The institutional adoption of crypto and blockchain has been continuously seeking its prominence. Heated debates over its soundness, the integration of blockchain into companies’ workflow, and raised crypto awareness sows optimistic outlooks, which are abruptly tarnished by a regulative vagueness and reputational spoilings.
Volatility of attitudes towards setting crypto on a leading position as a full-fledged financial instrument triggers thrill and disturbance, and yet it shapes the new reality the industry experiences. Or, as it sounds more properly, current state-of-things sets the crypto community on the verge between better days in 2021, and another stage of the realm’s development. The very stage is difficult to be precisely forecasted, regardless of the massive anticipation of the bull-run. And still, there are as many factors which empower the supporters of this belief with arguments as proofs that disarm ones.
Hence, amidst the contention about the crypto’s future, it would be right to stick to the present. And the trends in this day and age are dramatically altering the current industry’s state rather than laying the foundation for the following one.
Undoubtedly, a better part of attention is drawn to the adoption of cryptocurrencies and blockchain-based technologies by traditional banking institutions, and large investors. The process of it has budged, albeit slowly. Still, its ongoing status is difficult to be neglected as a vast majority of banks took up utilising crypto and investing in the industry. A logical question then arises: how come the digital assets’ integration is so painfully slow?
Let’s take a look at the statistics
The Institutional Investor Digital Assets Study research by Fidelity reveals that only a tiny part of investor’s, financial advisors, and hedge funds actually invested in crypto in spite of prevailing positive consideration of it.
Still, it is indicated that the factual adoptance of digital assets is mainly halted by three main entities: traditional hedge funds, endowments and foundations, and pensions/defined benefit plans. The awareness among the institutions, as well as inclination towards digital assets’ acceptance, is rarely met.
Significantly, the investors over globe show their keen attitude towards the concepts of Bitcoin ETF (exchange-trade fund) and multi-digital asset funds (both passively and actively managed). As a matter of fact, this reveals an aspiration to open the doors for traditional and relatively secure investment options for cryptocurrency.
Why Investors and Institutions Are Reluctant to Invest in Crypto
The aforementioned report states crucial reasons for investors not to enter crypto industry, and among the leading ones are:
Price volatility
Lack of fundamentals to gauge appropriate value
Security concerns
Concerns around market manipulation
Regulative concerns
Remarkably, while the price volatility has a fat chance to decrease within a natural stage of cryptocurrencies’ development, the other factors may have sounded completely substantial if they were not covering solely the surface. Hence, the research also proves the partial lack of institutions’ awareness about the crypto industry.
Namely, the appropriate value of a digital asset is estimated by a reputation, supply/demand rates, and its utility. However, the latter and the first points are rather abstract, and that criteria certainly raises doubts by the investing institutions.
The point which stands out from the list is the concerns about regulations. Not surprisingly, the crypto industry is experiencing tough times within its definition and genesis in the legal dimension. The remaining uncertainty, and the enforcement actions by the tech trendsetter — the USA — and consequently Europe ceases any clear estimates and forecasts for cryptocurrencies’ future stability and value. Not the best reputation of crypto, which is triggered by the legal obscurity, at the same time triggers it itself, putting the industry into a full circle.
All factors combined inevitably lead to a superstition towards crypto among traditional investor’s as far as the banking system. At the very least, that is what we are used to believe.
But the real state-of-things radically differs.
Banks’ Attitude Towards Crypto
As a matter of fact, more than a half of the top 100 banks have invested in crypto projects, blockchain technologies, and digital custody.
To be more specific, the Top Banks Investing in Crypto and Blockchain 2022research by the Blockdata team has revealed the list of top institutional investors and banks that heavily contributed to the crypto industry.
Top Banks Investing In Crypto & Blockchain Companies 2022 research. Source: Blockdata
According to the data provided, the largest funding rounds were provided by such giants as Morgan Stanley ($1,100 million of total investments), Goldman Sachs ($698 million of total investments), BNY Mellon ($690 million of total investments), Commonwealth Bank of Australia ($421 million of total investments), and Citigroup ($215 million of total investments).
The investment vectors primarily heed custody solutions and blockchain infrastructure pieces, and that tendency indicates that institutional investors are empowering the industry enhancement. But what about specifically integrating crypto into the banking sector?
This question is exhaustively answered by Volodymyr Nosov, the CEO of the largest European cryptocurrency exchange WhiteBIT:
“Although regulation for the crypto market is already in place, the banking sector is not very active in cooperating with the crypto industry because it sees it as a competitor. However, cryptocurrencies and crypto markets are not contenders for the banking sector, but rather tools for expansion, new products, capturing new audiences, and markets. Yet, a great number of large-scale banks, such as JP Morgan, have had teams in-house for several years and are constantly recruiting people to develop blockchain. Major financial institutions have already realised that this is necessary and are taking specific steps. And they are waiting for clear regulations”
As might be concluded by the aforementioned, banking entities are reluctant in adopting cryptocurrency, but that tendency does not occur due to the crypto’s unreliability as an asset. Notably, the core obstacle is the lack of regulative policies, similarly to the investors’ main source of bias and controversy. Still, it is also remarkable that more and more banking institutions are turning the tides to the crypto’s benefit, such as mentioned before JP Morgan and Fidelity, and PayPal, which has recently introduced its native stablecoin.
Crypto Institutional Adoption: Perspectives and Expectations
Crypto is encountering extreme bias as far as emitting promising potential. Being the core driver of cutting-edge DeFi novelties, and new decentralised payment systems, its full fledged integration is only a matter of time and effort towards coining the proper legislative basis. The game-changing technological architecture of newly-emerged financial toolkits, which is hard to be underestimated, is being slowly yet steadily acknowledged by the banks and institutional investors. This conclusion leaves us with the fact that the financial sector changes its perspective to crediting the new zeitgeist, which is ruled by reputational, independent capital rather than by a monetary one.
