A Comparative Guide to Alternative Investment Opportunities for Holistic Wealth Management

by Sandeep Kumar | April 29, 2021

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One of the key drivers of the boom in wealth management has been the rise of alternative investment funds (AIFs), essentially either structured products, cryptocurrencies, thematic funds, real estate funds, private debts, and other such, where HNIs make sophisticated bets on new investing strategies, unlike the conventional world of mutual funds that are used by millions of small investors.

Alternative investments represent approximately $13 Tn (or 12% of the global investable market). By 2025, the industry is expected to grow to $20 Tn – $25 Tn (18-24% of the global investable market). India’s alternative investment industry has grown by nearly 265% since 2017. But the industry is still underdeveloped relative to the rest of the world. As of June 2020, the industry is estimated at $54 Bn in India. The recent growth of India’s alternative investment industry can be highlighted by two recent developments. First, India’s private equity space took the spotlight when Reliance Jio raised $20 Bn via notable blue-chip investors and tech giants, despite the global Covid-19 outbreak.

Source: Grand View Research

A Camaraderie of Risk and Opportunities


An investor who is looking to diversify the investment risk in various asset portfolios. An ideal investor will be the one who is willing to take the underlying risk involved in these unlisted and illiquid securities. Usually, Resident Indians, NRIs, PIOs, OICs, and foreigners are eligible to invest in various types of alternative investments.


Structured Products

These are financial instruments consisting of three components:

  • A Bond
  • Multiple Underlying Assets
  • Derivatives

Depending on the investment objective of the structured product, the interest generated by the bond component is used to buy the derivatives. The underlying asset helps generate the return component. The derivative is of paramount importance in the construction of a structured product. Most of the time it is what determines the level of return. The choice of derivatives will depend on the:

  • desired risk level for the product (capital protection or not),
  • preferred investment horizon,
  • type of return and exposure sought, and market conditions

In the current time, structured products seem to be appealing for customers who try to optimize and diversify the portfolio of savings and achieve the target returns. But with a change of generation, the future holds place for investors moving for fast-paced money-making opportunities rather than the traditional buy and hold investments. The risk with structured products is the lack of liquidity that comes along with low returns and it can be considered more as a buy and hold investment. Along with the lack of liquidity, the potential loss of 100% principal is a huge risk involved.

 

Cryptocurrency

Cryptocurrency is a digital currency that can be used to buy goods and services but uses an online ledger with strong cryptography to secure online transactions. The highlighting characteristics of cryptocurrencies are:

  • Decentralized
  • Volatility
  • Trust-less

The global market of cryptocurrency in 2019 was approximately $792 Mn. The market is expected to grow at a CAGR of 30% and have a market capitalization of around $5100 Mn by 2026.

One of the most notable acceptors of cryptocurrency as a viable medium of payment is Apple Inc. PayPal, Starbucks, and Coca-Cola are amongst the other giants accepting cryptocurrencies.

It is also one of the most lucrative investment options currently present. Its value appreciation is supremely dynamic and can prove to be an excellent avenue for capital expansion.

When it comes to cryptocurrency, the investor sentiments are at all-time high currently. The biggest risk involved in cryptocurrency is the threat of cybersecurity including malicious activity. Loss or destruction of the private key will lead to a 100% loss of principal.

Overall, it is wise to place your bet on crypto in the coming era, keeping in mind that there might be periods of underperformance from time to time.

Thematic Funds

Thematic Funds are equity mutual funds that invest in stocks tied to a theme. Currently, SBI Magnum COMMA Fund and Aditya Birla Sun Life MNC Fund are the most popular thematic funds in India. The idea is to concentrate on making a portfolio with one core element of the economy. Exposure in different sectors helps to partially diversify the risk. It is less risky than sector-focused funds.

Thematic Funds are equity mutual funds that invest in stocks tied to a theme. Currently, SBI Magnum COMMA Fund and Aditya Birla Sun Life MNC Fund are the most popular thematic funds in India. The idea is to concentrate on making a portfolio with one core element of the economy. Exposure in different sectors helps to partially diversify the risk. It is less risky than sector-focused funds.

The practical application of thematic funds can be seen as wealth managers create different portfolios as per the theme that the investor wants to focus on. For example, outdated industries use more suitable examples like fintech, supply chain, or SaaS. 

