The crypto bubble hasn’t altered the intrinsic value of crypto assets – but it should change our outlook on how they will evolve.
To be frank, the cryptocurrency market hasn’t been in an optimal position since the start of the year, with prices crashing by upwards of 70% after the monumental run-up of 2017. However, according to analysts from Sanford C. Bernstein & Co, an American investment management and research house, crypto exchanges are still expected to post hefty revenues by the end of 2018.
In fact, collective revenues could double to upwards of $4 billion this year in comparison to last year’s figures, even if the market continues to head lower. According to Bernstein’s analyst team, the purchase and sale of cryptocurrencies on spot market exchanges generated an approximate $1.8 billion of fees last year (based off average transaction/trading fees).
To give this figure some perspective, the revenues generated by crypto exchanges are 8% of the fees incurred by investors on legacy market exchanges, an impressing statistic to say the least.
Although some were skeptical of the $4 billion projection, evidence posted by top crypto exchanges seems to tell a different story. As reported by Ethereum World News in early-July, Binance is expecting to rake in nearly $1 billion in profits in 2018 alone, despite the dismal performance of the market in the first 8 months of the year.
Many attributed this substantial figure to the relatively high fees Binance charges, along with the rumored listing fee that some speculate is upwards of $2 million per token. While the latter source of revenue is an ongoing source of controversy, the former has been accepted by the crypto community as fact. For most traders, Binance charges a 0.1% fee for the maker and taker of an order. While a 0.1% fee may sound near-negligible to many, incurred fees can rack up over time, often eclipsing how much a trader may be charged by a traditional markets brokerage, like TD Ameritrade or Charles Schwab.
For many premier exchanges, it is much of the same, with many other crypto-to-crypto platforms charging fees that are comparable to Binance, if not even more. Additionally, exchanges that support fiat-to-crypto even charge additional fees for the deposit and withdrawal of fiat.
Legacy Firms Want In On Crypto, Or Do They?
Taking the aforementioned statistics and forms of revenue into account, it quickly becomes apparent that this flowering industry remains lucrative. The potential for staggering revenue figures and high-profit margins has led Wall Street veteran firms, like Goldman Sachs and JPMorgan Chase, to metaphorically dip their toes in this budding space. Adding more credence to this thought process, the aforementioned analyst team wrote:
“As the crypto-asset class seasons and institutional demand builds, there are a plethora of opportunities for traditional firms.”
These individuals later noted that traditional firms could make a foray into this industry by providing custodian, asset management, and market-making services to an array of investors.
However, some fear that due to rampant regulatory concerns and rapidly-fluctuating prices that Wall Street firms will be hesitant to make a meaningful move on the market. As such, Coinbase, which accounts for a speculated 50% of the transaction revenue pool, may end up in an “unassailable competitive position” in the future.
While crypto space will undoubtedly continue to develop, it may be a few more years before traditional institutions offer spot market support for the masses.
Cryptocurrency custody services are seen by many as the next step for institutional adoption. As per a Bloomberg report released on Monday morning, Goldman Sachs, one of the most respected financial institutions in the world, is considering the creation of an in-house custody service.
This news comes only a few months after Goldman Sachs began to trade Bitcoin futures for its clients, with this being the first substantial move that the firm took to back the crypto industry.
Citing people familiar with the matter, Bloomberg journalists pointed out that this service, if created, would be aimed at clients (likely institutional investors/firms) looking to safeguard their valuable crypto-asset investments from cyberattacking attempts. The unnamed insiders clarified that no solid plan is set in place yet, adding that there also isn’t a definitive timeline for the development and potential release of this service.
While custody doesn’t sound like much on the surface, it is likely that the release of a fully fledged Goldman-backed crypto service would hail in the next round of institutional involvement, likely pushing innovation and prices in this nascent industry to new all-time highs.
However, a custody service may not be the be all and end all of the firm’s crypto-related aspirations. The insiders went on to note that a successful custody offering could lead the New York-based financial giant to launch other crypto-focused ventures, such as a prime brokerage in upcoming years.
While neither confirming or denying the existence of a move towards custody, a representative of Goldman Sachs stated:
“In response to client interest in various digital products we are exploring how best to serve them in this space. At this point we have not reached a conclusion on the scope of our digital asset offering.”
Oddly enough, this news comes only a few days after the firm’s investment strategy group (ISG) revealed that they hold an aversion to cryptocurrencies. In a report from Goldman’s ISG, investment officers at the firm noted that they expect cryptocurrency values to decline moving into the future, adding that cryptos do not hold the prerequisites required to be classified as bona-fide currencies.
While this was an overall set of bearish sentiment, Nathaniel Popper, the author of Digital Gold and a well-known journalist at the New York Times, pointed out that this is only the sentiment held by one portion of the firm’s expansive employee base.
Goldman Isn’t The Only Wall Street Firm To Step Into The Crypto Boxing Ring
It is important to note that Goldman is not the only legacy market-centric firm to make a foray into cryptocurrency-related products, or custody to be more specific.
As reported by Ethereum World News in early-June, Fidelity Investments, an American finanical services firm with $2.5 trillion under management, has begun work on a “first-in-class custodian service for Bitcoin and other digital currencies.”
Pete Chercewich, the President of Northern Trust’s corporate and institutional services subsidiary, told Bloomberg that his firm has also begun to develop a method of reliably securing crypto assets. The executive of the financial giant also noted that the plan is to offer custody support at industry-low fees, beating out the relatively high cost of alternative institutional-focused security solutions.
While taking into account the moves made by a multitude of Wall Street firms, it becomes apparent that Goldman may have some competition to deal with when it comes to offering the most reliable crypto services, for the most affordable prices.
Image Courtesy of Jason Baker/Flickr
Stern School of Business – well known New York University, has just declared that it is going through the making of an undergraduate course on cryptocurrencies.
These kind of movements from NYU were made even before back in 2014 entering the ecosystem while being the first to have ever provided a graduate course on virtual currencies
David Yermack – Department professor and leader of the [for the moment] going-on graduate level course will be also head of the new class.
In his remarks on the announcement, Yermack asserted the blockchain revolution is “probably as important as the introduction of double-entry bookkeeping,” also going on to say that there’s “enormous student interest [in the course], for the jobs it offers. ”
Indeed, the new class is poised to be a smashing success, as Yermack is moving his older grad course on cryptocurrencies into “our largest auditorium, with capacity for 350 students.” The undergrad class should be just as popular.
Cryptocurrency course to break ground in NYU https://t.co/VeSSOMf05r
— CryptoMurli (@CryptoMurli) December 1, 2017
And no matter the speedy progresses that the crypto-world is going through and will be – the professor did announce he is more than prepared to keep right pace with the revolution:
“Year over year we’ll change well over half the course material. It keeps you young to be reading half the night just to keep up with the latest innovations.”
Very well fitting with the latest NYU development, various other prominent figure did state their view towards the crypto-space recently.
For example, Aswath Damodaran — the so-called “dean of valuation” for Wall Street — is a professor who runs a course on valuation at NYU’s Stern School of Business. Damodaran remarked in October that Bitcoin is a currency that “can only be priced against another currency,” with the professor going on to say that “bitcoin is not an asset, but a currency, and as such, you cannot value it or invest in it. You can only price it and trade it.”
The best way towards process development is developing oneself – and it seems like the blocktech has found it home for education and rigorous academic examination.