The Morningstar Ratings Agency, one of the most dominant firms in the debt securities business, will take up the crypto sector and produce ratings for digital assets, reported Forbes. Morningstar’s influence stretches to millions of investors and thousands of financial advisors.
Tracking Asset-Backed Digital Tokens
Morningstar will build a bridge between its debt security business and blockchain, by offering crypto-related rating services.
Wow – huge development
Morningstar has announced it will rate crypto assets!
Has 4500 employees
Is used by 7 million individual investors
245,000 financial advisors
& 4,200 institutional investors
Huge impact as a research & analytical tool
— Bruce Fenton (@brucefenton) October 2, 2019
Morningstar has experience in rating some of the most prominent mutual funds by giants like Prudential, Morgan Stanley, and TD Ameritrade. Now, the ratings agency prepares to assess a basket of blockchain-based securities, or crypto tokens backed by real-world assets.
“We’re working very closely with a number of blockchain-oriented firms who are looking to issue debt instruments on a blockchain,” said Morningstar Credit Ratings chief operating officer Michael Brawer, 48, who oversees the company’s internal strategy.
We’re looking to see how we can also provide credit opinions, whether it’s a credit rating or different types of credit data and credit analytics that accompany those debt instruments, and we’re also looking to provide our services on a blockchain.
Unlike Weiss Ratings, Morningstar will not deal with rating open networks, or already issued utility tokens. Weiss Ratings has also looked into stock-backed blockchain assets.
— Weiss Crypto Ratings (@WeissCrypto) October 1, 2019
Instead, the firm will focus on security tokens – a new type of asset that is much rarer within the crypto ecosystem. Security tokens saw limited sales in 2019, with several issuances backed by real estate or stock.
Morningstar Closes In on Big Three Ratings Agencies
Morningstar is an up-and-coming ratings company valued at $6.4 billion. Its revenues recently surpassed $1 billion, closing in on the established giants Fitch Ratings, Moody’s and Standard & Poor’s.
So far, Morningstar has a limited selection of clients, including a startup that offers a process of issuing blockchain-based securities. The firm also looks at a startup securitizing small loans on the Ethereum blockchain, as well as blockchain-based home equity loans. Morningstar could give legitimacy to those projects, potentially unlocking new funds to flow into certain types of projects.
So far, cryptocurrency rating has been an inexact science. Mostly, the ratings have sifted out the worst projects, but cannot predict the behavior of the biggest or most liquid crypto coins. But Morningstar’s approach depends on monitoring tokens that resemble real-world securities and debt. Morningstar still specializes in tracking the debt derivatives industry, which exceeds $117 trillion, a much higher valuation compared to the entire crypto market with a size of about $220 billion.
What do you think about Morningstar’s effect on crypto assets? Share your thoughts in the comments section below!
Images via Shutterstock, Twitter @brucefenton @weisscrypto