The (Much Awaited) Institutional Adoption of BTC
– Institutional adoption is hailed as the new driving force that will power the crypto markets past 2018. What exactly is currently hindering it?
– The eventual impact of institutional adoption on BTC price is expected to be massive.
– Bakkt, Fidelity and a number of currently pending ETF initiatives are all considered to be possible triggers of institutional adoption.
– Central banks and the SEC are currently the biggest hurdles in the path of institutional investors.
Through its brief, decade-long existence, Bitcoin and the crypto industry in general, has proved itself adept at riding various “gimmicks” most of which were/are indeed legitimate and quite revolutionary in some cases.
By such “gimmicks”, we mean the core ideas/ideals used to sell the concept of crypto over the years. It all began with the promise of digital cash: an untraceable and incorruptible way of exchanging value over the internet, and it continued with the idea that the setup would be the antidote to the incumbent financial system and all its mishaps/hiccups. Obviously, most (if not all) of these – shall we call them “selling points” – still hold water today.
Around 2010, the idea of the replacement payment system has been added to the above-mentioned tally. Fundraising and capital allocation only floated into the picture in 2015, while the “store of value” idea came about in 2017.
The safe-haven status against depreciating fiat currency took on a real dimension around the spring of 2018 and since 2017, the crypto space has been looking increasingly attractive as a new institutional investment class.
According to a recent study by Morgan Stanley, institutional interest in BTC and the crypto space in general has spiked lately, even as retail traders have somewhat retreated in the wake of this year’s prolonged bear market.
Interestingly, as the everyday Joe starts to think less and less of BTC, institutional investors are warming up more and more to the idea that cryptos will indeed revolutionize the financial industry as a whole. Private equity firms, hedge funds and Venture Capital firms have been steadily increasing their crypto assets under management. The current bear market is thought by many to be maintained artificially by large institutional players currently filling their crypto bags.
Indeed, the institutional adoption of BTC has been underway for some time now, with academic institutions leading the charge.
Universities Investing in the Crypto Space
Due to all the OTC trading going on these days, and the semi-anonymity of bitcoin, it is difficult to tell who buys what, and where the cyptos end up with institutional actors.
It has been revealed a few weeks ago though that the endowments of the some of the biggest academic institutions in the world, such as Yale University, are indeed already invested in BTC, to the tune of hundreds of millions of dollars. Harvard and MIT are among the crypto investors as well.
The weight of such investments should not be underestimated: such endowments have several billions of dollars in assets and funds, and those handling these assets generally know what they’re doing in regards to finances.
While some of the above said investments were made directly in cryptos (in the form of token purchases), others took the shape of equity purchases in crypto companies.
Bakkt, Fidelity and Others
While most of the institutional crypto “action” seems to take place well out of sight of the public eye, a few iceberg-tops stick out here and there, offering the public some sparse, but interesting clues.
Obviously, we’re talking about the likes of Bakkt and Fidelity, a couple of crypto initiatives which make headlines on an almost daily basis lately.
Fidelity Investment’s initiative consists of an institutional trading platform for BTC and ETH, complete with enterprise-grade custody solutions and advising services. The 5th largest asset manager in the world has spun off a standalone company named Fidelity Digital Assets, which is in charge of the above said services/platform.
While Fidelity Digital Assets’ first institutional clients are now onboarded, general availability is not expected to come around before early 2019.
Bakkt is perhaps even more hyped than FDA, probably on account of the bigger institutional names that are lined up behind it. These names include ICE (Intercontinental Exchange) – the owner of the NYSE, Starbucks and Microsoft, among others.
The initiative aims to accomplish nothing less than the creation of a federally regulated market for the “physical” transaction of cryptocurrencies. Indeed, the futures contracts offered by Bakkt will be settled in physical bitcoin, rather than cash.
Through Bakkt, cryptos such as BTC can be bought, sold stored and spent – mostly by institutional actors.
In addition to the above, the VanEck and SolidX ETF proposals – currently under consideration by the SEC – are also in the picture.
It goes without saying that a SEC-approved ETF proposal would open the road to regulated institutional crypto trading, allaying the fears of potential market participants, currently stoked by the ambiguous attitude of the SEC.
According to the VanEck people, all the major concerns of the SEC regarding their proposal, have been addressed.
According to a recent Morgan Stanley survey, the most prominent factor keeping institutional investors away from the crypto markets is fear of the SEC, or rather, of the legal ambiguity currently perpetuated by the Commission. It is safe to assume that once this ambiguity is cleared away, the institutional side of the crypto equation will see a massive boost.
As far as the reaction of central banks in concerned: there’s really not much worthy of mentioning…These institutions, the very existence of which is contrary to crypto’s founding thesis, do not quite know how to handle the issue, other than periodically warning people about the dangers of cryptos.