In the latest Arthur D. Little (ADL) report on cryptocurrencies, study authors suggest the creme of the crypto crop will float to the top while the dregs will get dumped in the slop bucket.
Undoubtedly it is an interesting time for cryptocurrencies. Price fluctuations are commonplace while conventional financial institutions slowly introduce crypto products and education.
Central banks have become more comfortable with digital assets, and individual banks have begun to enter the market despite their previous hesitancy.
In a recent conversation with two of the report’s writers, we spoke about their past and current outlooks and essential critical points in the information.
Dr. Georg Von Pfoestl, Principle of ADL, says, “There has been a discussion going on for some time on this regulation. There is some trust and confidence among the different market participants in the cryptocurrency central banks across the globe that are investing and discussing digital central bank currencies.”
What about fiat currencies?
Pfoestl says, “Our report and opinions are ours. Yes, crypto will stay, but not in the form we have as of now. All unregulated cryptocurrencies that we have listed in the report are roughly more than 19,000 different cryptocurrencies. Most of them or the majority will not be with us in the future.”
“Why do we need so many cryptocurrencies if you have one out of 80, let’s say, traditional fiat currencies in the market? This is one topic that is opening up.”
Throughout time currencies like the dollar, euro, and sterling have been issued and regulated by an overarching authority. This is a privileged position of power held mainly by governments, central banks, and even individual banks.
Dominik Nittner, Principal, Financial Services of ADL, adds,” from the Financial Services practice ADL, the big question is should our clients and banks adapt here. For example, they are much more on this topic in the US. Some said they don’t want to be in the crypto market, and some have already implemented things that will be seen in Germany, especially Eastern Europe.
“This is why we put in GFT as a partner. They need to have an IT system to deal with this type of crypto activity customers want to do. In the end, if banks think crypto is a good business model, they need to invest in their IT systems and Germany with the SEC.”
Banks need to decide where they will look at the degree of ‘risk’ they are willing to accept along the crypto value chain.
Pfoestl explains, “one key discussion point isn’t looking at the recent developments with FTX and the field of ethics, but not limited to ethics is always a question moving ahead.”
Will there be an effect, or will there be a spillover to the financial market?
“The report was produced shortly before the failure of FTX; the timing of the report is a coincidence as it was published shortly after this particular case. Looking at the impact, there will be some contagion within the crypto to crypto, and we already see some failures, and there will be some more coming up.”
“But as of now, at least, we do not expect the kind of broader impact on the stability of the financial markets. And this view is also shared by some international, national, and supervisory authorities as well,” said Pfoestl.
There remains the question of the market’s inconsistency. The demise of many cryptocurrencies should bring some stability to the market, as will the introduction of tighter regulation.