Growing Market Capitalization and Adoption
Not only are the headlines about institutional investors entering the crypto space growing but so too is the capitalization of digital assets. Cryptocurrencies still represent a relatively insignificant portion of the overall market compared to other popular asset classes. When compared to traditional assets such as precious metals, equities, and real estate, cryptocurrencies’ low market capitalization presents both unique opportunities and challenges. While cryptocurrencies have a smaller market cap, their potential for rapid growth and disruptive innovation is significant. The nascent nature of the digital asset market allows for greater volatility, but it also offers the potential for significant gains for investors willing to navigate this landscape.
Unlike traditional assets, cryptocurrencies are not tied to physical locations or traditional financial systems, allowing for borderless transactions and global financial inclusion. Precious metals, stocks, and real estate, on the other hand, have long histories of serving as reliable stores of value and sources of passive income.
Source: Gartner, BlockData, 2021
They typically provide more stability, regulated markets, and tangible ownership. Finally, the potential of low marketcap cryptocurrencies lies in their innovation, accessibility, and the possibility of significant returns, though these are accompanied by higher risks and market uncertainties when compared to traditional asset classes. Established global corporations are increasingly positive about digital assets because of the technology’s potential to streamline cross-border transactions, reduce intermediary costs, improve transparency, and tap into a burgeoning market of tech-savvy users, all of which align with their pursuit of innovation and efficient financial solutions. Accepting Bitcoin as a payment mechanism, offering cryptocurrency-related products or services, recruiting for crypto products or services, or keeping coins in a treasury are all examples of positive stances.
Source: Coincub Research, 2023
According to Coincub Research, more and more banks are also taking a positive stance on digital assets, with European banks leading the way. With 55 financial institutions supporting the cryptocurrency business, Europe is the most crypto-friendly area in the world, followed by Asia with 24 such institutions. The United States has seen the departure of two crypto-friendly banks, Signature and Silver gate, while the remaining firms have been hampered by unfavorable steps taken by regulators. In South America, Brazil is quickly becoming a cryptocurrency powerhouse while Japan continues to dominate the Asian market because of its well-defined regulatory structure. As a reflection of China’s newly demonstrated support for the digital asset market, Chinese state-owned banks in Hong Kong are beginning to court local cryptocurrency startups.
The EY-Parthenon team surveyed 256 institutional investor decision-makers worldwide, including COOs, CEOs, portfolio managers, and heads of transformation, to better understand how they view digital assets, including sentiment, digital-asset allocations, future expectations, and tokenization perspectives. According to the survey, 69% of investors anticipate growing their holdings of digital assets and related products in the next two to three years.
More and More Regulatory Clarity
Regulatory approval for digital assets is becoming more widespread around the world. If we look at how the world has changed between 2020 and 2023, we can see that countries all over the world have significantly loosened their regulations and become more accepting of digital assets.
For example, Switzerland is a pioneer in the regulation of cryptocurrencies and is home to numerous blockchain foundations. The European Union Parliament just enacted the world’s most comprehensive regulation regarding digital assets, and France is a popular location for Web 3 businesses. However, there is a great deal of regulatory ambiguity in the United States with regard to digital assets as well as a political division in both the Senate and the House of Representatives with extreme opponents and extremely strong proponents. Since the country’s laws on assets have not been updated in almost seven decades, there is a rising worry that the nation may fall behind in the race for global technological superiority. Indeed, the United Arab Emirates’ (UAE) government is leading an effort to transform the country into a cryptocurrency center not just in the region but also worldwide. Additionally, the government of the United Kingdom has the goal of becoming a center for blockchain technology and investment. After cryptocurrencies were outlawed on the mainland of China in 2021, the Chinese government turned its attention to the country’s far-eastern province of Hong Kong. In 2023, the Chinese government designated Hong Kong as the future center for cryptocurrencies and established pro-cryptocurrency policies there.
There are encouraging signals that digital assets will become increasingly accepted on a worldwide scale, and it is reasonable to believe that other nations will follow Switzerland’s lead and play a pioneering role in this area.
Crypto Growth and Hedge Fund Interest
Although Bitcoin has received its fair share of negative attention, early-stage investments would have yielded an extremely high return.
According to the findings of a poll conducted by PwC and published in their Global Crypto Hedge Fund Report 2023, 29% of hedge funds are now investing in crypto assets. Hedge funds that are dedicated to investing in this asset class have continued to add to their digital wallets, which now account for an average of 7% of their AUM, up from 4% in the previous year. It’s possible that a number of funds saw the fall in the larger market as a chance to invest at a more favorable level, which would have resulted in their expanding their exposure. The multi-strategy approach (41%), the systematic approach (29%), the macro approach (12%), and the equity approach (12%) are the most common techniques used by hedge funds when investing in crypto assets. The capitalization of the market for crypto assets by the end of 2023 is expected to exceed its level at the end of 2022, according to forecasts made by 93% of crypto hedge funds.
Wall all Street Takes a Position
Wall Street firms generally have diverse opinions on Bitcoin (BTC) and digital assets. Some have published research reports detailing their investment theses for Bitcoin and have even put price targets on it. Others have remained firm in their distrust of Bitcoin and digital assets and are unlikely to change their stance. Despite this diversity of opinions, many top financial institutions have provided their customers with avenues for investing in digital assets. Some have gone as far as entering strategic partnerships with or taking ownership stakes in digital asset startups.
Fidelity was one of the early adopters of Bitcoin; as early as 2014, they began mining BTC. In October 2018, the company launched Fidelity Digital Assets, a standalone subsidiary providing BTC custody and trade execution for institutional investors. In October 2022, the company announced that it would launch support for Ethereum (ETH) custody and trade execution.
In November 2022, the company began rolling out access to Fidelity Crypto, which allows retail users to buy and sell BTC and ETH directly from the Fidelity Investments app and leverages Fidelity Digital Assets’ trading and custody platform.