Why Institutions Could Make This Year Pivotal for Crypto

By James Wo, CEOand Founder of DFG

The crypto industry is no stranger to adversity, having weathered its fair share of challenges during its developing history. As of March 2024, its market cap has recovered to $2.4 trillion, a massive comeback following a downfall from its $3 trillion peak in 2021. With the market still fluctuating, however, there’s optimism that growing institutional involvement could be the driving force behind a bullish period ahead.

Despite recognizing crypto’s inherent volatility and technical challenges, institutions have invested resources in experimenting with and researching blockchain and crypto. Their overall sentiment toward the technology is mainly positive, and they express interest in offering crypto services, including DeFi and real-world asset (RWA) tokenization.

But not everyone seems so optimistic—some of their concerns are not unfounded. By examining and analyzing the fundamental elements behind institutional involvement in crypto this year, we can see what has the potential to either elevate or jeopardize crypto’s standing. 

Institutional entry challenges

To begin, let’s set the stage as to why institutions are looking at crypto in the first place. In response to global macroeconomic turbulence, institutional investors—particularly those on Wall Street—are actively seeking a more diverse range of value stores, acknowledging the intrinsic uncertainty of some traditional financial instruments. 

In this pursuit, digital assets such as Bitcoin have garnered attention as viable alternatives, positioning themselves as potential hedges against economic uncertainty. The recent move by Standard Chartered to enable staking further underscores the evolving landscape, showcasing a tangible shift in institutional interest toward actively engaging with crypto assets. Additionally, major London-based bank HSBC recently unveiled a platform using blockchain technology to tokenize the ownership of institutional clients’ physical gold held in its vault, highlighting another aspect of the growing connection between traditional finance and the crypto sphere.

However, this optimistic trajectory could face challenges, for example, in the lingering effects of FTX’s collapse and other influential crypto exchanges on investor confidence. Those scars remain significant for crypto outsiders who have found it challenging to put trust in the industry and often perceive it skeptically. In addition, concerns surrounding an extended crypto winter, compounded by regulatory uncertainties—particularly those related to unclear SEC enforcement—contribute to a prevailing sense of caution and a “wait-and-see” sentiment within the industry.

Unlocking major assets

Conversely, the entry of major asset managers such as BlackRock, GrayScale, and VanEck into the crypto arena holds substantial weight, legitimizing the notion that Bitcoin and other digital currencies can be considered a viable asset class for institutional investors. Their recently approved SEC applications for spot Bitcoin ETFs signal mainstream acceptance and address regulatory concerns. These giants’ risk management practices, compliance standards, and market surveillance capabilities contribute to a transparent and stable environment beneficial for the entire crypto industry.

These positive developments translate to a more positive investor outlook, with optimism for the 2024 crypto bull run at its peak, fueled by anticipated enhanced liquidity and credibility resulting from further ETF approvals and Bitcoin’s halving event in April. It’s projected that the approval of a spot Bitcoin ETF could have a transformative impact. 

However, opinions on its immediate effects vary, with some foreseeing trillions in value creation, while others believe initial flows may only amount to a few hundred million. Historical parallels with gold ETFs and the potential for a supply shock due to institutional demand highlight the complexity of market dynamics. As the industry eagerly awaits regulatory decisions, it stands on the precipice of a potentially pivotal moment.

Amid this anticipation, significant strides have been made in building a more mature and robust crypto ecosystem. The convergence of traditional finance (TradFi) and crypto, marked by institutions exploring blockchain and crypto services, has gained substantial momentum. Regardless of the outcome of the ETF ruling and other regulatory decisions, the industry’s interconnectedness with traditional finance positions it for continued growth and innovation. 

Supporting these macro developments—notably, institutional legitimization, TradFi integration, and increased liquidity—are numerous smaller yet impactful changes and trends that have contributed to a more mature and robust crypto ecosystem. Advanced DeFi applications, innovating scaling solutions like ZK rollups, a greater focus on interoperability, and a decline in scams and hacks are among these transformative elements. 

The crypto industry has shown resilience while still rehabilitating its image as the crypto winter gradually fades away amid rising prices in November and December, led by a resurgent Bitcoin. Institutional involvement is a beacon of hope in 2024, displaying positive indicators beyond market dynamics, promising to propel value and the democratization of finance. The anticipated entry of prominent asset managers amid favorable conditions promises to reshape the crypto landscape, accelerating digital asset adoption and mainstream acceptance. Decisions made by institutions in 2024 will be a defining factor in the industry’s evolution, leading to a turning point that holds the potential to catalyze the next bull run.

About the author: James WoFounder and CEO of DFG

James Wo, a seasoned entrepreneur and crypto space investor, established DFG in 2015. He currently manages a portfolio exceeding $1 billion in assets. With a track record as an early investor, James has supported companies such as LedgerX, Ledger, Coinlist, Circle, and ChainSafe. Furthermore, he has been an early investor and advocate for protocols like Bitcoin, Ethereum, and Polkadot.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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