Bitcoin and the Future of Institutional Investment

Based on research by its research department, Morgan Stanley, a major multinational investment bank based in the US, reports that Bitcoin and other cryptocurrencies like altcoin currently represent a novel institutional investment class.

On Oct 31st 2018 a report titled “Bitcoin Decrypted: A Brief Teach-in and Implications” which updates earlier findings presents insights based on an overview of the last six months of Bitcoin. The findings of the report describe the rapidly mutating concepts of the market and perceptions of Bitcoin which was introduced into circulation as “electronic cash” in 2009.

Bitcoin and Evolving Financial Paradigms

Over time, Bitcoin became highly attractive to big banking cartels. By 2012, it was the preferred means of the transaction on the online black market. This market capitalization attracted entrepreneurs, tech-oriented individuals, activists, journalists around the globe while armies of blockchain-based crypto initiatives followed.

Bitcoin’s decentralized payment mechanism which is based on a distributed ledger is a veritable tool for facilitating new businesses because it enhances retail payment transactions such as e-commerce, person-to-person payments, and cross-border transactions at reduced costs. It is currently used as a store of value and is seen as a means of payment for the future.

According to the study, the recording of all transactions on a permanent ledger; the emergence of novel and cheaper technologies than bitcoin; market volatility; a volume of hacks and hard forks, predispose bitcoin and altcoins to be a “new institutional investment class”. It adds that regulatory approvals and increased participation of financial institutions substantiate this market thesis.

Challenges faced by clients interested in the cryptocurrency industry include regulatory disparities, the absence of regulated custodial solutions, and the lack of formidable financial institutions operating in the industry. Dr Zeynep Gurguc of the Imperial College London has prescribed scalability, usability, regulation, volatility, incentives, and privacy as criteria which need to be met for full incorporation into payment systems.

Stablecoins on the Rise

The report noted the continued rise of fiat-pegged crypto stablecoins after it began in 2017 citing the increase in the share of BTC trade volumes taken by USDT as a result of the fall in the prices of cryptocurrency. Exchanges were used in crypto for crypto trade with relatively few involved in the trade of crypto for fiat.

Regardless, the report submits that stablecoins may not last except relatively lower transaction costs, very high liquidity, and clear regulatory structures are sustained.