Cryptocurrency – all grown up
by
With a market capitalisation of more than
How did it get here? Increased institutional adoption, improved infrastructure, and the approval of the first Bitcoin ETF (exchange-traded fund), all played a part in helping secure digital assets a seat at the grown ups’ table.
Identifying the moment when a market reaches maturation isn’t an exact science. New markets emerge with varying degrees of traction – the futures market is a prime example. Although futures date back to the formation of the
Cryptocurrency’s impressive growth
Cryptocurrency’s well-publicised rallies and falls of previous cycles appear different from this latest boom. Unlike the frenzied heights of 2017, in which retail investors drove the Bitcoin bubble, institutional investors today take the market seriously. Hedge funds, endowments, family offices, and private corporations are all investing in digital assets.
While many leading financial institutions were experimenting with the technology in 2018, the second half of 2020 was when we saw the push to this transition. Business intelligence firm
Meanwhile, traditional financial institutions that had either shunned or downplayed Bitcoin in 2017, including Goldman Sachs and
A perfect macroeconomic storm
Macroeconomic factors have also helped drive institutional adoption of cryptocurrency as investors seek alternative assets. Unprecedented multi-trillion-dollar stimulus packages in response to the pandemic have led to an uncertain environment of rising inflation and low interest rates.
Investors holding cash or cash-like assets, such as treasuries, are receiving near-negative yields – with any potential returns quickly wiped out by inflation. When Saylor spoke about his decision to allocate MicroStrategy’s assets into BTC, he explained they were fast losing value in the current economic climate; “We really felt we were on a
The argument for BTC as digital gold, a store of value, or an inflation hedge, grows more compelling when faced with ballooning money supplies and a rapidly debasing global reserve currency. Not to mention the duty of corporate treasurers to provide investors with returns in a low yield environment. Digital assets have undeniable potential for capital accrual, with Bitcoin being the best-performing asset of the decade by several country miles.
Approval of a Bitcoin ETF
In October, a watershed moment occurred for cryptocurrencies, and arguably one of the clearest indicators of market maturation. After eight years of waiting, the first Bitcoin ETF in the US, ProShares Bitcoin Strategy ETF, finally received
Closer to home, other encouraging developments occurred in that same week, as Jacobi Asset Management received approval from the
The approval of a Bitcoin ETF sends a powerful message this asset class is here to stay, legitimising the cryptocurrency market and helping attract more institutional investors. It’s also a step in the right direction that could eventually pave the way for the approval of a physical Bitcoin ETF in the US and
Improved infrastructure for institutional investors
Cryptocurrency infrastructure, typically cumbersome and not designed for large investors, is also improving. This is another key sign of markets maturing, as high-security, enterprise-grade software that meets the exacting standards of institutions becomes available.
Even existing cryptocurrency platforms are responding better to the influx in demand, with far less downtime than before. Popular brokers like Robinhood are offering digital assets trading, rather than forex or futures to their customers. This highlights how cryptocurrency has leapfrogged over these two markets in a short space of time.
We’re seeing a shakeup of the digital asset custody landscape too, with increased institutional-grade custody solutions available as banks and large institutions throw their hats into the ring.
At this point, it seems likely digital assets are here to stay. With a far more robust framework, improved infrastructure, and greater regulatory clarity, more institutions are finding ways of allocating into digital assets. They can now do so with greater confidence in the longevity of the market.
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