Institutional investment in cryptocurrencies - experts talk about the impact

As institutional investment flows into the cryptocurrency space, questions are being raised about how this will impact the industry. Investors are looking at ways to push for mainstream adoption of cryptocurrencies while considering the overall impact.

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cryptocurrency space has exploded over the past year. Bitcoin has reached its all-time high, there has been an NFT boom, and a slew of new DeFi innovations.

At the end of the day, the industry has never been so charged with energy. In the midst of all this activity, new investors flooded the market.

In fact, most statistics say that investments in cryptocurrencies and blockchain have almost doubled since 2020. Recently, the influx into markets and exchanges has been in the hands of individual investors. The August resurgence of digital currencies such as Bitcoin, Ether and Dogecoin

has largely come from individual retail investors. Sponsored Sponsored

However, a record number of institutional investments have also flowed into the cryptocurrency space this year. According to a Fidelity Digital Assets survey, 71% of institutional investors have plans to invest in digital assets in the future. Furthermore, both major investment firms and entire countries are preparing for a market characterized by more institutional investment.

This year, financial services giant Visa made a big entry

into the cryptocurrency space. While Visa already existed in the crypto world before, it has committed by investing heavily in 2021.

In addition, Visa announced a plan to help banks introduce Bitcoin and merchant services. The company also recently purchased its first NFT in the form of CryptoPunk

.

PayPal has also created waves with its various cryptocurrency-related announcements. Recently, the payments giant opened up cryptocurrency trading for its customers in the UK

. Along with Visa, it also invested in a $300 million Blockchain Capital fund in June.

However, there are concerns about what other implications come with this increased interest.

Simplifying cryptocurrencies

The biggest benefit of institutional investment is the accessibility it brings to a wider audience.

At the

kład, Bitcoin Trust by Grayscale allows individual investors to speculate on Bitcoin without buying it directly. When people are still hesitant about cryptocurrencies, it makes getting into the market even easier. In other words, they are gateways into the cryptocurrency space.

Barney Mannerings, CEO of Vega Protocol, a decentralized derivatives trading and clearing network, explains how this growth provides protection.

I welcome money and interest from institutions like PayPal that are outside the native cryptocurrency community. The more cryptocurrencies and decentralized finance(DeFi) are integrated into the ‘real world’, the better. This makes it harder to stifle the growth and success of this technology or regulate it into oblivion.

Mannerings adds:

PayPal introducing cryptocurrencies to its users in the UK will make this asset class more accessible and could serve as a gateway for experimentation. As everyday users become more comfortable with cryptocurrencies, they will explore ways in which they can put them to work and generate value through more sophisticated DeFi products that no traditional financial institutions or consumer finance applications really offer to date.

These additional financial products and offerings are a departure from institutions that simply hold large amounts of bitcoin. Sidney Powell, CEO and co-founder of Maple Finance stated:

The difference now is that where previously institutions were interested in directly holding cryptocurrencies like BTC, they are now more interested in offering products to differentiate themselves to customers. Institutions as diverse as century-old global investment banks to brand-new mobile app startups are asking how they can extract profits from DeFi for customers.

This time is different

There’s no denying the fundamental changes that have taken place in 2020 and 2021. Kevin Tai, CEO and co-founder of Linear Finance, explains how these changes are different from previous ones that have piqued the interest of the traditional financial sector.

I believe this time is different than before because there has been a huge shift in the global perception of cryptocurrencies in many countries during times of economic uncertainty. The rapid growth of Bitcoin and Ethereum has led to strong adoption from retail customers, and large corporations now see it as a way to maintaining a competitive edge.

In addition, Gunnar Jaerv, COO of First Digital Trust, says these big players are no longer standing on the sidelines in the space. They now have active interests beyond stagnant shares.

They are no longer just sitting on the sidelines, but want to participate in this new asset class.

However, Jaerv also expresses some concerns about big players’ investments:

But there may be some challenges in this area – regulation, lack of infrastructure and education.

The issue of unintended consequences

Positive outcomes are the lion’s share of interest and importance when considering these moves by large investors. However, there are concerns about unintended consequences.

Matt Luongo, co-founder of Thesis, appreciates the impact that institutional interest has had on the price and cryptocurrency community.

Everyone thought we were crazy for years and we all wanted validation. But institutional interest is a poisoned apple. The more strongly institutions embrace cryptocurrencies, the more likely they are to over-regulate, build moats and try to co-opt what we do.

This kind of hype and decline was evident this year with Elon Musk and Tesla. Musk’s rapid rise and fall has had implications for cryptocurrencies, at least on the surface.

In addition to concerns about co-optation, Mannerings sees how institutional involvement can undermine the fundamental structural changes that cryptocurrencies are trying to bring about.

The fear is that as we see more institutions entering this space, resources will be diverted to incorporate tame versions of cryptocurrency assets / DeFi protocols into current centralized systems that will perpetuate many of the same structural problems we have now.

However, he also sees even more opportunities for growth.

I’m much more interested in institutions supporting technologies that build fair, secure, decentralized systems that are true alternatives to the centralized systems we see today, which is the ultimate promise of technology.

An act of balance

Institutional commitment is necessary to continue moving cryptocurrencies and blockchain technology into the mainstream.

However, it will likely be a balancing act. As adoption and interest grows, thought will need to be given to how best to balance the various interests and motives.

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