Despite the market crash, billions continue to flow into the crypto industry, and instead of fleeing the market, traditional financial institutions are taking advantage of the lull to enter the blockchain industry.
Five years ago, Larry FinkCEO of the American asset manager Blackrock, still dismissed the prototype of all cryptocurrencies as an “index of money laundering”.
Just as terrifying at the time Jamie Dimon, head of the leading US bank JP Morgan, calls people who had the cryptocurrency “stupid”. Bitcoin was a scam, the most furious and worse than the tulip mania in the Netherlands in the 17th century and is still considered the mother of all speculative bubbles.
Fast forward to today
Last week, Blackrock performed a facelift, and the world’s largest asset manager, with around 9 trillion dollars under management, enters into a partnership with the American crypto exchange Coinbase. Starting with bitcoin, Blackrock plans to make cryptocurrencies directly accessible to institutional investors through its Aladdin investment platform.
Over at JP Morgan, Jamie Dimon is now also getting involved in digital assets and has also sensed the market potential in the blockchain-based world “Decentraland” with the Onyx Lounge in the metaverse. Meanwhile, few bank studies attract as much attention as the major bank’s “Opportunities in the metaverse” report. Like its rival Citibank, JP Morgan sees great potential for the metaverse economy.
Industry-wide turnabout
The flip of the two financial giants is just one part of a rapidly growing list of traditional big banks, pension funds and asset managers such as Goldman Sachs, Morgan Stanley and Schroders, originally cryptocurrency skeptics, who are now embracing digital assets or expanding their investments in the blockchain sector.
While it may be a winter of discontent in the crypto industry at the moment, established institutions in banking, fund management and digital assets are seeing this year’s crash as an opportunity to expand into the space. Market trends are increasingly showing that even for traditional financial institutions that were previously hostile to crypto-assets, it is now riskier not to be part of the crypto universe than to join it, as a KPMG report showed.
Record-high investments
Since 2021, cryptocurrencies have not only arrived in the wider market, but also hit the radar of countless fund managers, family offices and financial institutions. This year’s crash in cryptocurrencies seems to have helped institutional adoption more than hindered it. Financial players who felt they had missed the boat see today’s prices as a good entry point into the industry.
Despite the ongoing market downturn, capital providers continue to invest heavily in the crypto space. According to a report from research firms Messari and Dove Metrics, fundraising in the first half of the year has already surpassed the 2021 totals. Through 1,199 funding rounds, $30.3 billion flowed into areas such as centralized finance (CeFi), decentralized finance (DeFi), non-fungible tokens (NFT) and infrastructure. This compared to $30.2 billion raised in 1313 funding for all of 2021.
Over a third of funding went to the CeFi sector, which attracted $10.2 billion. The infrastructure and NFT sectors also reported large amounts of investment, while DeFi investments seem to have lagged behind, with only $1.8 billion raised.
Wider adoption
The arrival of institutional investors in the crypto market accelerated the development of a transparent infrastructure for the exchange and storage of cryptocurrencies. The infrastructure is now much more developed and institutions understand and have more confidence in the crypto environment, with acceptance of digital assets spreading in the financial industry.
“Especially in the institutional space, a lot of things have changed for the better for bitcoin lately. In the future, bitcoin may mature more and more into a risk investment,” said Ronnie Stoeferle of Liechtenstein-based asset manager Incrementum in a recent interview with finews.com, for example.
According to a survey by Fidelity, about 70 percent of more than 1,100 institutional investors surveyed worldwide plan to invest in cryptocurrencies by the end of 2022, and about 90 percent of survey participants say they are willing to invest some of their capital its in digital assets over the next five years.
Swiss firms can also benefit, including Zurich-based private bank Maerki Baumann, which discovered crypto early, while online bank Swissquote offers its services to third parties. There are also two dedicated Swiss crypto banks in Sygnum and Seba.
Regulation provides stability
However, despite this development, only 0.3 percent of all private assets worldwide are invested in crypto, as recently analyzed by the Boston Consulting Group. The American consulting firm therefore sees enormous growth potential. It expects more than 1 billion crypto users by 2030. More and more traditional financial houses recognize these growth opportunities and want to take advantage of them.
At the same time, after the dramatic collapse of TerraLuna, bankruptcies like Celsius, and the general crash of cryptocurrencies, calls for stronger regulation are being heard louder and louder. With the Markets in Crypto Assets draft rule, or MiCA for short, there is finally a regulatory framework that ensures binding consistency throughout the EU. Future actions by regulators, particularly in the US, will determine how consistently the industry moves forward.
More regulation could mean more stability in a notoriously volatile crypto market. It also has the potential to better protect investors and prevent fraudulent activity within the crypto ecosystem, while enabling innovation and promoting the attractiveness of the crypto industry. Good regulation leads to legal and investment security, and with stronger regulation comes increased trust and therefore the use of crypto assets.
