Auditors KPMG have published a report stressing the need for institutional investors to join the cryptocurrency industry. The report outlines the importance of cryptoassets as an investment alternative and how institutional investors can take part in the process.
Digital Assets Have Potential, Institutionalization Needed to Scale'
In the report, released Nov. 18, the Netherlands-based firm said a new world of finance is emerging in which transacting in digital assets may become standard operation. "Cryptoassets have potential," KPMG wrote, in the report titled 'Institutionalization of Cryptoassets."
"But for them to realize this potential, institutionalization is needed. Institutionalization is the at-scale participation in the crypto market of banks, broker dealers, exchanges, payment providers, fintechs, and other entities in the global financial services ecosystem," it said.
The study comes at a time the use of digital currencies is gaining worldwide adoption, both as a unit in financial transactions and as a store of value.
Christine Lagarde, the managing director of the International Monetary Fund, last week said central banks throughout the world should consider issuing digital currency to make transactions more secure. Lagarde argued that state-backed cryptocurrencies could satisfy public policy goals related to financial inclusion, consumer protection, privacy and fraud prevention.
Although observers point to the risks of central banks' involvement in cryptocurrency, such as the potential to slow down transactions and raise costs through over-regulation, KPMG views the coming on board of financial institutions as crucial to boosting public confidence in digital assets.
"Institutionalization is the necessary next step for crypto and is required to build trust, facilitate scale, increase accessibility, and drive growth," the auditors asserted, adding that it would be prudent for countries in hyperinflation, like Argentina, to adopt cryptocurrencies to preserve value.
KPMG said: "A globally accessible, decentralized store of value could have a significantly stabilizing impact on the country's economy. Bitcoin could potentially represent such a store of value in the future.
"Interestingly, even though there are large price fluctuations with Bitcoin, it is not inherently volatile. The supply is in fact fixed and algorithmically secured. It is the demand that is fluctuating and this could eventually stabilize as the market matures," it added.
Truly Open Global Financial System
Writing in the same report, Coinbase chief compliance officer, Jeff Horowitz, said cryptoassets are an opportunity to transform the financial industry into a truly open global financial system.
"Regulatory agencies are also beginning to seriously discuss cryptoassets, which could help drive institutional participation, encouraging the marketplace to think about how engagement with these assets fits into both existing rules and regulations and new frameworks that may be needed for crypto," he said.
However, Horowitz noted that the focus on cryptocurrency innovation must not come at the expense of security, compliance, and consumer protection.
"Leaders in the crypto space, including crypto entities and industry partners, have a responsibility to help influence and educate key legislators and regulators to advance the overall governance and enforcement framework," Horowitz detailed.
"In many ways, leading crypto companies should aspire to meet the standards and leading practices established by traditional financial services companies. We believe this will help promote trust and accelerate the adoption of crypto by investors and institutional clients," he added.
