Welcome to Chain Letter! Great to have you. Here’s what’s new in the world of blockchains and cryptocurrencies. | | The scene’s bipolar nature was highlighted again this week. On one end there is growing optimism that billions of dollars held in investment firms like hedge funds, family offices, and sovereign wealth funds—so called institutional investors—are about to enter the market. The idea is that this would create massive growth and help inspire mainstream adoption of crypto-assets. On the other end is the suspicion that digital coin prices are being propped up, and fear that if and when this comes to light there will be a massive crash.
Fidelity’s big splash: First, score one for the bright side of the coin. Yesterday, Fidelity Investments, one of the largest asset management firms in the world, announced that it’s launching a new standalone company that will offer storage and brokerage services for crypto funds to institutional investors. It’s perhaps the biggest endorsement of crypto-asset technology by an established financial firm since the owner of the New York Stock Exchange announced in August that it plans to launch its own digital asset exchange.
It’s widely believed that what’s keeping interested firms on the sidelines of the cryptocurrency market has been the lack of “custody” services for storing their clients’ assets and providing extra protection against theft or misappropriation. In fact, the US Securities and Exchange Commission requires that these big investors use “qualified custodians” that meet certain regulatory standards. Maintaining secure custody of crypto-assets is a technical challenge, though, because it entails safeguarding private cryptographic keys. A widely trusted financial firm like Fidelity offering a custody service could entice a lot more mainstream investment.
Tether, untethered: But don’t forget about the dark side. For the past several days, Tether, the popular “stablecoin” that is supposed to always be worth a dollar, seems to have lost its peg. On Monday, the price of a Tether coin fell to under 93 cents, an 18-month low. The price has recovered to around 98 cents as of the writing of this email, but the episode has nonetheless led to speculation that investors may be giving up on the coin.
Why would they do that? The main reason would probably be that although the company claims that every Tether coin is backed by a real dollar in a bank account, it hasn’t provided verifiable proof. Then there are the subpoenas that US financial regulators sent last December to Tether and its sister company, the popular exchange Bitfinex. Finally, there’s the academic research suggesting that certain big traders may have used Tether to prop up the price of Bitcoin and other cryptocurrencies, and the criminal investigation the US Justice Department has opened into whether something like that is actually happening.
The bottom line: Like so many things in crypto, both developments boil down to matters of trust. On one hand, we have a boost in optimism for the future of the cryptocurrency industry thanks the entrance of a company that many institutional investors trust. On the other, trust in the second-most traded cryptocurrency may be running out, and that’s contributing to a growing concern that the market may not be all it is cracked up to be. | | Loose Change Fill your pockets with these newsy tidbits. | | | In case you haven’t heard, NYU economics professor Nouriel Roubini is not a fan of cryptocurrencies, and says Bitcoin is the “mother of all bubbles.” (The Guardian) | | | | Binance CEO Changpeng Zhao has disavowed rumors that the exchange plans to delist Tether. (CoinDesk) | | | | Gemini, the Winklevosses’ exchange, has added support for Litecoin. (Finance Magnates) | | | | Gary Cohn, former economic advisor for President Trump and president of Goldman Sachs, has joined a blockchain startup as an advisor. (Bloomberg) | | | | Bitbox, the cryptocurrency exchange run by Japanese messaging app LINE, has made its own crypto-token, LINK, available for trading against Bitcoin, Ether, and Tether. (CoinDesk) | | | The Money Quote “You want some form of regulation. You want traffic lights and speed limits because then the public is confident to drive on the roads—in this case the crypto roads.” —Gary Gensler, former chair of the Commodity Futures Trading Commission under President Obama and current senior advisor to the director of the MIT Media Lab. Gensler recently spoke with Bloomberg about why he thinks cryptocurrency needs more regulations if mainstream adoption is the goal. | | | |
