A recent report from “Big Four” auditor, KPMG, details the key challenges facing cryptocurrencies, and importantly notes that digital assets are a “big deal.”
The report comes as institutions and corporations are becoming increasingly interested in cryptocurrencies as an investment class.
The KPMG report opens with a section titled “Cryptoassets are a big deal,” explaining that despite the markets still being nascent and small, waves of new entrants and increased public interest have led their parabolic upwards rise over the past several years, and their growth has made them “impossible to ignore.”
In this opening section, the report’s authors note a few key developments in the cryptocurrency industry that have increased their intrinsic values, citing the release of multiple stablecoins backed by major financial institutions, and the entrance of traditional financial service companies into the markets, like Fidelity.
“In 2018, we are seeing a wave of new entrants in the market such as security token platforms, stablecoins, and even established financial services institutions that are launching crypto products and services. Cryptoassets are now impossible to ignore.”
The Case for Crypto
Following KPMG’s introduction to the cryptocurrency markets and industry, they offer readers a bullish look at the future of cryptocurrencies in a section titled “The case for crypto and institutionalization.”
In this section, the authors open with a candid look at the problems that cryptocurrencies are trying to solve, citing issues with traditional means of wealth storage, fundraising, currency transfers, and the non-digital nature of assets in a digital world as the main issues that are solved by cryptocurrencies.
“So, is crypto a solution looking for a problem? No, there are real problems in the global financial services ecosystem that cryptoassets are looking to address. More participation from the broader financial services ecosystem, will help drive trust and scale for the tokenized economy and help the crypto market grow and mature,” KPMG explains.
Furthermore, the auditing giant notes that the future success of cryptocurrencies as both an asset and a tool is based on whether or not it can efficiently reduce the friction and inefficiencies that exist in the current financial ecosystem on a large scale.
“The staying power of many cryptoassets will be defined by their ability to reduce friction and inefficiencies that currently exist within the global economy,” KPMG said, further adding that their volatility is seen as being the main barrier to this, but that the issue of volatility will likely subside as the markets mature.
“While volatility is certainly a problem, it is important to recognize that these assets are still fairly immature and will become less volatile as they mature.”
Crypto Creating an Open Financial System
The next section in the report, titled “Creating an open financial system and why institutionalization is key,” tackles that issue of how cryptocurrencies can increase the transparency and accessibility of the world’s financial system, and is authored by two Coinbase executives.
In this section, Jeff Horowitz, the chief compliance officer at Coinbase, and Eric Scro, the vice president of finance at Coinbase, explain that in less developed countries, cryptocurrencies act as a gateway to traditional financial services for users in countries like Argentina.
“Let’s take the example of Argentina, where they currently see hyperinflation. A globally accessible, decentralized store of value could have a significantly stabilizing impact on
the country’s economy. Bitcoin could potentially represent such a store of value in the future,” the two men noted.
But in order for cryptocurrencies to increase the global accessibility and transparency of the financial ecosystem, cryptoassets need to be institutionalized, which will in turn increase their liquidity, accessibility, and utility, and for this to happen global regulators need to step in and seriously discuss the role crypto can play in the future financial system.
“Regulatory agencies are also beginning to seriously discuss cryptoassets, which could help drive institutional participation, encouraging the marketplace to think about how engagement with these assets fits into both existing rules and regulations and new frameworks that may be needed for crypto. The focus on crypto innovation must not come at the expense of security, compliance, and consumer protection,” they further explained.
Although increased regulation is critical for the future of cryptocurrencies, it is also cited in the KPMG report as being one of the main factors that is leading to stagnation due to the uncertainty it has caused, along with an increase in fraudulent activity and unclarity due to possible and unclear tax implications associated with the possession and trading of digital assets.
Although the markets are caught in a persisting bear market, with Bitcoin sitting at fresh 2018 lows, it is becoming increasingly clear that cryptocurrencies are becoming a serious asset class that will likely help shape the future of our world’s financial system.
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