Cryptocurrency and digital assets are some of my favorite investment products to market. We’ve developed some exciting inbound marketing campaigns and educational assets around crypto and mining for financial services clients and I am just bursting to talk about how this asset class continues to change the investing space. It’s too exciting to NOT talk about.
Despite the risk, cryptocurrency adoption is on the upswing and is taking a wild ride in global markets. Governing regulators are still trying to get a handle on how to manage it, but the writing is on the wall.
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With the meteoric rise in value for crypto markets, the biggest concern is to eliminate the potential for fraud, terrorism, and money laundering. The concerns are valid, but regulators are still struggling to establish guidelines. It seems that every time a country takes a swipe at taming the wild beast, the value seems to plummet.
Central to this building storm is the confusion about how cryptocurrency should be classified. On the one hand, the Commodity Futures Trading Commission (CFTC) classifies crypto as a commodity. On the other, the IRS views it as property. And for tax purposes, calculating the liability of your cryptocurrency investments isn’t cut-and-dried. Currently, you need to invest in some pretty advanced software to do so. You’ll also need a deep understanding of blockchain—what it is, how it works, and how it’s disclosed to the SEC.
Crypto Pervades Investment Products Across the Board
Recent events have indicated a seismic shift in the investment landscape where crypto is concerned. State Street, one of the largest asset management companies in the world, recently announced the creation of a digital finance division explicitly focused on blockchain, digital currency, and tokenization.
According to the company’s CEO and chairman, Ron O’Hanley, digital assets are among the most important things happening in the industry right now. Their digital platform, State Street Digital, will integrate with its current trading platform to develop it into something that supports crypto and other digital asset classes.
Ultimately, the risks involved with crypto revolve around the fact that it is, as yet, unregulated. Because of this, investors might soon be keen to partner with traditional advisors and proven platforms—a scenario that State Street, and others, are banking on.
How NFTs will Influence Crypto Investing
And it’s not just digital currency in play. Non-fungible tokens attached to artwork, music, and other digital assets, secured and traded on the blockchain, create exclusivity and digital scarcity that didn’t previously exist.
But what are NFTs, exactly?
Probably the easiest way to explain them is by comparing them to more conventional types of artwork; or even currency. Money, including cryptocurrency, is “fungible,” which means it is identical and can be traded for similar items of the same value. For example, one bitcoin can be traded for another, dollars for dollars, and so on.
NFTs differ in that they have a unique digital signature. One NFT cannot be traded for another, even if they are a similar type of product, like artwork, a music recording, an event ticket, or a video clip.
NFTs were first conceived in 2012 as a project developed by the creator of Ethereum, Vitalik Buterin. The idea evolved through various incarnations, and several organizations and game creators began using it to sell games, digital game assets, and collectibles on the Ethereum blockchain. The first NFTs were created on Ethereum, which also supports Ethereum cryptocurrency. NFTs are not restricted to Ethereum, but it’s the first blockchain to specialize in it.
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CryptoKitties is probably ground zero for NFTs. It’s a game where users purchase, collect, and breed digital cats, each 100% unique and unable to be taken away, replicated or destroyed. CryptoKitties have sold for up to $170,000. As a result, new marketplaces emerged to get in on this new phenomenon.
One of the most significant NFT sales was created by visual artist Mike Winkleman (aka Beeple), a collage of 5,000 daily drawings that sold at auction for a staggering $69.3 million. Before this sale, the artist had never sold a print for more than $100.
NFTs can be issued for just about anything, including physical goods, domain names, investments, collateral, and even real estate. They are irrefutable proof of ownership. They can also be used to confirm participation in a program, attendance at an event—or to bring it into present-day parlance, proof of vaccination—so it’s easy to see their value from an investment standpoint.
Authentication is part of NFT DNA. It proves ownership. An NFT can only have one owner at a time. Their unique identifying data makes it easy to prove and transfer ownership. Royalties can even be programmed into the NFT so that the artist/creator directly receives proceeds from resales without having to chase down or prove what’s rightfully theirs, and it’s all possible because of blockchain.
How Blockchain Will Change Trading
The combination of blockchain and NFTs are already revolutionizing the trading community. Central to the concept is that blockchain allows people to trade currency and items of value directly, without an intermediary. NFTs go hand in hand with blockchain, as they support the information contained in the ledger and prove ownership.
Sounds pretty simple, right? But—were blockchain to achieve widespread adoption, an entire industry of accountants, lawyers, bankers, brokers, and other middle-men and women would be (more or less) obsolete.
As the world progresses into its digital future, these changes are inevitable. But those that see the writing on the wall are finding ways to make it work for them. It’s simple, it’s elegant, and it’s coming. The closer we get to regulating cryptocurrency, the closer we’ll come to realizing the possibilities. With mainstream financial companies and commodities traders embracing the technology, the revolution might just happen a bit sooner, but it’s really just a slice of what’s possible.
Entire governments could be run on blockchain—from infrastructure to public spending, law enactment, court decisions, income tax, and more. Consider this—if your income and expenditures were recorded in a blockchain ledger, you wouldn’t need an accountant to file taxes, nor would there be the looming threat of an audit. Simple, fast, uncomplicated—and beyond the ability to fraudulently change a thing.
Looking Forward: NFT and Blockchain Implications
So, let’s take a moment to imagine the implications. NFTs eliminate the need for galleries, art dealers, song-pitchers, or publishers to mediate the deal. And the same holds true for crypto trades.
All things considered, it’s highly unlikely this will happen in our lifetime (can you imagine politicians being held to their word?), but the foundations are there. In time, who knows. It’s a much more efficient way of doing just about everything.
In the meantime, industries like logistics, the supply chain, agriculture, and luxury retail are adopting blockchain to manage business processes and enable product traceability and provenance.
And trading is no exception. Blockchain is currently revolutionizing the way complex trades are managed. They shorten timelines, eliminate unnecessary paperwork, and simplify every process. Much like anything else in life, the more people involved in a process, the more risk involved and the greater the potential for delays, errors, and inefficiencies.
Trading on blockchain-enabled platforms accelerates the process and helps traders close faster while mitigating risk. In commodities trading, blockchain verifies ownership of cargo in transit, adding a unique timestamp at every link in the chain and facilitating massive cost reductions, often in the realm of 30% or more in trading house costs alone.
Global Adoption Continues to Legitimize Cryptocurrency
Suffice to say, blockchain is penetrating all corners of industry, and what we see now is just the tip of the proverbial iceberg. Today, countries like Paraguay, Brazil, Panama, Argentina, and Mexico are moving towards accepting Bitcoin as currency.
In becoming legal tender, people will be able to convert and use Bitcoin for investing without additional tax implications. To reduce their dependency on the dollar, El Salvador became the first country to treat Bitcoin as currency. It’s likely most South and Central American countries will soon follow suit.
If your financial firm is looking for creative and innovative ways to educate your audience and market cryptocurrency or digital asset investing, connect with us or let’s start a conversation:
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