How institutional buy-in is reshaping the crypto market

Good afternoon! Crypto has become a part of more and more institutional portfolios, so we asked the experts to let us in on what they thought the downstream effects of that influx could mean. Questions or comments? Send us a note at braintrust@protocol.com

Asheesh Birla

RippleNet GM at Ripple

Institutional adoption is a direct result of more mature and institutional-grade products in the market, in turn leading to a positive feedback loop with growing institutional interest and products that stand the rigorous tests of compliance and scalability. The crypto industry has been around for over a decade now, and like many other industries, started with speculative use cases focused on retail users, which go hand-in-hand with high volatility.

What do institutions bring to crypto? New liquidity venues that extend the breadth and depth of crypto markets. Pre-2017, crypto liquidity was limited to a handful of exchanges with a few million dollars in volume across all assets — this has dramatically changed in recent years. More liquidity venues (with subsequent on-off ramps between fiat and crypto) will be vital to crypto succeeding in institutional use cases.

I think what we’ll begin to see is volatility start to subside as more and more institutions use crypto and blockchain for real-world, non-speculative use cases (tied to regular business cycles) like payments, real estate, equities, gaming and more instead of the retail use cases that comprise much of crypto volume today. This is the inflection point we’ve been waiting for.

Tweet this.

David Abner

Global Head of Business Development at Gemini

Institutional use of crypto will be the accelerator for crypto to become a mainstream asset class and lead to broader adoption by a wide swath of investors and other users. Traditionally, institutions are held to a higher set of standards when engaging with investors, so they will only be able to adopt crypto into portfolios as they get comfortable being able to understand the risks and see continuing advances in compliance, insurance, security, market integrity and transparency.

We expect financial institutions to offer crypto to their investors in a wide variety of products from derivatives for hedging and leverage, inflation protection products and also yield generation products that will compete against traditional fixed income products. There are ways we can’t even imagine yet as the barriers between traditional assets and crypto assets come down and institutions and their investors are able to move freely between them and incorporate them together into their lives.

Further adoption by the institutional community will enhance the development of products tailored for specific uses, as they develop products for their investor bases. We have seen a lot of creativity in the past for product development as they explore ways to use this new technology. Lastly, institutional adoption of crypto currencies will add to increased volumes and trading across the asset class as many different types of investors including traders, long only, hedgers and even non-financial users all come together in cryptocurrencies.

Tweet this.

Jess Houlgrave

Head of Crypto Strategy at Checkout.com

Industry adoption will largely be focused on stablecoins, both for settlements and for B2B payments. A major benefit for corporates here is speed. Instead of the current lag when sending large sums of money across borders, a stablecoin settlement is immediate and allows liquidity to keep flowing. Global businesses can even continue to lean into dollar preference using USDC, while removing the current lag.

These settlement benefits could have a positive impact on the whole ecosystem. Every link in the supply chain could benefit from immediate payment and verification, leading to faster production and movement of goods, and ultimately higher sales productivity.

In our recent Demystifying Crypto report, we found that 69% of CFOs see speed of settlement as a potentially revolutionary aspect of blockchain-based payments, helping to create new, innovative business models. These can range from the introduction of B2C micropayments and the ability to interact more competitively with consumers and creators to the ability to reach more cross-border consumers who, in turn, can pay and receive goods more quickly when using blockchain payments.

Businesses are also seeing increasing utility in branded coins, tokens and NFTs for loyalty programs, which, our survey shows, are broadly popular with consumers and merchants alike. However, most businesses are still keeping clear of directly accepting any form of crypto, including stablecoins, citing the biggest barrier to entry right now as regulatory uncertainty. More institutional adoption will only come with robust and interoperable regulatory frameworks — the good news is that these are rapidly approaching.

Learn more

Tweet this.

Kristin Smith

Executive Director at the Blockchain Association

It’s not a matter of if it will happen or a matter of when institutional adoption of crypto will happen — it’s happening right now. And further institutional investment in cryptocurrency will mean the crypto industry successfully educated policymakers, proposed smart policy solutions and worked to see those policies adopted into law and regulation.

Coupled with the Biden administration’s recent executive order directing a federal approach to crypto regulation, pioneering institutional involvement in this industry will only encourage innovation in this ecosystem. Biden and current institutional investors have rubber-stamped the perspective that crypto is here to stay and we should find the best way to take advantage of this technology.
We may see support for increased “cryptofication” of existing financial products, such as lending, remittances and payments, as institutional players look for new margins on legacy financial technology. Fintech platforms have provided stiff competition to banks, ensuring that no-fee trading is now the industry standard. As more institutions dip their toes into crypto, we may see many of the crypto-native innovations become normal across the financial sector.

Broader acceptance of crypto by institutional investors will support a further proliferation of consumer-focused products, spurring digital goods and services that will benefit the end crypto user. The power and culture of the crypto community is just beginning to fully express itself, and current and future institutional investors will edge closer to that ethos, rather than the other way around.

Tweet this.

Diogo Mónica

President and Co-Founder at Anchorage Digital

Institutions are showing they’re serious about crypto this year — and the more they invest, the more competition and innovation can be supported and spurred within the crypto industry. We’re already seeing the effects: Today, more institutions are offering crypto products, allowing customers to trade, stake, borrow and lend against their digital assets. This is a watershed moment for crypto, and the message is clear: Institutional crypto will drive finance towards a crypto-based model.

We always knew institutional adoption would be critical to the market’s ultimate success so we founded our company to exclusively serve institutional clients, who have greater security and regulatory needs than the average retail customer. As more institutions enter the crypto space, the country will need more federally regulated digital asset banks like Anchorage to meet the demand. By partnering with lawmakers and regulators, industry players can accelerate the institutional adoption of crypto, putting us closer to the more inclusive, equitable financial future we’re all working to achieve.

Tweet this.

Sergey Nazarov

Co-founder at Chainlink

The world is realizing that decentralized finance (DeFi) is a superior alternative to traditional finance. DeFi being used and accepted by large institutions is continuing to grow as their user bases see the need to own digital assets and to get a return on those assets using DeFi. Chainlink not only enables DeFi by providing the key decentralized infrastructure that makes it possible (oracle networks), it also creates a single integration point between institutions and all of blockchains/DeFi, across any/all chains. Chainlink has initially enabled DeFi to grow from less than $2 billion to over $200 billion, and the easy-to-use integration to all blockchains it is now providing to institutions will help accelerate the growth of DeFi well past $2 trillion in the coming years.

Tweet this.

See who’s who in the Protocol Braintrust and browse every previous edition by category here (Updated April 14, 2022).