At the beginning of 2021, the cryptocurrency industry is flooded with news of increased institutional investment, which is still largely correct.Although there are reports Increased capital outflows from institutional investors, The net inflow is still very positive. In addition, although Bitcoin (Bitcoin) Seems to be the preferred investment for clearing and institutional investment in Ethereum (Ethereum) Has never been so healthy.
From Wall Street hedge funds to big banks, large-scale investors are Hop on the encrypted trainBitcoin’s fall from its historical high of $65,000 has raised doubts among all cryptocurrency investors, although this situation may change as its price starts to rise.
BTC accounts for more than 44% of the total market capitalization of USD 2 trillion digital assets, while Ethereum accounts for approximately 18%.As early as May, the number of addresses holding more than 1,000 BTC Fall down According to data from the blockchain data analysis company CoinMetrics, it dropped from the 2,500 mark in February to approximately 2,100. However, most indicators indicate that institutions have increased their overall holdings.
Nikita Ovchinnik, chief business development officer of the decentralized platform 1inch Network, said, “There is no doubt that institutional investors have a long-term bullish attitude towards cryptocurrencies and Bitcoin.” In the long run, he also stated that the main obstacles institutions face It will lie in the technology itself.
“Because of its architecture, DLT works in a unique way different from the existing IT and financial product infrastructure. It definitely needs some adjustments and updates to allow more entities to join the cryptocurrency.” He further added:
“In the past year, the number of institutional investors exposed to cryptocurrencies has increased dramatically. They did not come for short-term gains.”
International investment banks and financial services companies such as Morgan Stanley, BlackRock, Goldman Sachs and JPMorgan Chase all own Set up Bitcoin-related services and funds in the past few months. After reaching a peak of US$40 billion in April, Grayscale Bitcoin Trust, one of the largest institutional investors in the field, reported that its total assets under management fell to US$20 billion in July. Climb It returned to nearly 41 billion U.S. dollars in the recent rebound.
Due to concerns about regulatory crackdowns on digital asset exchanges and service providers, as well as China’s stance on Bitcoin trading and mining, traditional investors have enough reasons to hesitate to enter the market.However, the recent drop below the psychological barrier of $40,000 may be Signs that mood is recoveringThe real question is, what will these institutions do next?
ETH and traffic
One of the biggest reasons investors flocked to Bitcoin in the past two years is the rising dollar inflation rate. In the ongoing COVID-19 crisis, the US Federal Reserve has issued trillions of dollars in the name of stimulus checks, prompting investors to find other places to deposit funds.
In mid-August, Bitcoin experienced institutional outflows for the sixth consecutive week, exceeding US$22 million Liquidation In a week. This marks the longest outflow period of digital assets since 2018. Despite this, the total assets under management of digital asset investment products increased by 10% in the same week, although this was mainly due to price increases.
On the other hand, the direction of multi-asset products does not seem so uncertain. Institutional investors increased their holdings by US$7.5 million last month and attracted nearly US$12 million through inflows. In contrast, during the same period, Bitcoin funds experienced an outflow of nearly $68 million.
All of these indicate that institutions are diversifying their holdings to other digital assets besides Bitcoin, including Ethereum and Cardano (Have) And Binance Coin (Bitcoin) Also saw an increase in inflows. Although the outflow of BTC may be higher than ever, institutional investment in digital assets this year is higher than ever.
“The undeniable model is that the interest and participation of institutions in the field continues to rise,” Jack Tao, CEO of Singapore’s cryptocurrency exchange Phemex, said in a conversation with Cointelegraph, adding: “ Although the veterans of cryptocurrency in a period of high volatility are used to it, it may not be popular with traditional investors.”
He also said that the DeFi field is still in the early stages of adoption. Although some technologies and applications are already in place, we still only see the tip of the iceberg. “Smart institutional investors can feel the upcoming changes and want to position themselves as the beneficiaries of what is about to happen,” he said, adding: “The final use case that blockchain will solve has not even been imagined yet Over.”
