Today, our Pioneering Conversation brings you the key takeaways from one of the panel sessions at this week’s Financial Times Digital Assets Summit, focused on how cryptocurrencies can fit within, or reshape, the rules of traditional finance.
The panel featured insights from Bob Rutherford, CEO of Clear Street Digital, and Andrea Vianelli, COO – asset management and strategic advisory, Laser Digital, Nomura Group. It was moderated by Kimberley Long, Asia editor at The Banker.
KL: What do traditional financial investors look for in the digital assets space?
AV: There are three main features that a digital asset needs to have to become mainstream, or to become a universal, investable asset. First is to have a clear regulatory framework, second is a technology which is trusted by the market, and the third one is awareness.
For example, with a Bitcoin ETF the unitary framework was quite clear, because there was a universal agreement and understanding that the asset was not trying to be a security, it was a commodity. Additionally, the technology has been one of the most resilient, which was generating trust. Today, everyone knows Bitcoin, so there is a convergence of those three elements into an asset which make the asset investable. And of course, the performance of the asset is also attractive from an institutional interest perspective.
KL: Would you say more nuance is needed when making those assessments?
BR: Certainly. It’s a complicated space, but digital assets already are an asset class and we’re already seeing traditional financial institutions treating them as such, right alongside their commodities, equities and fixed income desks, and we’ll continue to see that convergence.
When we say, is it an asset class, or is blockchain going to take over everything else, well, both of those things can be true. Looking at tokens, many of them exist as part of the infrastructure of the underlying technology. You can’t have an Ethereum blockchain without an Ethereum token.
KL: Is the infrastructure for widespread institutional adoption in place, or do we have further to go?
AV: The infrastructure is there, but it’s not perfect. Traditional assets are evolving and investors are picking the best of the underlying technologies that they have seen, tried and tested in the crypto native tokens market.
BR: We’re focusing on technical infrastructure, but market infrastructure also needs to be improved. We could function with the way market infrastructure has organically developed, but it would be less than ideal. Overall, just because we changed the technology underpinning this doesn’t mean we change the rules of finance. Risk is still risk.
We will continue to see this evolution and merging of the best practices from finance and from digital assets. The winners are going to be the ones who adapt to those best practices, fast, make more money and generate returns.
KL: If we are in a space where anything can be tokenised, what does that then mean for the ownership of the assets?
BR: For digital assets, they’re all bearer instruments. If you hold bitcoin then you control it and have ownership, there’s no refund mechanism. It’s a risk that can be managed and should be paid attention to, but shouldn’t stop you from moving into the space.
The other aspect to consider is liquidity. When things can move so fast and you’re trading 24/7, how do you manage that volatility and put risk systems in place? These are all long-term positives but today are certainly hurdles that that you have to manage.
