause is expected to launch in the first half of 2019).

The arrival of these players will bring improvements in transparency and security, including protection from various forms of market manipulation. In addition, bitcoin futures will foster a mainstream adoption, as they enable betting against bitcoin and settle contracts in real money. With this trend, we will likely see the emergence of other financial instruments, such as crypto-backed loans to enable investors to make a future profit on their coins.

What does this mean? While it may take years before institutional money fully enters the crypto market, the launch of these projects, coupled with more regulatory clarity, will provide institutional investors with trading terms they are familiar with, create a safer environment without high volatility, price manipulation, and asset theft, as well as encourage the entry of institutional capital which will strengthen the industry’s position.

#4 US banks making strategic investments across FinTech and blockchain

While some may agree that blockchain and cryptocurrencies challenge the status quo of the traditional banks by creating a transparent distribution of money with fixed supply and free from the economic manipulation, banks quickly realize that they need to take a part in the game if they want to stay afloat. This is one of the underlying elements that will boost the adoption of cryptocurrencies by traditional financial institutions.

According to CBInsights, as of November, in 2018, the top 11 US banks participated in a total of 49 equity rounds to fintech startups — either with the goal of future returns or building strategic partnerships. These investments cover categories such as payments, insurance, and lending.

While not all of those investments were made in blockchain companies, notable blockchain investments include Goldman Sachs’s investment in BitGo (a company offering services such as custody services for institutional investors and multi-signature wallets for enterprise investments), investments of Goldman Sachs, Wells Fargo, J.P. Morgan, and Citigroup in Axoni (a capital markets technology firm that specializes in distributed ledger infrastructure), and Citigroup ‘s investment in Setl (an institutional payment and settlements infrastructure).

What does this mean? The trend of investing in blockchain technology is expected to continue, as blockchain will inevitably become an important strategic investment, as well as an integral part of FinTech applications as an inexpensive, reliable, and secure layer that enhances trust and efficiency. This will foster the adoption and financial support of the technology.

#5. The support of the Regulations

Blockchain, after all, may indeed be a changing force for the decades-long financial industry regulations. “Token Taxonomy Act” was introduced on December 20th to exempt certain digital assets from federal securities laws, amending both the Securities Act of 1933 and the Securities Exchange Act of 1934.

According to the bill, a digital token is not a security if it is defined by a decentralized nature, recorded in a distributed ledger, does not represent a financial interest in a company, and its creation and supply cannot be altered. The bill also proposes to make an exchange of cryptocurrencies tax-exempt and to remove gain tax for goods and services payments in crypto.

Even though Congress will have to pass the bill to enable it, the bill represents an important step in implementing adjustments to the regulatory treatment of digitized assets, and thus, in fostering innovation.

Together with other regulatory activities, 2018 served as a foundation for significant progress in 2019. For example, SEC launched a public platform for researching and evaluating new regulatory approaches for new financial innovations FinHub.

What does this mean? While regulators are tirelessly working on finding the right way to regulate the novice industry, the industry professionals need to continuously engage with policymakers to ensure that the fruits of cryptocurrency innovation are not lost and we together are laying the groundwork for creating a successful industry.

Conclusion

While I believe the blockchain technology disruption won’t be fully realized over the course of just one year, the above advancements contribute to the acceptance of blockchain technology by more individuals, companies, and financial institutions.

A more regulatory clarity, technology implementation, and the influx of retail and institutional money will give the industry legitimacy to be accepted and adopted by the mainstream. With these trends, blockchain and cryptocurrency may be well on its way to graduate from fancier’s philosophy to a significant tool we can’t ignore.

Disclaimer: This article does not constitute investment guidance or legal opinion of the author or any entity associated with the author.

Enjoyed this post? Please “clap” on the left side of the page so it will be shared with more people. Contact or message below with any additions or feedback.

We thank you the digital personal assistant platform Twinsy for the contributed research work.

More by Elvina Kamalova

More Related Stories