Once the filthy, low-down enfant terrible of established finance, crypto currencies are now on nodding terms with some big City names. True, they may not yet have clearance to use the front door. But some wouldn’t feel the need. It’s a little, uh-huh, like that.
Coinbase Inc, a major crypto exchange, now has a UK e-money licence while a Coinbase subsidiary has an account with Barclays approved, meaning easier client deposits and withdrawals.
Given governmental worries about dirty money – dubious provenance and financial hygiene ickiness over this most brazen of asset classes – this is a step up. Oh, and Coinbase is on a UK hiring spree.
Establishment love wanted – or deserved?
So, a few sprigs of institutional acceptance? You don’t have to walk too far, or for too long, to smell the skepticism. Without regulations in place, nor a track record of meaningful enforcement, cryptos will remain volatile in the near term says Greg Adams, MD of block chain news resource Blokt.com.
“With often more than 20 ICOs launching in a single day,” Adams told Capital, “companies are still viewing crypto markets as a quick way to raise funds. Some of these companies have questionable ‘products’ with comparable marketing practices.”
Which is well known enough. But there's also the issue of scaling. “We're still probably around a year away from seeing some of the larger cryptocurrencies scale to meet higher demand. Without this infrastructure in place, I don't believe mainstream adoption can become a reality."
Coffee and cake – how much in Bitcoin?
Cryptoassets – a rather better name since not one cryptocurrency is issued by a central bank or is pegged to a currency leaderboard – represent well under 1% of the total global money supply.
Whether you think your granny will be able to buy a coffee and a bun with Bitcoin – or wonder if crypto could even take a meaningful chunk of the world’s money infrastructure – cryptos will grab 5% of the global money supply over time, says Daniel Wolfe of Tradingene, a blockchain platform allowing investing in trading algorithms.
Depending on who you talk to this is either deeply threatening or risible. But imagine raising capital without a venture capital meeting – or having to contort your company through multiple stock exchange hoops. That’s super-potent says Wolfe. He builds on Greg Adams’ point – wider institutional acceptance.
“Almost all the [Bitcoin] infrastructure was created for individual investors,” Wolfe told Capital.com in a call from the US. “The size of most trades typically at $5,000-$6,000 are small. So the fundamental reason why we haven’t institutional adoption is because of the lack of instructional infrastructure.”
Or, legal and accounting complexity: institutional buyers don’t have a clear and settled way to stick Bitcoin on the balance sheet.
Get real with governance
Throw in, too, the paucity of institutional-quality exchanges. Readying his own fund, Simoleon Long-Term Value, Wolfe had to spend a huge amount of time checking out exchanges. “Even if you look at the top 50, almost none have an exchange licence. Many have been set up without the creation of a legal entity.”
Governance standards for credible counter parties are mostly abysmal though this is claimed to be changing – witness the Coinbase move, which includes access to the Fast Payments Scheme, FPS. So no more round-the-houses trips via Estonia for payment and top ups.