Outlook 2019: Richard Johnson, Greenwich Associates12.20.2018
Richard Johnson is vice president, market structure and technology at Greenwich Associates
Will 2019 will be the ’Year of Institutional Crypto’?”
Next year will not be the year that institutions plow into crypto. However, it will be the year that financial institutions build out their institutional platform. We will see more robust, well-regulated, institutionally focused exchanges.
Independent brokers will arise, and buildout solutions, such as execution systems, smart order routers, and algorithms will help institutions navigate this complex new asset class.
For investors who want to hold the coins themselves, they will see further enhancements in emerging custody solutions for the institutional market.
There will not be a bitcoin ETF in 2019, but other types of investment product (such as closed-end funds or LP structures) will be developed for those firms that want exposure to the asset class without having to custody coins.
All these developments will set the stage for 2020 being “The Year of Institutional Crypto Investments.”
Which market structure changes do you expect to take place in the coming year?
Security tokens will arrive on the scene in a big way in 2019. Although not currently well understood, security tokens represent the convergence of crypto and enterprise blockchain and have the potential to revolutionize equity market structure.
Security tokens are securities issued on a blockchain, that offer many advantages over the traditional market structure, such as improved recordkeeping, automated security servicing and other innovations. Unlike enterprise blockchain initiatives, security tokens will initially focus on new Reg A+ and Reg D securities issuances, allowing the industry to focus on growth initiatives without having to build interoperability and backward compatibility to legacy market infrastructures.
We expect the SEC to issue guidance on security tokens in early 2019.
Should the industry expect 2019’s fintech spending to match this year’s level?
This year was a record year for FinTech investments, and it’s unlikely we’ll be able to see similar growth this year as global asset prices stumble.
Although valuations may taper off, the drive to innovate will not. Technologies, such as cloud computing, bring down the barriers to entry for fintech startups and investment banks are increasingly focusing on fostering innovation within their walls, lest competition attacks from outside.
Blockchain and crypto investments will be more restrained, but AI and big data startups will see growth. We are still in the early innings for AI, but the potential is huge in financial services. AI technologies feed off data, and no other industry produces more data than finance.
Institutions and FMIs are testing using tokens over a range of public and private blockchains.
Voluntary carbon credits can play an important role in financing green projects, tech & infrastructure.
Barriers to large-scale adoption include a lack of interoperable technology standards and infrastructure.
DeFi alleviates credit risk and protects privacy around transaction details.
The decentralized infrastructure connects independent applications built with Daml.