With growing interest in cryptocurrencies from both retail and institutional investors, multiple measures are required to rein in market volatility and protect investors, according to fintech company Capital.com.
A recent survey of 400 financial institutions by Thomson Reuters found that one in five is considering trading cryptocurrencies, in response to a significant escalation of investor demand. The survey showed that retail interest in the buying and selling of cryptocurrencies has remained strong after the market appreciated by more than 1,200 per cent in 2017. However, Ivan Gowan, CEO at Capital.com, argues that regulatory concerns must be addressed head on if the cryptocurrency market is to be fully embraced by the mainstream of the financial services industry.
Gowan says: “These findings show a significant perceptual change towards cryptocurrencies, and it is reassuring to see that the consumer demand for digital currencies is being taken seriously. Many financial institutions such as Goldman Sachs have moved away from outright denunciation of the market and are cautiously looking for ways to better meet the demands of their clients through participation.
“Concerns from regulators over the applications and impact of digital currencies remain prevalent however, and these questions must be addressed if we are to see a complete acceptance from the traditional financial services industry. Cryptocurrencies are still seen as a risky investment by many institutional traders, as prices rapidly fluctuate, and new stories of market corruption consistently hit the news. Facebook and Google recently moved to ban the advertisement of ICOs on their platforms for example, and anxieties remain about the use of digital currencies to make illegal transactions on the dark web.
“However, some of the biggest venture capitalists in Silicon Valley are now backing cryptocurrency innovators, who are investing significant sums in legal fees and compliance advice to ensure that they align with the regulatory environment that they operate in. We are increasingly seeing leading regulators, such as FINMA and the Gibraltar Financial Services Commission, embracing this innovation, issuing guidance and frameworks to companies looking to issue an ICO to ensure they do so responsibly and effectively. Smaller investors, who could be priced out of investing in exciting tech stocks like Netflix and Facebook, can access fantastic opportunities with cryptocurrencies, either getting in on the ground floor in the initial offering, or when the coin is listed on an exchange.
“In addition, the transparency of cryptocurrencies is improving significantly, further enhancing trust within the investor community. Several companies have been set up recently that specialise in interrogating the blockchain of Bitcoin and other cryptocurrencies, establishing whether the currency has been used in any potentially illegal transactions on the dark web.
“The cryptocurrency markets are currently in something of a Wild West scenario. However, we are also at the early stages of what will be a transformative asset class, as the innovative technology and soaring values remain extremely attractive to retail investors. It is therefore up to regulators, financial institutions, and industry leaders to ensure that these promising technologies become both more accessible and compatible with the world we live in. Sensible regulation and greater transparency will reduce volatility and facilitate safer trading, enabling retail investors to capitalise on this exciting market.”