Cryptocurrency is growing in acceptance as an asset class. To me, this is going to keep going until it rivals equities.
This might be stunning considering that many are taking the approach of crypto, specifically Bitcoin, as "digital gold". For that coin, it might be the case. However, as we look across the entire crypto space, we see enormous potential.
For the moment, we are still dealing with a high degree of risk. The focus is upon market activity and not on what is being built. It is sensible since there is not a lot out there generating consistent revenues. Hence, the assertion there is no value to crypto isn't exactly wrong.
That said, it is more accurate to state it simply hasn't been built yet. Tokenization is not disappearing.
At present, the idea is that cryptocurrency is a new asset class. While it might be true, this will morph into a time when all assets are crypto.
Which leads us to HSBC. This is one of the best known investment banks. It gave a major affirmation for cryptocurrency.
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HSBC: Give 1%-5% To Crypto
The bank has been researching crypto extensively.
According to this article, HSBC started to look into crypto a couple years ago. Over that time, it ran million of simulations, trying to determine the impact upon portfolios.
This led to the bank concluding that an allocation of between 1%-5% of a portfolio into crypto is a prudent way to diversify.
It is in alignment with many other suggestions towards gold and other commodities.
Hence, we once again run into the digital gold narrative.
For the time being, this can work in the favor of crypto. By having another major institution starting to recommend it, we have another feather in ongoing battle against governments.
As for market watchers, over time, this should provide more buy pressure.
Hybrid State
We are rapidly entering what I size up as the "hybrid state" of cryptocurrency. This is where most of the spectrum is hijacked by the traditional financial institutions. They will be aided, of course, by governments which will push the control in their hands.
It is something we witnessed over the last couple years with the SEC in the United States regarding Bitcoin ETFs based upon the spot pricing. We see a ton of BTC floating into the hands of the banks.
This is a natural part of the progression. With something so large, and regulated, we are not going to see a complete removal of the major players instantly.
Instead, it will be an evolutionary transition based upon development. Centralized entities will always be that way. The system prefers it. What is overlooked is the fact that intermediaries will not be needed once infrastructure and services are in place.
As always, decentralization is a direction more than a destination.
It becomes a game of transactions. Where is the activity taking place?
The centralized entities, along with the regulators, want it done where they have control. Over time, development must unfold in a manner where more transactions operate on decentralized platforms. Each one that occurs there is one less on the centralized counterparts. When this is combined with other financial services, we can see how choices will be available.
At that point, it comes down to competition. Can centralized entities compete with a system that removed intermediaries, cost, and friction? More accurately, can their business models withstand it?
Time will tell on that one.
Logic tells me, they will compete while they have the massive advantage in infrastructure and power. Over time, I see that waning as things spread out more.
Here is where building is crucial.
Ease of Use
The area where centralized entities excel is in developing applications and services that are easy for people to use. In fact, they build entire systems within their organizations to achieve this end and engage with the customer (users).
We could look at the entry into artificial intelligence as another layer. While the focus is on LLMs, AI is being used for customer notification, security, and account monitoring. All of these have benefits.
Platforms built in the decentralized realm has to take this lesson. At the moment, things are a bit clunky when it comes to using them. This will improve over time.
For nOow HSBC is recommending dedicating a portion of portfolios to crypto. This is likely to pull in more money over time. Add in the publicity around BTC ETFs along with the expected, at some point, approval of Ethereum ETFs, and we can see how these will become standard products in the financial world.
Things are moving ahead on many levels.