The popularity of cryptocurrency is growing, but this does not mean that it will be financially successful. For example, Uber had 91 million users and still didn't make a profit. It admitted that it might never turn a profit. The question then is: how do we regulate cryptocurrency? And can institutional investors become interested in it?
Creating a primary financial institution for cryptocurrency may seem like a complex undertaking. While a cryptocurrency is a great way to facilitate financial transactions, it can also present a unique set of challenges. For one, it is not always secure and easy to use. This means that an institution that specializes in cryptocurrency may not be able to maximize short-term financial results.
The topic of regulation of cryptocurrencies has recently come up in a variety of articles. Some authors, such as Thomas Wade, think the cryptocurrency world is still poorly understood. Others, such as economist Peter THIEL, are convinced that it could change the world. The CFTC regulates Bitcoin futures, but there are no financial regulators for the spot market. This strange coexistence of a regulated futures market and an unregulated spot market is both bizarre and inefficient.
In Switzerland, the Department of Finance has begun consultations on new regulations for cryptocurrencies, hoping to make the country ready for the future of blockchain technology without impeding innovation. In 2021, the Swiss Federal Council voted in favour of a proposal to update financial regulations to include cryptocurrencies. This move is intended to prevent the illicit use of cryptocurrencies. In the European Union, regulations on cryptocurrency exchange vary depending on the member state. In the Netherlands, for instance, capital gains tax is applied to profits derived from cryptocurrency exchanges. In the United Kingdom, however, the Court of Justice of the European Union ruled that exchanges of traditional currency for cryptocurrencies should be exempt from VAT.
Blockchain technology is already being used in many applications. For instance, a new ledger system created by Honeywell Aerospace can record the manufacturing and maintenance history of each of its aircraft parts, which can be searched by customers and sellers. This can help streamline the reselling process and eliminate the need for intermediaries. Another application of blockchain is in the publishing industry. Most large hotel chains lose up to 30% of their total revenue to third-party booking services. In contrast, small, independent hotels lose only 18-22%. Blockchain technology can provide efficiencies in the booking process, so the publishers keep more of their sales.
The technology has the potential to transform many industries, including healthcare, supply chains, voting, and smart contracts. Because it is decentralized, it is also resistant to fraud. Because of this, blockchain technology has the potential to disrupt the $5 trillion dollar global banking industry and disintermediate key services.
With the rise of digital currencies, there is increasing interest among institutional investors. Many big banks and asset managers have already begun making significant investments in crypto-related products. A recent report from Fidelity indicated that institutional investors were increasingly looking to buy digital assets. In addition, several Wall Street firms have recently invested in crypto-related infrastructure and trading desks.
As more institutional investors become interested in crypto-related investments, the demand for pure-play crypto hedge funds is expected to grow. In fact, one-third of institutional investors already own cryptocurrencies, and another 47% are looking to add them to their portfolio. This is significant because it means that institutional investors are becoming more comfortable investing in digital assets.