Institutional adoption of cryptos is always hailed as a step that will turn the table for cryptos in its fight against the centuries-old banking system by bringing in huge investments and establishing a trust regarding crypto among the general public. But are the big private corporations and wealthy families in the financial world listening to this “bitcoin hype”? The co-founder of Morgan Creek Digital, Anthony Pompliano, who is also a well-renowned bitcoin-bull and the host of the crypto podcast “Off the Chain”, might have an answer to this question.
I just spent 40 minutes in front of some of the wealthiest families in the world to explain Bitcoin.
They’re listening. Sentiment is changing.
— Pomp ? (@APompliano) April 25, 2019
Here, institutions in discussion are entities like banks, insurance companies, hedge funds, mutual funds and others. Since they make up the core modern financial world, be it private or public, their adoption of cryptos will be of immense importance as it will solidify crypto’s position in the modern-day financial mechanisms.
Reportedly, the world’s top 10 richest families saw their net worth figure around a staggering $660 billions in the mid-2018s. If even a small percent of this huge capital flows into the bitcoin world, it can mark significant effects on bitcoin market, which only has a market cap of less than even $100 billion right now. Large capital inflow will tend to make the market more stable and less prone to manipulation by big whales, which often take the route of pump-and-dump strategies to gain benefits by using their buying and selling powers in bulk. Establishing the fact that institutional adoption will drive positive outcomes for the crypto community, why hasn’t this happened yet?
Bitcoin came in the global financial scene after the economic crisis of 2008. It presented forward an alternate monetary framework that rivaled the “debt-based” banking system. It presented a decentralized, global and trustless system of operation where there is no single party in charge of controlling the flow of money. But this lack of central control gave way to a very simple social fact, illegal activities. Bitcoin’s initial use-case started from its usage in illegal online marketplaces like dark web and in activities like money laundering. But with the rise of platforms like Ethereum and global blockchain-based banking projects like Ripple, the positive side of cryptos and blockchain became the center of attention.
Just like every other technological innovation, bitcoin is going through its evolutionary period right now and is not fully mature. It has just been over a decade since it came into conception and there are some major issues associated with it. These issues include volatility, price manipulation, liquidity, custody and usage in fraudulent activities. These are the major issues due to which institutions are holding back from investing in the crypto space.
With its extreme volatility, bitcoin cannot be trusted as a source of making large-scale payments and hence, becomes unattractive in the eyes of major global retail corporations. With price manipulation by big whales, trust regarding the digital asset drops both in the eyes of the public and financial institutions. Issue of custody, that largely deals with exchanges keeping crypto assets of people safe, is also a critical one as recently, loss of bitcoins due to the sudden death of QuadrigaCX founder sparked controversy around this space. Then again, frauds and scams are rife in the bitcoin world already and make this area highly unattractive for institutional adoption.
For increased institutional adoption, steps like the elimination of illegal activities and establishment of bodies like a crypto-linked exchange-traded fund (ETF) are necessary. ETFs will provide an intermediary layer to the institutions so that they can invest in this world without directly touching it. Previously, BlockPublisher got in touch with an equity derivates expert, Anna Yen, as she explained how an ETF can help this space stating:
Having a crypto linked ETF would bring institutional legitimacy and liquidity. Exchange traded funds need to be approved by the SEC, and so far the SEC has been hesitant due to rampant price manipulation. Approval would mean that this hurdle was addressed, encouraging institutional players like banks to create markets and get involved in the market.
Establishment of large-scale over-the-counter trading desks is also necessary as they will allow big customers to buy huge amounts of digital asset at attractive prices.
With institutional adoption, a large amount of capital will flow into the crypto space lifting its market capitalization higher and ultimately raising value carried by various currencies. With such an adoption, crypto will consolidate its legitimacy and will become an official contender for the future of economies across the globe. This will also herald a new era for blockchain technology lying underneath this nascent world. All in all, the crypto wind that started 10 years ago with a negative connotation attached with it is now getting stronger. Institutions are feeling the wave that’s coming and the anticipation of a bigger one might convince them of getting into this nacent market thus becoming a part of an even bigger crypto wave itself.