It will take a long time for cryptocurrencies like Bitcoin to attain the status of a store-of-value asset, said KPMG in its latest crypto study.
The Big Four firm’s “Institutionalization of Cryptoassets” report asserted that assets like bitcoin could neither be used as a medium of exchange nor a store of value, mainly because of lack of trust and scalability. It suggested that crypto sector must undergo institutionalization if it plans to thrive any further concerning stability and adoption.
“More participation from the broader financial services ecosystem will help drive trust and scale for the tokenized economy and help the crypto market grow and mature,” declared KPMG chief economist Constance Hunter.
Institutionalization, according to the KPMG report, defines large-scale participation of fintech companies, banks, payment institutions, exchanges, broker-dealers, and other entities in an industry. The involvement of major institutions in the crypto space could validate its potential to reduce friction and inefficiencies that exist in the current global economic system.
As of now, the crypto market is undergoing a phase of speculation driven by investments at the retail levels. Individuals are betting more on the potential of cryptos than on what they can practically deliver, resulting in maximized risks in a mostly unregulated space. The KPMG study posed compliance with regulations as one of the challenges facing the cryptocurrency industry, stating that crypto businesses would need to clearly define their product before the regulators.
At the same time, a coherent approach at defining comprehensive legal parameters for crypto space could allow big businesses to enter significant capital into its market.
According to Coinbase, a contributor to the KPMG report, the market will transit from the speculative phase into the institutionalization one as it explores adoption by the world’s most prominent financial institutions. The San Francisco company maintained that they are already building scalable platforms required for “large players to enter the space,” adding that they would feature “high-frequency, low latency matching engine, transparent and efficient price discovery tools” to attract significant monies.
The KPMG report mentioned that Coinbase would also be a qualified custodian that allows the safe storage of assets in a compliant manner.
“Institutions have a different set of requirements than retail consumers and need to see a focus on compliance, transparency, and governance to use and transact with crypto comfortably,” it explained.
Regardless of the interim challenges faced by the cryptocurrency industry, the KPMG report predicted a bright future for it.
The study believed using cryptos would be a standard thing in the future as participants become more comfortable with them. It would – of course – happen when institutions find solutions to manage compliance, taxes, software upgrades (hard forks), security, financial auditing, and asset provenance.
“New tokens and assets are one thing, but new business models and market participants may redefine the space significantly over the next few years,” KPMG indicated.
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Last modified: March 4, 2021 3:10 PM