A digital horizon
13 April 2022
Brian Bollen talks to industry leaders about the increased interest in the NFT phenomenon and what it will mean for the UK and the rest of the world
Image: miastendal/stock.adobe.com
Almost a quarter of Britons have said they are ready to invest in tokens or non-fungible tokens (NFTs), according to a new national survey by Tokenise.
For the record, an NFT is generally accepted as a digital asset, such as an image, audio clip or GIF, whose ownership is recorded on a tamper-proof digital ledger known as a blockchain.
Tokens are seen as a new way to access assets previously reserved for the wealthy few. They are also seen as technologically secure forms of investment, according to the results of a survey of 2,000 people commissioned by Tokenise, which is set to be among the world’s first fully-regulated global stock exchanges
for security tokens.
“Tokenise is opening the door to the democratisation of ownership, where qualifying investors can own and trade a piece of what they love, as well as potentially unlocking access to previously untapped revenue for asset owners and artists,” proclaimed the company.
When asked about which investments they viewed as most risky, 41 per cent of Tokenise’s respondents said Bitcoin (BTC), 27 per cent company shares, 19 per cent oil, 17 per cent property, and 16 per cent gold. Just 11 per cent of respondents found tokens the riskiest form of investment.
Ease of access is also important, particularly for younger investors. When asked what contributed to their decision to buy tokens, 53 per cent of 18–24-year-olds cited the ability to invest online or through an app. Some 30 per cent of respondents had never heard of digital assets (tokens, fractional ownership, NFTs or cryptocurrency).
Across the UK, there are big regional differences in the knowledge and the appetite to invest in tokens. Some 41 per cent of Londoners, 27 per cent of those in the Northeast and 24 per cent in the Southwest are keen to use, buy or trade a token in 2022, while just four per cent in the Northwest and five per cent in the East Midlands have heard of tokens or NFTs.
Mike Kessler, Tokenise founder and CEO, said: “Our survey pinpoints shifting attitudes towards newer digital assets. We believe that tokens are close to a critical tipping point – the ideal climate for a fully-regulated exchange for security tokens to emerge.
“Crucially, this also marks the start of an exciting new era for investors who can own a piece of what they love and stand to potentially benefit financially. That is democratising a world – of art, wine, property – that few previously had access to.”
Tokenise did contain the cautionary note that any capital deployed in this way is at risk and that past performance is no guarantee of future performance.
Wallets
Elsewhere, according to data compiled by Banklesstimes.com, the top two wallets globally hold 1.2 per cent and 0.80 per cent of all BTC in circulation, respectively. The two wallets, which hold 252,597 BTCs and 168,010 BTCs, are held in Binance and Bitfinex exchanges, respectively. There are currently more than 41 million holders. An analysis of the top 100 holders show that they account for 14.11 per cent of coins in circulation, with the amount of BTCs held ranging from 252,597 to 9,000 BTC coins.
David Weisberger, CEO of crypto trading company CoinRoutes, says that regulatory uncertainty is one of the main themes currently dominating in the digital assets sector.
“The main theme of the market has been a multi-month trading range despite an impressive list of macro tailwinds for BTC in particular,” Weisberger explains. “Lending protocols have been stymied in the US by regulation while stablecoins are threatened as well. Small cap crypto and decentralised finance (DeFi) is certainly concerned about regulation, but also with hack events and governance concerns.”
How do those affect custodians and their clients? “Custodians have to be concerned with regulation, of course, but the biggest impact on them is the difficulty that large potential clients of theirs have in taking regulatory risks to invest in crypto directly,” he says.
Looking at how this has changed in recent times, Weisberger continues: “It seems like the ice is starting to thaw, with firms such as Cowen & Co offering crypto trading and BNY Mellon announcing custodial services, but most large brokerage firms are still reluctant to trade spot crypto.
More firms are setting up either internal arms to study crypto or have announced initiatives to begin trading.
“We believe the sector is attractive, based on two core beliefs. One, digital assets will grow to be the dominant form of all assets that are traded due to the efficiency, true multi-currency, and transparency of the trading mechanisms. Two, crypto, which represents three
new asset classes, will grow to be extremely significant,” Weisberger affirms.
“The markets are maturing rapidly, but progress is uneven between exchanges, market makers and clients.”
“I would say that in some respects, particularly the matching and network technology, the crypto markets are as immature as US-based stock exchanges were in the late 1990s. In other respects, the crypto markets are more advanced than today’s traditional markets, including public transparency and risk control. Technology and consistency of rulesets will continue to improve, with the result of improved liquidity and lower costs to trade.”
