An Evolving Asset Class: The Future of Cryptocurrencies

By

An Evolving Asset Class: The Future of Cryptocurrencies
Bitcoin and the broader universe of cryptocurrencies, initial coin offerings (ICOs), and other crypto assets have dealt with some enduring problems. But the endurance of those problems has demonstrated the endurance of those investments.

“This has been going on for about nine years going into 10,” said Sandra Ro, founder and managing director of Vector Crypto Capital. “Bitcoin’s died 900 times.”

Yet it continues to make headlines.

Ro has spent years building expertise at the intersection of cryptocurrencies and large-scale financial institutions. She serves on the Global Blockchain Business Council and was a founding board director of the Enterprise Etherium Alliance. At the 71st CFA Institute Annual Conference in Hong Kong, she shared her insights with an audience of global financial professionals.

“We have a little bit of a problem right now in this space, in the sense that what is reality is not always lined up with mainstream perception of what’s going on,” Ro said. “And the industry is growing quite quickly, so there’s a lot of growing pains.”

Ro acknowledged that bad actors are coloring the broader perception of cryptocurrencies as an asset class. Meanwhile, regulators in some countries, especially China, are closing cryptocurrency exchanges and banning new ICOs.

But Ro sees developments in the crypto asset space as the evolution of transfer of value. And she acknowledges that the evolution is ongoing. “We really need to sort out some very fundamental technical issues that are still plaguing the blockchain space,” she warned.

“This is just very similar to a lot of markets that you see,” she explained, “where it starts off nascent, it’s a bit of Wild West, and now there’s evolution and maturation going on.”

That maturation will likely involve the failure of many over-hyped cryptocurrencies with little substance behind them. “Here’s the thing: There might be thousands [of cryptocurrencies today], but I doubt most of them will survive another year or two,” Ro said. For many of these currencies, survival will depend on how well they serve use cases and meet specific needs for a clearly defined audience.




The smart contract is one example of a need that cryptocurrencies and blockchain technology can meet, according to Ro. “If you and I agree to do a certain act regularly and recursively over X period of time, we can actually code that and make that effective on the Etherium platform,” she said.

Ro also said that central banks are considering ideas like digitized fiat currency, which would mean direct payments from governments. Her specific example involved a government paying money directly into the digital wallets of its employees, but her broader definition meant payments from governments that could bypass the banking system completely.

In the coming years, Ro anticipates regulation will becoming increasingly important for crypto assets, but the distributed nature of crypto technology will make such regulation difficult. “How can you regulate something that doesn’t have a center?” she asked.

She also challenged the notion that US regulators would ultimately decide how these crypto assets would be treated, pointing to the disagreements among multiple US regulatory agencies. “You’ve got the SEC saying it’s a security, the CFTC saying it’s a commodity, FINRA is saying that it’s money, and the IRS is saying it’s property.”

Ro praised Singapore and Switzerland for their treatment of cryptocurrencies and ICO offerings. But she believes that regulating the crypto space is too big a task for any one country. “This is a global problem, or situation,” she said. “It’s going to require coordinated global regulators — or at least regulators in their jurisdictions getting together globally and coming up with solutions.”

Experience the 71st CFA Institute Annual Conference online through Conference Live. It’s an insider’s perspective with live broadcasts and recorded video archives of select sessions, exclusive speaker interviews, discussions of current topics, and updates on CFA Institute initiatives.


All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image courtesy of IMAGEIN

This entry was posted in Alternative Investments, Investment Topics, News, Standards, Ethics & Regulations (SER) and tagged , , , . Bookmark the permalink.