It’s going to take awhile for the market to recover from the 2018 “Crypto Meltdown,” according to one former Morgan Stanley managing director. | Source: Shutterstock
By CCN.com: Patrick Springer spent 20 years working for Morgan Stanley as an investment specialist. Specifically, his job was to help institutional investors make informed decisions in global equity markets. Now, despite the bitcoin market meltdown, he’s flung himself headlong into crypto becoming an advisor for Polybird Exchange. Why? Because “it’s important for people to challenge themselves at different times in their careers.”
Despite no longer working for Morgan Stanley, after two decades on the inside he’s pretty well poised to provide his opinion on how — and when — institutional investors will enter the cryptocurrency space. And he believes we’re not there yet.
Institutional Investors Will Only Enter When the Conditions are Right
Wall Street companies, he says, will adopt aspects of blockchain only if certain conditions are met. This starts with sufficient demand from their existing clients. Blockchain technology also needs to provide them with significant cost savings or market share opportunities.
“The demand for bitcoin futures and ETFs by core institutional investors has still not been determined yet,” Patrick states.
The damage from the crypto meltdown in 2018 plus the numerous regulatory issues will take time for the market to digest.
At the same time, he adds, “incumbents in trading, settlement, and payments already have such large market shares and current systems are reasonably efficient for existing uses that there is not a lot of incentive to be an aggressive first-mover.”
Why Enter the Blockchain Space amid Such a Panorama?
Despite the bitcoin price crash, Springer firmly believes that blockchain-based securities are here to stay. “There is increasing confidence in stablecoins, and there will be new types of blockchain securities for investors to look at.
Tokenized assets, meaning digital tokens of real assets will begin, creating opportunities in many different types of asset markets.
Having worked with institutional investors for most of his career, he believes that the change will come. And that asset tokenization holds the key to unlocking the capital.
“Institutional and accredited investors will be attracted to an emerging asset class of tokens that provide ownership interests more easily or provide streams of income in a secure manner. Over time, bulge bracket players will look to provide investment solutions for their clients. Fidelity’s commitment and movement in the space is something to keep an eye on.”
Custody services for #digitalassets require a new approach, but are based on sound financial principles. More in our white paper: https://t.co/wVBLeCBvg4 pic.twitter.com/CM5VB0OPpP
— Fidelity Digital Assets (@DigitalAssets) November 7, 2018
As an advisor to the Polybird Exchange, he says: “What excites me about this project is that they are pursuing a market opportunity that many don’t yet understand, and it can bring huge benefits to individual investors, small and large companies, and to the efficiency of the global economy itself.”
The Importance of Asset Tokenization
Beyond offering an alternative system of finance, Springer sees blockchain as an “enormous threat” to the current system of consumer credit payments and bank transfer fees. However, it’s the digitization of equities, bonds, and assets that will really change the game.
There is an enormous opportunity to make different types of real estate investments available to more investors — and at the same time to make more financing channels available to real estate developers of all sizes.
Tokenizing assets — the process of digitally encrypting titles, licenses, and other rights and governed by smart contracts, will reduce frictions in the market. Listing them on a global marketplace where more investors can evaluate, value, and transact more seamlessly will lead to better capital allocation and a more efficient economy.”
The number of companies publicly listed on US stock exchanges has halved since the year 2000. In fact, some analysts are even saying that IPOs are dead. According to Springer, while the reasons for this are multiple, this suggests that:
Our current capital markets do not address the needs of large swaths of the economy. Digitizing assets can bring benefits to asset markets that are currently private in nature and have a lot of cost frictions. That is why I am excited about tokenization.
Is the Tokenization of Publicly Traded Companies Actually Feasible?
It sounds perfectly viable in theory, however, is it really possible? Instead of owning stocks and shares, can people really own fractions of assets through purchasing tokens?
“It’s entirely feasible, but the use case for doing it has to be fully developed and thought out, he says. “Currently, equities of public companies in major economies like the US trade and settle very efficiently. Liquidity varies by security but that depends on the underlying interest in the fundamentals of that security.
Tokenizing a currently existing security does not necessarily mean that there will be sufficient demand and liquidity for it. In the United States markets, there are many overseas ADRs (American depositary shares) that have very low liquidity.
In Japan, for example, there used to be many US companies listed on the Tokyo Stock Exchange, but there was very little demand there and eventually, most companies pulled their listings. There needs to be a use case.”
What About Regulation and the Stance from the SEC?
Springer recognizes that currently, the crypto space in the US is an uphill battle. However, he’s quietly optimistic that regulatory clarity will emerge, whether that’s in 2019 or beyond. He says:
“ICOs and tokens that came to market without the appropriate dialogue with and understanding from the SEC, FINRA, and other regulators, created a negative branding for all participants in the ‘crypto’ space.”
The regulatory outlook is indeed very challenging given that everyone, including the regulators, is in new territory.
“But we see the market for digital assets as an opportunity to make assets more transparent, more tradable, and more efficient, which regulators will ultimately appreciate.”
So, is Asset Tokenization Inevitable Then?
“Economics will drive the inevitability of it,” he says. “If blockchain can be made to deliver what is required for a more robust and lower friction asset markets, then asset tokenization will occur.”
Blockchain influencer Anthony Pompliano takes that sentiment one step further, insisting on Twitter that:
Every asset in the world will be tokenized.
Assets that will be tokenized:
1. Equity in public & private companies
2. Real estate (personal & investment)
3. Debt funds
4. Venture funds
5. High value collectibles
6. Public infrastructure projects
Every asset in the world will be tokenized.
— Pomp 🌪 (@APompliano) February 27, 2018
When Do You Think That Will be?
According to Patrick Springer, it’s already begun, he concludes:
Tokenization of assets began last year in my view with the offering by Harbor of South Carolina real estate. The tokens are available on their website. When more tokens and issuers come to market, a market place all need to develop.
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