Crypto Institutional Adoption: Motivations and Doubts

During the last few years, institutional investment in crypto has significantly grown with such giants as MicroStrategy and Tesla investing in Bitcoin; biggest banks such as JPMorgan Chase, Goldman Sachs, and Bank of America launching crypto trading desks; and wealth management firms, such as Morgan Stanley, providing access to crypto through their products and funds.

The influx of billions of dollars from the world’s largest companies into the crypto sector has raised many doubts related to regulatory, compliance, liquidity, volatility, and reliability of crypto assets in the eyes of investors.

In this article, we will briefly discuss a couple of pessimistic and optimistic opinions that restrain and drive institutional crypto global adoption.

Opinions Causing Pessimism Among Investors

Here are some popular talking points restraining investors from buying crypto: 

Opinions Causing Pessimism Among Investors

Insufficient Liquidity Levels Can’t Allow For Institutional-sized Trades

For big institutions to join the crypto market, there must be enough liquidity to handle significant trades without moving prices.

However, achieving this level of liquidity is challenging without institutions actively participating and allocating capital to the crypto market through an institutional cryptocurrency platform, for example.

That is a double-edged sword, where each depends on the other, creating doubts among potential investors.

No Value In Portfolio Construction

Critics often argue that cryptocurrencies aren’t suitable as a store of value. A store of value is something that retains its purchasing power over time.

Cryptocurrencies, with their rapid price changes, struggle to serve this purpose effectively.

This volatility poses a challenge for large asset allocators such as pension and insurance funds that need to demonstrate asset-liability matching (ALM) to regulators.

The extreme price swings of cryptocurrencies make it difficult to assess and manage risks, slowing widespread adoption.

Opinions In Favor Of Institutional Adoption Of Crypto

However, there are also positive opinions about future institutional crypto adoption:

Critics Argue That Cryptocurrencies Are An Unreliable Store Of Value, Favoring Fiat Currencies

However, global hyperinflation cases and the devaluation of fiat currencies cast doubt on this opinion.

Central bank policies, like interest rates and stimulus measures, play a role in devaluing fiat currencies.

Crypto supporters emphasize a decentralized monetary system free from such interventions. They point to the limited supply of crypto like BTC as a contrast to fluctuating commodity supplies.

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Cryptos Are Speculative Assets Allowing For High Returns

While Bitcoin and other non-stablecoin cryptos are volatile and lack a stable correlation, they serve as a valuable speculative asset due to their high risk-return nature.

Cryptos Are Speculative Assets Allowing For High Returns

Assets like BTC allow for hedging against inflation and earning significant returns, especially in an environment of declining yields.

We reviewed only a couple of arguments for and against crypto adoption, however, we can’t deny the fact that institutional crypto adoption is already going in full swing.

To wrap things up, positive price movements in the crypto market in the 2020s have led to the rapid creation of crypto-focused funds.

That means non-crypto-native funds started to flow into the crypto sector. Recent data from Fidelity shows that 52% of financial institutions are already investing in crypto assets.

Moreover, more than 71% of institutional investors plan to buy digital assets, and among them, 90% expect to include crypto in their portfolios by 2026. 

In conclusion, the journey of institutional adoption of cryptocurrencies is a multifaceted one, characterized by both skepticism and optimism.

On one hand, concerns regarding liquidity, regulatory compliance, volatility, and the inherent value of cryptocurrencies continue to pose significant challenges to their acceptance by traditional financial institutions.

These hurdles underscore the complexities and uncertainties that come with integrating an emerging asset class into the conventional financial ecosystem. 

On the other hand, the allure of high returns, the potential for hedging against inflation, and the appeal of a decentralized monetary system free from the whims of central bank policies have drawn considerable interest from institutional investors.

The increasing involvement of major corporations, banks, and wealth management firms in the crypto space signals a growing recognition of the potential that cryptocurrencies hold.

This dichotomy of perspectives highlights the ongoing evolution of the financial landscape, where traditional and digital assets are beginning to converge.

As we stand at this crossroads, the future of institutional crypto adoption seems poised for growth, driven by a combination of technological advancements, regulatory clarity, and a broader understanding of crypto assets.

The notable increase in institutional participation, as evidenced by recent data, suggests that despite the doubts, the trend towards digital asset investment is gaining momentum. 

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