Institutional adoption of Bitcoin is not coming. It’s already there | by Ras Vasilisine | Sep 2022
Paul Tudor Jones, Social Capital, ARK Invest, Microstrategy, Greyscale, Fidelity, JP Morgan Chase, Morgan Stanley, Deutsche Bank or Blackrock are already there.
Institutional investors have tens of trillions of dollars in assets under management, and it looks like they’ve jumped on the bitcoin bandwagon.
In 2020, Paul Tudor Jones, Social Capital, ARK Invest, Microstrategy, Greyscale or Fidelity bought bitcoin. Later, JP Morgan Chase, Morgan Stanley, Deutsche Bank, and Goldman Sachs opened the bitcoin space to their customers.
Blackrock, the world’s largest asset manager, recently launched a private cash bitcoin trust. And Fidelity, the largest 401(k) provider in the United States, has announced that it will allow investors to add cryptocurrencies to their 401(k) retirement plans.
Blackrock and Fidelity alone manage over $12 trillion in assets. If you realize that bitcoin’s market cap is less than $400 billion, it’s hard to overstate how quickly institutional adoption of bitcoin is accelerating.
Bitcoin has achieved what enthusiasts have long wanted and has gone mainstream. As a result, each traditional institution wants its share of the cake.
A report published by Boston Consulting Group, Bitget, and Foresight Ventures concluded that crypto holders are expected to reach 1 billion by 2030.
According to the report, the adoption of digital assets stands at something like the Internet in 1998.
FTX CEO Sam Bankman-Fried said institutional adoption of cryptocurrencies could accelerate even more this year. Much of the level of activity in the crypto industry in 2021 was “preparatory,” the billionaire said.
Bankman-Fried is not alone in his projections. According to a survey by Bitstamp, a crypto exchange, cryptocurrencies will be adopted by the mainstream within the next ten years.
The crypto exchange surveyed over 28,000 investors from 23 countries around the world. He revealed that 88% of institutional respondents and 75% of retail investors believe crypto will be adopted by the mainstream within a decade.
The survey also found that 80% of institutional investors said cryptos will outperform traditional investment vehicles.
Similarly, a survey by Fidelity Digital Assets found that while 36% of nearly 800 respondents had invested in digital assets, nearly 80% said they found something “attractive” in them.
However, institutions need a high quality infrastructure before they get started. One of the most essential elements of financial infrastructure is accounting services.
KPMG announcement in February 2022 that its Canadian branch would buy bitcoin. KPMG manages the books of more than 20% of Fortune Global 500 companies. In other words, one of the largest accounting firms in the world is laying the groundwork.
As KPMG Canada Managing Partner Benjie Thomas said, “This investment reflects our belief that institutional adoption of crypto assets and blockchain technology will continue to grow and become an integral part of the asset mix.”
Crypto custodians are another essential piece of the puzzle for mass institutional adoption. Institutional investors are generally required to store their securities and assets with qualified custodians.
Custodians like Bakkt, Bitgo, Fidelity Digital Assets, Coinbase, and Gemini Custody are game changers for the institutionalization of bitcoin and they are also ready for battle.
But one of the most crucial elements of financial infrastructure is having well-designed rules and a level playing field for every participant.
In fact, bitcoin has already been embraced as a commodity by regulators such as the SEC and CFTC, or even US Treasury Director Janet Yellen. But, regulatory clarity is still needed with the wild altcoin market. Even some nation states like El Salvador and the Central African Republic have adopted bitcoin as legal tender.
Outside the United States, the head of the Central Bank of Brazil also recently endorsed Bitcoin technology. And the final legal text of the long-awaited European MiCA crypto regulation is expected to be published in October.
Bitcoin is becoming an investment-grade asset. However, we are still ahead.
Institutional investors have unimaginable capital at their disposal, and if they allocated even a fraction of their holdings to digital currencies, we could see a significant pump in the price.
A quick bottom-of-the-envelope calculation shows that if only US pension funds allocated 1% of their total assets to bitcoin, that would represent 60% of bitcoin’s total market capitalization.
So don’t stay on the sidelines for too long.
If the institutions prepare, we should too.