By Samuel Leach.
Ten years ago, Satoshi Nakamoto published his revolutionary white paper outlining the concept for Bitcoin – a decentralised digital currency. The pseudonymous Nakamoto had a vision for a digital currency founded on the principles of cryptography, and his white paper ultimately paved the way for over 2,000 altcoins to follow closely in the footsteps of the original cryptocurrency.
Next month will mark a decade since the world’s first ever Bitcoin was mined, and yet it’s easy to recognise that digital currencies are yet to live up to their incredible potential. But with a significant amount of institutional investment of the horizon, regulatory standards being considered by governments across Europe, and Stablecoins reaching wider market adoption, could 2019 be the year that cryptocurrencies live up to their full potential?
Rising institutional investment
Many early investors in cryptocurrencies were drawn to them by their innovative nature and the potential for remarkably high returns. However, the absence of regulation, and the innate volatility of cryptocurrencies has meant that institutional investors have historically been reluctant to associate themselves with even the most well-known coins.
However, in a move that surprised their institutional peers, Goldman Sacs recently confirmed the launch of its own Bitcoin exchange. At the beginning of November, the multinational investment bank began onboarding customers to its new crypto trading desk. Intercontinental Exchange (ICE), the owner of the New York Stock Exchange, has also scheduled the launch of their bitcoin futures project for the end of the year. According to ICE, these contracts will be backed by bitcoin reserved held in its Digital Asset Warehouse, meaning that actual bitcoins will be transacted after the expiry of the contract.
Hedge funds also recently replaced high-net-worth individuals as the biggest buyers of large volumes of digital currencies – with transactions consistently reaching values of $100,000,000 or more. These hedge funds are purchasing coins from institutional miners in scheduled private over-the-counter (OTC) sales.
These announcements are all indicative of a shift towards greater adoption of cryptocurrencies amongst major institutions within the financial services industry, and as with many innovative technologies, these investments represent a major vote of confidence.
Improved regulatory oversight
While some industry insiders remain surprisingly sceptical about the potential impact that regulation will have on the cryptocurrency landscape, you only have to look to the volatility of the market over the past 12 months to understand why greater legislative oversight will have a positive impact on the industry. A balanced, transparent, legislative environment will not only be fundamental to the sustainable growth of cryptos but also to greater widespread adoption.
There’s little doubt that regulation represents a positive development for innovative new industries, particularly those faced with challenges in relation to their confidence, stability, and reliability. Regulation for the cryptocurrency sector will help to protect investors from rouge ICO projects run by disreputable companies, and also work to hold those behind schemes designed to lure in investment under false pretences accountable for their actions.
Earlier this year, the UK’s treasury committee recommended that the FCA extend the Regulated Activities Order to cover digital assets in order to provide the regulatory body with the necessary powers to protect consumers and maintain market authority. The committees’ recommendations also indicate that the establishment of a clear regulatory frame has the potential to position the UK as a global hub for cryptocurrency innovation.
Stablecoins are a type of cryptocurrencies pegged directly to a real-world asset, such as gold, or the dollar. This market is currently dominated by Tether (USDT) which currently accounts for 98% of all stablecoin trading volumes, however there are now over 50 stablecoins in existence. As implied by their name, stablecoins differ from traditional cryptocurrencies like bitcoin in their comparatively high stability. By striving to maintain price parity with traditional assets, stablecoins are protected from the market conditions which lead to the characteristic volatility associated with traditional cryptocurrencies.
In September of this year, a UK based start-up announcement the launch of a stablecoin pegged to the pound – marking the emergence of another contender to USDT’s dominance of the stablecoin market. For investors stablecoins like Tether can be utilised to safeguard gains made in other forms of cryptos. While for merchants and consumers they represent a greater sense of confidence and reliability.
There’s little debating that cryptocurrencies are yet to live up to their tremendous potential. However, with mass consumer awareness increasing, large financial institutions beginning to show positive signs of greater investment, governments making strides towards creating a more transparent regulatory landscape and new innovative products – like stablecoins – entering the market 2019 will likely be a year of great progress for both individual cryptocurrencies and the wider landscape as a whole.
Samuel Leach is the Founder of Yield Coin.