However, if you are a very conservative investor, you may not consider investing as these funds come with higher levels of concentration risk. You must have an investment horizon of at least 5 years to mitigate the associated risks.

A mid to long-term investment trend should underlie the investment rationale behind thematic funds. Let us understand how thematic funds are a good investment with an example. Due to Covid-19, we saw a boom in the healthcare, pharmaceuticals sector. Considering the Covid-19 is going to stay a bit longer than expected, there will be an increasing demand for healthcare.

Thematic funds should concentrate more on investing in the specific companies which stand to benefit from this boom- like healthcare, pharmaceuticals, medical instruments manufacturers, etc. Similarly, hybrid and electric vehicles might be the road runners for tomorrow. So accordingly, thematic funds would look forward to investing in those specific sets of companies. Ideally, thematic funds should constitute 5- 10% of your portfolio if you are an aggressive investor willing to take higher levels of risk.

 

Real Estate Funds

A real estate fund is a sector fund that invests in securities of companies that invest in real estate projects. Investors get broad exposure to real estate for a low investment level. A Real Estate Fund can comprise investments either directly in real estate companies or in Real Estate Investment Trusts.

Some of the characteristics of real estate funds are:

  • Long term investment
  • Returns depend on the growth of the sector
  • Liquidity to investors, which is not the same if invested in physical real estate

With inflation on the rise, the prices of properties will increase which in turn will increase the value of real estate making it a protected investment for the investors willing to invest their money into long-term investment plans for at least 5 years. And the people who are in search of quick returns might not fit as suitable investors for these funds. Overall, they are being seen in a more traditional light, due to new opportunities. Present case on their growth opportunities and are they still relevant post covid.

The two common risks with these funds are the market risk of the real estate sector and the interest rate risk. Retail investors have a large amount of disposable income so investors like them can consider real estate funds for a diversified investment portfolio.

Private Debts

A private debt fund specializes in lending activity and raises money from investors and lends that money to companies. It represents an alternative to bank lending as well as providing investors with exposure to the more bond-like returns occurring from private debt as an asset class.

Private debt funds come in different shapes and sizes. For example, some private debt funds provide capital to sponsor-backed borrowers, others fund real estate development projects, and some invest entirely in the debt of distressed companies. By 2019, the assets invested into private debt reached a record high of $812 Bn and it was expected to exceed $1 Tn by 2020 but for the Covid-19 outbreak which slowed it down.

Private debt in Europe has grown by nearly 380% in the past decade and the Asian market has taken off in recent years. The lower volatility and regular cash income are really attractive to investors. Already one of the fastest-growing alternative asset classes, with total AUM rising 168% from $315 Bn in 2010 to $845 Bn in 2019, this growth is expected to continue with a 73% increase in AUM to $1.46 Tn by 2025. It is thus expected to become the second fastest-growing alternative, next to private equity, by 2025.

 

AIF as per Investor Risk Appetite

The Journey Ahead

The future of the alternative investment industry seems likely to be one of both growth and significant structural change, accompanied by an increasing maturity of the industry’s infrastructure, regulation, and investment relationships. The importance and need of the alternatives industry are likely to become even more evident to the public as individuals begin investing in the sector through retail alternatives, to strengthen the value of personal long-term investment portfolios. Ultimately, demonstrating the value addition that the industry generates and doing so in a transparent fashion will be the key to the industry being accepted by the public and policymakers. The Indian Alternative Investments Market still represents a minuscule share of the global market and is poised for unprecedented growth in the years to come.

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This article has been co-authored by Yogesh Lakhotiawho is in the Research and Insights team of Torre Capital.

 

 

 

 

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Security Tokens: The next big trend which will revolutionize the Private Markets

by Sandeep Kumar

Keep up to date with the latest research

Understanding Security Tokens

Blockchain is one of the most rapidly growing digital technologies in recent history, and its revolutionary decentralized model is being adopted by a wide range of industries. With the total Security Token market crossing $1 Bn in total volumes in July 2021, the discussion around how security tokens can transform and enable access to otherwise inaccessible private markets has been growing. Security tokens are essentially digital contracts that are blockchain-based protocols embedded in the network for fractions of any existing asset, such as real estate, a car, or corporate stock.

When investors use security tokens, their ownership stake is recorded on the blockchain ledger. With their ability to demonstrate value, security tokens have the potential to disrupt traditional financial markets in favor of newer, more hybrid blockchain models. They combine the merits of blockchain technology and regulated securities market, offering a wide range of financial assets including fractional ownership opportunities which allow investors to trade even the most illiquid assets like private shares, real estate, art, and even esoteric assets like vintage cars.

