Institutional Players Enter the Crypto Game

While the fierce rivalry is on for the ever-broader offering of crypto as a lucrative trading product, there is yet a long way to go before cryptocurrencies become globally-renowned as assets for short- and long-term investment. Those in the banking sector as well as in the credit cards business are trying to position themselves in the big institutional crypto adoption game. Institutional investors have remained the “gold standard” in determining the quality of investments. They control large chunks of financial assets and have substantial resources at their disposal.

Currently, there is about a dozen applications filed for crypto ETFs (exchange-traded funds). Given Bitcoin’s history and a track record of predictability, albeit high volatility, it has captured the attention of institutional players interested in offering Bitcoin as an investment tool derivative, namely an ETF. So, what exactly is an ETF? In a nutshell, an ETF is a publicly-traded investment vehicle which tracks the value of an underlying asset – in this case – Bitcoin.

The desire to diversify investment portfolios is one of the primary drivers of institutional investors' increased interest in cryptocurrencies. Using cryptocurrency, portfolios can be diversified beyond conventional asset classes like stocks, bonds, and real estate. This act of diversification can act as an inflation buffer and aid in lowering overall portfolio risk.

Here are some examples of the efforts made by the colossal giants within the financial industry in recognizing crypto as a market phenomenon which should not be missed:

BlackRock, the world’s largest asset manager with over $9 trillion in assets under management as of the first quarter of 2023, filed an application for a Bitcoin spot ETF. The filing contained Coinbase as the crypto custodian, with BNY Mellon as cash custodian. After the U.S. Securities and Exchange Commission (SEC) took issue with its initial filing, BlackRock submitted a new application for a Bitcoin ETF on July 3rd of 2023.

Fidelity Investments, the financial giant that has over a trillion dollars’ worth of assets under management, revealed plans to launch its own cryptocurrency division after it saw huge interest from institutional investors and recently managed to receive the trust license from the New York State Department of Financial Services (NYDFS). Fidelity Investments followed on the heels of BlackRock in lodging applications with the SEC for Bitcoin-based ETFs.

Goldman Sachs has filed an application with SEC for an exchange-traded fund that would offer exposure to public companies in decentralized finance and blockchain around the globe, while behemothic investment bank.

Mastercard’s head of crypto and blockchain products, Raj Dhamodharan, expressed that the payment giant’s strategy revolves around enticing developers to build on its permissioned blockchain platform. The company believes that by positioning its blockchain as a reliable infrastructure, it can attract developers to leverage its capabilities for various applications.

During the World Economic Forum event in Davos, UBS Chairman Colm Kelleher spoke about cryptocurrencies and blockchain. He is very optimistic about blockchain but is looking for regulation around crypto. “The technology’s unstoppable,” said Kelleher. “Blockchain technology will reduce huge operational friction, reduce costs and, harnessed properly, will be a very good value additive to the chain.”

Smaller players also want in!

While all eyes are in the big league, smaller firms have also been interested in being affiliated with a Bitcoin ETF, way before the recent moves of major players.

WisdomTree is among the forerunners to hop on the crypto ETF bandwagon. The company already has some experience of running a Bitcoin ETF, having launched one on Switzerland's SIX stock exchange back in 2019.

Galaxy Digital and Invesco filed a joint Bitcoin ETF application on September 22, 2021, called the Invesco Galaxy Bitcoin ETF. According to that filing, its ETF would also be “physically-backed” by Bitcoin rather than via derivatives like futures.

Valkyrie, an asset management firm, filed its first application for a Bitcoin ETF way back in January 2021. The ETF would refer to the Chicago Mercantile Exchange's reference price for Bitcoin and trade on NYSE Arca.

Not everyone’s a crypto fan.

Amidst the efforts in securing a well-grounded crypto foundation, whether it entails the adoption of cryptocurrencies as legal tender or simply a digital asset for profit-seeking activities, there remains some regulators which are pushing back on this initiative.

Hand-in-hand with the innate uncertainty and volatility which continue to embody the digital assets of today, some investors and traders remain cautious on crypto – but it can be safe to say that crypto adoption has been growing by the year on an international scale.

Explore our piece on the countries on where cryptocurrencies are most popular to learn more about the magnitude of crypto adoption and what it means to different countries from around the world.