In today’s finance world cryptocurrency and its backbone, blockchain technology can no longer be ignored. At first, digital currencies were seen by institutional investors as an “exotic fad” that should be avoided. But now, that Bitcoin and Ethereum have climbed in value and appear to have reached an equilibrium that is more stable in 2018, institutional investors, like Goldman Sachs, are starting to develop cryptocurrency investment products.
The result? These products will infuse more capital into the digital currency markets and offer more “legitimacy” and transparency.
The growth of digital currency is not the only thing disrupting traditional financial and investment industries. Blockchain technology itself is also changing the entire game of investing. Here are six ways that’s happening:
1. It Can Lower the Cost of Trading
Oliver Wyman, an international financial services consulting firm, has recently released a report that estimates that IT and operations costs in capital markets are approximately $100-$150 billion annually, plus an additional $100 billion in post-trade and securities servicing fees. These fees are passed down to the customer in the form of front-end loads and yearly administrative expenses.
Due to the clear and immutable recording and storage of investment transactions on the Blockchain, this technology has the potential of drastically lowering these costs by capitalizing on public blockchains.
2. Less Wait for Settlement Times
It can take up to 3 days for traditional trading processes to settle. Blockchain technology holds promise for speeding things up and lowering the processing times to just one day or even a few hours. But, public blockchains can also become congested as a result of certain technological limitations coded into this technology. Thus, developers will need to work on this issue before we see wider adoption.
3. Global Markets Can Trade 24/7
As of now, exchanges in every country have set hours of operation. For instance, The U.S. Stock Exchange runs from 9 AM to 4 PM, Eastern time. By using blockchain technology, it can “open” global markets for 24/7 trading, getting rid of the need to wait until a market opens to complete a trade.
4. Less Fraud
Since blockchain technology is transparent and immutable, it drastically reduces fraud or other illegal activity in the investment sector on any contract, document, or trade that has been recorded in a block. Digital currency investment groups are further supporting this and exchanges using KYC (Know Your Customer) compliance. Although, compliance has long been a must for traditional investing the verification process has lagged when it comes to cryptocurrencies, but this is no longer the case.
5. New Kinds of Investments Could Form Through Tokenization of Assets
Essentially, with the help of blockchain technology private equity trading can be “simplified” to P2P exchanges of respective coins that can be traded without any intermediary.
For example, someone who owns a baseball card worth $250,000 (yes, there are such cards) could sell partial investments in that card via a blockchain tokenization process, all of which would be recorded and stored in an immutable blockchain environment.
6. It Will Change Private Equity and Real Estate Investments
As of now, private equity funds contain vasts sums of money from individual investors. This money is invested in startups or small companies looking to scale, as well as buyouts of struggling companies, and also in real estate.
Investors pay the fund managers, essentially for their trust. By using blockchain technology, it could potentially get rid of these middlemen and offer a more reliable way to invest individually and directly.