Owing to these benefits, there has been increasing adoption of STO in both public and private markets, so much so that some expect it to even outperform the traditional markets in the next 5–10 years.

Evolution of STOs and their Growth

The idea of STOs evolved from Initial Coin Offerings (ICOs) which serve as utility tokens distributed to raise capital from investors. ICOs may even involve the use of virtual assets that are yet to be built on the ecosystem. Since the launch of Ethereum in 2014, ICOs were successfully issued for several securities till 2016. However, with its success, the number of scams in the ICO market also increased with about 80% of the ICO projects deemed to be a fraud. These issues led to the development of STOs as they provide a shield of compliance, regulation, and tokenization to digital assets transactions.

The roots for STOs were set up in 2017, and it started to gain traction in 2018 with a total of 28 STOs raising a collective value of $442 Mn during the year. As per PWC’s 6th ICO/ STO report, over $4 Bn was raised through 380 token offerings in the year 2020. Tokenization of assets and the subsequent market for STOs is expected to witness exponential growth in the future, growing at a CAGR of 59% during the period 2019–2030.

How Do Security Tokens Work?

Making a security token entails reserving and naming your token symbol, developing a token that can enforce regulatory compliance through programming, and minting and distributing the token to investors. When an off-chain traditional financial asset is represented on-chain, it becomes a tokenized security. Tokenizing an existing share certificate is a good example. An issuer creates a security token that represents a claim to ownership in a company. The issuer then creates a whitelist of wallet addresses (typically Ethereum) of investors who are permitted to purchase stock in the company or invest in the concerned security. All individuals on the whitelist must demonstrate that they comply with the restrictions for that specific security.

If you try to trade a security token with a counterparty, the Issuer will check to see if they are whitelisted. If they are, the transaction is completed. If not, it will display an error message and you will be unable to complete the transaction. This is possible through smart contracts, or autonomous contracts on the Blockchain, which give the ability to be automated and transacted with little cost and in a short amount of time. Security tokens, in contrast to the majority of other crypto assets, are not bearer instruments. Because anyone who obtains your Bitcoin private key has the ability to spend your Bitcoin, it is a bearer instrument.

The security token is an electronic representation of the security rather than the security itself, hence cannot be stolen. No one can transfer a token to their wallet unless it is whitelisted; otherwise, they would have gone through KYC/AML and you would have known who they were. Hence, security tokens are well secured.

Types of Security Tokens and their Acceptability

· Equity Tokens  The ownership of an item, like corporate stock or debt, is represented by equity tokens.

· Asset-backed Tokens — This is a blockchain-based token that is linked to a tangible or intangible object of significant value.

· Utility Tokens — Utility tokens give users access to a product or service at a later time. Companies can utilize these to raise funds for blockchain project development.

· Debt Tokens — Debt tokens are the equivalent of a short-term loan with an interest rate based on the amount borrowed by the company. Example — Steem.

How are security tokens transforming the private markets?

Due to limited access, opaque pricing, intermediaries, high minimums of $100K+, limited liquidity choices, time-consuming and burdensome legalities, and other factors, non-institutional investors are unable to have easy and direct access to high-quality private market investment possibilities.

Security tokens allow investors to buy, sell, and swap rights to shares of private corporations using digital tokens, overcoming the problems in the secondary market for private equity. It’s critical that it records, issues, and validates sales all at once. This benefits both existing secondary market investors and makes secondary markets more accessible to a wider group of investors. It ensures transparent ownership and pricing.

A digital token would allow an investor to sell security far more readily than actual shares in a startup (which require notarial acts or intermediaries). We’re talking about a type of investment that combines the safety and security of reality — owing to a stable value represented by a real asset — with the investment simplicity of the blockchain world, which requires no notary deeds or lengthy processes to manage securities, but only a digital wallet! Investing in private markets is as easy as in public markets.

Benefits of Security Tokens

· Improves accessibility to real-world digitized assets

With a total of $256 Tn in real-world assets available globally, asset classes such as fine arts and real estate have numerous opportunities to open up trading spheres and be traded easily and quickly with STOs.

