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Is Institutionalization the Missing Driver of Bitcoin’s Fortunes?

A tokenized economy seems a distant concept as the cryptocurrency market flutters again, leaving influencers and experts again insisting that institutionalization may be the key to the market regaining the stability that it so badly needs.

With another 24-hour drop in major cryptocurrency prices, the current cyber-buzz is on Bitcoin Cash’s battle between its forks in Bitcoin ABC and Bitcoin SV, focusing on the potential damage this is causing to market stability, which at best is trying to re-find its feet after months of encouraging performance.

It has been suggested that this hash war is just a sideline to the main causes of instability in the cryptocurrency market, which is the lack of large-scale participation of fintech companies, banks, payment institutions, exchanges, broker-dealers, and other entities in the financial ecosystem.

Last week’s Bitcoin Cash hard forks coincided with Bitcoin, Ripple (XRP) and Ethereum shedding billions of dollars in value and has rebooted arguments among detractors that cryptocurrencies are proving to be an unsuitable store of value and, therefore, not yet equipped for currency status.

KPMG, one of the Big Four auditors, along with Deloitte, Ernst & Young (EY), and PricewaterhouseCoopers (PwC) has a completely alternative spin on this view and sees the lack of large investment across the field as the only missing link. KPMG chief economist Constance Hunter illustrates the problem:

“Consider for a moment extending a person or entity a loan in a cryptocurrency… The value is too unstable at the moment to be assured repayment. Under these conditions, neither lenders nor borrowers would be willing to take the risk of transacting in cryptocurrencies.”

The problem is how to attract the kind of investment needed to kickstart a tokenized economy which is ripe and poised to become the global financial structure of the future. Hunter suggests:

“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… Crypto products and services are already starting to pivot and the global financial services ecosystem is also beginning to retool itself for the tokenized economy.”

“I didn’t sleep well last night,” Travis Kling, founder of the hedge fund Ikigai commented. “There’s a small chance that it’s difficult to estimate, that something really bad could happen related to Bitcoin Cash that could then impact the entire crypto market.”

Such splits are clearly deterring Hunter’s big players from the market, argues Financial Times journalist Jemima Kelly in her story, Bitcoin’s repeated splits undermine its long-term value, who suggests, regarding the Bitcoin Cash fork, that “anyone trying to market such a thing — however many new bells and whistles they put on it — is essentially trying to sell hot air”.

KPMG maintains that somehow the market needs to regain its confidence and that the next step is around the corner, insisting, “Cryptoassets have potential. But for them to realize this potential, institutionalization is needed.”

Clearly, reinventing Bitcoin isn’t helping.

 

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