2020’s Top 10 Institutional Actors In Crypto (#GotBitcoin?)
Slowly but surely, institutional players are moving into the crypto/blockchain neighborhood. 2020’s Top 10 Institutional Actors In Crypto (#GotBitcoin?)
According to a 2020 Fidelity Investments survey, about 22% of institutional investors already have some exposure to digital assets, with most investments having been made within the past three years. Moreover, 4 in 10 respondents say they are open to future investments in digital assets over the next five years.
“Institutional investor involvement in cryptocurrency in 2020 has been primarily about getting the infrastructure in place, such as the opening of Fidelity Digital Assets and Bakkt,” Jonathan Levin, co-founder and chief strategy officer of Chainalysis, told Cointelegraph, adding:
“Now that the infrastructure is in place, we expect institutional volume to come as long as they can get comfortable with the compliance and market risks of cryptocurrency.”
Banks and insurance companies seem to be more engaged than other institutional segments, commented Levin, “but once institutional support from these key sectors are in place, we expect an uptake from investors such as funds and family offices.”
Clearly, there is still work to be done — particularly with regard to compliance — but with that as a preamble, here are our top 10 institutional actors in the last year:
Libra Association (Stablecoin)
In June, Facebook aroused the crypto — and financial — world with its announcement of a new digital currency, Libra, and the formation of a Switzerland-based, non-profit organization, the Libra Association, to manage it — with a mandate to “help reinvent money and transform the global economy.”
The permissioned blockchain-based currency was to be tethered to a basket of bank deposits and short-term government securities. The new association began with 27 corporate partners, including Mastercard, Paypal, Visa, Vodafone, eBay and Uber.
The project ran into immediate headwinds, however, especially from global regulators who feared for their own fiat currencies and the creation of a shadow banking system. Two United States senators wrote a letter to Mastercard and Visa, among others, expressing “deep concern” that the project could destabilize the global financial system — as well as facilitate criminal and terrorist financing. Apple CEO Tim Cook said companies like Facebook shouldn’t be in charge of a global currency. Partners exited, and, by late 2019, one-quarter of the original partners were gone, including Visa, Mastercard, PayPal and eBay.
Reports of Libra’s demise may be premature, though. Central bankers have been spurred to pilot their own digital currency projects in anticipation of Libra’s debut, and, in early December, the Libra Association was still projecting a 2020 stablecoin launch at least in some parts of the world, like Europe.
JPMorgan Chase & Co. (Stablecoin)
In February, J.P. Morgan, the largest bank in the U.S., introduced JPM Coin, claiming to be the first bank to create and test a digital coin representing fiat currency. The goal was to allow instantaneous payments between the bank’s institutional clients on a permissioned blockchain platform.
The stablecoin was to be 1:1 redeemable in a fiat currency (U.S. dollars) held by J.P. Morgan — unlike most stablecoins, like Tether (USDT) and USD Coin (USDC), that claim to have a 1:1 fiat collateral. It was slated to roll out in late 2019, but it had still not launched publicly as of Dec. 10.
J.P. Morgan has been actively exploring blockchain and crypto-related initiatives for several years — notwithstanding the fact that CEO Jamie Dimon once called digital currencies a “fraud.” Its Interbank Information Network, a bank payment and data-sharing network based on J.P. Morgan’s in-house blockchain platform Quorum, implemented in 2018, has some 365 global members today and will expand in 2020 to Japan.
Intercontinental Exchange/Bakkt (Exchange)
A new institution-sized exchange company joined the crypto world in September 2019 when Intercontinental Exchange (ICE), which also owns the New York Stock Exchange, launched Bakkt, the first exchange to offer physically settled Bitcoin (BTC) futures contracts. The Chicago Mercantile Exchange, by comparison, has been settling BTC futures contracts in fiat currency, not Bitcoin, since December 2017.
After a slow start, Bakkt’s Bitcoin futures volume edged higher through 2019 and, on Nov. 27, hit a new all-time high with 5,671 futures contracts traded (volume: $42.5 million).
In early December, Bakkt launched the first regulated Bitcoin options and cash-settled futures in the U.S. The announcement came just a few days after Bakkt CEO Kelly Loeffler was named to fill the U.S. Senate seat of Georgia’s retiring Johnny Isakson (R).
Bakkt To The Senate: How Loeffler Became One of Crypto’s Most Influential
Since the 2017 mania, every year in the crypto and blockchain space has been increasingly eventful. 2019 was no exception: Along with Facebook’s Libra project and China’s digital yuan endeavors, Intercontinental Exchange’s digital assets platform Bakkt was finally launched. Its CEO, Kelly Loeffler, ensured a smooth start for the exchange, then swiftly left her business to pursue a political career by the end of the year.
