In recent years, the cryptocurrency market has witnessed increased interest from institutional investors. With a maturing market, increasing institutional infrastructure, and recognition from financial institutions, the once niche and speculative asset class has gained credibility and attracted serious institutional attention.
However, institutional interest in the crypto market as a whole is still facing significant obstacles. The US Securities and Exchange Commission’s (SEC) aggressive stance on cryptocurrencies is a major concern for family offices, institutions, and wealth managers. The fear of tighter regulations, and even an outright ban, is deterring many institutional investors from fully embracing the crypto market.
Despite this, the entrance of BlackRock into the cryptocurrency space has revitalized investor sentiment. BlackRock, the world’s largest asset manager, has filed an application to launch a spot bitcoin exchange-traded fund (ETF). In just three weeks after this announcement, $470 million flowed back into the market.
The global impact of crypto knows no bounds. Institutions are jumping aboard, igniting widespread interest. With great opportunities and global enthusiasm, the journey towards mainstream adoption is unstoppable!
Hold on tight!#Crypto #Blackrock #blockchain #cryptocurrency pic.twitter.com/QM5usgNjye— Dexponent (@Dexponentx) July 17, 2023
Still, concerns around custody and accessibility persist among institutional investors. Many are uncomfortable with the existing methods for gaining exposure to digital assets, which hinders broader institutional adoption.
Institutional Interest in Crypto Continues to Mature
The growing interest from institutional players has been driven by several factors. First and foremost, cryptocurrencies have proven to be a potentially incredibly lucrative investment, with vast room for growth.
Bitcoin (BTC), the most well-known cryptocurrency, has experienced significant price appreciation over the years, making early adopters substantial profits. This has caught the attention of investment managers, who are constantly on the lookout for new opportunities to generate alpha for their clients.
However, the recent collapse of some high-profile crypto firms has rang an alarm bell among institutional investors, once again highlighting potential risks associated with this nascent industry. According to financial services giant Cantor Fitzgerald’s Elliot Han, this could actually benefit the crypto market.
Han, who leads the firm’s crypto and digital assets investment banking efforts, said that those remaining in the crypto space are exploring its various use cases. He noted that there is now more maturity in the market, attributing it to increased regulation and the entrance of more institutional players.
“There are a lot of companies here that are looking at it from many different perspectives and angles. That’s what we’re trying to learn and understand more, is what are these other use cases that aren’t necessarily obvious.”
Han also mentioned that the current focus in the market is on tokenizing real-world assets on a blockchain, which would provide institutions with all kinds of benefits including vastly easier trading and verifiable ownership for client investments. While institutional investors are still cautious due to volatility and regulatory uncertainty, Han emphasized that many are still dipping their toes into the crypto market and this interest is expected to continue.
Bitcoin Sees Spike in Institutional Interest
Bitcoin has seen a sharp spike in institutional interest as of late amid excitement around spot ETF filings. This surge in institutional interest has propelled Bitcoin to reach its highest point in a year, surpassing $31,000 to mark a year-to-date high last month.
The excitement follows BlackRock’s application to the SEC on June 15 for a Bitcoin-based ETF. Shortly after the filing, Bitcoin’s dominance in the overall market capitalization of cryptocurrencies exceeded 50%, a level unseen in more than two years.
The SEC had previously rejected filings for spot Bitcoin ETFs due to concerns about fraud and market manipulation. To address these concerns, BlackRock aims to establish a cooperative agreement with Nasdaq, where the fund would be listed.
Furthermore, last month witnessed the launch of EDX Markets, a digital asset exchange for accredited investors backed by Fidelity, Charles Schwab, and Citadel Securities. The platform aims to enable trading of bitcoin and ethereum (ETH), among other cryptocurrencies while adopting the best practices of traditional exchanges.
BlackRock filed for spot #BitcoinETF and boom
Citadel, Fidelity, and Charles Schwab launch new #crypto exchange platform, EDX Markets.
Things are getting heated up #Bitcoin is Key pic.twitter.com/lVVzsnZJcV
— Enryvanie (@Canaryzodiac) June 21, 2023
These positive developments have led to institutional capital flowing back into the market. Bitcoin futures contract trading has gained momentum on the Chicago Mercantile Exchange (CME). In the last week of June, nearly $200 million was invested in major Bitcoin investment products, according to data from CoinShares.
In contrast, retail investors have displayed limited enthusiasm toward Bitcoin this year. The number of active addresses on the Bitcoin network has remained relatively stagnant since late 2021, and the creation of new addresses has significantly declined.
Institutional Interest Could Be Diverted to Altcoins
Bitcoin Maximalists (also known as Bitcoin Maxis) are dedicated to 1 and only 1 cryptocurrency: bitcoin. They have long awaited a flood of institutional interest that would drive up prices and solidify bitcoin’s position as the leading cryptocurrency. However, a recent survey by CoinShares has revealed that while asset managers believe bitcoin has the most compelling growth outlook, they currently hold more ethereum in their portfolios.
The survey involved 51 investors with a total of $900 billion in assets under management. Of those surveyed, 43% stated that bitcoin’s potential for upside growth exceeded that of ethereum. Just under 40% responded that ethereum has the most upside potential.
The survey also highlighted some concerning trends. According to CoinShares’ figures, digital assets’ weighting within portfolios has experienced a significant contraction, decreasing from 1.8% in April to only 0.7% by the end of June. Moreover, the first half of 2023 saw $400 million in outflows from the crypto market.
Furthermore, the survey revealed a potential willingness among asset managers to invest in altcoins, with 10% exploring cryptocurrencies with a smaller market capitalization. Polkadot (DOT), cardano (ADA), and ripple (XRP) were identified as the preferred altcoins.
On a positive note, the survey revealed that reputational damage is no longer a significant barrier for institutional investors. Despite recent high-profile failures like those of FTX and Three Arrows Capital, investors are still willing to explore digital assets. A banking crisis and the desire for portfolio diversification are likely driving this interest in part.
It is worth noting that the geographic distribution of survey respondents raises questions about the global sentiment toward cryptocurrencies. The majority of respondents came from Europe and the Middle East, with only about 25% from North America and approximately 5% from Asia.
This suggests that the survey may not accurately reflect sentiment within the United States, which has historically been a key driver of institutional interest in cryptocurrencies.
All in all, the CoinShares survey indicates a dynamic and evolving digital asset market. While bitcoin continues to be seen as having the greatest growth potential, the fact that asset managers hold more ethereum suggests a potential shift in institutional interest.
