Things Making Crypto Institutional Investments so Attractive
Institutional trading and investment in crypto assets is ramping up. In the early years of Bitcoin, we could not even dream of such a level of adoption of digital assets by traditional financial and tech companies. Crypto used to be taken as “not real” money, that would be never taken seriously. The tipping point happened in 2020 – 2021, during the COVID-19 pandemic. Right in that period the Bitcoin price soared to its historical maximum, crossing the mark of 67 dollars.
The Rise Of Institutional Adoption
LMAX Digital research shows that 2021 has been marked by active institutional participation in the crypto sector, covering hedge funds and investment banks that fall in the biggest Wall Street names. Entities and companies were willing to integrate digital assets in order to give their crypto-oriented clients the opportunity to work with digital assets, thus, retaining clients.
The trend of institutional crypto trading continued in 2022 and 2023 and even boosted after an asset management company BlackRock applied for Bitcoin ETF, followed by other big names (Invesco, Bitwise, etc.).
Crypto institutional investors have the freedom to engage in crypto in several ways:
- mining;
- ETFs;
- investments;
- trading and providing market maker services;
- yield farming, lending;
In the case of investment, market making, and trading, investors require a specialized institutional crypto trading platform. DeFi instruments like yield farming and borrowing are available on decentralized platforms like Aave or Compound.
Motivation for Institutional Crypto Engagement
Here are the reasons why institutions invest in crypto:
- High returns due to the volatility of the crypto market (early Bitcoin investors’ success inspires others)
- Cutting-edge technologies and emerging markets that are unavailable in the traditional financial sector.
- 24/7 markets.
- Low correlation with traditional currencies creates an opportunity to diversify investments.
- Hedging against inflation of real-life assets.
- Quality institutional services – custody, research tools, risk management tools, reporting, etc. – help deal with large trading amounts efficiently.
Conclusion
The surge in institutional crypto trading observed throughout 2022 and 2023 underscores a remarkable shift in perception towards digital assets within traditional financial and tech sectors. The momentum gained traction notably after industry giants such as BlackRock, Invesco, and Bitwise ventured into the cryptocurrency space, further legitimizing its appeal. Institutional investors now enjoy diverse avenues for crypto engagement, ranging from mining and ETFs to trading and yield farming. The motivations behind institutional involvement stem from the potential for high returns amid market volatility, access to cutting-edge technologies, and the opportunity to diversify portfolios beyond traditional currencies. The 24/7 nature of crypto markets, low correlation with conventional assets, and the availability of quality institutional services contribute to the growing allure of crypto investments in institutional portfolios.
