June 18 – 24, 2018 | Federal Reserve, Goldman Sachs & More Crypto News
3iQ Research Group consolidates the top five cryptoasset stories of interest
to investment advisors and our investors.
Cryptocurrency Index Gets Launched by US Federal Reserve
June 22, 2018 – The Federal Reserve Bank of St. Louis has reportedly added cryptocurrencies to its data tracking system. The Federal Reserve Economic Data (FRED) database has added four of the top cryptocurrencies, including bitcoin, ether, litecoin, and bitcoin cash. The Federal Reserve is utilizing price data from the popular cryptocurrency exchange (and 3iQ custodian) Coinbase. The new Coinbase index on the FRED database is the first of its kind for the Federal agency; although, the inclusion and acceptance of cryptocurrencies remains unseen from the other 11 regional banks within the Federal Reserve system.
Efforts from the Federal Reserve Bank of St. Louis appear positive for the top cryptocurrencies. It is unclear whether Coinbase will introduce new cryptocurrencies to their exchanges, and whether the Federal Reserve will include the new cryptocurrencies to the index as they become available on Coinbase’s exchange. Coinbase has been reluctant to add additional cryptocurrencies to their exchange, previously emphasizing the importance of network size, liquidity, and decentralization as deciding factors for listing.
June 17, 2018 – Keith Costello, President and CEO of the Canadian Institute of Financial Planning (CIPF) and the Canadian Institute of Financial Planners (CIFPs), has provided some of the most important steps for investment advisors to take before determining if cryptocurrencies should be in a client portfolio. As a first step, Costello notes that investment advisors need to understand what cryptocurrencies are. To simplify, he recognizes cryptocurrencies as electronic cash that require peer-to-peer exchanges, which are conducted mostly on decentralized blockchains. The next step for an advisor would be to highlight the advantages and disadvantages of certain cryptocurrencies. Some of the advantages could be their lack of settlement charges, transaction fees, and their ability to not be hacked.
The final step for an advisor would be to consider if cryptocurrencies should be used for strategic allocation purposes, such as protection against macroeconomic risks – similar to gold. Advisors need to understand that most cryptocurrencies have little correlation to traditional markets, insulating client portfolios under market volatility. Cryptocurrencies may also have long-term potential as being competitors to traditional fiat currencies. Diversification into cryptocurrencies that have no ties to any government or capital market, in theory, could be a valuable tool for advisors.
3iQ is proud to work with Canadian advisors who have taken the time to be more knowledgeable in the blockchain and cryptoasset space, and those who are looking to improve their knowledge for the benefit of their clients. 3iQ offers “roundtable” education sessions to advisors to improve the understanding of blockchain basics and cryptoasset networks, as well as investment rationale for this asset class.
For more information, call or email us using our contact information here.
Goldman Sachs is Looking Beyond Bitcoin Futures Trading
June 20, 2018 – David Solomon, Chief Operating Officer of major investment bank Goldman Sachs, notes that the firm is exploring other forms of cryptocurrency trading in addition to their publicly-traded derivatives they handle now. Solomon believes that the firm must “evolve its business and adapt to the environment”. Solomon, who is also the president of Goldman Sachs, is on track to be the successor of Lloyd Blankfein as the firm’s CEO. Goldman Sachs is one of the first major investment banks taking the plunge into cryptocurrencies, while many of the world’s biggest financial firms still are still struggling to decide if the current $284 billion dollar cryptocurrency market is a threat or opportunity to the existing global financial system. Goldman Sachs’ cryptocurrency trading desk is apparently gearing-up to be in business by the end of the month.
“We are clearing some futures around Bitcoin, talking about doing some other activities there, but it’s going very cautiously,” said Solomon. “We’re listening to our clients and trying to help our clients as they’re exploring those things too.”
Circle CEO: All Global Currencies Will Become Cryptocurrencies
June 19, 2018 – Jeremy Allaire, co-founder and CEO of Goldman-backed Circle, has envisioned that all global currencies may one day become cryptocurrencies. Allaire, who co-founded circle back in 2013, is looking to introduce a new cryptocurrency which is backed by the US dollar. Currently, the company offers an app powered by the blockchain, which allows users to send money for free, as well as invest in popular cryptocurrencies like bitcoin and ether. “Our focus with fiat stablecoins is we really think of it as a core building block for a crypto native global digital economy,” said Allaire. “Our interest is in how do we take all of the tasks involved in the financial industry and move those onto a crypto native infrastructure.”
Efforts to create “stablecoins” have mostly remained controversial, especially “tether” – which has come under investigation for its claimed US dollar backed-cryptocurrency. While bitcoin prices remain more volatile than currencies like the US dollar, most of the current $284 billion dollar cryptocurrency market uses bitcoin as a way to value other cryptocurrencies. Due to most exchanges only offering (/BTC) pairings, bitcoin may have already taken the place of the US dollar of the cryptocurrency market. “Stablecoins” may only be an alternate way of valuing cryptocurrencies, as they are not commonly traded on major cryptocurrency exchanges.
Everything You Need to Know About Cryptocurrency Exchanges
June 19, 2018 – Bloomberg has provided a number of questions and answers of interest to investors about cryptocurrency exchanges. Additionally, the article compares traditional stock exchanges to cryptocurrency exchanges seen today. Emphasis has been put on the importance of exchange hackability, referencing the risk of overseas exchanges such as Coincheck and their recent hack. Underlying blockchains and cryptoassets such as Bitcoin and Ethereum have never been hacked, but bitcoin and ether have been stolen from cryptocurrency exchanges. The article notes that investors can protect themselves by using “cold storage”, which is essentially cryptocurrencies stored offline in digital drives which have no access to the internet.
Ongoing regulations are also notably mentioned in the report, citing a number of federal efforts from countries such as Japan, China, and England and comparing their differences. Many countries and regulators have issued warnings to investors on volatility, scams, and other risks associated with cryptocurrency exchanges. Although not noted in the article, last week, the Department of Finance Canada released a Regulatory Impact Analysis Statement that proposes amendments to Canada’s current AML and ATF policies. The department is expecting to recognize Canadian crypto exchanges as money service businesses (MSBs), meaning they will have to report all trades over $10,000 CAD.
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