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Prices of digital assets have fallen steadily since November last year, with total market capitalization at Hit more than 60% Until December 16, 2022.
Meanwhile, the bankruptcy of Terra, the bankruptcies of prominent CeFi providers such as Celsius and Voyager, and the high-profile FTX scandal have exacerbated the negative effects of the ongoing bear market.
Given the above, the short- to medium-term outlook for the cryptocurrency industry is clearly less than ideal. That said, it appears institutional investors have refused to sell their cryptocurrency holdings and are even increasing their portfolios of digital assets.
Coinbase-sponsored survey published in November clearly 62% of institutional investors in digital assets have increased allocations in the last 12 months. Interestingly, only 12% have reduced their investment in cryptocurrencies, and 58% of respondents indicated their intention to buy more coins in the next three years.
The above data is evidence that financial institutions continue to see potential in cryptocurrencies. But in the current bear market, why are they so eager to accumulate cryptocurrencies?
Institutional investors already see the big picture
The crypto market is moving in sync with the rest of the economy, but that movement is more important than the rest.Economic data that can affect commodities and stock prices by a few percentage points can fluctuate crypto market 3 or 4 times that.
And for many institutional investors, crypto volatility is a money-making opportunity regardless of its direction.
This immediate profit opportunity should be paired with the short windows of cryptocurrency bull and bear markets that are closely aligned with the Bitcoin halving. Compared to November 2021 highs, Bitcoin roughly lost two-thirds of its value in a general down market yet 15% hit Since the fall of Terra.
The next Bitcoin halving is set for May 2024, and Bitcoin miners will receive exactly 50% of the current mining rate.
This four-year event has been factored into market prices, and current crypto holders have historically known that cryptocurrency prices will begin to rise significantly about nine months before the halving. I’m here. rapid probably as much as 300% And after halving on the same thing again, if not more.
Given that the Bitcoin and cryptocurrency markets follow the same historical trend as the last 13 years, it is not unreasonable to expect BTC to hit $150,000 by the end of 2025.
This represents an ROI of almost 800% for an investor who buys Bitcoin at its current price of $17,000, so the benefits for institutional investors to get into cryptocurrency are huge. At the same time, the time horizon for realizing these benefits is not far off.
The 2022 Black Swan event wasn’t the regulator’s fault
When discussing institutional investors it is always important to refer to regulation in the same context Especially considering that 4 in 10 professional investors in a Coinbase-sponsored survey named regulatory clarity as the biggest catalyst for future asset class growth.
I believe the overall quality of the regulatory framework and the complexity of complying with its rules attracts different types of stakeholders. The collapse of FTX is a great example.
At first glance, FTX’s international entity and US-based FTX USA were the same company.
But the latter was run by professional managers, had regulatory experts on its board, and had to follow much stricter rules than its Bahamas-based sister company. It supported only a handful of cryptocurrencies without any restrictions.
So, rather than fighting regulation on a relatively small exchange, FTX did just that by establishing itself in a country with much weaker regulation and a less terrifying criminal regime. from what we hear now pretty much anything it wanted.
This is the case not only for clearly badly run companies, but also for criminal ones. That can happen in any market, but we need to look at the role that regulation has played.
The United States is so tough that crypto companies are hesitant to go there to set up their businesses, so they choose to move to weaker markets, and the consequences are clear to everyone. We need a middle ground that allows companies to adhere to best practices while allowing the same companies to grow. Otherwise, there will be more FTX in the future.
Stablecoins will power the next bull market
Cryptocurrencies reach a new stage of adoption with each market cycle. I believe the next bull market will come from growing adoption of stablecoins.
The assets of the latter are $130 billion Their share of the cryptocurrency market capitalization will only grow by the end of the bear market.
Once it reaches roughly $1 trillion in size, it should start attracting the attention of big banks with all the tools and proven avenues to launch their own stablecoins.
Second, the mass adoption of stablecoins will positively change the attitudes of individual and institutional investors towards cryptocurrencies.
For example, if HSBC issued its own digital asset, it would be justified and people would start treating cryptocurrencies as a true asset class in their own right and should no longer be viewed with skepticism.
Austin Kimm is the Director of Strategy and Investments at a cryptocurrency company. Choice.comHe is an experienced UK CEO and C-level fintech business leader, having founded companies with a combined valuation of over $500 million. At Choose.com, he is responsible for investor relations, key partnerships and company fundraising operations.
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