She now represents the state of Georgia in the United States Senate, and as one of the most influential people affiliated with the crypto industry, she could potentially pave the way for Bitcoin and other cryptocurrencies in Washington.
From an Illinois farm to Atlanta’s highest business circles
Loeffler was born in Bloomington, Illinois on Nov. 27, 1970. She grew up on her family’s farming estate in Stanford, working the soybean fields. “We lived simply,” Loeffler recalled at a recent press conference. “Life revolved around farming, church, school and 4-H.” She allegedly became interested in stock markets as early as the age of 10; her mother kept track of commodity prices on a kitchen napkin every day before lunchtime.
In 1988, Loeffler graduated from Olympia High School, where she partook in various sporting activities — namely cross country, track and basketball (she has since purchased the Atlanta Dream of the Women’s National Basketball Association). Her peers from high school have described her as “very bright and articulate and just kind of a beacon of light in her class.”
In 1992, Loeffler graduated from the University of Illinois with a bachelor’s degree in marketing. She then obtained a master’s in business administration from Chigaco’s DePaul University in 1999.
In 2002, she joined the Intercontinental Exchange, or ICE, after working at Toyota, Citibank, financial firm William Blair, and private equity fund manager The Crossroads Group. Back then, ICE was a two-year-old, Atlanta-based startup with a focus on energy products (crude and refined oil, natural gas, power and emissions), and Loeffler started handling investor relations there. Two years later, she married the firm’s CEO Jeffrey Sprecher, who calls their relationship her biggest risk “because if it didn’t work out, she’d be on the short end of the stick.”
Together, they made ICE what it is today: an operator of 13 major international exchanges that include the world’s largest, the New York Stock Exchange. Currently, ICE’s market cap is estimated at $52.5 billion, while Loeffler and Sprecher live in Atlanta’s most expensive piece of real estate — a mansion spanning 15,000 square feet with a $10.5 million price tag.
Loeffler’s quick but eventful career in crypto
Loeffler’s Views On Crypto Are Elaborate, As She Prefers Technological Breakthrough Over Flashy Numbers:
“Notably, 2018 was the most active year for crypto in its brief ten-year history. This was evidenced by rising investment in distributed ledger technology and digital assets, as well as by blockchain network metrics such as daily bitcoin transaction value and active addresses. Yet, these milestones tend to be overshadowed by the more narrow focus on bitcoin’s price, which has been seen by some, as a proxy for the potential of the technology.”
Thus, in 2018, Loeffler entered the crypto industry by becoming the CEO of Bakkt, a digital assets platform launched by ICE and backed by Microsoft and Starbucks, among other investors. “We are collaborating to build an open platform that helps unlock the transformative potential of digital assets across global markets and commerce,” she declared in Bakkt’s announcement. Bakkt’s trademark feature is physically delivered BTC futures contracts, while BTC futures traded by the Chicago Mercantile Exchange and the Chicago Board Options Exchange are settled in cash.
The platform’s launch was delayed numerous times, and when it finally took off in September 2019, the initial results were lackluster: Despite analysts’ bullish forecasts, just 71 BTC (worth about $700,000 at the time) were traded in the first 24 hours.
Nevertheless, the numbers soon started to pick up the pace. By Oct. 26, the platform traded as many as 1,183 Bitcoin futures contracts — worth roughly $11 million — in a single day.
Bakkt then decided to capitalize on the positive development. On Dec. 9, the platform unveiled two new Bitcoin investment products: Bakkt Bitcoin (USD) Monthly Options and Bakkt Bitcoin (USD) Cash-Settled Futures. According to Bakkt, the monthly options product is the first Bitcoin futures contract regulated by the U.S. Commodity Futures Trading Commission.
Furthermore, Bakkt has teased a consumer app developed in collaboration with Starbucks and aimed at helping consumers “unlock the value of digital assets, as well as ways in which they can transact or track them,” in its quest to integrate crypto into the mainstream.
Still, despite the fruitful start that marked one of the key milestones for crypto last year, Loeffler has left the digital assets platform to pursue a career in Washington, D.C. In December, Georgia Governor Brian Kemp appointed the Bakkt CEO to a seat in the U.S. Senate, replacing Republican Sen. Johnny Isakson, who retired due to health concerns. Loeffler is the second woman in history to represent Georgia in the Senate and now the crypto community’s highest-placed political advocate.
