The crypto industry is the perfect example of how a new asset can turn rigid naysayers into devoted champions through sheer power of positive disruption. A legendary investment bank that had once dubbed BTC as nothing but a “scam” in the infancy of cryptocurrency- has taken a complete 180 degree turn now, dubbing Bitcoin as “digital gold”. This is just one example of how multiple haters of crypto have turned to cryptocurrency champions. The crypto sphere received the majority of resistance from several traditional institutions, especially financial ones. But the overwhelming success of crypto has created a deep impact on many of such corporate institutions, leading to an inspiring surge in institutional investment in crypto. Read here guide to cryptocurrency.
If we look at the market reports, institutional investment in crypto started gaining momentum from 2020. The volume of corporate investment in cryptocurrency rose by 80%+ from 2019 to 2020. In 2021, annual institutional investment in crypto touched $9.3 billion. It was something around a 36% surge compared to that of 2020. Coming to 2022, institutional investment in crypto kept up its strong pace, pulling in $193 million in just a week in the first quarter of the year.
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So, what are the major reasons behind the dramatic rise in institutional investments in crypto? Well, according to a niche of market experts, the rise was inevitable since crypto is largely being considered as a face of the modern economy in the near future.
The post below explains in detail the key drivers behind the recent surge in institutional investment in crypto.
Safe haven asset
This is one of the key reasons behind the rise in institutional investment in crypto in recent times.
One of the major benefits of cryptocurrency is its ability to provide a strong hedge against unwanted inflation. This “inflation hedge” factor has propelled the rise of crypto as a “safe-haven asset”, thereby driving in volumes of institutional investment in crypto.
A growing line of publicly traded corporations has started converting cash reserves into Bitcoin, citing crypto offers higher returns as “store-of-value”. An U.S-based leading MNC investment bank recently grabbed headlines in the crypto world by converting $425 million cash (from treasury reserve) into Bitcoin. The institutional investment in crypto has shot up the market capitalization of the bank from less than $1 billion to little less than $10 billion in just a year! And ever since, the American MNC has made headlines about its inspiring institutional investment in crypto, many other corporations have started following the same investment philosophy. The esteemed investment bank shared that the major factor behind their growing interest in institutional investment in crypto is Bitcoin’s enormous potential to hedge against unwanted inflation and monetary debasement.
Weakening dollar value is another reason why institutions are inclining towards crypto for safe-haven investment. In fact, according to several progressive financial experts, crypto, especially Bitcoin, holds the potential to offer a sound hedge against worldwide economic instability.
Ethereum too serves as another major safe-haven asset opinion, driving institutional investment in crypto in large volumes.
Stablecoins too show promise
Stablecoins, as the name says, are designed to offer more market stability compared to regular crypto assets. They are always linked to a highly stable asset, say a major fiat currency, that renders stability to the coins. As a result, stable coins are able to show high potential for reliable safe-haven assets among institutional investors.
Increasing customer demand
A leading corporate investment firm that had traditionally been reluctant to try out new technologies in their initial days, has readily started institutional investment in crypto. While asked about their decision to embrace crypto, they mentioned the rising rate of institutional investment in crypto. According to their statements, growth in institutional investment in crypto has led to an increasing demand for room in banks for saving these investments.
In fact, many leading traditional banks now offer insurance for cryptos, thereby offering a safe space for institutional investment in crypto.
Dramatically high returns
It has been discussed time and again that cryptocurrencies are volatile and bring both high returns and risks. It’s the “high-risk” factor borne out of wild volatility that had been one of the major reasons behind lack of institutional investment in crypto in the past. But over time, crypto has proven its resilience and potential. While the new asset had plummeted to terrible lows it had also shown inspiring rallies with jaw-dropping surges. One of the major advantages of crypto volatility is its ability to churn in dramatically high ROI that are usually way higher compared to traditional investment assets. Good thing is, institutional investors have finally found the faith to look beyond the just-the-risk factor and focus more on excellent probability of stellar returns. This new-gained confidence in crypto’s astronomical ROI has played a chief role in attracting institutional investment in crypto.
Progress in crypto regulation
A major reason behind lack of institutional investment in crypto in the initial days was the highly unregulated nature of the crypto industry. But since late 2020, national governments all across the world have started drafting policies regarding regulation in crypto. For example, the EU has recently signed the much-awaited MiCA proposal that deals with introduction of regulations in the crypto space. Canada has issued provincial regulations on cryptocurrency exchanges. The U.S. government too is looking forward to introducing reasonable regulations in the crypto space. The IMF has long been stressing on the need for regulation in cryptocurrency and has even issued guidelines on how the regulations will be structured and implemented.
Progressing approaches towards crypto regulations have raised the bar of credibility for cryptocurrencies, thereby pulling in higher rates of institutional investment in crypto.
According to several market experts, it’s about time for corporations to give a serious thought about the significance of institutional investment in crypto. Crypto, even if it is not going to replace the traditional fiat, yet holds the power to be a reliable alternative in the future mainstream economy. Businesses need to adapt themselves as per the changing trends. If they are unable to grasp the rising need for proactive participation in crypto, they are only going to stay behind.