Despite the market crash, billions continue to flow into the crypto industry, and rather than flee the market traditional financial institutions are taking advantage of the lull to enter the blockchain business.
Five years ago, Larry Fink, CEO of the American asset manager Blackrock, was still dismissing the prototype of all cryptocurrencies as an «index for money laundering.»
Equally scathing at the time was Jamie Dimon, head of leading US bank JP Morgan, calling people who held the cryptocurrency «stupid.» Bitcoin was a scam, the raged, 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 Present Day
Last week, Blackrock performed an about-face, and the world's largest asset manager, with around $9 trillion under management, is entering into a partnership with the US crypto exchange Coinbase. Starting with bitcoin, Blackrock plans to make cryptocurrencies directly available to institutional investors through its Aladdin investment platform.
Over at JP Morgan, Jamie Dimon is now also getting involved in the digital assets business and has also been sounding out the market potential in the blockchain-based world of «Decentraland» with the Onyx Lounge in the metaverse. Few banking studies, meanwhile, are attracting as much attention as the big bank's «Opportunities in the metaverse» report. Like rival Citibank, JP Morgan sees huge potential for the metaverse economy.
Industrywide Turnabout
The turnabout of the two financial giants is only part of a vigorously growing list of traditional big banks, pension funds, and asset managers such as Goldman Sachs, Morgan Stanley, and Schroders, originally cryptocurrency skeptics now embracing digital assets or expanding their investments in the blockchain sector.
While it may be winter of crypto industry discontent at the moment, established institutions in banking, fund management, and digital assets see this year's crash as an opportunity to expand into the space. Market trends increasingly show that even for traditional financial institutions 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 broader market, but are also blipping the radar of countless fund managers, family offices, and financial institutions. This year's crash in cryptocurrencies seems to have further helped institutional adoption rather than hindered it. Financial players who felt they had missed the boat are seeing current prices as a good entry point into the industry.
Despite the ongoing market slump, capital providers continue to invest heavily in the crypto space. According to a report by research firms Messari and Dove Metrics, fundraising in the first half of the year has already surpassed 2021 totals. Through 1199 funding rounds, $30.3 billion flowed into areas such as centralized funding (CeFi), decentralized funding (DeFi), non-fungible tokens (NFT), and infrastructure. This compares to $30.2 billion raised in 1313 funding for all of 2021.
Over a third of the funding went to the CeFi sector, which attracted $10.2 billion. The infrastructure and NFT sectors also reported large amounts of investment, while DeFi investment, appears to have lagged, with only $1.8 billion raised.
Broader 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 better understand and have more confidence in the crypto environment, with the 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 could mature more and more into a risk-off 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, around 70 percent of more than 1,100 institutional investors surveyed worldwide plan to invest in cryptocurrencies by the end of 2022, with some 90 percent of survey participants saying they are willing to invest some of their capital in digital assets over the next five years.
Swiss firms could also benefit from this, including Zurich-based private bank Maerki Baumann, which discovered crypto early on, while online bank Swissquote offers its services to third parties. There are also two dedicated Swiss crypto banks in Sygnum and Seba.
Regulation Brings Stability
Despite this development, however, only 0.3 percent of all private assets worldwide are invested in cryptos, as Boston Consulting Group recently analyzed. The US consulting firm, therefore, sees enormous growth potential. It expects more than 1 billion crypto users by 2030. More and more traditional financial houses are recognizing these growth opportunities and want to take advantage of them.
At the same time, after the dramatic collapse of TerraLuna, bankruptcies such as Celsius, and the general crash of cryptocurrencies, calls for stronger regulation are sounding 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 across 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 certainty, and with stronger regulation comes increased trust and therefore adoption of crypto assets.
