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As the crypto market continues to experience its most notable boom to date, major companies in the industry have encouraged mainstream Wall Street to venture into the space. The crypto market is “much healthier and much more two-way” than ever, the CEO of an investment firm said. The conversation was part of Insider’s virtual event, “Future of Finance,” presented by Grayscale. Click here to view a recording of the full event.
All eyes have been on the crypto space this year as it experienced its most notable boom in history. The volatile and often polarizing space drew criticism from famed investor Charlie Munger while also drawing capital from hedge fund legends Paul Tudor Jones and Ray Dalio.
2021 could well mark an inflection point in the maturation of the nascent crypto ecosystem.
“I think what we’re seeing now is a much healthier, much more two-way market than we’ve ever seen before. And the dynamics at play in the crypto market today are very different from what it was in 2017 -up, ”said Michael Sonnenshein, CEO of Grayscale Investments, the company behind the world’s largest crypto fund, the $ 37 billion Grayscale Bitcoin Trust.
“We have really seen the development of lending and borrowing of derivatives, the development of indices for order management systems and greater regulatory clarity around the asset class,” he added.
Sonnenshein’s comments were made during Insider’s recent virtual event, “Future of Finance,” presented by Grayscale, which took place on June 8, 2021.
“[Investors] now see that there is no longer the stigma or career risk associated with involvement in crypto, ”Sonnenshein said. “They see notable experienced investors getting involved in the ecosystem. ”
This panel, titled “Crypto – The Golden Child of Fintech?” was moderated by Bianca Chan, Financial Journalist at Insider and featured Sonnenshein as well as Lauren Abendschein, Head of Institutional Coverage for the Americas at Coinbase.
Sonnenshein said crypto was still in its infancy, noting the recent proliferation of crypto use cases like stablecoins, reward tokens, governance tokens and smart contracts. He said savvy investors recognize that engagement in the space is more than just short-term price action.
Abendschein said that historically crypto has faced three key hurdles: regulatory uncertainty, costs, trading and lending infrastructure, and investor perception. She said all three areas have seen significant changes that have helped encourage wider adoption.
“I think this is where having incumbents like Coinbase and Grayscale that have been playing for long periods of time really helped get Wall Street adopted,” Abendschein said.
Sonnenshein said regulatory uncertainty is no longer a problem for investors. Chan, the moderator, pointed out that the U.S. Securities and Exchange Commission has yet to approve a Bitcoin ETF despite the crypto community’s long-standing efforts.
Sonnenshein said Grayscale started engaging with the SEC to turn its flagship fund, the Grayscale Bitcoin Trust, into a true ETF, in 2016. Grayscale withdrew from the approval process in 2017 after realizing that regulators “just weren’t ready yet” for such a product, he added.
“Some of the issues that regulators have cited around the crypto ecosystem are things like sharing oversight, you know, these are the kinds of oversight protections that are in place for stocks and other assets. “We just don’t yet have that level of infrastructure around the crypto markets and the crypto order books and exchanges,” Sonnenshein said.
Chan asked Abendschein about Coinbase’s recent report on sustainability issues related to Bitcoin’s energy use. Abendschein said the report found that Bitcoin miners are using green energy because of its abundance and low cost, and that it could actually help boost demand for renewable energy.
Sonnenshein sees the scrutiny of Bitcoin’s environmental footprint as a driver of progress for the asset class.
“10 or 12 years in the life cycle of this asset, the fact that we can focus on things like sustainability and ESG, we are going to take this as an opportunity as an industry to develop new solutions using new technologies because we have seen this ecosystem be challenged no less than 100 times during its life cycle, ”said Sonnenshein.
Sonnenshein noted the abundance of research and teaching material available to investors interested in crypto. “I think any investor who deploys capital in crypto today is certainly doing so, I would say from the most informed point of view we’ve ever seen.”
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