Can you trust Digital Assets?

Can we ever feel confident investing in something that is heavily influenced by volatile market conditions, and thus far, has a shaky history? Digital Assets are going to be an indisputable part of our future. PwC economists predict blockchain and digital assets will boost global GDP by $1.76 trillion by 2030.[1] But as revealed in a recent Harrington Starr survey, 54% of people say they can’t trust digital assets.[2] The crash of FTX and the crypto winter has undoubtedly filled many with anxiety. Money was lost and the industry was shaken as criminal proceedings ensued. Hyperbolic headlines dictated global news for weeks. However, if we consider the reality: we were only seeing a tiny (albeit significant) fraction of the digital asset’s world crumble. It exposed the sectors flaws, yes. But this emboldens us for the future, highlighting what we must do to translate its potential into tangible gains. A Fidelity Institutional Investor Digital Asset Study found that in 2022, 42% of US institutional investors held crypto, as did 67% of those in Europe. And 1in 10 of the adult population have owned crypto at some point.[3] This represents year-on-year growth. Alongside this, cryptocurrency-based crime also hit a new high in 2022… The Financial Conduct Authority revealed that in 2019 the received 1619 cryptoasset scam reports; in 2021 they received 6372.[4] So, let’s talk regulation. One of the benefits of digital assets is that they transcend borders — that’s also the biggest challenge facing digital assets. This throws a number of questions our way: · How do we escalate regulation to a global level? · Is a global centralised authority realistic? · If it is a plausible reality, who takes the helm? Post-FTX, Rostin Benham, Chairman of the Commodity Futures Trading Commission (the CFTC), implored Congress to create a new regulatory framework for digital assets. They asked for there to be a single regulator, one that would ensure there would be no conflict of interest or fight for power (as we’re currently seeing between the CFTC and the Securities Exchange Commission (SEC)).[5] Certain bills introduced to the Senate have made steps towards this, but consumers, firms and innovators are still no clearer on who they’re reporting to. If we fly across to Europe, we have a different situation ensuing. The European Union introduced regulation on markets in crypto-assets (MiCA). MiCA’s offerings differ from that of the CFTC, offering more of a framework rather than a definitive governing body. By implication, the EU is positioned as the governing force, but this is a standing that won’t hold. So, with such an uncertain future set to define digital assets, can we trust them? Such uncertainty and volatility would say no. But the future holds strong potential to paint a different picture. We have to remember that digital assets remain, relatively speaking, a topic still very much in its infancy. Experts featured in The Era of Convergence Documentary highlight the latter, and also the opportunity this holds for influential market players.[6] Digital Assets will never be synonymous with stability and safety. But we’re close to a future we’re they’re mainstream, accessible, and crucially, understood by all. [1] PwC Global, Blockchain technologies could boost the global economy US$1.76 trillion by 2030 through raising levels of tracking, tracing and trust, October 2020 — https://www.pwc.com/gx/en/news-room/press-releases/2020/blockchain-boost-global-economy-track-trace-trust.html [2] Harrington Starr LinkedIn Poll, Can you trust Digital Assets?, July 2023 — https://www.linkedin.com/posts/harrington-starr_digitalassets-restoringtrust-cryptowinter-activity-7084547523737985027-POJP?utm_source=share&utm_medium=member_desktop [3] Fidelity Digital Assets, 2022 Institutional Investor Digital Assets Study, October 2022 — https://www.fidelitydigitalassets.com/research-and-insights/2022-institutional-investor-digital-assets-study [4] Sarah Pritchard, Regulation of Digital Assets in the UK, April 2023 — https://www.fca.org.uk/news/speeches/regulation-digital-assets-uk [5] Deanna Reitman, Elizabeth S.M. (Liz) Caires, Michael Mapp, Eric Forni, Evan North (DLA Piper), Digital Assets regulation in 2023: Is a new regulatory framework finally emerging, February 2023 — https://www.dlapiper.com/en/insights/publications/2023/01/the-cftc-and-a-congressional-framework-for-regulation-of-digital-assets [6] Harrington Starr and The Realization Group, The Era of Convergence Documentary, December 2022 — https://www.youtube.com/watch?v=wiXlSbh49GQ