Evidence in 2020 Continues to Support Thesis that Multi-Trillion Digital Asset Market is Gaining Momentum

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We are witnessing an undeniable, broad-based expansion of our financial system through the addition of digital assets to the mix.

The Association for Digital Asset Markets defines digital assets as:

a cryptographically-derived digital instrument available on a public, private or permissioned blockchain or other form of distributed ledger, including without limitation instruments that represent, or facilitate the exchange of or access to, any digital or real-world asset, or any set of rights, protocols, or rules; or (ii) any option, futures contract, swap or other instrument or index, the value of which is derived wholly or principally from the value of underlying instruments meeting the description in clause (i). Digital Assets may be categorized in many different ways and may be subject to varying legal and regulatory regimes depending on their features or the manner in which they are issued or exchanged. This definition is intended to be construed broadly to include all instruments generally meeting the descriptions in clauses (i) and (ii) above.

Broadly construed, the markets covering digital assets has grown to more than $1 trillion, and the World Economic Forum estimates the market will grow to $24 trillion by 2027. Probably the most consequential development responsible for driving the adoption of digital assets is that financial and regulatory institutions worldwide are acknowledging the appeal of blockchain technology and an increasing number are at some stage of the design – implementation phase on some level.

Digital Assets Are Becoming a Core Institutional Offering

Noteworthy Developments in 2020:

  • February  – ICE acquires Bridge2 Solutions, a leading provider of loyalty solutions for merchants and consumers accelerating the development of a Bakkt consumer application to provide digital asset aggregation, conversion and payments through a single platform. (reference to $1.2 trillion digital assets global ecosystem);
  • June  – Nasdaq announced the release of its Marketplace Services Platform, a SaaS based cloud platform offering for marketplaces that includes a Digital Assets Suite, a DLT agnostic offering that provides clients with the ability to manage the full lifecycle of digital assets. Nasdaq is trying bring a trusted, financially graded service to market;
  • July. The U.S. Office of the Comptroller of the Currency (OCC) announced that all federally chartered banks can provide custody service for crypto assets.
  • July – Arca ArCoin launched the first SEC-registered closed end fund to issue digital securities using Tokensoft’s Transfer Agent and new open source ERC-1404 token standard. The fund is the first Ethereum blockchain-native investment fund registered under the investment Company Act of 1904.
  • August – INX registration statement on Form F-1 declared effective by SEC, the first foreign IPO in the US using Tokensoft platform.
  • September – Record trading volume of Bakkt Bitcoin Physically Delivered Monthly Futures contracts, 15,955 contracts, 36% increase over previous record of 11,706 in on July 28, 2020.
  • September 2020 – Federal Reserve Bank of Cleveland announced that it is working with several Reserve Banks to build and test a range of distributed ledger platforms.
  • October – HR8524, the Blockchain Records and Transactions Act of 2020 was introduced in the House, modifying the Electronic Signatures in Global and National Commerce Act (ESIGN Act) to ensure that smart contracts and records created and stored using blockchain may not be denied legal effect or validity solely due to the underlying technology.
  • October – The Digital Dollar Project published proposals for nine pilot programs to identify practical opportunities to test and evaluate  key features of US CBDC.
  • October – The World Economic Forum published blockchain global standards mapping initiative based on input from more than 30 technical standard-setting entities, 185 jurisdictions and nearly 400 industry groups.
  • October – The White House issued national strategy identifying distributed ledger technologies as one of 20 “critical and emerging technologies”  that US government departments and agencies identified to the National Security Council as priorities for their missions.
  • October  – Seven central banks (the US Federal Reserve, the European Central Bank, and the central banks of Canada, England, Japan, Switzerland and Sweden) and the Bank for International Settlements issued a report outlining three key principles for Central Bank Digital Currencies (CBDCs).

Against this backdrop, Fidelity Digital Assets conducted a survey amongst almost 800 institutional investors across the US and Europe, and found that almost 80% find digital assets appealing, 36% are currently invested in digital assets, and 60% believe that digital assets have a place in their investment portfolio.

Tom Jesop, President of Fidelity Digital Assets said that:

“These results confirm a trend we are seeing in the market towards greater interest in and acceptance of digital assets as a new investible asset class. This is evident in the evolving composition of our client pipeline.”

The upshot from all of this, is that with institutional support, investment (retail and institutional) will continue to stream into the digital asset class. In turn, this will drive liquidity, which will attract more investment, and the digital asset market self-reinforces.