KPMG, the Netherlands-based Big Four auditor, released a report on November 15 that reveals their incredibly bullish case for cryptocurrencies.
The report, titled “Institutionalization of Cryptoassets,” is 42 pages long and goes in depth on the key challenges facing cryptocurrencies, and why digital assets are a force to be reckoned with. It also has a strong focus on the institutionalization of crypto assets, explaining how and why institutions will enter the highly lucrative cryptocurrency asset class.
Right off the bat, the KPMG report opens with a bullish segment titled “Crypto assets are a big deal.” The section goes on to explain the parabolic rise cryptocurrencies had in 2017 and how they dwarfed traditional asset markets.
KPMG acknowledged the downtrend we’ve seen throughout 2018.
However, they claim that this is less important than the wave of new entrants into the space and the explosion of functional crypto products and services, concluding:
Cryptoassets are now impossible to ignore.
The Case for Crypto and Institutionalization
In the second section of the report, the authors opened with a rather scrupulous take on cryptocurrencies:
Of the more than 2,000 cryptoassets issued or generated, many, including those with lofty valuations, do not even have a functional product associated with them.
The report also delved into the problems cryptocurrencies are trying to solve.
They cited how Bitcoin is becoming an alternative to traditional wealth storage, how Ethereum has enabled an alternative method of fundraising through ICOs, how Litecoin has been used to transfer the equivalent of $99 million for less than $1 in transaction fees, and how tokenization has taken the non-digital nature of assets and made them viable in our current digital world.
KPMG then went on to explain:
So, is crypto a solution looking for a problem? No, there are real problems in the global financial services ecosystem that cryptoassets are looking to address. 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.
Moreover, the authors added that if cryptocurrencies are to succeed as both an asset and a tool, they must become easier and more efficient to use than the current financial ecosystem on a large scale.
KPMG also noted that one of cryptocurrency’s largest barriers to succeeding is its own volatile nature, which will improve as the industry matures.
Creating an Open Financial System and Why Institutionalization Is Key
One of the most interesting segments in the report was co-written by Jeff Horowitz, the chief compliance officer at Coinbase, and Eric Scro, the vice president of finance at Coinbase. These two men are very knowledgeable about the cryptocurrency industry and understand the importance of institutionalization for the future success of cryptocurrencies.
Before mentioning institutionalization, the Coinbase executives explained the fundamental importance of cryptocurrencies in less developed countries, using Argentina as an example:
Let’s take the example of Argentina, where they currently see hyperinflation. A globally accessible, decentralized store of value could have a significantly stabilizing impact on the country’s economy. Bitcoin could potentially represent such a store of value in the future.
They then explained that for cryptocurrencies to become viably accessible and useful in the global financial ecosystem, crypto assets will need to be institutionalized, as this will increase their liquidity, utility, and accessibility.
They also stated that before institutionalization can happen, regulatory authorities must first step in and seriously consider how cryptocurrencies can play a role in the global accessibility and transparency of the financial ecosystem.
Regulatory agencies are also beginning to seriously discuss cryptoassets, which could help drive institutional participation, encouraging the marketplace to think about how engagement with these assets fits into both existing rules and regulations and new frameworks that may be needed for crypto. The focus on crypto innovation must not come at the expense of security, compliance, and consumer protection.
You can read KPMG’s full report here. Other key information in the report include a discussion on compliance with regulatory obligations, accounting and financial reporting, crypto economics, and KPMG’s cryptoasset framework.