Crypto adoption continues to rise at unprecedented levels, with expanding use cases allowing millions of people to earn, save and grow their wealth in new ways.
According to Chainalysis, last year saw a stunning 880% rise in global crypto adoption. While this figure may seem astonishing, it represents the ease with which traders and investors from Nigeria to the Philippines can quickly swap in and out of multiple crypto and fiat currencies. A report from Galaxy Digital showed that venture capitalists reportedly invested over $33bn in crypto and blockchain start-ups, a milestone for the industry as the Web 3 movement continues to heat up.
Crypto adoption hasn’t just been limited to retail investors. Institutional investors continue to move into the crypto space as they look for high growth investment opportunities for their clients. Yields for US 10-year Treasuries, for example, have resulted in paltry investor returns of 1% over the course of the past few years.
Funds and publicly listed companies are beginning to invest in digital assets like bitcoin and Ether, with both providing a greater return on investment than traditional safe harbour assets like government bonds, even factoring in the inherent volatility of crypto markets. Dollar stablecoins have also become an attractive asset, yielding investor returns of anywhere from 2%-12%. Some of the next generation decentralised finance and emerging metaverse tokens represent a new frontier that is already attracting wide levels of investor interest.
Even long-time skeptics in the banking industry have reversed their initial hesitation, with Goldman Sachs relaunching their crypto trading desk last year and JPMorgan continuing to experiment with their own digital asset, JPM Coin.
As clients continue to demand exposure to this new high growth asset class, more banks will offer varying degrees of crypto exposure to their clients. Morgan Stanley, for example, is already offering bitcoin exposure to their high net worth and wealth management clients, while Goldman Sachs now regularly posts the prices of key benchmark digital assets for the larger institutional clients they service. Bank of America has taken a particularly progressive approach to digital assets, launching crypto futures trading to select clients while referring to the $2tn combined market capitalisation of the crypto industry as ‘too big to ignore’.
The shifting attitudes of major financial actors, combined with the launches of multiple bitcoin exchange traded funds and the sustained growth of institution-grade funds like Grayscale highlight that a new financial era is coming.
The key for the entire industry now is to continue this growth in 2022 and beyond.
Decentralised finance continues to attract surging levels of interest across the institutional landscape, while verticals like the metaverse and non-fungible tokens have undoubtedly entered the mainstream, in turn catalysing new participation within the crypto ecosystem.
Experts continue to emphasise that regulatory clarity is the biggest hurdle, preventing more enterprises and institutions from greater involvement in the crypto arena. Fortunately, a broader, comprehensive regulatory framework is quickly coming into view in jurisdictions that contain sizable crypto markets – the US, European Union and United Arab Emirates.
Any new regulations should strive to make participation in the crypto space as inclusive and accessible as possible, protecting traders, investors and funds from scams while promoting and encouraging innovation.
Greater momentum surrounding crypto regulation and legislation will ultimately strengthen the shift, potentially spurring renewed levels of innovation throughout the space. An open, progressive approach towards technological innovation could provide a rising tide that lifts participants across the industry.
The institutionalisation of the crypto industry finds itself at a critical inflection point in terms of growth. A focus on regulatory clarity and greater flows between traditional finance and the crypto ecosystem could open up significant opportunities for growth and innovation.
Stephen Stonberg is Chief Executive Officer of Bittrex Global.