By David Drake
KPMG, a Big Four Audit Corporation, issued a report on last month agreeing, to a large extent, with the sentiments of other bullish investors that are already circling. According to the company, ignoring cryptocurrencies now is somewhat an impossibility. While institutional investors have remained on the fence regarding this nascent asset class, KPMG, in its 42-page long report, stated that this risk-averse group will likely embrace cryptocurrencies.
For this company, it’s no longer a matter of whether or not the big players will hop on board. It is more of what governments and other key industry players should do to make this happen.
The Necessary Action
One of the major reasons institutional investors have not been keen to test the waters is the wide scale scamming of millions of dollars in funds. Many exchanges still operate under unregulated schemes as governments struggle to adapt to existing ecosystems to fit the dynamic range of cryptocurrencies.
At the same time, mass adoption is still lagging behind and institutional investors are yet to be convinced of stability in the industry, a factor that is important to them according to BlockCommerce CEO, Bill Papacharalampous.
He says, “The first two problems that need to be solved are the distinct lack of mass adoption and the high level of dependance on fantastical forecasts and vaporware found throughout the industry. Let me go a bit further. We initially need to answer a basic question: “What are institutional investors looking for?” Most will say securities, real property and other traditional asset classes, or the origination of loans in the form of bonds, correct? That entire strategy is focused on stability.”
But governments are beginning to take steps to address some of these challenges. The KPMG report indicates that regulatory agencies are starting to discuss crypto assets seriously, a move that could encourage participation of institutional investors. But until regulations are put in place to safeguard assets and ensure against theft, the market will exist outside the realms of these large players. Institutionalization will afford greater utility, accessibility, and liquidity of these coins.
The KPMG report also makes mention of a myriad of stable coins that have been backed by reputable financial companies, and that have given rise to increased interest by some institutional investors. Prior to this, cryptocurrency exchanges were dependent on digital wallets to hold coins, which made them susceptible to hacking and huge potential losses. With banks increasingly opening their business to this asset class, the first signs of a certain foundation are evident.
The fact that crypto prices have been volatile for years is far less noteworthy than the number of new entrants the market has seen in recent years. Fidelity, a major financial banking institution, is a novice to the market, but a noticeable one. Its engagement in cryptocurrencies has caused key players to take note, and for confidence to increase that this asset class isn’t being eroded, but is simply gaining level footing.
Currently, the volatility within this asset class is its major downfall, it is what is keeping it from getting the respect it deserves from both regulators and big spenders. “The staying power of crypto assets will be defined by their ability to reduce friction and inefficiencies that currently exist within the global economy,” notes KPMG. They, however, believe that this level of volatility will likely decrease as the market matures.
What’s Next for Cryptos
It has long been argued that the crypto market needs institutional investment for it to reach its potential, KPMG now backs this viewpoint. Retail and individual investors that are likely to act on a whim, pulling out huge sums of money when fear is triggered, will keep the prices of cryptocurrencies in a volatile state. What institutional players will likely bring to space is security and huge bank accounts that will be able to sustain the market.
KPMG wasn’t always on board the cryptocurrency train. But, in light of new entrants to the market, the establishment of stable coins, and even the increased presence of financial companies, the firm believes and the rest of the world would agree that ‘crypto assets are now impossible to ignore’.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.