· Enabling Fractional ownership

Security tokens can be used to raise cash for large-scale investments. The value of a costly art collection can be split down into fractions and distributed to a large number of investors using security tokens. The security token investors would benefit from the increase in the value of art collectibles. People can build their portfolios without having to spend a big sum of money since security tokens allow investors to acquire fractions of fine art or collectibles. However, semantics, such as dividing the value into fractional ownership, must be addressed.

· Provides Increased Liquidity

Liquidity is determined by the number of traders (sellers and buyers) in a particular market. Accelerating transactions and fractional ownership through asset tokenization has the potential to increase liquidity by allowing more people to enter the investment space and buy/sell at higher volumes. Security tokens increase liquidity by making it easier to buy and sell in a market or underlying asset that is not available or difficult to buy or sell. Security token offerings are a win-win situation in terms of overall liquidity when it comes to asset classes that were illiquid in nature.

· Transparency

The status of a security token transaction can be tracked from start to finish, and all parties involved have access to an up-to-date golden source of truth on-chain. With an up-to-date record, it reduces record-keeping disputes and the need for parties to reconcile.

· Reduces Cost

Security tokens aim to eliminate intermediaries and simplify investing for investors. Chainiumu, a crowdfunding platform, was created with the sole purpose of connecting investors to investors without the use of go-betweens. In the long run, this will increase accountability and transparency. With an STO, businesses can enable investment through tokenization. Because smart contracts can embed trading restrictions into a token, the cost of an IPO or other securities trading can be significantly reduced.

Major projects in the STO space

· Tezos

BTG Pactual, Latin America’s third-largest investment bank, and Dalma Capital, a Dubai-based asset manager, announced plans to launch security token offerings on the Tezos blockchain in 2019. According to a press release, the banks hope to “address a deal pipeline of more than $1 Bn for existing and prospective token issuances.”

· TZero

tZERO is a technology company whose mission is to democratize access to private capital markets. It is a subsidiary of Medici Ventures, Overstock.com, Inc.’s blockchain-focused wholly-owned subsidiary. tZero was created to provide more legitimacy and oversight to initial coin offerings (ICOs), as well as to allow businesses to create and issue tokenized assets for investors. tZero, unlike other decentralized blockchain platforms, has been designated as an alternative trading system (ATS) and is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

· Polymath

The platform’s primary goal is to assist traditional financial securities in integrating with blockchain technology. Polymath is based on the fact that tangible assets are being drawn towards being a part of blockchain technology, which is primarily powered by its native token (Poly). Polymath is made up of four core layers that define token creation and adherence to the operating guidelines. These include the Protocol layer, Application layer, Legal layer, and Exchange layer.

In general, the protocol layer is in charge of all platform computation. The application layer, on the other hand, allows users to generate their security tokens. Those who want to create tokens on the forum can get help from the legal layer. Finally, the exchange layer functions more like a closed-end KYC/AML accreditation, providing users with instant liquidity for their assets.

Developments that needs to be catered in the long run

· Wider acceptability

STOs will take time to gain trust due to the poor reputation of ICOs in the market. To be accepted by the mass, major financial institutions must vouch for STOs. This would take some time, even with the security of regulatory requirements. The time has come to impose regulatory requirements that will act as an excellent first line of defense and protect investors.

· Integrating systems and requirements

Companies will be responsible for developing data transport protocols and interfaces, as well as writing and maintaining the existing system architecture. This may necessitate the use of specialized skill sets, which will increase costs in terms of both human resources and system enhancements to interface with SSTO-specific blockchain technologies.

A glimpse of the future

It is clear that significant changes are already taking place in the realm of finance and investing, and many of them have the potential to be beneficial. This is especially true for people who are enthusiastic about blockchain technology and the opportunities it provides. Security Tokens combine blockchain technology with the requirements of regulated securities markets to facilitate asset liquidity and financial accessibility. These tokens are regulated securities that are issued in the form of digital tokens in a blockchain ecosystem. Through automation and “smart contracts,” the blockchain environment promotes securities regulatory objectives of disclosure, fairness, and market integrity, as well as innovation and efficiency. The security token market cap increased by more than 500% in 2020, and the best is yet to come for security token offerings. Securities, which are traded financial assets such as equities, debt, and more, can become even more effective by employing blockchain as a foundation.

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This article has been co-authored by Sayan Mitra and  , who is in the Research and Insights team of Torre Capital.

