May 29th, 2018
The financial industry may be turning the corner on bitcoin. After notable criticism from the banking and investment industries, some of those heavyweights are now putting big money into cryptocurrency, and bolstering the case for a decentralized future.
“There’s a real risk that some of those companies could overtake some of Wall Street’s biggest banks if they don’t get in the market.”
– Spencer Bogart, Blockchain Capital
As digital currencies have entered the mainstream, many in the financial realm have gone through a period of resistance- questioning the legitimacy of this “novelty”. One point of resistance is that crypto currency news happens fast, and it’s hard to read where this new asset is headed. Anything that is new and different usually raises eyebrows and invites skepticism. That skepticism was only reinforced in late 2017 and 2018, as the latest price of Bitcoin changed radically day-to-day, with a similar impact on the price of Ethereum and other cryptocurrencies. However, most of us can agree that without openness to new innovations and ideas, we would remain stagnant and the world would be a very different place. So what does that mean for the world of Bitcoin and other digital currencies? Major financial institutions are starting to accept the concept and are preparing to invest in the digital currency market.
This trend of interest has been demonstrated by traditional banking institutions such as Goldman Sachs, whose board of directors recently approved the trading of Bitcoin with an imminent start date. They have pointed to increased client demand as a factor in their decision. “It resonates with us when a client says, ‘I want to hold Bitcoin or Bitcoin futures because I think is it an alternate store of value.’” says Rana Yared of Goldman Sachs, an executive in charge of their digital currency trading.
Venture capital firm Andreessen Horowitz is also preparing to increase their exposure to digital currencies. They’ve been investing in digital currencies since 2013, and in April they announced that they were expanding their resources by dedicating a fund to digital currency trading. They are hiring two new positions in their company for the separately managed fund.
Analysts from investment company BlackRock have taken notice of the lucrative nature of digital currencies as well. In May, it was reported that three employees had left the company to focus on a new $20 million VC fund called Eterna Capital, dedicated to projects involving digital currencies.
Clearly, financial institutions are taking notice that Bitcoin and other digital currencies are not just part of a passing trend. As these recent announcements highlight, not only are traditional financial institutions entering the digital currency market, they are entering with varying business models. This increase in capital and financial acumen has the potential to push the digital currency industry to new heights.
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The favourable interest in digital currency strikes a contrast to the hardliner position once taken by J.P Morgan Chase chairman and CEO Jamie Dimon, who had famously called Bitcoin a “fraud” in September, 2017. He changed his stance by the following January when he gave an interview with Fox Business stating “The blockchain is real.” However, there are still many influential investors who remain unconvinced. Recently, high profile investor Warren Buffet stated that “Bitcoin is probably rat poison squared”. While digital currency continues to be controversial and prices fluctuate with speculation, the applications of the technology cannot be overlooked. There is potential for digital currencies to be utilized by everyone, from those with no access to banking to major investors.
Before the financial institutions can enter the digital currency market, there are many operational and regulatory pain points that need to be addressed. One area of concern seems to be resolved as Bloomberg announced a partnership with Galaxy Digital Capital Management to launch the first ever capitalization-weighted digital currency index. The index will track the performance of the largest, and most liquid digital currencies and will provide a basis for financial institutions to determine pricing.
Within Canada, the TMX Group in partnership with Paycase Financial announced it was launching a digital currency brokerage service via its subsidiary Shorcan Digital Currency Network (“Shorcan DNC”). Shorcan DNC is expected to launch later this year. The March 22nd press release announcing the partnership summarized the reasoning behind the new direction, citing new technologies that are reshaping the global financial industry, as well as client needs in “non-traditional markets.”
So, what is contributing to the fluctuating market? Aside from the growing interest, it is important to mention the controlled supply of Bitcoin, the most well-known digital currency. There is a total of 21 million Bitcoin that can be mined. Recently, the total number of mined Bitcoin reached 17 million, which re-enforces the limited supply left. The fact that there is only so much to be mined has drawn comparisons to Bitcoin being the “digital gold”. This among other factors may contribute to the overall increase in value over time.
The likelihood of increased value doesn’t just apply to Bitcoin, but to the digital currency market as a whole. As a greater number of investors are all buying into the same pool of digital currencies, the value of others like Ethereum could also an upward trend. Get into cryptocurrency before the financial institutions do and start your account with Bitbuy.
Digital currencies are a new and exciting technology. The potential use is widespread, not just for major investors, but also for the community at large. This could have a major impact on future trading and transactions for everyone. While traditional minds continue to debate the merits of Bitcoin and digital currencies in general, the market continues to mature and with that comes increased upside and opportunity. The announcements of interest and buy ins from major financial institutions supports the theory that this technology is here to stay.
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