The Race Is On for Crypto-Capital Markets [Public Notions]

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Emerging crypto-assets, stablecoins and bitcoin are triggering a structural convergence across the Capital Markets sector. It is affecting Investment Banks, Private Equity, Exchanges, Custodians and Brokers. It is irreversible, and we can already predict the winners from the losers as the race toward Crypto-Capital Markets accelerates.

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Not just bull versus bear, but crypto versus tradition: participants are challenged to build a new operating framework and adapt a new business model for Crypto-Capital Markets.

A New Way to Exchange Capital Value

Bitcoin and Capital Market firms are in the same business, the business of exchanging value. The difference is, Capital Market firms use instruments, or containers of value, that must be brokered, exchanged, reconciled, settled, and custodied. In stark contrast, crypto-native assets enable the exchange ofvalue by embedding those functions into the network’sprotocols.

Whereas a current financial instrument must be settled, bitcoin is self- settling. Bitcoin can be self-custodied; most importantly, bitcoin paradigms offer direct and open access to the exchange of value. By design, digital currencies and crypto-native instruments, encapsulate the functions of access, exchange, settlement and custody. The open-sourced invention of bitcoin eliminates entire functions and changes how a Capital Markets firm can add value.

Crypto-Capital Markets Triggers a Structural Convergence Across Firms and Functions

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Cryptocoins signal the impending obsolescence of current workflows. Yes, today, direct access to blockchains is difficult. But it is only a matter of time until the user interface evolves from a ‘DARPA-like’beginning to an easy-to-use internet.

No longer bull versus bear, it’s tradition versus crypto

Until now, innovation in Capital Markets has been marked by incremental improvements, customization and specialization. Exchanges innovated order types and rules. Settlement and custodial firms innovated collateral and credit flexibility. Everyone worked faster and smarter. Firms went digital. But no one addressed the inefficient and fractured workflow. These self-regulated firms did not address their own practices. There was no drive to efficiency. So, no one innovated their business model, that is until now.

How much does your workflow collapse with Crypto-Capital Markets?

The open-sourced invention of bitcoin, eliminates the need for stand-alone functions of access, exchange and custody while it allows real-time monitoring, risk and investment management analytics in a distributed, yet governed, wallet.

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Crypto-Capital Economics: Tight Horizontal Integration Will Determine the Winners

Crypto-instruments can collapse dozens of tasks across multiple firms into a wallet with analytics. This may seem scary for some, but for others it’s an opportunity. Simplified workflows allow firms to pursue new linkages between industries and find ‘low-friction’ entry points into new markets.

The winners are already building crypto capabilities and are testing the economics of these business models. The winners are buying adjacent businesses, collecting regulatory licenses and tightly integrating horizontal services. The winners are racing to prove out a new operating framework for Crypto-Capital Markets.

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Crypto-Capital Markets: The Race is On Incumbents need to remodel their business

The Winners

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The Losers

See the full disruptive nature of crypto-instruments and plan to capture the opportunity to dominate a new landscape

Try to force fit crypto (as another asset class) and blockchain (as another database) into their current business models

Create Venture Funds to build a portfolio of crypto-capital capabilities

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Under-fund and under-utilize internal innovation groups; heavy reliance on a few vendors to stay informed

Are acquiring adjacent firms and using proprietary integration methods to streamline an abbreviated workflow

Resource projects only with technologists, there are no business, strategy, or customers in the room

Understand that simplified workflows enable self-service paradigms and hyper-productivity

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Can’t imagine how or why to simplify workflows and data models across the industry

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Accept ‘open’ and are ready to compete on responsiveness, predictiveness and scale

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Look for conventional ‘lock-ins’; desire to make the open-sourced code, proprietary

Are talking to their government about issuing fiat digital currencies

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Move late with weak partnerships to ‘check the box’ of new capabilities

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CryptoCapitalMarkets: The Race Is On © Marie Giangrande 2019

Satoshi’s invention, manifested by bitcoin, will forever change financial business models. Not many firms will make it through the transition, but it’s nice to see a few incumbents take a lead in Crypto-Capital Markets. The race is on.

© Marie Giangrande January 2019

I launch partner, marketing, and communications programs for CryptoTech and FinTech firms, navigating difficult topics across regulation, technology and finance.