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2 November 2018
John Dwyer

The Sell Side is Getting Warmed Up

Morgan Stanley published a 50-page report on the current state of digital assets this week.

This is the latest in a slew of reports from MS since their first report on Bitcoin & blockchain in May 2017.

It is just a taste of things to come from the sell side.

Key Takeaways from MS

Some observations from the report include:

  • The recent rise in stable coins particularly linked to the US dollar and gold.
  • The next major development to watch will be Security Tokens.
  • Institutional investment is currently split:
    • 48% hedge fund,
    • 48% venture capital, and
    • the rest private equity.
  • The key impediments to investment in digital assets by institutional investors include:
    • a lack of regulation & custodian solutions,
    • and low investment from other asset managers.
  • Bitcoin and Environmentalism are mutually exclusive given the extremely high electricity consumption of Proof of Work.
  • Blockchain works best first for:
    • trusted/known participants,
    • trade settlement,
    • client data handling – KYC.

Celent Perspectives

For those who have been reading our research and attending out roundtables you will know that we have been pounding the table on Security Tokens all year.

We are positively encouraged by the custody solutions in place and see regulatory clarity and custody being resolved in the near-term.

We have just published a report looking at the different consensus mechanisms including Bitcoin’s Proof of Work.

Check it out here: The Base Layer: Key Approaches to the Consensus Mechanism

This is a foundational report which will be relevant for forthcoming research into the Blockchain technology stack and an exploration into why PoW may be around for much longer than currently anticipated—we will also explore the energy consumption question more closely.

The recent Coinbase & Circle announcement to create the CENTRE Consortium is something we have commented on in an earlier blog post and it is very significant.

It paves the way for adoption of stable coins which are pegged to government-issued currencies and potentially other hard assets such as gold.

Stable coins are going to be a core theme and US dollar integration with blockchain is an area of huge growth for sure.

Commercial bank solutions with transparent auditing are the ‘easy’ way to tokenize fiat currency.

The true inflection point will be when central bank money is integrated onto a blockchain—this is something we explored in detail back in 2016.

CENTRE may also incentivize network members to tokenize assets backed by gold reserves—this is a topic we know well since our first report in 2016.

We have updated some thoughts on this area in our latest report—The Base Layer.

Where Blockchain will Impact First

Finally, just a quick note on where we see the innovation of Blockchain first.

There is an abundance of innovation happening across many markets and use cases globally.

Many private blockchain solutions are racing to announce the commercial launch and there will be a flurry of press releases and white papers in the months ahead.

eSports is an area which could provide a hugely exciting breeding ground for extremely compelling UX and innovation.

It will also have major implications for financial institutions and portfolio construction as a result.

This topic is one which the market does not properly understand, and we explored its implications here: https://www.celent.com/insights/982765501

Just the Beginning

This report from Morgan Stanley is just a taste of things to come from the sell side.

There will be a lot more reports emerging on Bitcoin and public Blockchains through the rest of the year and it will accelerate in 2019.

Insight details

Content Type
Blogs
Focus
Digital
Location
Asia-Pacific, EMEA, LATAM, North America