Anyone with an interest in cryptocurrencies as an investment tool will want to know how larger organisations are continuing to re-evaluate the realm of digital coins and blockchain technology as it relates to their own practices.
Anyone with an interest in cryptocurrencies as an investment tool will want to know how larger organisations are continuing to re-evaluate the realm of digital coins and blockchain technology as it relates to their own practices. For CFD traders, the actions of banking corporations, hedge funds and other major market players can give an insight into possible price moves and when they might take place.
As strong growth in the development of various products and services derived from cryptocurrencies continues to infiltrate the mainstream, investors have already made moves, and this looks likely to go on throughout 2019. What matters are the further plans that institutional investors may have for the coming months.
Risk and curiosity
Large financial institutions, especially some of the more competitive and forward-looking major banks, have made no secret of their curiosity regarding cryptocurrencies and blockchains and how existing systems might co-opt them. Of course, this actually ignores the original thinking behind Bitcoin, which was intended to be a disruptive force that would offer a totally new and separate system for financial dealings and exchanges of funds.
In recent years, big banks have shown that they are more than aware of the world of crypto, but so far, few have dipped their toes into the waters by developing or launching blockchain-based offerings. One of the major areas that might see the first such moves could be cross-border payments, which could also have an impact for CFD forex traders. However, it is much more likely that the tracking of transactions and orders will be the first processes to benefit from the application of blockchain tech to a scale yet untouched.
Blockchain or Bitcoin?
Fragasso Financial Advisors Senior Investment Analyst Jim Sinegal believes that banks and other financial institutions will follow up on their interest in the world of crypto via blockchains rather than specific established digital coins
“The potential applications for blockchain technology are far wider than those for Bitcoin, and blockchain technology doesn’t come with the regulatory baggage that Bitcoin does, so most mainstream financial activity is still going to be focused on blockchain,” Sinegal said.
“Cross-border business-to-business payments are still slow and costly, so a public ledger makes a lot of sense in these areas,” he explained.
There is also a big overlap between financial activities and the way that they integrate into various international supply chains, such as the tracking of inventories and orders as they travel around the world. This means that banks that could offer innovative applications of blockchain tech in these areas would appeal to traditional companies in a manner that they would clearly understand and benefit from.
Developments are already moving in this direction, as towards the end of 2018, Goldman Sachs invested in a cross-border payments platform and American bank PNC joined the Ripple Network. In the Middle East, the UAE and Saudi Arabia collaborated on a blockchain-based international payments system.
Although blockchain tech might be a feasible factor in the crypto world, it is less likely that institutions will adopt existing digital coins. Deloitte UK Blockchain Lead Tyler Welmans said that he expects corporate investment in platforms and services related to crypto to grow but that the currencies themselves are less likely to benefit.
“With respect to public networks and cryptocurrencies, there are few signs banks are investing directly in cryptocurrencies, although plenty of niche investment funds are,” Welmans added. “However, we continue to see strong growth in the development of cryptocurrency-linked products and services, such as exchange trading, futures and custody services.”
Identity tokens
It is not just banks, funds and big businesses that are interested in crypto possibilities, as plenty of government-level observations are also taking place. The way that blockchain ledgers could apply to the tokenisation of identity is a concept that is raising interest among those involved in benefits, pensions and healthcare provision on national scales.
Of course, being able to verify identity is now also a huge business concern, with threats of data theft and the ever-growing number of online digital transactions causing the introduction of new measures all the time. Welmans commented: “For instance, many financial institutions are very interested in the prospect of harnessing blockchain-powered digital identities to simplify compliance and other checks which require verification of customer credentials.”
Potential
Although major cryptocurrencies seem to be facing difficulty in getting major mainstream investors to fully understand the potential that they offer, it is obvious that many banks and big players are curious about how different blockchain-based solutions could solve current and future problems.
“Banks remain interested in interbank payment and settlement technologies as well as in solutions which simplify trade finance administration,” Welmans said. “Asset managers are perhaps unsurprisingly most interested in new models for the tokenisation and management of traditional securities and other assets, with a number of projects expected to launch or evolve further in 2019.”
The crypto sector is still in its early days, as it has only been a decade since Bitcoin smashed its way into the public arena. It is no surprise that traditional business models are still struggling to realise the full potential of how these radical and evolutionary concepts and processes can apply to best practice. However, there is no doubt that institutional investors’ views of crypto are changing, which means that 2019 could be the year that developments really move up a gear.