The cryptocurrency world saw an unprecedented surge in activity during the first half of 2021. This period witnessed new records being set in terms of asset prices, user adoption, and trading volumes. Following the breakout of the crypto market in the latter half of 2020, digital assets have firmly established themselves in the mainstream of the financial and technology sectors.
Given the growing popularity of cryptocurrencies, it’s no surprise that institutional investors have also jumped on the bandwagon. They join the crypto sector directly by registering with an institutional trading platform or through specialized funds. This article explains the drivers behind the institutional adoption of cryptocurrency.
Earliest Institutional Investors in Crypto
The first prominent investors in crypto were Tyler and Cameron Winklevoss in 2013 when they bought Bitcoins worth $11 million. Some of the earliest crypto investment funds were launched in 2013 and 2014 by Fortress and Pantera companies. However, at that time, most institutions were skeptical about cryptocurrencies. Four years later, in 2018, Fidelity Investments launched the Fidelity Digital Assets fund, allowing hedge funds access to crypto assets.
In August 2020, the MicroStrategy software and cloud service company began purchasing Bitcoin, becoming the biggest BTC investor. As of December 27, 2023, the company held 190,000 bitcoins.
Wall Street Titans such as Goldman Sachs, Morgan Stanley, Citigroup, and many others also started adopting blockchain and providing their clients with crypto-related services.
What Drives Institutional Crypto Adoption?
Here is what draws institutions to the crypto sector:
- Possibility to make high returns either in long-term investments, active trading on an institutional crypto trading platform, or participating in market-making programs like crypto market-making program on WhiteBIT.
- Inflation hedge. Growing inflation in the US raised the demand for crypto assets, particularly Bitcoin (also called “digital gold”).
- Mainstream adoption by financial and tech giants has motivated other investors to tap into the crypto sector.
- Growing retail interest in blockchain and crypto pulled professionals towards the new technology.
- Maturing market. Despite its highly volatile nature, the crypto market has displayed increasing market depth and financial product sophistication. With the introduction of options, futures, and ETFs, institutions are becoming more comfortable allocating a portion of their portfolio to digital assets.
- The regulatory framework around institutional crypto trading is developing in many countries, making it a legitimate asset class in the eyes of institutions.
Institutional investors are embracing the cryptocurrency world, driven by the possibility of high returns, mainstream adoption, inflation hedge, and a maturing market. With the growing regulatory framework around institutional crypto trading, more institutions will likely join the action in the coming years.
