“Lots of surprises”: What role do institutional investors play the stock market


“Lots of surprises”: What role do institutional investors play the stock market

We offer you a translation of an article by Michael J. Casey, Chairman of the Advisory Council CoinDesk. He’s 18 years in the Wall Street Journal and is now involved in the initiative for digital currencies at MIT Media Labs, as well as advises the business on the challenges and opportunities of crypto-currencies.

The phrase “institutional cryptocurrency” sounds like an oxymoron. Isn’t it ironic that financial institutions use technology that was designed to do away with them?

Nevertheless, a number of recent events shows that institutionaly to come to this market to make a buck on it.

Depending on your relationship to the cryptocurrency and the blockchain it can invoke anxiety, high expectations, or just surprised. What do you want from cryptocurrency: independent control over their assets, more efficient and global economy or the chance to become insanely rich?

And although the inflow of institutional money may for some time to increase the price of the cryptocurrency, the clash between the financiers of wall street and gozlerimi— millionaires in the future promises more uncertainty and volatility.

Institutional repository

Two weeks ago, Fidelity Investments announced the creation of a platform for digital assets. The company ranks sixth in the world among companies asset management, will launch a platform for major investors, which among other things will provide “institutional preservation” of digital currencies. Cryptocurrency platform Bakkt, which Intercontinental Exchange is preparing to launch in December, will also provide services for storage of digital assets.

For supporters of the philosophy “own the Bank” the idea of third-party control is contrary to the ideals of cryptocurrency. On the other hand, it was inevitable. Banks, hedge funds and brokerage companies should participate in cryptoamnesia, while respecting the rules of law, insurance and risk management, which require that the assets were in independent stores. And let’s face it: a growing number of scriptaction is under the tutelage of third-party operators, whether popular software cryptomodule or of a centralized crypto currency exchange.

The key difference is that services for hedge funds and other professional investment firms are developed in fully regulated companies (such as Fidelity). Such depositaries, as State Street and Northern Trust, are also working on providing similar services. At the same time, a number of cryptocurrency companies (for example, BitGo and Coinbase) received from the regulators status of qualified custodians of digital assets, which allowed them to attract as clients to institutional investors, are closely related to compliance.


Race in service of institucionales boom similar to last year’s ICO, this year experiencing a sharp decline. The latter mostly due to negative market reaction to the ICO by the Commission on securities and exchange Commission (SEC), which claimed that the majority of tomenselo (if not all) violate the securities laws.

Now replace ICO’s new fashion phenomenon: STO.

STO (Security Token Offering) is a proposal licenzirovanie securities. Compared to ICO is in many respects less revolutionary idea. The majority of ICO they want to sell their tokens, which involve unique cryptoanalysis model of reward and encourage certain behavior in decentralized networks. The STO, in turn, offer licenzirovanie version of the traditional assets (bonds and shares).

R3 based major banks technology consortium for the development of distributed networks, has already called STO “third blockchain revolution.” It’s funny that the panel organized by the wall street and naslavcha over absurd is the ICO last year, is now using such big words. However TO really can have a significant impact on the industry, especially in the application of smart contracts and transition to a more direct model “the Issuer — investor”.

However, this impact will be felt mainly in the traditional investment companies, which are already present in the securities markets. It’s not about the democratization of Finance, which was assumed by the phenomenon of the ICO, with its direct access to retail markets.

Institutional structure, institutional model

All this shows us the overall picture: new services for the storage and trade digital assets are created for the major regulated entities in preparation for the influx of new securities that use the blockchain and smart contracts for the management of traditional assets.

Owners of bitcoins, ether and other scriptactive can count on a growing stream of orders from such investors in fact this is what caused the growth of prices. It is possible that the forecast will come true, but it might not go so smoothly.

The fact is that with all the efforts to shove a square cryptocurrency market into the round hole of regulated capital markets that are managed by intermediaries, there is a fundamental contradiction, which will not be easy to accept.

Dealers on wall street like to talk about crypto-currencies as a new asset class that can be placed near the stocks and bonds in the portfolios of clients. But at the moment, while the retail players dominate the stock market, this asset class (if you can call it that) will not behave as expected and very different. When you purchase bitcoin, ether, or other “clean” cryptocurrency, you are not buying a bit of property or a right to a share in the capital of the company — you buy the idea.

And this idea is supported by a very motivated, enthusiastic and not always rational community, involves the exclusion from the economy of those mediating institutions. I believe that the analysts of wall street may be difficult to cope with this contradiction. There will be many surprises. A surprise fed volatility.

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