The crypto industry is experiencing its longest bear market in history, but the potential for institutional takeover represents a light at the end of the tunnel. While some regulatory hurdles remain, institutional adoption will make the industry more attractive to mainstream investors and lay the foundation for the create the next bull market. At the same time, some fear that this marks the beginning of a takeover by traditional finance, with the institutions posing a threat to crypto-native businesses. However, rather than an industry takeover, the institutions’ crypto debut will present an opportunity for collaboration.
The core values of crypto
Crypto was created to counteract the lack of trust towards large financial institutions in addition to global financial inequality. The 2008 recession that just preceded the birth of the crypto industry only made the need for this new form of currency even clearer. Unlike the exclusive institutions of traditional finance, cryptocurrency companies aim to provide an accessible, decentralized, peer-to-peer transaction method.
However, traditional finance largely rejected this new financial system, driving a wedge between the two. Now, the same TradFi leaders who once dubbed Bitcoin the “index of money laundering” are praising the industry and its goals, fueling fears that TradFi is subverting and not supporting the industry and its goals.
While recent crypto initiatives by major institutions like the Bitcoin ETF filings filed by BlackRock and Fidelity are contributing to growing concerns, the reality is that support from such players will help catapult crypto into traditional finance. In fact, their support will provide the necessary resources and reputational support to sustain the crypto industry even under difficult macroeconomic conditions, namely rising interest rates and a looming recession.
Behind the growth of institutional support
The crypto industry continues to mature, revealing to its critics in the TradFi world that it’s not all about memecoins and unicorns. On the contrary, crypto has grown into a diverse and sophisticated industry capable of offering institutional-grade services to its clients.
The underlying blockchain technology offers a number of use cases to enhance existing trading systems, such as tokenization, which can be used to streamline inefficient settlement processes, and immutable storage, which allows for more transparent and efficient data management. A recent EY study found that more than half (57%) of the investors surveyed are interested in tokenization.
In the same EY study, 90% of investors said they would turn to a traditional institution for crypto custody. This points to a broader trust issue in the crypto industry. As newcomers, we have to prove ourselves to the users. Recent scandals like FTX’s bankruptcy have made this difficult, but working with institutions that have maintained good relationships with investors can help regain public confidence.
This increase in demand from their clients has led in large part to the marked shift in interest from institutions that we are witnessing today. While institutional investors have avoided the industry in recent years, they now view it as part of a broader strategy to diversify their assets and capitalize on emerging technologies. In fact, a recent survey by Laser Digital found that 96% of investors see digital assets as an opportunity to diversify their portfolio.
Institutional interest will help ease regulatory pressure
Despite growing TradFi support, the lack of clear regulatory guidelines has been a challenge for the crypto industry, particularly in the United States.
While some fear regulation as recent regulatory battles have rocked the industry and created uncertainty for users and businesses, the truth is that it has the potential to wipe out bad players, bring about better consumer protection and protect the industry from scandals like FTX protect cause more unrest in the long term.
Institutional players could be the Trojan horse crypto needs to sway regulators. As the latter are used to working with institutions and relying on their expertise, they are more likely to give them approval for innovative products like bitcoin ETFs, which they have been reluctant to do so far.
Crypto firms have been trying to launch Bitcoin ETFs in the US for a long time. The Winklevoss twins — the founders of Gemini — applied for a Bitcoin fund back in 2013, but had to overcome numerous hurdles to get regulatory approval for a fund. The hope is that institutional support will give regulators more confidence in the value of this product and give crypto-native companies a chance to establish their place in the ETF market, which they have previously struggled to do.
TradFi interest and the public perception of crypto
Additionally, interest from large institutions appears to be creating a domino effect, leading to more and more companies entering the industry as they see major players entering the crypto space.
For example, BlackRock’s announcement that it would apply for a Bitcoin ETF was followed by a partnership between Fidelity, Charles Schwab and Citadel, which will launch EDX Markets, a new crypto exchange aimed at institutional investors, and their own Bitcoin exchange will request. traded fund. Together, these announcements led to Bitcoin making new highs in 2023, indicating a positive investor reaction.
The new era of cryptocurrency
The entry of major institutions into the crypto industry this year marks a new era for the crypto industry, bringing much-needed capital and reputational support to lead crypto out of the bear market. Going forward, it is important that crypto-native companies keep the core principles in mind and ensure that TradFi support does not undermine the democratic structure of crypto projects. With these core values in mind, long-term partnerships can endure.