It seems not a day goes by without various news outlets talking about Bitcoin and digital currencies. It’s reminiscent of the strong run up and subsequent drawdown of the crypto currency in the winter of 2017. While volatility of Bitcoin is not a new development, the recent price surge masks far more interesting developments behind the scenes…specifically, the milestones achieved by institutional investors and central banks.

Institutional investors

  • Paypal announced the launch of a service allowing clients to buy, hold, and sell cryptocurrency in their Paypal account. The company also said that in early 2021, its customers will be able to use their cryptocurrency holdings to fund purchases.
  • Fidelity announced the launch of its first Bitcoin fund thru its new business unit: Fidelity Digital Assets.
  • Some publicly listed companies adopted or increased their bitcoin holdings within their treasury assets: Microstrategy, Galaxy Digital Holdings, Square, and others.

Central Banks

The Bank for International Settlements (BIS), along with seven other central banks, published a report outlining what they view as the feasibility and required features for a digital currency to help central banks accomplish their policy objectives. The report indicated that they would coexist with cash and other types of money. The core requirements outlined for those digital currencies are:

  • Resilient and secure to maintain operational integrity
  • Convenient and available at very low or no cost to end users
  • Underpinned by appropriate standards and a clear legal framework
  • Have an appropriate role for the private sector, as well as promoting competition and innovation

These central banks were Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank (Sweden), and the Swiss National Bank. In fact, Fed Chairman Jerome Powell recently said that a central bank digital currency could improve U.S. payment systems, and European Central Bank (ECB) President Christine Lagarde said that the ECB may create a digital euro to supplement cash.

When institutional investors and central banks begin deploying time and money into developing the ecosystem, the question of legitimacy seems answered. As with any new frontier, no matter how exciting, there are material risks and as such we will continue to monitor the new asset with caution.

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