Exchange Traded Products, Increased Institutional Activity and Regulatory Clarity
Last week we looked at a few trends in the crypto space that emerged in 2018. Our crypto experts including our Hehmeyer crypto traders and external sources; Ian Grieves from ErisX, Russell Rhoads from Tabb Group and Mike Unetich from Trading Technologies, believe the buzz around digital assets decreased, large players substantiated the market and “crypto” became more of a mainstream word.
This week we asked our experts to look ahead and tell us what they predict for 2019. Read below for what they believe we will see in the new year.
1. Further Introduction of Exchange Traded Crypto Products
Cboe Global Markets and CME Group have launched their bitcoin cash-settled futures contracts, but we are still waiting for Bakkt and ErisX to launch their physically-delivered digital asset futures contracts. Our experts believe that trouble with VIX exchange traded products impacted the way the SEC has looked at exchange traded products, but that 2019 will bring new digital asset instruments including an exchange listed bitcoin options contract and a bitcoin Exchange Traded Fund (ETF).
2. Increased institutional participation
Morgan Stanley released a report that institutional investors are increasing their involvement in bitcoin and other cryptocurrencies. This is in comparison to the number of retail investors in the space, which is staying stagnant. Forbes is also reporting that “more and more traditional financial institutions have started diversifying their portfolios with crypto assets.” Our sources agree and believe that this is a trend that will continue into the new year.
3. Regulatory clarity
In 2018, the International Monetary Fund (IMF) Deputy General Counsel Ross Leckow said at the Singapore Fintech Festival 2018 that the IMF was “devoting a lot of attention to fintech and in particular blockchain.” Also, the Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo said at the 2018 Global Financial Leadership Conference that, “in the future we see runaway digitalization of our markets. So much of our rules and rulebook was written for an analog world. So we’ve got to modernize.” With authoritative government officials dedicating time to fintech initiatives, our experts believe clarification around cryptocurrency rules and regulations will slowly start to make progress in 2019.
4. Network Improvements
Finally, critical to crypto's long-term success is adoption. Until now, there haven't been very many people using bitcoin as a payment solution, for example. Improvements include second layer solutions such as the Lightning Network, which will cause fees to use bitcoin as a payment system to go down, while also significantly increasing the transaction speed. Without technology improvement leading to real usage, the above three points won't matter long-term.
Do you agree with these predictions? While cryptocurrency prices have taken a hit, many market participants are staying positive when it comes to the growth and maturation of the digital assets market. If our experts are correct; more risk management products, institutional flow, regulatory clarity and network improvements will help our students, described last week, discover how their role will improve our global economy.
We hope everyone had a great holiday season and we look forward to a productive and prosperous 2019.