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ISO is an acronym for the International Organization for Standardization which is a non-governmental global organization based in Switzerland. It is a governing body responsible for setting commercial and industrial standards. ISO 20022 is a standard for financial messaging that governs the exchange of financial data.
Nations across the globe have either adopted ISO 20022 standards or are in the process of doing so. The system is being adopted across financial institutions of all stripes. There are also several cryptocurrencies that are ISO 20022 compliant currently. Although ISO 20022 compliance will affect the financial space broadly, this article is focused on the pros and cons as they relate to the cryptocurrency market.
PRO: ISO 20022 Compliance Will Raise Demand
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One of the clearest benefits of ISO 20022 compliance is that it will bring those cryptocurrencies that adopt the standard into the fold so to speak. The handful of cryptos that adopt the standard will be plugged into a broader global standard. That list notably excludes leading cryptos like Bitcoin (BTC-USD) and Ethereum (ETH-USD).
Inclusion in the mainstream provides benefits that cannot be ignored. ISO 20022 compliance legitimizes those cryptos that adopt it. ISO 20022 affects all financial institutions active in cross-border payments and those active in market infrastructures and corporate-to-bank flows. The vast majority of everything we currently understand as the financial system will be affected.
Cryptocurrencies have largely operated outside of the traditional financial system during their brief history. By getting on board, so to speak, ISO 20022 compliant cryptos are legitimizing themselves as a ‘real’ part of the financial system.
That will open a lot of hearts and minds to crypto and imbue compliant cryptos with a level of safety non-compliant cryptos will lack. It’s very much analogous to Bitcoin Spot ETFs and the expectation that they will reduce a lot of fear and increase adoption overall.
CON: ISO 20022 Compliance is Antithetical
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A great part of the logic behind the early development of cryptocurrency technology lay in a desire to separate from banks and the larger financial system. Bitcoin is the grandfather of cryptocurrency and has its roots in the financial crash of the late 2000s.
Consumers desire peer-to-peer electronic cash systems and transaction functionality. Banks offer that; it’s one of their greatest selling points. However, a reliance on centralized banking and all the negatives that come with it deter many consumers.
That’s why Bitcoin and other cryptos were created: P2P transactional functionality designed to remain separate from central banks, their regulations, and the top-down authority that comes with it. Above all, it’s about self governance and decentralization.
Thus, the adoption of ISO 20022 standards appears to be a step in the wrong direction when viewed in light of crypto’s original intent. That greater philosophy is at risk by adopting a global standard despite the standards body’s implied neutrality.
PRO: Data Transparency and Increased Analytics
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One of the greatest drawbacks of investing in cryptocurrency is that it’s very difficult to make comparisons between given cryptos. It’s very different from the stock market.
There are dozens and dozens of standardized metrics with which one can compare Google (NASDAQ:GOOG,GOOGL) to Microsoft (NASDAQ:MSFT), for example. It’s very easy to find the price-to-earnings ratio for each and use that objective data to make a subjective determination about both.
It’s much more difficult to engage in similar comparisons of cryptocurrencies. Those that are ISO compliant must report standardized data in order to retain compliance.
That data is a step in the right direction for the analytically minded. It’s going to provide the basis by which a set of crypto metrics can be developed. There are very few such metrics currently.
The larger cryptocurrency market is moving in the same direction as the stock market. That means that we’ll have to rely less on subjective, philosophical arguments for investing in a given crypto and more on objective, analytically rigorous ones.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
