3 Ways Government and Industry Players can Attract Institutional Capital to the Cryptocurrency Space

David Drake

Crypto-assets are worth paying attention to, according a report recently released by KPMG. The audit firm points out that crypto-assets have the potential to solve some of the challenges that current economies face but must first attract institutional participation.

The report argues that institutions, such as exchanges, fintech companies, banks, payment providers, broker dealers, and others need to be involved in the cryptocurrency industry to ensure trust, utility and scalability is reached in the global financial system.

But for such synergy to be achieved, what role should industry players and governments play?

1. Regulation
One of the most significant boosts that governments can offer the cryptocurrency industry is developing clear, crypto-friendly regulation. Companies involved in crypto-assets recognize the role that governments have in protecting customers through regulation within their jurisdictions.

However, there is need to have progressive regulation tailored to the industry as opposed to working with regulations that were designed to target traditional financial institutions such as banks and securities. Crypto-assets are unique in their definition and therefore need appropriate regulations that will lead to their integration in the current financial system.

Due to their pseudonymous nature and the number of transactions that take place within the cryptocurrency space, governments also need to help simplify and automate the tax reporting aspects for crypto companies to comply with their tax liability.

2. Self Governance
For any business, risk management is an important. This means self-regulation groups such as US’s Association for Digital Assets Markets (ADAM) and Japan's Virtual Currency Exchange Association (JVCEA) have to play the critical role of securing crypto-assets to help the industry mature.

Moreover, industry players need to actively participate in putting in place measures to deal with hacking threats. They also need to develop clear guidelines on forking because, as we have witnessed in the recent cryptocurrency market crash, forking has far-reaching effects on resources and the market as a whole.

3. Product-Market Fit
One major problem that persists in the financial sector is that it is more time-efficient for an individual to withdraw a huge amount of money, buy a plane ticket and deliver the amount in another country than it is to sent the amount via the currency systems.

But for Bill Papacharalampous, the CEO,
BlockCommerce, the problem of mass adoption needs to be addressed for integration to happen, and this needs the participation of institutional investors.

He says, "The first two problems that need to be solved are the distinct lack of mass adoption and the high level of dependance on fantastical forecasts and vaporware found throughout the industry. Let me go a bit further. We initially need to answer a basic question: '
What are institutional investors looking for?' Most will say securities, real property and other traditional asset classes, or the origination of loans in the form of bonds, correct? That entire strategy is focused on stability. A real-world application and a high level of everyday adoption provides that same level of desired stability, and that is what we provide with BlockCommerce."

To achieve maturity and integration of crypto-assets in the current ecosystem, industry players need to be more innovative in solving challenges that plague economies to attract more institutional capital. According to the KPMG report, investments made to crypto companies that pursue problem solving technologies by venture capitalists has surpassed the $3.9 billion mark in 2018. For this reason, companies in the cryptocurrency space need to take advantage of the increasing investment and develop products and services that could solve such market gaps.

 Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.