Cryptocurrencies have the potential to change the world of finance, but will require institutionalization if they are to achieve these goals, this is according to accounting giant KPMG. Entitled ‘Institutionalization of cryptoassets’, its new report begins with the assertion that, against the thoughts of some outspoken individuals, cryptoassets are “a big deal”, stating that there are “real problems in the global financial services ecosystem that cryptoassets are looking to address”.
In addition to this, the report adds that “Global financial services institutions are looking to actively retool and participate in this blockchain-based tokenized economy.” There are however numerous requirements these institutions have that crypto must address, which in themselves bring specific challenges.
Custody
KPMG’s report stresses the need for the “…infrastructure required for large players to enter the space, such as a high-frequency, low latency matching engines, transparent and efficient price discovery tools and a qualified custodian that allows the safe storage of assets in a compliant manner.”
Various entities – including Coinbase – are already working on industrial-grade storage solutions, with many expected to join them in 2019, such as the Canadian bank that are set to open a digital vault. The Winklevoss twins also recently secured custodial insurance for their trading platform Gemini, a welcome development that will surely not be the last of its kind.
Regulation
Existing investment markets are heavily regulated, whereas Bitcoin and other coins have been traded largely regulation-free for over a decade. This has changed in recent years and even more so in 2018, with the introduction of regulations in numerous countries worldwide and a crackdown on illegal practices by exchanges and projects. In this vein, KPMG believes that “…leading crypto companies should aspire to meet the standards and leading practices established by traditional financial services companies.”
Challenges
Among the challenges facing the adoption of cryptocurrencies by institutions, KPMG includes compliance with existing regulatory frameworks, management of soft and hard forks, financial reporting and tax implications, KYC and coin provenance and security. These issues are representative of a product that was built for retail investors and that needs to be reshaped to fit an entirely different market – the very definition of a square peg in a round hole.
Bitcoin, and many other cryptocurrencies, were specifically designed to act as ideological alternatives to the very institutions that KPMG feel cryptocurrency should now be courting. It is no surprise therefore that cryptocurrencies can’t simply slot into such a tightly regulated framework, and indeed it is a topic for discussion as to whether they should in the first place.
Huge Potential
KPMG clearly feels that cryptocurrencies have the potential to make waves in the world of finance in the years to come, stating that “A new world of finance is emerging in which transacting in cryptoassets may become standard procedure.” Sadly, for crypto bagholders however, nothing is guaranteed and a great many hurdles have to be cleared first before the money that is known to want to invest is able to do so.
