What’s shaping the future of the institutional crypto market?

What’s shaping the future of the institutional crypto market?

2021 was a big year for cryptocurrency. El Salvador became the first country to adopt Bitcoin (BTC) as legal tender. In November 2021, the price of Bitcoin hit an all-time high approaching the psychologically significant mark of $70,000. And, all along the way, industry influencers like Elon Musk have been tweeting their enthusiasm about cryptocurrency more broadly.

I anticipate 2022 will continue to be an even bigger year for digital currencies as the market grows to reach 1 billion people. Here are the five most prominent trends that I see on the horizon for the year to come.

Institutional trading volume will grow

2022 will be a year in which institutional and retail cryptocurrency adoption, and trading in particular, will continue to grow. Fintech stalwarts PayPal and Square — along with mobile stock-trading platform Robinhood — have all made it easier to buy, sell and trade crypto. And public companies like MicroStrategy, Tesla, Galaxy and Square all added significant amounts of Bitcoin to their balance sheets in 2021.

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What’s driving this growth? Aside from upward general momentum, two pieces of evidence reflect the ongoing maturity of the institutional crypto market: market cap and infrastructure.

In 2015, the total crypto market cap was around $5 billion. As of December 2021, it’s grown enormously to above $2 trillion. Bitcoin’s market cap alone was $3.6 billion on Jan. 4, 2015, and its current market cap is around $900 billion.

Even the market cap of number two crypto, Ether (ETH), which has a bigger ecosystem of enterprise applications, is around $400 billion, which is close to Visa or JP Morgan Chase.

Even five years ago, core infrastructure was much less developed in crypto. Institutions were struggling to understand how to custody, trade and clear and settle crypto transactions in a reliable, compliant way. There weren’t any true prime brokers in crypto.

Now the infrastructure is much more developed and institutions have a better understanding and comfort level with the crypto landscape. As such, I anticipate institutional trading will continue to grow.

Even so, spot crypto trading volume, especially Bitcoin, is still highly fragmented.

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Institutional adoption will also accelerate the growth of the crypto derivatives market. More regulation will come too, which will be a very positive development as long as it involves public discourse and is tailored for industry products to allow for adoption and innovation while also meeting regulators’ needs.

In July 2021, Treasury Secretary Janet Yellen urged regulators to act quickly to create a regulatory framework for stablecoins. Since then, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has also called for regulation in this space and indicated this is on the SEC’s agenda.

More institutional service providers and tools will come to market

Still, institutions have a critical need for the right services and tools. There’s been a flurry of activity among startups looking to provide support services, such as crypto asset storage, security and management and investment products, as well as mining hardware and software and payment infrastructure.

Multiple companies had raised funding rounds of at least $300 million by August 2021, including Blockchain.com, BlockFi, Fireblocks, Ledger and Paxos.

I expect this to continue as new companies emerge to provide more accessibility into the crypto market than ever before. This, in turn, will open new doors for small and medium-sized funds. - Cointelegraph.