Tech
Large financial institutions are adopting cryptocurrencies and blockchain: what does the technology offer SMEs?
US highway
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On June 15, BlackRock announced that it had done so filed an application with the SEC for a spot bitcoin ETF, followed shortly by a deposit from Fidelity. Both companies’ statements include the use of crypto exchanges for market surveillance. Bloomberg estimates that 30 applications for spot bitcoin ETFs have been submitted to date, and with Blackrock’s record losing streak of 575-1 on ETF proposals, the suspense is killing people more than a Netflix thriller.
EDX Markets, a new cryptocurrency exchange supported by Fidelity Digital Assets, Charles Schwab and Citadel Securities, launched in the US last week after developing its technology over the past nine months. U.S. Federal Reserve Chair Powell noted last week that cryptocurrencies, such as bitcoin, have “resistance capacity,” a timely statement, as bitcoin once again proves popular in the market as a hedge against uncertainty and reaches the $30,000 mark first reached in January 2021.
On May 9, Goldman Sachs, BNP Paribas, Deloitte and more than 30 companies announced the Cantonal Network, a new global blockchain network of networks for financial market participants and institutional assets. The Network is the financial services industry’s first interoperable privacy-enabled blockchain network designed for institutions focused on tokenizing real-world assets using DAML from Digital Asset, a member of the Network and the technology provider for the Network.
The big financial institutions are coming, and with the West Coast in tatters following the sensational collapse of Silicon Valley Bank on the heels of the sensational collapse of FTX, sparking a wave of corporate bankruptcies, the big financial institutions appear to be arriving at speed.
PMI: low optimism
THE Small business optimism index hit a Minimum 10 years in April as the recession looms, which is helping to drive technological solutions to power this core segment of the economy.
Small and medium-sized businesses (SMBs) represent a huge segment of the U.S. economy, contributing 44% of GDP and half of the approximately $370 billion in overall technology spending. SMBs are businesses with fewer than 1,000 full-time equivalent employees and account for nearly half of employment in the United States
SMEs are facing a serious new generational challenge in obtaining financing, with the US Federal Reserve having steadily raised interest rates for over a year now. In May, rates reached their highest level in 16 years exceeding 5%. for the first time since 2007, and are expected to rise another 25 basis points this month as part of the Fed’s fight to rein in soaring inflation and effect of the “fiscal stimulus” or excessive money printing during COVID-19.
The US economy was modeled after this model interest rates close to zero for a generation. Cheap money has also been the fuel for rampant early-stage digital startups, and higher inflation is making digital innovation a game for those with much deeper pockets. High inflation threatens SMEs some reports that small business bankruptcies are on the rise, victims of the credit crunch.
Regulatory uncertainty in cryptocurrency markets is increasing the costs of doing business in the United States as the SEC continues litigation against major players, including Coinbase and Binance. Europe, Dubai and Hong Kong have launched new regulations on cryptoassets and the UK has legislated a historic and epic Financial Services and Markets Bill with provisions for cryptoassets.
Cryptocurrency and digital asset markets outside the United States are rapidly moving into the next chapter, from a theater of innovation to an engine of economic growth. During this turmoil, there are a couple of areas in the cryptocurrency and digital asset markets that SMEs would be wise to do their homework on: the increasingly mature crypto payments space and the emerging tokenized financing space.
SMEs: cryptocurrencies and payments
Blockchain payments are a good place to start as smaller companies often incur disproportionately high fees and operational costs. THE increase in credit card swiping feesthey represent the third highest expense for SMEs and, combined with rising interest rates and credit costs, this puts smaller businesses in a vicious cycle.
In 2020, PayPal has launched a service to enable users and merchants to make low-cost crypto transactions. Recently, the company filed its own quarterly report to the SEC, disclosing its cryptocurrency holdings. The Fintech giant had cryptocurrencies and related assets worth $943 million as of the first quarter of 2023, marking a 56% increase in the company’s holdings compared to the fourth quarter of 2022 when it had $604 million.
Stablecoins like Circle’s USDC provide businesses with a way to avoid market-driven cryptocurrency volatility. Converting from stablecoin to fiat is also simple nowadays as platforms like Coinbase offer free USDC-USD outboard Services.
Layer-2 platforms, such as Polygon, are further improving participation by enabling faster transactions with reduced processing times. This is a key feature for financial firms like Franklin Templeton and Hamilton Lane, which he joined the network recently. Likewise, other Web3 solutions like Uniswap’s Permit2 are minimizing gas fees for end users. Together, faster transactions and lower fees provide the scalability SMB projects need.
Emerging solutions are also enriching the onboarding experience for smaller companies that pose challenges due to prohibitive costs and complicated KYC procedures. Robinhood, the popular trading platform with 23 million funded accounts and 15.9 million active users, recently launched Connect. It allows existing customers to convert fiat currencies into cryptocurrencies at a minimal cost and without additional or new KYC.
“By educating and encouraging small businesses to use blockchain technology, we can help improve their operations and how they interact with consumers and their communities. We hope that blockchain technology can help SMEs reduce costs, increase efficiency and improve security. As more and more small businesses adopt blockchain technology, it will become increasingly important to offer tools that offer a simple and familiar user experience,” says Moira Noiseux, CEO of CornerMarket, a Web3 app focused on working with small businesses to introduce the many benefits of blockchain technology.
Metis, a Layer-2 solution, aims to help startups and small businesses adopt blockchain. It offers a user-friendly, no-code environment for SMBs to achieve uninterrupted security, unlimited scalability, and unlimited profitability. Additionally, platforms such as Metis and CornerMarket support various assets, including stablecoins, which provide smaller companies with a viable alternative to traditional cryptocurrencies, such as Bitcoin, see high transaction costs due to network congestion.
SMEs: tokenization, financing and beyond
Larry Fink of BlackRock it came out forcefully advocate tokenization as “the next generation for markets.” BlackRock estimates that tokenization of private market assets will open markets worth $290 trillion. Boston Consulting Group predicts that approximately $16 trillion in assets, most of them illiquid, will be tokenized by 2030.
SMBs are a big area of interest as markets look to tokenize direct investments, secondary investments, real assets, credit and venture/growth segments, bringing private market companies onto digital platforms that offer greater transparency for price discovery, underwriting, trading and financing. Ultimately, SMEs get better, cheaper and faster access to liquidity and investors get (better) access to a whole new world of investments.
tZERO, Securitize and Polymath are market leaders in this space, to name a few. These platforms transform private market securities through the use of smart contracts on the blockchain and create digital stocks that can be traded on alternative trading systems (ATS). In April, INX launched the Greenbriar tokenbecoming the latest platform to convert traditional shares of a public company into fully regulated tokenized securities.
Apple’s GarageBand provided musicians with a platform to record their own music without the need for a studio, producer, engineer, entourage, or the middlemen and costs of the music industry. Whether the musician’s final product is good enough or true to the market is left to the arbiter of discretion, the consumer. A lot of great bands and albums have come out of garages. Many large companies grew out of garages, most notably Apple and Amazon.
The promise of blockchain and decentralized technologies, whether through payments, raising capital, improving supply chains or improving decisions through improved data, is that they are designed to put control in the hands of the user, in this case the SME, and reduce dependence on traditional intermediaries and friction points while reducing costs through greater digital efficiency – this is the heart of the Web3 vision.
If SMBs can be enabled with real use cases of cryptocurrencies and blockchain, we will have initiated the 21st century economic transformation of Main Street and Wall Street.