Reinventing meat and cultivated proteins: Gauging the investor’s interest through sustainable investment products

by Sandeep Kumar

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Overview and Evolution

The popularity of alternative meat products from Beyond Meat (NASDAQ: BYND) and others, as well as early regulatory permission for some cultured meat products, has sparked a flurry of investment in this nascent business.

Despite this enthusiasm, the business is still in its early stages and is mostly pre-revenue, with a number of growth obstacles ahead, including the need for clear legal frameworks, more economically viable products, and scalable technologies. As the traditional cattle industry tries to defend its market share from produced protein sources, providers will almost certainly encounter greater lobbying attempts.

Even while widespread adoption may be several years away, improving consumer sentiment, together with increased demand for more sustainable food choices, will undoubtedly boost investment in grown protein products.

The key industry drivers for alternative meat products industry

· Antibiotics and hormones-free: Industrial farming conditions can be unsanitary, resulting in sick animals who are frequently treated with antibiotics. Hormone injections can also help to promote muscular growth or, in the case of dairy, milk production. These therapies may have an impact on human health, such as the transmission of animal hormones to people or the development of antibiotic-resistant bacterium strains. Cultivated proteins are made in sterile conditions without the use of antibiotics or hormone therapies.

· Free of zoonotic diseases: Zoonotic diseases, such as COVID-19, can be transferred to humans through animal meat intake. Because it is produced in a controlled, sterile setting, cultivated beef is deemed safe from this risk.

· Ability to design and change nutrient profiles: Cultured meat manufacturers can change inputs to generate products with better nutritional value, such as proteins, amino acid composition, vitamins, and minerals.

· Food security: Cultivated proteins offer a potentially large new food source that isn’t constrained by livestock’s significant land, water, and food requirements. This is especially essential in light of expected worldwide population growth and corresponding food demand.

· Environmental advantages: Some people believe that produced protein is a better option for the environment than conventional animal production. According to a 2011 study conducted by the University of Oxford and the University of Amsterdam, cultured meat may be produced with only 4% of the greenhouse gas emissions (GHGs) and 2% of the area required for conventional meat production, while requiring 45 percent less energy. 16 Critics have noted, however, that the energy required to create grown meat may originate from fossil fuels, resulting in worse environmental repercussions than animal agriculture in some ways.

 Ethical ramifications: Some consumers, such as vegans, avoid eating meat because of animal welfare concerns. Because no animals are injured in the manufacturing of cultivated meat, it is considered an ethical advance.

The environmental and ethical advantages of cultivated meat are based on a one-to-one substitution for traditional meat. On the other hand, a single cow can provide hundreds of distinct products. For example, if cultured beef totally replaced conventional ground beef, demand for steak, leather, gelatin, and steric acid would remain unchanged, meaning that cattle demand would remain steady, albeit ground beef demand might shift to new markets.

Competitive Landscape and Market Mapping

Source: PitchBook

Investors’ Trust Growing with Market

Compared to the initial years when alternative meat was first introduced to recent years, the market has witnessed steady growth in VC funding from a single $25 Mn deal in 2012 to a total of $303 Mn invested across over 30 deals in 2020. While the annual deal count has nearly tripled in 2018, the average deal size decreased. However, it is expected that the fundings will increase in tandem with the growth in the industry. The first five months of 2021 have seen a surge in investment with over $772 Mn recorded. With this pace, it is expected that the funding activity will triple this year, as compared to 2020.

Source: Pitchbook

Investment trends suggest that the cultivated protein providers have received the largest share of VC funding. Those among the top recipients include UPSIDE Foods, Eat Just, and Modern Meadow. Each of them have received more than $100 Mn funding, individually. Besides receiving funds from VCs, cultivated meat producers have also started to gain trust of investors like impact investors such as AiiM Partners, impact angel investors including Richard Branson, and even large corporations such as Cargill, Tyson, etc. These large companies have started to realise the importance of the alternative meat and are engaging through strategic investments.

How are Incumbents Reacting to the New Alternative Meat Market?

Combining the benefits of plant-based proteins along with cultivated proteins have proven to have cost and scale efficiencies, without leaving a significant impact on nature. Apart from health benefits like low cholesterol and with a taste similar to real meat, the alternative meat sales reached over $1.4 Bn in 2020. This growth in demand justifies why the existing food companies are venturing into this domain.