Weisberger adds: “Who are the main players in digital asset custody? We hear about Anchorage, Bitgo, Fidelity and exchanges such as Coinbase and Gemini. In addition, we hear of a few banks that are moving into custodial services and there are also quasi-custodial firms offering use of accounts such as FalconX, Hidden Road and Bequant. The list is certainly growing.”
Changing attitudes
Long-term evolution sometimes demonstrates that yesterday’s lunacy can become the new orthodoxy. Not that long ago, ESG was little more than a glimmer in the investment world’s eye. Now it is one of the dominant themes and no investment decision is considered complete without giving it thorough consideration.
The same is true of digital assets today, according to Mark Makepeace, CEO of Wilshire, the global investment technology and advisory company, and Doug Schwenk, CEO of Digital Asset Research, a provider of crypto data and research.
“Digital technology and DeFi are changing the financial industry’s business model by taking out huge costs. All investors analyse and they need a classification system to help them navigate the changes taking place in digital assets,” says Makepeace.
For those neophytes who think that 1,000 is a big number, Schwenk has a bit of news. “We are tracking over 10,000 digital assets that are fungible (that is, exchangeable), partly because the barriers to entry are very low. If you add in non-fungible assets, there are probably millions,” he says.
“It is going to be a whole new world, and we all have to educate ourselves and be prepared for that,” adds Makepeace.
The ink had barely dried on this paragraph when news broke of plans for the UK’s Royal Mint to launch an NFT as part of a plan to make the country a global crypto-asset hub.
Mark Basa, global brand and business manager at HOKK Finance, was quick off the mark to react. He says: “Honestly, I am incredibly excited for the UK to do this. The UK is extremely influential when it comes to certain fiscal policies, so I imagine this could have a ripple effect in the Commonwealth, where numerous nations follow suit and begin to rapidly accept crypto, issue NFTs, and use stablecoins as a major use of commerce.
“What is incredibly interesting is the UK government’s take on decentralised autonomous organisations (DAOs). I feel that once the true mechanisms of a DAO are understood, there will be a boom in companies shifting towards this sort of governing for both private and public entities, where governance tokens are issued in lieu of common stock.”
Basa concludes: “Also strikingly positive is how the UK government will look into DeFi loans. A major hurdle in crypto adoption will come down to how the mortgage market shifts towards DeFi, opening a plethora of opportunities for new and existing businesses to offer their customers loans on the blockchain.
“Depending on how the legislation is worded, I imagine that centralised banks will try to secure their place in DeFi, whereas decentralised platforms will continue to dominate until either cracks the code on how to get the average retail investor to adopt their lending protocol.”
For the record, an NFT is generally accepted as a digital asset, such as an image, audio clip or GIF, whose ownership is recorded on a tamper-proof digital ledger known as a blockchain.
Tokens are seen as a new way to access assets previously reserved for the wealthy few. They are also seen as technologically secure forms of investment, according to the results of a survey of 2,000 people commissioned by Tokenise, which is set to be among the world’s first fully-regulated global stock exchanges
for security tokens.
“Tokenise is opening the door to the democratisation of ownership, where qualifying investors can own and trade a piece of what they love, as well as potentially unlocking access to previously untapped revenue for asset owners and artists,” proclaimed the company.
When asked about which investments they viewed as most risky, 41 per cent of Tokenise’s respondents said Bitcoin (BTC), 27 per cent company shares, 19 per cent oil, 17 per cent property, and 16 per cent gold. Just 11 per cent of respondents found tokens the riskiest form of investment.
Ease of access is also important, particularly for younger investors. When asked what contributed to their decision to buy tokens, 53 per cent of 18–24-year-olds cited the ability to invest online or through an app. Some 30 per cent of respondents had never heard of digital assets (tokens, fractional ownership, NFTs or cryptocurrency).
Across the UK, there are big regional differences in the knowledge and the appetite to invest in tokens. Some 41 per cent of Londoners, 27 per cent of those in the Northeast and 24 per cent in the Southwest are keen to use, buy or trade a token in 2022, while just four per cent in the Northwest and five per cent in the East Midlands have heard of tokens or NFTs.
Mike Kessler, Tokenise founder and CEO, said: “Our survey pinpoints shifting attitudes towards newer digital assets. We believe that tokens are close to a critical tipping point – the ideal climate for a fully-regulated exchange for security tokens to emerge.
“Crucially, this also marks the start of an exciting new era for investors who can own a piece of what they love and stand to potentially benefit financially. That is democratising a world – of art, wine, property – that few previously had access to.”
Tokenise did contain the cautionary note that any capital deployed in this way is at risk and that past performance is no guarantee of future performance.