Consequently, Loeffler has stepped down from ICE’s crypto-focused platform. “We are grateful to Kelly for her many contributions to Intercontinental Exchange spanning 17 years and will miss her wisdom and counsel on the executive team and leadership of Bakkt,” an ICE spokesperson said in a press release.
Washington And Potential Conflict Of Interest
Despite leaving Bakkt, Loeffler may continue to participate in the crypto industry’s growth as a lawmaker. Indeed, John Todaro, director of digital currency research at New York-based data provider TradeBlock, previously told Cointelegraph: “Kelly Loeffler obviously understands the space and is a proponent of it, and so, where applicable on matters before her in the Senate, I would imagine she would be a proponent of bitcoin and other digital currency platforms.”
Loeffler started her career in the Senate with a bang, supporting six bills in her first week in office. So far, all her moves have been strictly conservative (Loeffler and her husband have donated a total $3.2 million to political committees, most of which were Republican). As Loeffler put it herself, she is “pro-Second Amendment, pro-military, pro-Wall and pro-Trump.” Ironically, some earlier media reports indicate that Trump is not a fan of Loeffler and preferred to see a different candidate in the U.S. congressional seat.
Most recently, Loeffler has joined the Senate Agriculture Committee, which oversees the CFTC, a regulatory agency with significant oversight of cryptocurrency-based commerce. This sets up a potential conflict of interest, as her husband is still the CEO of ICE, an exchange operator that is “subject to extensive regulation by the Commodity Futures Trading Commission,” as per its annual report.
To that, Loeffler has stated that she would recuse herself “if needed on a case by case basis.” She told The Wall Street Journal, “I have worked hard to comply with both the letter and the spirit of the Senate’s ethics rules and will continue to do so every day.” Loeffler will serve in the role until a special election is held in November 2020, when she will have to win the vote to remain in office. To this end, she plans to spend $20 million of her own funds.
U.S. Commodity Futures Trading Commission
The incoming chairman of U.S. Commodity Futures Trading Commission (CFTC), Heath Tarbert, said in October that Ether (ETH), as well as Bitcoin, are commodities — not securities — and, as such, will be regulated under the Commodity Exchange Act with the CFTC as its primary regulator.
“My guess is that you will see in the near future Ether-related futures contracts and other derivatives potentially traded,” stated Tarbert.
This statement provided regulatory clarity and some relief to Bitcoin and Ethereum developers and investors, present and future. If the CFTC was going to regulate BTC and Ether, then surely it wasn’t going to ban them, which is a real concern.
In his first public appearance in October, Tarbert also emphasized the importance of blockchain and digital assets. The U.S. has been falling behind in blockchain innovation, receiving little support from U.S. policymakers and regulators, according to Perianne Boring, CEO of the Chamber of Digital Commerce. However, here the chairman of the CFTC said, “I want the United States to lead because whoever leads in this technology is going to end up writing the rules of the game.” This was an “incredibly important” development, Boring told Cointelegraph.
Fidelity Investments (Custody):
Custody isn’t the most exciting segment of the crypto world, arguably, but it is a critical one, especially as the industry matures. It figures in many real-life investment decisions. How, for instance, will older Bitcoin holders pass on their BTC to their heirs when they die?
In 2019, Fidelity Investments, the mutual fund colossus ($7.2 trillion under administration), stepped up with a full rollout of its Fidelity Digital Assets custody unit, four years in the making, which targets institutional investors like hedge funds, family offices and market intermediaries.
The firm’s carefully charted deployment route was marked by a series of milestones: Initial research (2014), formation of a blockchain incubator and initiation of a proof-of-concept process (May 2015), acceptance of Bitcoins as charitable donations by Fidelity Charitable (November 2015), formation of academic and industry partnerships (June 2016), acceptance of Ether for charitable donations (September 2017) and Fidelity Digital Assets unit announced (October 2018).
In mid-December 2019, Fidelity Digital Assets announced that it may add support for Ether in 2020 if there is sufficient demand for it.
Utility Settlement Coin project/Fnality International (Bank Consortium)
Settling cross-border trades is often cited as a promising use case of blockchain technology, and, in 2019, a global banking consortium moved closer to putting that proposition to the test.
In June, 14 financial institutions from the U.S., Europe and Japan collectively invested $60 million in a new company, Fnality International, that will build an Ethereum blockchain, upon which trades among the banks will be settled using a token called the Utility Settlement Coin (USC) — backed with cash collateral deposited in central banks.
