What a difference two years makes. In 2017 US banking giant JP Morgan dismissed the sector as nothing more than a fraud. Last month, it announced it is launching its own “digital token.”
The news sent more than a tremor of anticipation across the fintech sector and after the announcement – aptly or not, made on Valentine’s Day – the prices of the core cryptocurrencies rose. Bitcoin, the original and the biggest crypto, and still very much the market bellwether, climbed by more than 10% in less than a week.
Bitcoin has, of course, slumped again. And, while it is clear that this Wall Street titan is not about to launch its “own cryptocurrency”– it’s actually a blockchain-based payment network that is private, controlled and very much owned, so everything that a “true” cryptocurrency is not – JP Morgan’s entry, in whatever guise, into this ever-developing yet still doggedly enigmatic sector cannot be ignored.
So has the much-anticipated mainstream institutional involvement finally arrived in the digital asset sector?
Oskar Fletcher, a partner at London-based investment firm All Blue Capital, thinks it has, regardless of what JP Morgan might or might not be planning.
All Blue Capital manages a portfolio of funds and companies with more than US$15 billion in combined annual revenue and describes itself as a pioneering and world-leading Blockchain investment firm and one of the largest institutional owners of cryptocurrencies.
As such, Fletcher keeps an experienced eye on the institutional side of the market and says the main factors that have so far prevented the traditional finance heavyweights from entering the sector have, largely, been fixed.
“The sector experienced extreme volatility in 2018,” Fletcher told Asia Times, “as the industry was riddled with mismanaged expectations on critical infrastructure implementation… ultimately, these combined and prohibited institutional participation.”
Crucially, however, Fletcher now says the core issues – regulation, insured and secure storage, and price volatility – are being solved and adds the institutions will have also noted how the sector’s tech backbone, the wider blockchain industry, made real progress in term of innovative in 2018.
Fletcher cites the fact that institutions such as IBM, American Express and even NASA have started to implement blockchain into their operations as a clear signal to the market that the tech is now ready for mass adoption.
In combination these factors will now allow for institutional market entry and, says Fletcher, will bring “the large scale buyers and the deep balance sheets that come with that.” And this, he says, will be a major price driver for the market.
“We think that the more this infrastructure develops then so the value of one of its key assets, Bitcoin, will inevitably grow.”
It’s a view backed by Arthur Breitman, co-founder of the Tezos blockchain network.
Bitcoin, says Breitman, has value by just being “the first.” This, he says, gives it a strong brand recognition and, in turn, gives it resilience. “When people think of this space, most people still think of Bitcoin. It is the default. And this makes it the most resilient.”
Breitman should certainly know about resilience. Over the last three years Breitman, together with his wife and co-founder, Kathleen, have had a tussle with the US financial regulator, the SEC, over the $230 million the Tezos Foundation raised at launch and have also gone through a bitter battle of control with a former Swiss partner that the Breitman’s employed to manage the network. They pretty much successfully negotiated both. “But it’s been a tough year, Arthur Breitman tells Asia Times.
Bitcoin, thinks Breitman, will remain dominant in the digital asset sector, at least for the next few years.
“If you are a medium of financial exchange, there has been a compelling reason for people to use you. Bitcoin’s market position currently gives it that. Bitcoin’s flaw, says Breitman, is that it won’t be able to benefit from any of the new research that is changing the sector.
“The issue for Bitcoin is that this is now a fast-moving space and there is a lot of interesting innovation coming along. Bitcoin, because its algorithm remains fixed, cannot benefit from the innovation.”
According to Breitman, “In the next 10 years, there will be significant market innovation consolidation… and the market will be dominated by less than five platforms.” He adds that blockchain will find its core usages within finance but real mainstream adoption will be slow.
There are, of course, numerous commentators from mainstream finance that do not reflect this positive long-term view. Possibly the most well known of these, billionaire Warren Buffett, took yet another swipe at cryptocurrencies at the end of February. He told CNBC that he felt blockchain technology has some “importance,” but Bitcoin, he said, remained “a delusion, basically” with no “unique value.”
His words come as no real surprise – the veteran investor has been consistently down on cryptocurrencies and last year said they will “almost certainly come to a bad ending” – but his views do pretty much reflect a wider sentiment of negativity toward cryptocurrencies from the mainstream financial establishment. However, there are many from within the sector that believe this viewpoint – blockchain good, crypto bad – fails to understand the technology that underpins the sector.
Lennix Lai, Financial Market Director, for OKEx, the world’s biggest, by volume cryptocurrency exchange says blockchain’s focus will remain in finance and believes institutions will increasingly start to understand the possible cost and speed benefits that can come with its application, especially with cross-border transactions
Lai says the OKEx exchange, that was founded in Hong Kong but relocated to the Mediterranean island of Malta last year, believes the next big innovation leap in the blockchain-based finance platforms will come from what Lai describes as “decentralized clearing and settlements.”
This, says Lai, will be “a game-changer to global capital markets.”
It is because of the fundamental market-changing potential of the sector that AB Capital’s Oskar Fletcher believes that the prices of the major cryptocurrencies will do more than stabilize and recover during 2019.
“By year-end,” says Fletcher, “we forecast that Bitcoin and Ethereum will grossly outperform global equities and both will begin a long-term bull run. Fletcher says he thinks Bitcoin will hit $7,800 in early 2020.
“There are of course external risk factors that could affect the market” continues Fletcher. “An escalating trade war with China, a presidential impeachment or a war in Iran or North Korea but there is also an argument that they could be positive for Bitcoin which could act as a store of value similar to gold.”
“Bitcoin only celebrated its 10th birthday in January,” concludes Fletcher, “and it takes time for a tectonic shift in behavior and technology but this is indeed taking place… in the Dot-com crash of 2000, some great companies, such as Qualcomm and Cisco, lost more than 85% of their value but the consolidation that followed saw many thrive. For example, Amazon went from nearly $100 to a low of $5 and now trades at more than $1,600.”
And for digital assets? Time, as ever, will tell.