Investing in digital assets as an institution is very different from buying retail. Although most crypto-active institutions have already traded in the foreign exchange market, they face risks that are quite different from traditional systems. Finding differences in spot prices can become a costly test, and because they will eventually trade with unknown counterparties, factors such as technical reliability and depth of liquidity are much more important than usual.
“There is still a long way to go,” Daniel Santos, CEO of Woonkly Labs’ automated market maker defi.finance, told Cointelegraph: “[Institutions] Not only need regulated products, but also easy-to-use products tailored specifically to their needs. He added:
“Institutions are looking for products that will allow them to invest in DeFi with peace of mind. I believe they are taking a long-term approach, and they are bullish.”
“DeFi has attracted a lot of attention,” said Yves Longchamp, head of research at SEBA Bank, a digital asset bank licensed by FINMA. As Longchamp told Cointelegraph, institutional investors focus on three main factors, including increasing the rate of return of their investment portfolio-a source of income that does not exist in traditional finance.
Although Bitcoin continues to flow out, institutions seem to be optimistic about the digital asset sector as always.Recently, the global professional financial intermediary network TP ICAP announced Launch A cryptocurrency trading platform in cooperation with industry giants Standard Chartered Bank and Fidelity Investment.
Although large sums of money seem to be entering the industry confidently, bringing its capital into the field, as regulation becomes a more prominent concern for institutional investors, price appreciation may take a back seat.
The adoption rate of cryptocurrencies is growing faster than ever, previously less active markets are seeing more movement, and more actively participating regions are struggling to cope with broader changes and regulatory issues.
The director of financial markets at OKEx Lennix Lai, a digital asset exchange, stated that the main concerns are anti-money laundering (AML) and tax evasion, as he told Cointelegraph: “We believe that regulatory acceptance is a major obstacle to the entire market, but the size and integrity of the market It’s also a challenge.” According to Ovchinnik, because “most agreements are completely license-free, there is always the possibility of becoming a counterparty to some kind of criminal.”
However, he also added that these issues are being resolved by the development team at the agreement level, taking preemptive measures to ensure their long-term regulatory approval. This may become an important factor for institutional investors to enter the field, and they are required to strictly abide by regulatory regulations and decisions of political authorities.
Robert Whitaker, chief operating officer of Huobi Trust, stated that institutions are satisfied with Bitcoin and have begun to create market products around it. He told Cointelegraph: “Institutions are still aggregating large amounts of BTC for their own needs and balance sheets,” he added: “This may easily drive the market to maintain a valuation of US$2 to US$3 trillion in the next year or so. .”
With the net inflow of digital assets, the possibilities of blockchain technology are limitless. The opportunities in this field seem to be endless, and even the smallest opportunities can bring huge profits. Although Ocvhinnik believes that institutions will pay more attention to cross-chain first-layer solutions, Tao said that it will pay more attention to decentralized traditional financial services and explore more experimental aspects of the industry, such as NFT and GameFi.
According to Rachid Ajaja, CEO of Decentralized Capital Markets, Decentralized Finance, or DeFi AllianceBlock, products are expanding to more traditional structured products such as product packaging and structured loans. “We are at a very exciting time,” he told Cointelegraph, adding: “The transition to DeFi is happening.”
The biggest challenge will be to find a balance between the decentralization of the industry and the level of compliance sought by the government. At present, although these two forces seem to be fundamentally opposed to each other, as more and more legislators and government leaders educate themselves on cryptocurrency and the technology behind it, stronger solutions may soon emerge. Scheme.
Julian Sawyer, CEO of Bitstamp Exchange, said in a conversation with Cointelegraph: “The regulation of digital assets is active. By separating the good from the bad, it builds more trust with investors, and allows the company to treat them through clearer guidelines. Responsible for their actions, and regulatory interests mean the credibility and growth of the entire industry.”