Digital Asset Market Trends December 2020 | About Bitcoin and Commodity Security Tokens
In the digital asset market, Bitcoin hit a new high on each exchange, and Ethereum 2.0 was launched on December 1st with the implementation of Beacon Chain. Due to the outflow of cryptocurrency assets on exchanges and the rampant 2017–2018 scam project, legislation has progressed in each country. Recently, institutional investors have tended to revalue Bitcoin as an inflation hedge financial product as the US dollar has been reprinted due to the quantitative easing policy in the United States. An environment is being created in which individual investors can easily invest through Square and Paypal.
From the perspective of “tokenizing highly rare assets,” we are also working on “security tokens,” which issue various assets in compliance with the law. A more comprehensive observation of the digital asset market confirms the formation of a digital capital market. Let’s consider the future of Bitcoin and security tokens in the digital asset market by introducing each case.
Utilization for Bitcoin settlement and asset management progresses
Bitcoin is promoting not only price increases but also related business development. In Venezuela, the government is considering setting up a mining center to avoid the US dollar and use it as a payment method in the future. It is already possible to buy Pizza Hut pizza with Bitcoin in Venezuela, and there will be much discussion about “Bitcoin as a payment method” in the future. Lending services that utilize digital assets are also provided in Japan, but services for institutional investors are becoming more widespread in the United States. Grayscale Investment, which sells Bitcoin and Ethereum investment trusts, has invested a lot of money in the digital asset market, with assets under management reaching $ 12.2 billion.
It is expected that many companies will invest in grayscale Bitcoin mutual funds in the future. Investment management firm Guggenheim Partners is considering incorporating up to 10% of Bitcoin mutual funds into the funds it sells. In addition, asset management company Digital Asset Investment Management (DAiM) has started an advisory business to incorporate Bitcoin into its portfolio of defined contribution pension plans (401k). Digital asset-related companies “BlockFi” and “Square” also own a large amount of Bitcoin / Bitcoin investment trusts. In the digital asset market, where the ecosystem has been formed along with the spread of exchange business and custody services, services for institutional investors are being provided. Bitcoin is expected to be used more as a payment method in countries where the credit of legal tender is declining.Currently, the number of outstanding Bitcoin transactions is 89,751 and it will be of great interest to see what structural changes the further market expansion will bring to the capital markets.
Security Token Toward Revitalizing the Trading Business of All Assets -initial public commodity offering-
Security tokens are being used more and more in the context of securities digitization toward the realization of immediate settlement on stock exchanges, and demonstration experiments have already been conducted in China and France. In the area of digital assets, STO has been conducted mainly in the United States since around 2018 as a new financing method to replace ICO. It also provides general investors with opportunities to invest in private equity. In the United States, deregulation in the private placement market has stimulated private equity investment, and in recent years the total amount of funding has increased compared to the public market.
In addition, due to the long period until IPO, a scheme to raise a large amount of funds by IPO by SPAC (Special Acquisition Purpose Company) and acquire / merge promising start-up companies with the funds will be in the United States in 2020. In fashion. For this reason, the need for a secondary market in the private equity market has increased in recent years. In order to form a new market that meets the needs of investors, not only stocks but also infrastructure that realizes “tokenization of assets in compliance with laws and regulations” is being developed. “INX”, which aims to develop / operate a security token exchange, is raising funds through a public offering type STO (digital IPO). “INX” is developing aggressive business such as acquiring OpenFinance Network, which was used as a security token exchange (ATS) in the United States along with tZERO.
In addition, it announced a collaboration with “Diamond Standard,” which develops / provides financial products for diamonds. It is working towards regulatory approval for the listing of the Diamond Standard Coin. Diamond Standard Coin is a diamond-backed security token with a total issuance of $ 25 million. If realized in the future, it will be an initial public commodity offering of scarce real asset tokenization / secondary trading in the United States. （※It is unknown how much commodity-backed security tokens such as diamonds will attract investors. ）Following the bourbon whiskey tokenization case promoted by Vertalo and Wave financial, the trading business for all assets is about to be revitalized.
To provide investment opportunities in the diamond market, which is a $ 1.2 trillion asset class, “Diamond Standard” plans to issue “Diamond Standard Coins” in two types, including digital tokens and wireless chips. On INX’s trading platform, it will be offered to investors as a “Diamond Standard Token”. Investors will also trade the physical commodity itself at the same time, and by using the custody service in Delaware, they will always receive “Diamond Standard Coins” with a built-in wireless chip.
Summary
In the future, Bitcoin and security tokens are expected to develop various related services due to the continuous entry of investors into the digital asset market. In the early days of 2016–2018, when Bitcoin became widespread, the trading infrastructure was improved due to the rapid expansion of the exchange business. As a result, many investors have created an environment where they can easily invest by conducting KYC. The security token market is also expected to develop more diverse exchange businesses, and how to foster interest in the digitization of all assets will be a major issue in the future. Bitcoin has gained widespread support as a highly scarce asset because it has both an issuance limit and decentralized asset properties. However, the activation of investment will be limited only by the representation of gold and diamonds, which have been handled in the conventional market, as security tokens.
When observing market formation from a medium- to long-term perspective, it is important for the security token market to acquire a core investor base even though it is a small market. Each company is required to build a strategy that comprehensively captures not only the digital asset market but also the financial / securities market, including the bond-backed type issued by financial institutions. It is expected that the market will grow as the tokenization / listing of rare assets such as diamonds progresses in each country, not just in the United States. However, there are cases where it is necessary to amend the law in order to utilize innovation, and it is now considered necessary to take measures such as policy proposals for the development of a legal framework with reference to use cases.