Spearheaded by Switzerland’s UBS in 2015, the Utility Settlement Coin project’s additional shareholders include Banco Santander, Bank of New York Mellon, Barclays, CIBC, Commerzbank, Credit Suisse, ING, KBC Group, Lloyds Banking Group, Mizuho Bank, MUFG Group, Nasdaq, Sumitomo Mitsui Banking Corporation and State Street Bank & Trust.
One key challenge facing the consortium will be interoperability, according to Olfa Ransome, Fnality’s chief commercial officer:
“Not only must interoperability be achieved between legacy and digital venues and platforms, but also between competing blockchains — to support atomic settlement regardless of the standards and protocols — and between different means of on-chain payment.”
The platform is expected to be operational by mid-2020 once regulatory approvals have been secured.
Fairfax County Retirement Systems (Pension Fund)
In February, Virginia’s Fairfax County’s Retirement Systems (FCRS) became the first U.S. pension fund to invest at least a portion of its retirement holdings ($21 million) in cryptocurrency assets. The allocation, through Morgan Creek Digital, was just a small portion of the system’s assets, “given that the blockchain technology industry is still in its early stages,” explained FCRS to its participants. It reportedly invested another $50 million in a second Morgan Creek Digital fund in October.
Pension funds’ conservative mandates have made them reluctant crypto investors until now; they are generally more cautious than hedge funds and university endowments.
Chicago Mercantile Exchange (Exchange)
Bakkt drew many of the crypto exchange headlines in 2019, but the Chicago Mercantile Exchange (CME), the world’s largest futures market, notched the most Bitcoin futures contracts. At its height, in May 2019, CME was averaging $515 million in daily volume and more than 13,600 futures contracts each day. On May 13 alone, Bitcoin traded a record daily volume of 33,677 contracts, equivalent to over 168,000 BTC (worth $1.705 billion at the time).
CME’s activity dropped toward the end of 2019, though — from a year-to-date daily average of more than 7,000 Bitcoin futures contracts in May to less than half of that by early December.
CME continues to expand its crypto product offerings, however, announcing in November plans to introduce options on Bitcoin futures contracts by mid-January 2020. Some industry players believe the Bitcoin derivatives market will one day dwarf the BTC spot market.
B3i Services AG (Insurance Consortium)
In July, the insurance industry’s high-profile blockchain consortium, B3i Services AG, announced its first product, a catastrophe excess-of-loss reinsurance coverage. The consortium expected it to be on the market for the January 2020 renewal season.
Formerly known as the Blockchain Insurance Industry Initiative, B3i, incorporated in 2018, employs blockchain technology to reduce friction in the transfer of risk. Each reinsurance contract in the network is written as a smart contract atop an open-source Corda blockchain platform. The smart contracts are capable of automatically validating a condition and can determine, for example, whether an asset should go to a nominee or back to the source, or a combination thereof.
B3i started with five insurance companies experimenting with Ethereum in May 2016. Today, the consortium encompasses 18 insurance companies and reinsurers from five continents — including Aegon, Allianz, Axa, Swiss Re, Liberty Mutual, Munich Re, Tokio Marine and Scor, among others.
Harvard University (University Endowment)
When it was reported in April that Harvard University’s investment arm, Harvard Management Co. (assets: $38.3 billion), was making its first crypto investment, it was hailed as a win for the cryptocurrency/blockchain sector, which has struggled to attract institutional investors with deep pockets.
Admittedly, the investment in blockchain-toolmaker Blockstack tokens was worth less than $12 million, a drop in the bucket for the world’s largest university endowment, but following Yale University’s lead in 2018 — that school invested in two crypto funds, managed by Andreesen Horowitz and Paradigm, respectively — it could signal a growing trend among high profile U.S. universities. Other elite university endowments, including Stanford and MIT, have been quietly testing the crypto waters, reported Cointelegraph in May.
Compliance Issues Persist
Key obstacles remain, however, before institutions really plant their flag in crypto/blockchain territory. Chainalysis conducted a poll of financial institutions last November, in which more than half of the respondents cited compliance in one form or another as the issue preventing them from investing more in cryptocurrency. Also, 39% said they worry about the inability to control illicit activity, while nearly 18% indicated that they are unsure of their ability to comply with government regulations in the space.
With growing commitments from heavyweights, like Fidelity, JPMorgan and ICE, however, and even stirrings from endowments and pension funds, there were clear signs in 2019 that large institutions are moving closer to embracing cryptocurrency and blockchain technologies in 2020.