Based on location, Singapore is emerging as a hub for cultivated meat and is attracting many companies primarily due to ease of access to funds and required talent, attractive regulatory environment and significant market opportunities in South-East Asia. Companies like Avant Meats, Shiok Meats, Aleph Farms, etc. are considering to set up production units in Singapore.

Challenges Faced by the Culture Protein Production

The alternative meat market is yet to realise its full potential. Despite its wide range of benefits, there are certain roadblocks that are restricting the fast growth of the market. The Cultured protein market has three stages of production — developmental scale, pilot sale, and commercial scale. Most companies are yet to access the commercial scale. Once it is able to attain commercialization scale, plant-based meat will be available at a cheaper price compared to traditional options. It is estimated that cultured protein would be 5x cheaper by the start of next decade.

Currently, these options are not widely available to the customers and still require further advances in R&D processes to ensure the growth of the sector. Food Tech startups are continuously evolving to generate cost-efficient alternative meat. It requires huge amounts of investments and specialised workforce to experiment with different techniques from the use of AI, to bioprocessing and 3D bioprinting. This can be taken care of through greater funding from investors. The median funding for early stage VC rounds in cultivated meat startups have gone up from $4 Mn to $9.5 Mn in the last three years. Companies are trying their best to make the alternative meat very close to the traditional meat in taste and texture so that they are able to fully replace the animal meat in the coming years.

A Nascent Industry with Great Potential

Environmental concerns with the regular meat industry, change in food preferences, health benefits, cost efficiencies are some reasons that are facilitating the growth of the alternative meat market. It is estimated that the market for cultivated food, including meat, seafood, dairy, eggs, etc., would reach close to $18 Bn by the year 2035, with a consumption of about 6 million metric tons. While this may be just 1% of the total protein consumption in the future, the market may witness high growth.

Currently, a huge part of the alternative protein production goes into research and development. However, as the market enters commercialisation scale, costs will come down. Studies suggest that by 2035, cell-based and plant-based meat alternatives will be 10x cheaper than the traditional animal products, and will allow families to save over $1200 in food costs. It is also expected that by next decade, companies’ revenue will also increase 100x for plant-based meat.

Although the overall consumption of plant-based meat is currently very less, the market shows no sign of slowing down. The sector is still in its nascent stage and companies can gain from grabbing the opportunities early, which would be possible only through sufficient funding support from investors.

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This article has been co-authored by Sargam Palod and Tamanna Kapur, who is in the Research and Insights team of Torre Capital.

Why the crypto industry needs regulation and will it then become safer?

by Sandeep Kumar

Keep up to date with the latest research

 

Money or the currency system has evolved itself over the years. One such system that is raging these days is cryptocurrency. Cryptocurrency is basically a virtual currency that is generated and secured through cryptography, making it almost impossible to counterfeit. While the idea of such currency started to establish in the late 1990s, the first actual cryptocurrency came into existence in 2009 with the creation of Bitcoin. Presently, the global cryptocurrency market has hit the $2 Tn mark as of August 2021, and the market is only growing with more awareness and acceptability.

Features that make Cryptocurrency Unique

What makes cryptocurrency unique are its fundamental features. Let us have a look at these, before we understand the crypto market.

 Security — Cryptocurrencies are secured as they consist of cryptography codes. Each owner has a unique set of encrypted codes which are difficult to replicate. The blockchain technology ensures the integrity of transactional data and is an essential part of the system.

 Decentralised — It is not controlled by any central authority. This feature makes crypto immune to the old ways of government control and interference. The system of blockchain record-keeping maintains transaction records and keeps the network transparent.

 Irreversible Transactions — One has to be cautious before initiating crypto transactions as they are irreversible. Once the permission is granted, the transaction will be carried out completely. And due to lack of regulation, no organisation will be able to help in case of wrongly initiated transactions.

 Limited Supply — There are fixed, predefined amounts of cryptocurrency that can be mined. While some miners release a proportion of total supply to ensure price stability, others release all coins at once. With limited supply, the demand for each crypto determines its price. Hence, it can be quite volatile in terms of pricing.

Apart from the above features, Crypto transactions can be processed super-fast, and do not require any physical location, making it easy to use for the people.

Cryptocurrencies that are Leading the Market

Source: Statista

From just 66 crypto-coins, to more than 6000 in 2021, the growing popularity and advancement in technology has led to growth of several currencies. Out of vast number of options available, the following are leading the market presently:

 Bitcoin (BTC) — The first cryptocurrency created in 2009, by the pseudonym Satoshi Nakamoto, Bitcoin is the largest cryptocurrency in the world. With a market capitalisation of over $856 Bn, it has witnessed a growth of about 8900% in its price in the last five years.

