KPMG Report: Bitcoin Exchange Coinbase Says Crypto Will Evolve in Three Stages

Big Four auditor KPMG has published a sweeping 42-page report on the next phase for cryptocurrencies.

Entitled “Institutionalization of Cryptoassets,” the report reflects a positive outlook on the viability of the crypto economy to scale and realize its full potential. Coinbase contributed to the report, adding insights into how Bitcoin and the crypto markets can transform from their current status as volatile alternative coins to a mature asset class.

While blockchain developers and crypto entrepreneurs are focused on adoption and ways to introduce cryptocurrencies to the masses through mainstream applications, point-of-sale devices, e-commerce portals, gift cards and Visa cards, crypto-as-money has a long way to go to reach the world’s total money supply of roughly $90 trillion, the Federal Reserve Board’s balance sheet of over $4 trillion or the global traditional asset markets of more than $300 trillion.

Writes KPMG chief economist Constance Hunter,

“Cryptoassets have potential. 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. We believe this is a necessary next step for crypto to create trust and scale.”

Tokenization will play a key role. It will disrupt existing financial systems and drive a wide range of utility for cryptocurrencies.

“In the case of Bitcoin, we believe what has been tokenized is an intangible asset (a specific number of units of Bitcoin), because ownership does not come with any other rights and obligations. In contrast, other cryptoassets, such as tokens or coins in an initial coin offering, may convey specific utility or financial characteristics, such as rights to goods or services or a share of profits of a company or project.”

“Tokenization of traditional assets could also help increase liquidity, codify rules and regulations, and increase transparency throughout the asset lifecycle.”

Coinbase executives Jeff Horowitz, chief compliance officer, and Eric Scro, vice president of finance, mark three evolutionary stages for crypto.

“Coinbase believes crypto will mature in three stages: investment/speculation (which the industry is currently in), institutionalization, and utility. The institutionalization and utility phases may happen concurrently. But, to move from investment/speculation to utility, crypto needs to become more liquid, trusted, and accessible.”

Another bedrock of the crypto landscape is regulation. The report concludes that with the “patchwork of U.S. federal and state regulations governing the crypto industry” entrepreneurs will need to work their way through multiple agencies, including the Financial Crimes Enforcement Network (FinCEN), the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC).

“Regulators are working to keep pace with crypto innovation while seeking to protect the investing public. Crypto businesses will need to clearly define their product offerings in order to navigate the evolving state and federal regulatory landscape. It is in a crypto organization?s best interest to get ahead of the evolving regulatory landscape, and we are already seeing organizations take this proactive approach.”

Fundstrat Global Advisors and Morgan Creek Digital also contributed analysis. You can read the full report here.

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