By David Drake
This year has seen the creation of more than 100 cryptocurrency hedge funds. Several large financial institutions have announced plans to launch cryptocurrency trading. Development of blockchain-based innovations has also hit a whole new level. Creation of platforms such as Gath3r for web-mining monetization, IOU for e-commerce loyalty solutions and URAllowance for family smart contracts has seen companies utilize blockchain technology to solve real problems.
These changes have seen different players, including cryptocurrency exchanges, position themselves to facilitate the entry of institutional investors into the cryptocurrency space. Coinbase, the largest cryptocurrency exchange in the US, is one such player.
In May of this year, Coinbase launched a new service called ‘Coinbase Custody’. Through this service, the cryptocurrency exchange targets big financial institutions and is part of an institutional product suite. At the time of the launch, Coinbase said the maturing cryptocurrency market is rapidly attracting institutional players.
But the launch of Coinbase Custody service isn’t the only thing that the firm is doing to attract institutional investments. Towards the end of July, Coinbase hired a chief compliance officer for the very first time. Jeff Horowitz joined the cryptocurrency exchange from Pershing LLC, a subsidiary of BNY Mellon.
In a published welcome message, Coinbase president and COO, Asiff Hirji, acknowledged the need to manage the compliance complexities that face the global cryptocurrency market.
“Hiring Jeff is recognition on our part that navigating compliance complexities on a global scale requires a concerted, cross-functional effort, guided by leaders with experience that spans policy, financial services, and corporate governance,” Hirji noted.
Having held similar positions in Goldman Sachs, Salomon Brothers and Citigroup, Horowitz brings a wealth of experience in anti-money laundering, regulatory and compliance programs to Coinbase. By tapping into Horowitz’s vast experience, Coinbase is looking to make the digital asset class more appealing to institutional investors and encourage them to diversify their portfolios with digital assets.
Institutional investors will find huge investment opportunities in platforms such as Noiz Chain, the re-engineered ad network, Bank52 for blockchain-based and cryptocurrency banking, and BQT, the social peer to peer hedge fund trading platform.
As Horowitz settles in his new job, cryptocurrency players feel he will need to focus on specific issues in order to capture institutional investors and bring them on board on Coinbase.
According to Bryan Stone, CEO of HFC Coin, one of the things he could do is hire people from hedge funds to work in his department.
He says, “Horowitz could hire directors and managers from the traditional hedge fund world, use the Coinbase platform to promote projects that demonstrate clear use cases for cryptocurrency and blockchain technology and provide thought leadership to help resolve the legal and technical issues that prevent widespread adoption of crypto investing by traditional funds.”
For John Hoelzer, CEO and founder of ONe Network, Horowitz’s attention should be on creating index-type classifications that institutional investors can invest in.
He says, “It may be helpful to create a spider or index type of classification to invest in. The fact that digital currency and assets are the future of exchange of value and will work alongside government currency (which will also be digital) to bring people living in poverty and not connected to the world of credit and banking to the table to produce their own value and means of exchange. If most people are comfortable with putting large, if not all, of their earned assets and money into the stock or bond markets after the 2008 collapse, with proper oversight and consumer protection, the digital asset market should be a vital diversification option for these investors.”
Andrei Huseu, CEO of Wealthman, shares similar thoughts. He says, “It makes sense for him to focus on the issue of centrally accounted derivatives on crypto assets. It could be the funds, ETFs, or futures.”
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.