Wallets
Elsewhere, according to data compiled by Banklesstimes.com, the top two wallets globally hold 1.2 per cent and 0.80 per cent of all BTC in circulation, respectively. The two wallets, which hold 252,597 BTCs and 168,010 BTCs, are held in Binance and Bitfinex exchanges, respectively. There are currently more than 41 million holders. An analysis of the top 100 holders show that they account for 14.11 per cent of coins in circulation, with the amount of BTCs held ranging from 252,597 to 9,000 BTC coins.
David Weisberger, CEO of crypto trading company CoinRoutes, says that regulatory uncertainty is one of the main themes currently dominating in the digital assets sector.
“The main theme of the market has been a multi-month trading range despite an impressive list of macro tailwinds for BTC in particular,” Weisberger explains. “Lending protocols have been stymied in the US by regulation while stablecoins are threatened as well. Small cap crypto and decentralised finance (DeFi) is certainly concerned about regulation, but also with hack events and governance concerns.”
How do those affect custodians and their clients? “Custodians have to be concerned with regulation, of course, but the biggest impact on them is the difficulty that large potential clients of theirs have in taking regulatory risks to invest in crypto directly,” he says.
Looking at how this has changed in recent times, Weisberger continues: “It seems like the ice is starting to thaw, with firms such as Cowen & Co offering crypto trading and BNY Mellon announcing custodial services, but most large brokerage firms are still reluctant to trade spot crypto.
More firms are setting up either internal arms to study crypto or have announced initiatives to begin trading.
“We believe the sector is attractive, based on two core beliefs. One, digital assets will grow to be the dominant form of all assets that are traded due to the efficiency, true multi-currency, and transparency of the trading mechanisms. Two, crypto, which represents three
new asset classes, will grow to be extremely significant,” Weisberger affirms.
“The markets are maturing rapidly, but progress is uneven between exchanges, market makers and clients.”
“I would say that in some respects, particularly the matching and network technology, the crypto markets are as immature as US-based stock exchanges were in the late 1990s. In other respects, the crypto markets are more advanced than today’s traditional markets, including public transparency and risk control. Technology and consistency of rulesets will continue to improve, with the result of improved liquidity and lower costs to trade.”
Weisberger adds: “Who are the main players in digital asset custody? We hear about Anchorage, Bitgo, Fidelity and exchanges such as Coinbase and Gemini. In addition, we hear of a few banks that are moving into custodial services and there are also quasi-custodial firms offering use of accounts such as FalconX, Hidden Road and Bequant. The list is certainly growing.”
Changing attitudes
Long-term evolution sometimes demonstrates that yesterday’s lunacy can become the new orthodoxy. Not that long ago, ESG was little more than a glimmer in the investment world’s eye. Now it is one of the dominant themes and no investment decision is considered complete without giving it thorough consideration.
The same is true of digital assets today, according to Mark Makepeace, CEO of Wilshire, the global investment technology and advisory company, and Doug Schwenk, CEO of Digital Asset Research, a provider of crypto data and research.
“Digital technology and DeFi are changing the financial industry’s business model by taking out huge costs. All investors analyse and they need a classification system to help them navigate the changes taking place in digital assets,” says Makepeace.
For those neophytes who think that 1,000 is a big number, Schwenk has a bit of news. “We are tracking over 10,000 digital assets that are fungible (that is, exchangeable), partly because the barriers to entry are very low. If you add in non-fungible assets, there are probably millions,” he says.
“It is going to be a whole new world, and we all have to educate ourselves and be prepared for that,” adds Makepeace.
The ink had barely dried on this paragraph when news broke of plans for the UK’s Royal Mint to launch an NFT as part of a plan to make the country a global crypto-asset hub.
Mark Basa, global brand and business manager at HOKK Finance, was quick off the mark to react. He says: “Honestly, I am incredibly excited for the UK to do this. The UK is extremely influential when it comes to certain fiscal policies, so I imagine this could have a ripple effect in the Commonwealth, where numerous nations follow suit and begin to rapidly accept crypto, issue NFTs, and use stablecoins as a major use of commerce.
“What is incredibly interesting is the UK government’s take on decentralised autonomous organisations (DAOs). I feel that once the true mechanisms of a DAO are understood, there will be a boom in companies shifting towards this sort of governing for both private and public entities, where governance tokens are issued in lieu of common stock.”
Basa concludes: “Also strikingly positive is how the UK government will look into DeFi loans. A major hurdle in crypto adoption will come down to how the mortgage market shifts towards DeFi, opening a plethora of opportunities for new and existing businesses to offer their customers loans on the blockchain.
“Depending on how the legislation is worded, I imagine that centralised banks will try to secure their place in DeFi, whereas decentralised platforms will continue to dominate until either cracks the code on how to get the average retail investor to adopt their lending protocol.”
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