 Ethereum (ETH) — With a market capitalisation of over $357 Bn, Ethereum is one of the biggest cryptocurrency. It is popular among users particularly due to its usability in crypto-goods and non-fungible tokens (NFT). Launched in 2015, Ethereum has seen a significant growth of over 27000% in the last five years.

 Binance Coin (BNB) — Founded in 2017, Binance Coin currently has a market capitalisation of over $70 Bn. It can be easily used to trade and pay fees on Binance platform which is one of the largest crypto exchange platform in the world. Since its inception, BNB’s price has risen by whooping 419000%.

 Tether (USDT)  Tether is a stable coin with a market capitalisation of over $64 Bn. It is the most consistent crypto-coin as it pegs its value to fiat currency like the US dollar.

Source: statisticsanddata.org

Acceptance Around the World

While most people buy cryptocurrencies to gain from price volatility through speculative investments, they have already started to gain recognition as a payment option in many companies across the world. From big firms like Microsoft, CocaCola, BMW to small businesses and even gig workers, across different industries have already started to accept crypto payments. In case of global companies, transacting in cryptocurrencies serves as an added advantage as they are able to dodge additional 2–3% cost they have to incur while making international payments. However, most businesses are dependent on crypto-exchanges that convert crypto payments into fiat currency, which then goes to the receiving party. Tesla’s announcement of accepting Bitcoin as a direct payment option is considered to be a big move in the favour of crypto acceptability. Such instances rally up the prices of the particular crypto coins.

To make crypto payments more accessible, Bitcoin ATMs have been installed at various places. The United States has the highest number of such ATMs. Compared with the rest of the world, the USA has the most number of businesses accepting crypto payments. In June 2021, El Salvador became the first country to accept Bitcoin as the legal tender. Athena Bitcoin, a provider of crypto ATMs, is investing over $1 Mn to install about 1,500 crypto-ATMs in the country. Such moves indicate the growing acceptability to the new form of currency system around the world.

Dark Side of Cryptocurrencies

Decentralisation is the most important feature of cryptocurrency. There is no official organisation that keeps a record of cryptocurrency. While this provides immunity from government interference, this feature has also led to some negative consequences. Due to lack of regulation and anonymity of transactions, it is used for dark activities and frauds. While the blockchain technology makes it difficult for third parties to access transactions, some hackers may be able to crack the code. Recent times have seen an increase in the number of such thefts. From $4.5 Bn worth of theft in 2019 to $1.7 Bn worth of theft in 2020, the value of crime has decreased but the number of crypto theft jumped by 40% YoY. In August 2021, hackers carried out the biggest ever theft of over $600 Mn in digital coins from token-swapping platform Poly Network, of which hackers returned about half of the amount within a couple of days. This shows the vulnerable side of digital currencies.

Changing Regulatory Scenario

Despite the negative consequences, several countries have started to realise the potential of digital currencies. As a result, governments and organisations are working towards changing the policy scenario to make the crypto market a better place.

The US Securities and Exchange Commission (SEC) puts cryptocurrencies under the securities category, on which security laws are very much applicable. The US is even considering strengthening crypto tax measures that will be beneficial for the government as well. On the other hand, China is trying to tighten crypto activities, primarily through crypto mining regulations. While the regulatory scenario across the world is still in its nascent stage, it is believed that clear regulatory norms would remove significant roadblocks for cryptocurrency.

Divided View on Cryptos — What does its future look like?

There is no doubt that the crypto market has seen significant growth since its birth. It has seen widespread growth in its adoption in various firms-big or small, across the world. And when big names like Elon Musk favour such digital currencies, it immediately rallies its prices to a new high. However, there is a divided view about cryptos among big investors. While it is gaining popularity, some of the big investors in the world, including Warren Buffett are against the idea of crypto, deeming it to be risky and worthless, primarily due to its distinctive features.

But at the same time, with the growth of blockchain technology, governments and organisations have started to realise its importance. Several governments have already started working on creating and amending policies regarding digital currencies that would make it a safer option for investors and will also curb the demerits associated with crypto.

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This article has been co-authored by , who is in the Research and Insights team of Torre Capital.

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