Since the latest bull run in the crypto market (2020–2021), this landscape has drastically changed. However, this space is not only for retail traders and tech geeks anymore.
The boom raised interest among established financial entities. Hence, made institutional trading of crypto popular among businesses and companies.
Since then, month by month, banks, investment firms, technological companies, family firms, and funds have incorporated digital currencies into their operations.
And of course, Bitcoin stands as the first and the most wanted asset among others.
How do companies integrate it, and what inspires them to tap into this sector? Let’s discuss it in this material.
Ways of Institutional Crypto Involvement
Institutions join this sector through various means, driven by both opportunities and strategic considerations. Here are some of the ways:
Direct Investments – Institutions acquire cryptocurrencies as part of their investment portfolios. The largest digital currency institutional investors are MicroStrategy, Tesla, and Square).
Blockchain Projects – Some institutions invest in or collaborate with blockchain startups, contributing to technological advancements in the digital currency space.
Do You Know?: According to the report released by CoinMarketCap, the worldwide Crypto capitalization was estimated at $US1.09 trillion as of August 2023.
Financial Products – Institutions create or offer banking products tied to cryptocurrencies, such as ETFs or derivatives.
Technological Integration – Companies integrate blockchain technology and cryptocurrencies into their systems, especially in the fintech sector.
Market Making – A company may join a market-making program and become a liquidity provider for a digital currency platform or some specific trading pairs.
Market making brings many benefits and opportunities for investors.
DeFi – Allows institutions to participate in decentralized financial services and markets globally, without traditional geographical restrictions and middlemen.
Institutional trading with such tools as futures and options.
Platforms like Binance institutional crypto exchange, Coinbase, and other market leaders provide tools and liquidity for trading in large amounts and with the use of complex tools.
What Inspires Companies to Join the Crypto World?
Companies and businesses join this sector as they are excited about the potential for innovation, monetary growth, and adaptation to emerging technologies and institutional services.
The prospect of staying competitive in a rapidly evolving landscape and capitalizing on the benefits of blockchain technology drives their engagement.
Factors Driving Institutional Investors Towards Crypto
Here are the factors that lead to the increased involvement of institutional investors in the market:
High Returns: Institutional investors are attracted due to its potential for high returns. It is evident that the volatility and rapid price movements open up opportunities for significant gains.
Growing Market Acceptance: Digital currency as an asset has been gaining recognition and acceptance at a broader level.
Statistics:
The graph above indicates the global crypto adoption rate in 2021. However, the global crypto adoption rate stood at 3.83% in December 2021.
This has encouraged institutional investors to explore this space. Each day the recognition is extending, and regulatory frameworks are becoming clear.
Consequently, monetary institutions are incorporating services.
Diversification and Hedging: Nowadays, investors are acknowledging the importance of diversifying their portfolios which can mitigate risk.
The incorporation of digital currencies in their investment mix can provide greater diversification and offset losses during market downturns.
FOMO and Competitive Pressure: FOMO basically refers to the fear of missing out, it can be a driving factor unquestionably.
As previously mentioned, institutional peers are exploring this space. Those peers decided to enter the digital currency market and gain profits.
Thus, other Institutions may feel compelled to follow this suit and avoid falling behind in the digital asset landscape.
Long-Term Investment: Long-term investments in digital currencies can transform assets.
Interesting Fact: A software company named “MicroStrategy” purchased $250 million worth of Bitcoin in August 2020 and has since increased its holdings. In recent times, the company owns over 129,218 Bitcoin. The current value of those bitcoins is at over $3.7 billion.
Since cryptos are the hedge against the traditional financial system, it has become a mean of moving in decentralized finance (DeFi), and a tool for invention and disruption in diverse sectors.
Conclusion
The surge in the digital currency market during the 2020-2021 bull run has transformed the landscape, attracting not only retail traders but also established monetary entities into the fray.
From banks and investment firms to technology companies and family funds, institutions are integrating cryptocurrencies into their operations.
This widespread adoption takes various forms, including direct investments, collaboration with blockchain startups, creation of banking products tied to cryptocurrencies, technological integration, market making, participation in DeFi, and institutional trading through advanced tools.
The driving force behind companies venturing into the crypto world lies in the excitement about innovation, the potential for financial growth, and the strategic adaptation to emerging technologies, allowing them to stay competitive in a dynamically evolving landscape and harness the advantages of blockchain technology.
