Mike Belshe, co-founder of BitGo, initially just a digital-asset custodian service, talking about what is happening in the cryptocurrency space, states,
This thing is changing at a rate I think no one’s ever seen.”
That is, what is the cryptocurrency space is finding its place in the world, is expanding, but is also consolidating as it is generating more and more interest from wealthy investors and opportunity seekers. Investors are flocking to invest in this kind of innovation.
How is the industry changing?
Well, BitGo, as mentioned was initially just a digital-asset custodian service, but now it deals in prime lending, trading and portfolio management, and tax services.
The news of the day is thatGalaxy Digital Holdings Ltd. (BRPHF) has agreed to buy BitGo for $1.2 billion, the first $1 billion-plus deal in the cryptocurrency industry.
Galaxy Digital will now oversee $40 billion in assets and will have offerings that extend to trading, custody and asset management, investment banking, prime lending, and tax services. It even has a mining operation.
Galaxy founder and CEO Michael Novogratz stated that
In order for crypto to become this revolutionary transformation, you’re going to need bigger companies that area going to knock heads against the bigger businesses” of traditional finance.
The deal jumps Galaxy into this role.
The Way Of The World
The cryptocurrency world is a part of the “information” world and information is what it is all about.
As César Hildalgo, of MIT and author of the well-known book “Why Information Grows,” has stated,
Ultimately, the economy is the collective system by which humans make information grow.”
And, that is exactly what is happening in this market.
Information is growing and spreading as the benefits of this particular realm of services become known, appreciated, and valued.
As can be seen from some of the numbers cited above, the value of the output of this space is increasing, and increasing very rapidly. More and more investors of various strategies are finding a place for investment in various parts of the cryptocurrency space.
It is well-known that the price of Bitcoin (BTC-USD) rose to a historic high of nearly $65,000 in April.
This has, of course, drawn attention to what is happening in this space and more and more investments are being made in the area and more and more institutional investors are being drawn to the industry and more and more deals are being cut as the industry grows and consolidates.
Yes, there is volatility in the markets, but this volatility is part of the territory of a new product. Investors are still getting the feel of the market and are learning what other investors are looking for. As the investors continue to increase, as experience is built up, and, like most young markets, the volatility will lessen as the market matures.
Paul Vigna who wrote the above-cited article in the New York Times provides readers with a list of the players in this space and some of the deals that are being done. This activity is really in its early stages and as more investors get involved in the market, some of the volatility will go away.
Furthermore, cryptocurrencies are just being used as a store of value right now. Once they become more useful as a medium of exchange, this will also reduce volatility.
Things are changing and the leaders in the industry are very focused upon keeping up with the pace of change and are trying to keep in front of it.
This is what happens when a new technology starts taking over a space.
I have written about other initiatives, specifically about what is happening in the payments system. A representative of this movement is Stripe, Inc. (NYSEMKT:STRIP), a payments company that has just been given a valuation of $95 billion.
Payment systems are coming at the market from another direction. They, for example,
are eager to control all means of payment: bank accounts, e-wallets, credit cards, cryptocurrencies, and so on. And, e-commerce and social-media platforms want to go a step further by combining their powerful data-collection engines with payments.”
Stripe has now expanded into more than 40 countries worldwide. Payment systems must be global, to fit into today’s world.
Stripe is moving quickly to expand in Europe, Asia, and Latin America. The company now has more the 50 customers who process more than $1.0 billion a year in payments and has been very successful in expanding to customers that are of all different sizes.
Stripe is producing not just for the larger companies, but it is also building a presence among the smaller- and medium-sized businesses.
Stripe will be launching additional services that can save meaningful amounts of money at a large scale or for which Stripe’s customers can charge their own users extra, bringing in new revenue streams.
The point is that Galaxy must develop a global outlook and then execute its business plan against some major competition that is already in the marketplace.
Finding Their Way
And, this is the final point of this post.
The cryptocurrency product is really, just getting started. It doesn’t know exactly what it will be able to do or exactly where it is going to fit into the competitive scene. And, as is true of any "new" market, uncertainty will play a big role and volatility will have to be faced.
Obviously, investors see possibilities. But, these possibilities need to be identified and executed.
Bitcoin, for example, seems to have been discovered as a holder of value, like currencies in general, although its value seems to be extremely volatile…at least at this stage of its development.
As a “currency” it can also be used as a medium of exchange, but, as yet, to achieve general usage in this function seems to be some way off.
And, what about building platforms and networks around Bitcoin, like Stripe is doing with its payments model?
The cryptocurrency space seems to have a ways to go before it really exerts its potential.
Things Are Happening
With deals like that between Galaxy Digital and BitGo Inc., the crypto-space seems to be moving more and more toward playing a major role in the financial system.
Furthermore, as more talent and more resources move into the crypto-space the pace of advancement and competitiveness will accelerate.
As with most innovations that can lead to transformations in the way we do things, we expected too much, too soon. These radical changes do take time to get where they are going. But, along the way, the pace picks up.
It seems like that is what is happening now with respect to cryptocurrencies.
The draw of the investors is a good sign that this is happening.