Understanding The Endgame Helps Investors Make Sense Of Seemingly Random Developments In Cryptocurrencies And Blockchain

Over the past few weeks, we have been talking about the core principles behind the unfolding cryptocurrency and blockchain revolution. And while understanding this big picture is essential for its own sake, it’s also important because it helps us put today’s developments in perspective. It gives us a framework for interpreting headlines and making sense of the barrage of news—good, bad, and in between—coming at us every day.

Let’s consider three key issues, and related headlines, and then we can address how to interpret the headlines in a larger context:

1) Institutionalization: The endgame for this whole Internet of Money, and Money of the Internet is for an emerging asset class to become mainstream—to become integral to the functioning of the global economy. That cannot happen, however, if large global financial institutions cannot participate in these markets.

Why is institutional participation important? First, because such institutions hold the majority of global financial assets. Second, because institutional participation could bring trillions of dollars of liquidity into the crypto ecosystem, helping to address a range of adoption issues, not the least of which is market volatility. Third, solving key problems faced by institutions (trade-ability, security, transparency, speed, efficiency, etc.) should also help solve some of the challenges to broader retail adoption.

In particular, one of the biggest stumbling blocks for institutions has been custody—i.e., a lack of vehicles that highly regulated institutional investors can use to hold blockchain-based digital assets. That is changing, and very quickly.

We got earth-shaking news last week when Intercontinental Exchange (ICE), the world’s largest stock exchange operator (owner of the New York Stock Exchange) announced the launch of Bakkt, a subsidiary aimed at creating “an open and regulated, global ecosystem for digital assets.” The offering will include federally regulated markets and warehousing along with merchant and consumer applications, according to the company.