The ‘Wolf of Wall Street,’ Jordan Belfort, who was played by Leonardo DiCaprio on screen and served a 22-month prison sentence for manipulating investors into buying worthless stocks, recently warned investors against Bitcoin for the second time.
You might think that if someone like Jordan Belfort, a “professional scammer,” is openly against Bitcoin legitimization, it would be reason enough to raise suspicion around cryptocurrencies. But, not really. Even after questioning Bitcoin legitimacy, the “wolf” admitted that blockchain technology is here to stay and none of us, and especially Wall Street, can afford to miss out. But how exactly?
2017 was the year of ICOs, but this year the landscape has changed dramatically. The image below shows the volume of money invested in ICOs (public sales) by month since January 2017:
Chart showing 2017 investment in ICOs. Courtesy.
The first crypto investment report was released in July 2018, and reveals that the majority of capital inflow this year is coming from institutional investors providing 56 percent of capital inflow. So, what has changed?
December 2017, as the image shows, will always be known as the moment when ICOs reached their peak. At that point, anyone even remotely involved in crypto wanted to launch an ICO. At the same time, Bitcoin price went above $10k, before plummeting rapidly. The bearish crypto market and overall uncertainty had a negative influence on the success of many public sales, which resulted in fewer successful ICOs. More serious projects decided to wait to launch their blockchain-based ideas.
Now, in 2018, the crypto landscape mainly consists of ICO survivors, projects that have reached a state of maturity with solid teams and technology beyond just a white paper. In addition, favorable cryptocurrency regulations emerging globally in strategic places such as Malta, Liechtenstein, and Switzerland are paving the road for the arrival of traditional institutional investors.
Goldman Sachs is opening a cryptocurrency trading desk. “The company will allow clients to trade Bitcoin as a non-deliverable forward, where there is no physical exchange of the underlying asset but an exchange of the currency it is quoted in – likely U.S. dollars – on the settlement date of the forward,” it said in a statement. Additionally, the company is considering offering cryptocurrency custody services to help overcome the barrier of lack of trusted custodianship for institutional investors.
JPMorgan is reportedly exploring cryptocurrency use as well. The bank recently announced that Oliver Harris will take over a new role looking at the use of cryptocurrencies across its corporate and investment bank, as well as the people familiar with the matter.
Another financial bank, Wells Fargo, recently announced that the bank will no longer accept buying Bitcoin with credit cards, but noted that it will continue to monitor cryptocurrency markets. Additionally, a report by Diar’s, a digital assets and regulation news outlet, noted that five U.S. investment banks have expressed some form of interest in trading Bitcoin and altcoins. The banks on the list include JPMorgan, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley.
Investors bring “smart money” and connections with companies eager to use new tech to obtain competitive advantage and access to advanced marketing tactics, tech advisors, etc. This allows the team to focus their marketing efforts and money distribution in a more efficient manner. Additionally, institutional investors provide credibility to the crypto projects they invest in.
Crypto projects expecting institutional investment need to establish the right business processes. The team has to be prepared to answer investors' questions and demonstrate that the project is able to deliver, meet the roadmap, and pass due diligence.
Another advantage that comes with working with investors is allowing proper token distribution. In the token economy of any given project, multiple factors have influence over its success, the initial token distribution, and the group of people who will be holding the token and their incentives are key. Tokens should be distributed amongst the people who have the incentive to hold it as long as possible, and selected funds – as opposed to random people – have better chances of achieving this goal. Last but not least, institutional investors put projects into action. Investors won’t be impressed by a white paper and a fancy website. Projects need to prove they have the tools to demonstrate progress. As a result, projects need to test and deliver products earlier to impress investors' contacts.
Wall Street seems to have a love-hate relationship with Bitcoin. JPMorgan CEO Jamie Dimon said he regretted calling Bitcoin a fraud and Lloyd Blankfein, CEO of Goldman Sachs, said, “Bitcoin is not for me,” but later tweeted that Goldman Sachs was “still thinking about Bitcoin.” Since then, Goldman Sachs has been “clearing bitcoin-linked futures contracts and is providing clients liquidity for those futures.”
Clearly, everyone in Wall Street is talking about cryptocurrencies – and blockchain. The times of scammy ICOs and non-purpose blockchain projects are over, and institutional money will only go to those realistic blockchain-based projects that can actually provide a service to people and create real value for investors.