Institutional use of Bitcoin is not coming. It’s already here | by Ras Vasilisin | September 2022
Paul Tudor Jones, Social Capital, ARK Invest, Microstrategy, Greyscale, Fidelity, JP Morgan Chase, Morgan Stanley, Deutsche Bank or Blackrock are already on board.
Institutional investors have tens of trillions of dollars worth of assets under management, and it looks like they jumped on the bitcoin bandwagon.
In 2020, Paul Tudor Jones, Social Capital, ARK Invest, Microstrategy, Greyscale or Fidelity bought bitcoin. Later, JP Morgan Chase, Morgan Stanley, Deutsche Bank and Goldman Sachs opened the bitcoin space to their clients.
Blackrock, the world’s largest asset manager, has recently launched a spot bitcoin private trust. And Fidelity, the largest 401(k) provider in the United States, announced it would allow investors to add cryptocurrencies to their 401(k) retirement plans.
Blackrock and Fidelity alone manage over $12 trillion in assets. When you realize that bitcoin’s market cap is less than $400 billion, it’s hard to overstate how quickly institutional adoption of bitcoin is accelerating.
Bitcoin has achieved what enthusiasts have long desired and become mainstream. Suddenly, every traditional institution wants a piece of the pie.
The 2021 data shows that global crypto adoption increased by more than 880% during the year.
A report published by Boston Consulting Group, Bitget and Foresight Ventures concluded that crypto holders are projected to grow to 1 billion by 2030.
According to the report, digital asset adoption is something like the internet in 1998.
FTX CEO Sam Bankman-Fried said institutional adoption of cryptocurrencies could accelerate even more this year. Much of the level of activity in the crypto industry in 2021 was “preparatory,” the billionaire said.
Bankman-Fried is not alone in his estimates. According to a survey by Bitstamp, a crypto exchange, cryptocurrencies will see mainstream adoption in the next ten years.
The crypto exchange surveyed more than 28,000 investors from 23 countries worldwide. It found that 88% of institutional respondents and 75% of retail investors believe crypto will see mainstream adoption within a decade.
The survey also found that 80% of institutional investors reported that cryptos will overtake traditional investment vehicles.
Similarly, a poll conducted by Fidelity Digital Assets found that while 36% of the nearly 800 participants had invested in digital assets, nearly 80% specified that they found something “appealing” about them.
However, institutions require a high-quality infrastructure before jumping in. One of the most important parts of financial infrastructure is accounting services.
KPMG announced in February 2022 that its Canadian branch would buy bitcoin. KPMG manages the books for over 20% of the Fortune Global 500 companies. In other words, one of the world’s largest accounting firms is preparing the ground.
As KPMG Canada managing partner Benjie Thomas said, “This investment reflects our belief that institutional use of cryptoassets and blockchain technology will continue to grow and become a mainstream part of the asset mix.”
Crypto custodians are another important piece of the puzzle for mass institutional adoption. Institutional investors are usually required to store their securities and assets with qualified custodians.
Custodians like Bakkt, Bitgo, Fidelity Digital Assets, Coinbase and Gemini Custody are game changers for the institutionalization of bitcoin and they are also ready for the fight.
But one of the most crucial parts of the financial infrastructure is to have well-designed rules and a level playing field for every participant.
In fact, bitcoin has already been embraced as a commodity by regulators such as the SEC and CFTC, or even the head of the US Treasury, Janet Yellen. But regulatory clarity is still needed with the wild altcoin market. Even some nation states such as El Salvador and the Central African Republic have adopted bitcoin as legal tender.
Outside the US, the head of the central bank of Brazil has also recently endorsed bitcoin technology. And the final legal text for the long-awaited European MiCA crypto regulations is due to be released in October.
Bitcoin is emerging as an investment grade. But we are still early.
Institutional investors have unimaginable amounts of capital, and if they allocated even a fraction of their holdings to digital currencies, we could see a significant pump in price.
A quick back-of-the-envelope calculation shows that if only US pension funds allocated 1% of their total assets to bitcoin, it would represent 60% of the total bitcoin market capitalization.
So don’t stay on the sidelines for too long.
If institutions are preparing, so should we.
