Breanne Madigan, head of the Global Institutional Markets department at Ripple, expressed her opinion on how liquidity is a key factor for institutional investment in Blockchain. This happened in the last episode of “Block Stars”, the new podcast presented by David Schwarz, CTO of Ripple.
How does liquidity benefit institutional investment?
Madigan recognized that, indeed, if you are looking for a true institutional adoption of cryptocurrencies and their Blockchain, this will require greater liquidity. In addition, he described four fundamental factors that liquidity presents: the tightness of costs between each purchase and sale, the breadth of financial instruments, the resilience (resistance) to market shocks, and the depth of the product portfolio. All necessary, according to her, for the long-awaited adoption.
It complements the idea adding that: “highly liquid assets tend to trade more frequently, and investors find it easier to overcome the hurdle of taking on liquidity risk”
Having a real use case significantly improves liquidity, as well as increasing accessibility to create more ways to trade the asset.
Madigan believes more support from international regulators is needed
“Of course, creating enough new products and institutional instruments will require support from international regulators.”
However, while Breanne believes that global regulation will help institutional acceptance, she emphasized that flexibility is also required:
“Flexibility will be key to account for different products and changing technologies (…) We need clarity from regulators, but we don’t want them to be so specific that they stifle innovation (…) Several global jurisdictions have positively started to take the initiative, being extremely helpful, however we need a consistent approach across the world“
“Global standards will not only help the industry and its liquidity, but will ensure that countries that have been slow to legislate do not lose the benefits of Blockchain.”
Another factor such as tokenization of traditional assets (real estate, for example) could increase the liquidity of the market and then, these assets may have a total evolution towards cryptocurrencies and their Blockchain. Of course this is just an ideal hypothesis that would greatly benefit institutional acceptance.
What is the appeal of the world of cryptocurrencies?
Madigan also points out that “the risk of present inflation caused by ongoing government stimuli to stabilize and revive the post-pandemic economy makes decentralized digital assets more attractive to investors“
Despite Bitcoin’s high volatility, Madigan infers that the more institutional acceptance there is, this factor will decrease.
Many investors and financial analysts are faithful believers that there is no other asset that works better against inflation than cryptocurrencies, and that is why they recommend them. Added to this, Breanne determines another advantage, banks cannot manipulate them as they do with fiat currency:
“Now, financial analysts recommend digital assets as a hedge against the fiat currency manipulated by the central bank (…) Coinbase and Gemini managed to ally with JPMorgan Chase bank, Paul Tudor Jones announced that about 2% of its assets are in Bitcoin (…) We have had a series of particularly important headlines that will promote institutional adoption“
It should be noted that, although this alliance has been made, the banking giant JPMorgan Chase is not responsible for any cryptocurrency transaction. Rather, it will process electronic transactions issued in dollars.
Madigan delved further into the topic speaking about the growth of stablecoins and CBDC (Central Bank Digital Currency) than “reflect the recognition that current payment methods need to be improved“
How do you see institutional acceptance in the future?
Breanne ended her participation in the podcast with a very interesting question: what do you think will happen in the next two years? She answered:
“I think there will be an advance in the tokenization of traditional assets (…) Investors who only used Bitcoin and their Blockchain will opt for other altcoins (…) And there will be more general institutional acceptance, as long as the key factors of liquidity“
And you, do you agree with Breanne Madigan? Is liquidity a key factor for institutional investment in Blockchain? We await your opinion in the comment box.