This year has been a successful year for the digital asset markets, as evidenced by the growth in institutional flows and the positive shift in the regulatory environment. Take a look at the US Securities and Exchange Commission in September, which states that cryptocurrency exchanges that comply with SEC Rule 15c3-3 (Client Protection Rule) are free to trade digital securities.
Goldman Sachs recently named the new global head of digital assets, with more than 50 million people around the world investing and trading in cryptocurrencies at high volumes, just as JPMorgan did in February. Goldman’s move became a noticeable reversal after the P&L announcement in May, as an analyst questioned the legitimacy of Bitcoin (BTC) as an asset class.
The color of the digital asset markets changes from a mostly speculative nature, led by frequent individual traders in waves of volatility, to buying and holding in the long term. For example, both Yale and Harvard have rallied in recent months, as the Securities and Exchange Commission reported millions of dollars in investments in cryptocurrencies as asset classes continued to rise.
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Visa, Mastercard and PayPal recently announced that they also cover digital asset markets, and Visa recently posted on their blog:
“Digital currencies can add value to digital payments for more people and places.”
In fact, a growing number of organizations and governments around the world are using digital assets for trade, investment and direct payments. As proof of this, this year the World Economic Forum set up a consortium to manage digital currencies, including stacked government coins, which are increasingly used by central banks.
As of mid-July 2020, according to the BIS report, at least 36 central banks have deployed digital currency processing to retail or wholesale. At least nine countries have completed pilot projects for the Convention on Biological Diversity; 18 central banks publish research on central bank digital currencies in the retail trade and 13 research or development announced on central bank digital currency.
Regulatory clarity has gradually become a major obstacle to adoption by traditional investors and service providers, but changes are undoubtedly occurring.
In addition to the recent move by the Securities and Exchange Commission, the currency watchdog recently announced that national banks may offer crypto services, including owning clients’ private keys and other custodial solutions. Cryptocurrencies offer the possibility of a harmonious mix of state and federal regulations for money senders. This development in events makes the markets more attractive to room participants.
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According to a new report by Ria Bhutoria, Head of Research at Fidelity Digital Asset:
OCC’s July 2020 cover letter represents an important step forward in improving the convenience of traditional organizations with digital assets. To the extent that OCC-regulated organizations actually provide digital property management services, more investors and users may also find it convenient to trade, store, and use digital assets through brokers that meet the strict regulatory standards of the federal agency responsible for management. The banking system of the United States. ”
However, there is the chicken-and-egg problem: progress in organizing and developing the infrastructure needed to support digital asset markets has lagged behind activity in those markets.
Is regulatory uncertainty persistent?
As rules and regulations continue to be introduced and refined, a number of questions remain:
Will banks store customers’ digital ownership keys and facilitate transactions on crypto platforms, and if so, how; Or will they require customers to hire another vendor to risk this feature?
What are the key service offerings that can reduce or eliminate the possibility of transaction failure and asset theft, especially given the growth in crypto block trading?
How can cryptocurrency companies handle instrument price splitting and reporting?
How can cryptocurrencies navigate a rapidly changing and complex regulatory landscape?
It is unclear to what extent banks will pay attention to private keys and act as customers or increase the risk to other qualified service providers. An increasing number of primary crypto service providers are emerging that offer important functions for trading, lending, clearing, and settlement, and the competition for competition in this underserved sector is significant.