Some people predicted that crypto assets were going to be a fad that would quickly come and go. But in just a short time, we’ve seen crypto assets become the focus of new innovation. Cryptocurrencies have offered value exchange, the ability to generate income, and a viable investment option. Young companies are turning away from traditional VC to offer token options to investors. And blockchain technology is offering new value in the form of frictionless data exchange. As a result, crypto is making an ever-expanding effect on global economies, technology and culture.
Because of this, crypto assets are becoming a fully institutionalized asset class, which can only be a good thing. Scaled buy-in from investors, brokers, financial services companies and more can only improve the recognition of crypto assets and markets as a whole. Greater participation creates greater efficiency and stability of crypto assets as well.
Institutionalization will also grow the crypto assets financial services sector, and not just in brokerage and management, but in areas such as insurance and accounting as well. Recognizing that crypto assets are a valuable investment opportunity will encourage more startups to issue initial coin offerings and grow token issuance as viable new options for stakeholders. As crypto becomes better understood and legitimized, more industries will adopt blockchain technology.
In other words, the sooner crypto assets can be utilized, invested in, trusted, and seen as valuable, the better.
Pushing crypto forward with better and more information
But we’re not there yet, and we can’t reach that point until the industry solves its major hurdle to institutionalization: lack of information in the form of disclosures.
Right now, there are no regulations or systems holding companies that issue crypto assets accountable, which means companies can (and have) issued ICOs and disappeared. Information that does exist is scattered throughout the internet uncollected and unverified, leaving asset valuation a mystery. How is a secondary market ever going to become sustainable when information is still private even when the trading goes public and creates a huge information asymmetry among investors, increasing the gap between “insiders” always winning and “outsiders” always losing?
What crypto needs to move into the next stage of maturity is a corporate global registry that will finally bring transparency around valuation and company actions.
What would that look like? It could be a single clearinghouse that collects, verifies and distributes information from companies across the world that have issued crypto assets, and that can also function as the standard for disclosures. The U.S. Securities and Exchange Commissions’ EDGAR database — the Electronic Data Gathering, Analysis, and Retrieval system — already does this by indexing disclosures of companies and making them freely available to the public.
There are a number of benefits that corporate disclosures will have for crypto:
- It’s good for regulators. The crypto ecosystem has traditionally run independently of governments and institutions, but a lack of regulation is causing a lack of standards, which is hurting its future growth. Regulators already work with disclosures, which lets them know how crypto projects are handled, so it’s an easy way to use the same framework for assessing project valuation.
- It’s good for valuation. Disclosures will also help better determine the valuation of crypto assets so that investors can make informed decisions on where to put their money. A system for determining asset valuation will also lead to increased sustainability across crypto asset classes, which can only help with more widespread adoption. Increased ease in regulation, more exposure to new projects, better investor relationships and more standardized valuation are the steps needed to fully institutionalize crypto — and that all happens with the creation and adoption of a corporate global registry.
- It’s good for new projects. Having a global registry where companies disclose what they’re working on lets the industry know about good projects in the pipeline and gives early-stage investors transparency into projects they might want to back. Similarly, it can raise red flags on scam projects.
- It’s good for IR. Providing an accurate account of what’s going on at a company, including milestones, leadership changes and issuances, will only help to build relationships with investors. And with crypto being such a new industry, disclosures can assure investors that they’re not being left in the dark and left on the hook.
Five years down the road
If an EDGAR-like registry for companies issuing crypto assets is adopted and becomes the hub of the crypto ecosystem, we’ll see a world where information transparency is valued as part of the crypto culture, with startups eyeing ICOs eager to issue disclosures. Those same startups will see increased trust and less friction in their investor relationships. We’ll see an evolution in analysis and valuation tools because standards now exist. Additionally, because of the level of information out in the crypto world, scam projects and frauds will be easier to spot and investigate. Finally, crypto disclosure services can easily work with government regulatory bodies to round out the crypto ecosystem.
But what if we don’t adopt a registry and leave things as they are today? Information will still be out there — when a company chooses to share it — but it’ll be more dispersed, unverified and harder to find. This will put investors at a disadvantage as they attempt to piece together reasons for investing, and they may abandon crypto investments altogether because it’s too hard to figure out. Crypto may never fully recognize its potential as an asset class and, instead, may be overlooked in favor of its blockchain technology. Finally, there won’t be anything to bridge the gap between the crypto asset world and the traditional finance world, leaving crypto out in the cold.
It’s going to involve buy-ins and commitment, but the choice to encourage corporate disclosures seems easy both for the health of crypto companies and their potential investors.
Responsibilities always follow with opportunities. That should still be the same for crypto-invested companies to take adequate measures to have their investors notified of all material events — both good and bad.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
James Junwoo Kim has a balanced experience in diverse scenes such as trading, corporate strategy and investment/business development. Most recently, as the managing director of NXVP, the venture capital arm of the largest online gaming company in Korea, he was engaged in crypto deals all over the world, acquiring exchanges and reviewing numerous ICOs. His experience in dealing with the lack of proper information to make financial decisions propelled him to co-found CrossAngle.