Will 2024 herald the rise of institutional digital assets?
A recent Era of Convergence panel debate between TradFi and DeFi industry specialists to debate on whether 2024 would be the year that institutional digital assets would really take off was a timely reminder of how the financial industry narrative has evolved since the early days of the crypto ‘Wild West’, to a more measured approach to the opportunities presented by new digital assets and technologies within traditional financial markets ecosystems. Traditional assets are being expressed increasingly in digital form — for example, in the form of tokenised assets such as stablecoins; and an estimated $7 trillion in traditional assets is estimated to be targeted for transformation over the next five to seven years. This might be as a result of cash instruments being presented as stablecoins, bonds being presented as registered tokens, or a myriad of other digital forms.
It is clear that the conversation around the convergence of traditional and decentralised finance has moved on, from how traditional finance firms might look to adopt and embrace digital assets, to how this trend is affecting real transformational change. There are, however, steps that still need to be taken to improve institutional investor understanding of this market.. One of these is greater public-private sector cooperation; this is particularly important since public sector organisations cannot compete with FinTech’s when it comes to hiring people with a track record of success with respect to new digital technologies and assets. There also needs to be an educational drive across the financial services sector. There is a lot of discussion about “real money” investment in digital assets, but there is also a case to be made that the application of blockchain technology has been under-analysed on the basis that investors who utilise blockchain technology to hold digital assets or tokens are also participants in wholesale markets.
Increasing awareness of how to apply decentralised finance principles to traditional assets is an exciting development — especially among firms that don’t have strong views on digital assets (including crypto) as an investment thesis but hold these assets as a result of something else they’re doing. One particularly interesting example given to illustrate this might be an energy firm using electricity that it cannot sell to mine Bitcoin. There are also very large asset owners that have never been able to put these assets to use properly who…