The $17B nametag has been dousing the industry with publicity for the past few weeks. The windfall from the sale of the stake of the world’s largest blockchain venture firm has finally forced some of the more unscrupulous players out of the game, and has set a new standard for the industry as a whole. But what’s one to expect from an industry that has become synonymous with rampant inefficiencies and shady practices? For example, has the $17B nametag deal been an effective deterrent from the smaller players entering the fray? Or will the industry’s current push for greater transparency really be worth the two-year wait?
The $17B nametag has been a success for new entrants
In the six months since the $17 billion deal was announced, the number of investment deals in the Chinese currency, the Chinese renminbi, has grown at a rapid pace. Major investment banks in China have been calling to set up official joint ventures with major financial institutions in the country, while a number of Chinese tech companies have also teamed up with Western banks and tech companies to form strategic partnerships.
More than 100 companies and institutions are registered as partners in China’s largest blockchain partnership, with banks and financial institutions accounting for the vast majority of participants. As part of the deal, a host of new tech companies based in China have been granted permission to operate in the country, creating a potential ecosystem for blockchain technology there.
Exchanges: the new frontier for crypto exchange
For years, the primary way to trade cryptocurrencies outside of China has been through online exchanges. These were once the go-to place for trading all manner of digital assets, but following the ban on certain cryptocurrencies in China, many became inhospitable places to trade. With the major online exchanges largely shut down, a host of new players have stepped into the breach, eager to cash in on the growing demand for trading CFDs and other financial products in cryptocurrencies.
In November, the Securities and Exchange Commission (SEC) in the United States accused one such exchange, operated by a Chinese company, of market manipulation. Despite the SEC’s claims, the company has denied any wrongdoing, saying it relied on and followed the rules.
The $16 CNY
The $16 CNY was a key driver of the $17B nametag, and is still very much a part of it. The price of the Chinese currency has been volatile in the past few weeks, fluctuating between 9 and 15 CNY. Many are jumping to conclusions that the CNY is about to tank, but that’s far from the truth.
The volatility is likely due to a number of factors, including the fact that the CNY is a “free trade” currency and is therefore subject to significant price fluctuations that aren’t reflected in the amount traded on any particular day.
By way of comparison, the price of the dollar is also falling, though at a much slower pace. The main reason the CNY is seeing much higher volatility is because of the uncertainty generated by the ongoing trade dispute between the United States and China.
A $5 billion IPO could be on the horizon
Last month, it was reported that a number of major global banks and financial institutions had put together a $5 billion fund to back an initial public offering (IPO) of cryptocurrencies. While the timing of the IPO is still up in the air, it’s easy to see the potential for it.
There’s considerable progress being made in the area of financial technology, and it’s easy to see the appeal of cryptocurrencies to an increasingly tech-savy investor population.
A massive investment by a major financial institution could give cryptocurrencies a much-needed boost and launch them on to the stock market, while associating them with a well-known brand that could give the offering more cachet.Investors are likely to be drawn to the stock because they’re likely to get a good deal on it. The market capitalization of all cryptocurrencies is less than $800 million as of press time, meaning most IPOs will have a hard time finding a financially sound partner. A large investment by a financial institution, however, could change all of that.
The long road to greater transparency
The $17B nametag deal has done much to publicize the issue of inefficiencies and shady practices within the industry, but it has done little to clear the air around the business practices of certain companies and institutions.
With the $5 billion fund for IPOs now in the books, one must wonder what other corporate deals, if any, will follow. Does the SEC have the authority to take action agains the exchanges that were involved in the alleged price manipulation? Will other financial institutions follow suit? Will the SEC be as lenient in the future? It’s easy to cast the current SEC bent on transparency as a good thing, but the truth is that it could do more harm than good. With the industry now more or less at a standstill, it’s unlikely to see any major breakthroughs on the regulatory front in the foreseeable future.
The crypto coffin?
While the current state of play in the crypto space is exciting and compelling, it’s important to remember that this is still very much a nascent industry. No matter how much the $17B nametag or the looming IPO impact the industry, it will take time for crypto to establish itself as a real contender in the financial space. In the meantime, we can all enjoy the benefits of a more transparent industry and improved productivity on the part of companies and institutions that are transparent about their practices.
Upcoming crypto projects to watch
Let’s say you’re an ambitious investor with a smallish personal fortune. You want to put your money into the best possible investment, but you’re short on time and money. What do you do?
You can’t invest directly in a company, as that would require a due diligence process and regulation that you likely can’t ethically ethically obtain. So you turn to the segment of the investment industry that has been dealing in sketchy practices and inefficiencies for years: cryptocurrencies. It’s a quick and easy way to join the party. You buy a small stake in a new project, see what happens, and if it goes the way you hope, you buy more and join the party. You probably won’t make a ton of money, but it’s quick, easy, and you can play right now.
With the current state of play in the industry, it’s easy to forget that cryptocurrencies are still at an early stage of development. What that means for the sector and for the industry as a whole is that we could see huge gains from new entrants, and enormous disruptions from existing companies. For both new and existing companies, the path to greater transparency and efficiency is an easy one. What’s not to like?