News Tech: Warren Buffett, the legendary investor, may still be anti-cryptocurrencies, but other titans of conventional finance (TradFi) are buying up digital assets in the wake of this year’s crash, according to his credo to be “scared when others are greedy and to be greedy only when others are fearful.”
The harsh reminder of how volatile the sector can be has been the crypto winter, which has seen bitcoin (BTC) drop more than 70% from its peak in November. But what makes this winter different from others is TradFi’s dedication to cryptocurrencies notwithstanding the downturn.
The focus has mostly switched to how TradFi can profit from this new business, embracing a sector that many believe to be the future of finance as smaller investors are still licking their wounds from this year’s price decline.
Most recently, Nasdaq (NDAQ), the second-largest operator of the U.S. stock market, announced this week that it will launch a cryptocurrency custody service in an effort to capitalise on the growing demand for cryptocurrency among institutional investors. Custody is the financial term for holding onto and safeguarding an investor’s assets. The action was taken after Depository Trust & Clearing Corp., which handles nearly all U.S. stock trades and is the largest asset manager in the world, released its own blockchain in an effort to speed up trade settlement, and BlackRock (BLK), the largest asset manager in the world, announced last month that it will offer cryptocurrencies to its institutional clients.
Just a few of the major TradFi firms joining the market this year, but they all have one thing in common: they all point to robust institutional demand.
On the side, money
TradFi’s involvement with cryptocurrency is certainly far from over. And it’s clear that the sector is alive and well because Nasdaq and other significant TradFi companies entered the cryptocurrency market during a down market.
According to Nazarali, Nasdaq’s decision this week “will bring more institutional players in and we welcome that.” Overall, he thinks that TradFi’s cautious foray into cryptocurrency is a solid start and will eventually result in a greater acceptance of cryptocurrency.
Clarity in regulations
Uncertainty over legislation is one of the major barriers impeding widespread adoption among the TradFi community. Although the process is taking its time, many crypto services are now waiting on regulators for any hints of what laws to follow. There are concerns over which regulator in the U.S. will impose the strictest regulations on particular crypto assets. Bruno Ramos de Sousa, president of worldwide expansion at Hashdex, a crypto asset-management platform, said: “You see entrepreneurs in the industry that have been here for several years, waiting for regulatory clarification, and they’re struggling.” Gary Gensler, the chairman of the Securities and Exchange Commission, which is jointly in charge of overseeing the cryptocurrency market in the United States, has maintained that the sector doesn’t require any additional particular rules. As regulators struggle to catch up with how to effectively regulate the industry, this leaves traditional investors perplexed. If greater clarity isn’t provided and the crypto market grows even more significant, the U.S. role as a global financial powerhouse may be threatened.
Apple as an example
Another query: Will TradFi take over cryptocurrency, making it more like traditional finance, or will it go the other way, with cryptocurrency fundamentally changing how finance functions? There is a potential that cryptocurrency will be swallowed by Wall Street types and resemble the financial status quo when conventional finance players enter the market for digital assets and regulators apply a more conservative approach to managing markets.
Additionally, cryptocurrency companies are encroaching on TradFi’s territory. For instance, the American section of the massive exchange FTX has started offering stock trading. Ramos de Sousa suggested that large cryptocurrency exchanges have enough capital to purchase stock exchanges. Additionally, there is discussion on tokenizing a variety of conventional assets, effectively introducing a crypto ethos to the larger financial system. Buffett also offers a lesson in this case. He notoriously avoided IT stocks for years, claiming he couldn’t possibly understand them. Then, a few years ago, he invested heavily in Apple (AAPL), one of the most technologically advanced equities, after realising that its consumer brand power was comparable to the monopolistic position other businesses he admired had.
His decision to convert was a game-changer; today, Apple is among Berkshire Hathaway’s (BRK.A), the company Buffet created, greatest investments. Buffett’s entry into a sector he was previously wary of may pave the way for TradFi in the cryptocurrency market.
Buffett once stated of Apple: “It’s arguably the best business I know in the world.” “I ought to have recognised it sooner.”