The cryptocurrency industry has made a big leap over the last 10 years. Such companies like MicroStrategy, Square, and Tesla were the first institutional digital asset investors.
Banks such as Morgan Stanley, Standard Chartered, and Goldman Sachs are actively engaged in crypto investments, buying BTC and offering crypto trading desks to their clients.
Financial entities such as Fidelity Investments created a dedicated platform – Fidelity Digital Assets, enabling institutional investors to buy and sell digital assets.
These and many other cases boosted the institutional adoption of cryptocurrency. In this article, we will consider general cases of how institutions enter the crypto sector.
Institutional Investment Strategies
Here are some popular ways institutions invest in crypto:
- Long-term holding. Investors consider adding popular coins like BTC or ETH to their portfolios, primarily focusing on the long-term potential. They buy on an institutional crypto trading platform or through exchange-traded funds related to Bitcoin. The recent trend shows investment flow into the crypto sector during market downtrends. That means the crypto industry is getting mature and holds long-term prospects in the eyes of investors.
- Investing in ETFs: investment funds that track the price of particular assets, including crypto from recent times (BTC ETFs based on futures products were approved by the SEC in 2021; on Jan 10, 2024, the SEC approved 11 spot Bitcoin ETFs).
- Market-making: institutional cryptocurrency trading platforms offer financial entities the opportunity to join market-making programs. The essence is to provide liquidity to trading platforms in order to maintain their attractiveness and efficiency. In return for their services, market makers profit from bid-ask spreads and often reduced commissions.
- Derivatives trading. Institutional crypto trading often includes such tools as futures and options. This is a high-risk approach, allowing speculation on asset price fluctuations without actually owning an underlying asset.
- Creating innovative financial products and services. This trend is opening up fresh possibilities for financial innovation as institutions work on developing solutions for investing in crypto, hedging against inflation, and facilitating payments for goods and services.
The undeniable reality is that institutional adoption of crypto not only expands the horizon for the digital asset industry but also catalyzes the emergence of innovative services and products. The recent approval of spot Bitcoin ETFs is a sign that authorities are also moving towards building a clearer regulatory framework for crypto assets and crypto-related products.
Institutional involvement fosters market maturity, laying the groundwork for sustained growth and contributing significantly to the broader adoption of cryptocurrencies on a global scale.