The global financial system does not innovate willingly in most cases. Most often it is forced to change by external factors. The recent rise of cryptocurrencies and digital assets is a case in point.
Just as the Internet disrupted the media industry, cryptocurrencies and digital assets have changed the way individuals and businesses understand finance and investing.
Most of the world’s large countries and important financial centers have multinational exchanges and trading platforms where tightly controlled capital is traded. These markets are highly regulated, and in most instances only professional, accredited investors have full access to this capital.
It’s estimated that only 8% of American households are accredited, and they are mostly distributed in the demographic of Baby Boomers. Younger adults are generally excluded from participation. However, in the case of emerging markets, the percentages change. Thanks to disruptive forces in the last decade like ETFs and online trading platforms, the investment ecosystem has changed dramatically.
Even so, over 95% of the world population is still without access to investment services. A whopping 2.5 billion people live in a cash and barter environment with zero access to banking. An additional 4.5 billion people have extremely limited access to banking. These people function in a single currency banking system, with no ability to send or receive money across borders and no ability to trade any financial assets.
Two Waves of Disruptions
There have been two waves of disruption in the financial world in recent times. The first was caused by the communications revolution sparked by the Internet. The Internet has been a driving force in breaking down international and technological barriers for retail traders. The spread of online trading platforms brought the speed of execution, ease of access, and reduced fees to financial markets, revolutionizing the industry almost overnight.
The second disruptive wave in the investment ecosystem was conceived during the 2008 financial crisis, on the 31st of October, 2008, when Satoshi Nakamoto published the bitcoin white paper. This innovation was not limited to delivering higher speed or reduced fees. It was more far-reaching than that. This wave of disruption brought a long overdue liberalization of financial services, which has already started weakening dictatorship by the middlemen.
It is true that the boom in crypto investments has largely attracted the most disenfranchised part of the investment society, such as millennials and slightly older generations.
A large majority of new participants, however, have not joined because of the immutability or decentralization of the blockchain. They have come because of the ease of registering on crypto exchanges and the minimal barriers to entry. The ease of participation is the greatest attraction of cryptocurrencies.
Due to strict KYC/AML regulations, previously excluded investors are now free to buy and sell assets that a few years back were accessible only to accredited and high net-worth individuals (HNWI). People who never had a taste of investing, who never had an opportunity to make their own mistakes and learn by doing, are now paying attention to the crypto and traditional investment worlds.
But that’s not all. Faced with cyclical global financial crises, they are able to hedge themselves against the next crash. For the first time in the history of capital markets, previously marginalized investors can choose not to become victims of yet another system failure caused by regulators and large banks.
Moreover, even wealthy investors will not be left behind in the next crisis. For the first time in recorded history, they have the possibility of breaking out from the traditional financial system, while still holding a diversified portfolio of traditional and crypto-assets.
Multi-asset or hybrid platforms already allow purchases of commodities, equities, ETFs, real estate, fine art, IPOs, IEOs, and cryptocurrencies, all on one platform. Investors are able to use assets like commodities as a safe haven without withdrawing the funds from the volatile crypto platforms. Also, they are able to keep digitized assets with their private keys, practically outside of the financial system.
The result? Digital asset management eliminated intermediaries and liberalized stifling regulations. Cryptocurrencies have the potential to permanently change the way individuals and businesses understand finance. However, as Andreas Antonopoulos explained, success will not be determined by the bitcoin price, but rather by the adoption of the technology and its actual impact on the global financial system.
Ras Vasilisin is the founder and CEO at Virtuse Exchange, Singapore-based platform that allows investors in more than 100 countries to trade commodities.