THE ERA OF INSTITUTIONAL INVESTMENT IN CRYPTOCURRENCIES

The era of institutional investment: competition or collaboration for exchanges?

For years, cryptocurrencies have been viewed by some as speculative, volatile assets with no tangible backing, or even as a tool for illicit activities. The entry of large corporations and investment funds such as BlackRock, Fidelity, and MicroStrategy has begun to change that narrative.

When an institution with decades of experience in the financial market decides not only to invest in Bitcoin and Ethereum, but also to offer investment products such as ETFs (exchange-traded funds), it is sending a very powerful signal: cryptocurrencies are a legitimate and viable asset.

1.- Legitimacy and trust

For the average retail investor, the approval of reputable financial institutions is a form of seal of quality. If large asset managers consider these assets to be safe enough for their institutional clients, the general public can feel more confident about investing a portion of their capital.

2.- Ease of access

The creation of ETFs has greatly simplified the investment process. Previously, buying cryptocurrencies required opening an account on an exchange, managing wallets, and understanding asset custody. With an ETF, anyone with a traditional brokerage account can gain exposure to Bitcoin and other cryptocurrencies as easily as buying a share of Apple or Google. This removal of technical barriers is a crucial factor for mass adoption.

3.- Regulatory framework

The entry of institutions often goes hand in hand with greater regulatory clarity. Governments and regulatory bodies are forced to create rules and guidelines to protect investors and supervise these new financial products. This legal framework, although sometimes perceived as restrictive, strengthens public confidence by mitigating the risks of fraud and market manipulation.

Beyond Bitcoin: the ripple effect on the crypto ecosystem

While institutional adoption has initially focused on Bitcoin (as the largest and most capitalised cryptocurrency) and, more recently, Ethereum, this phenomenon is likely to have a ripple effect across the entire ecosystem.

• Interest in other cryptocurrencies:

Once investors become familiar with the main assets through traditional investment vehicles, it is natural for them to seek to diversify their portfolios. This could lead them to investigate other cryptocurrencies with specific use cases, such as smart contract platforms, decentralised finance (DeFi) tokens or scalability solutions.

• Technological development:

The arrival of institutional capital not only drives up the price of cryptocurrencies, but also encourages investment in the technological development of projects. More funds mean better tools, greater security, and the possibility of solving fundamental problems in the ecosystem, such as transaction speed or high fee costs.

• Integration with the traditional financial system:

The real new era may not just be people investing, but the integration of blockchain technology into legacy financial systems. Institutions are already exploring the use of the technology behind cryptocurrencies to improve their payment processes, transaction settlement, and asset management.

Will people finally invest in cryptocurrencies?

Our opinion is that institutional adoption does not guarantee that ‘the rest of us’ will invest massively overnight, but it does significantly reduce the barriers and mistrust that previously existed.

The narrative that ‘if the big banks are doing it, it must be safe’ adds to the ease of access to ETFs and clearer regulation. These factors combined create a much more favourable environment for retail investors to take the plunge.

It’s not that people will believe in cryptocurrencies ‘thanks to them,’ but rather that institutions have opened a door that previously seemed inaccessible and risky. Retail adoption will be a natural, albeit gradual, consequence of this paradigm shift.

The role of exchanges in the new era

Exchanges have been the main gateway for millions of people into the world of cryptocurrencies. They have developed a deep understanding of the sector, built robust security infrastructures, and offer a user experience that goes beyond simple investment. Their experience in the sector is their greatest strength.

• Custody and direct ownership:

The main difference between an exchange and an ETF is asset ownership. When you buy cryptocurrencies on an exchange, you own them directly (as long as you store them in your own wallet, not the exchange’s). This gives you complete control over your assets, something that the original philosophy of cryptocurrencies values highly. An ETF, on the other hand, gives you exposure to the price of the asset, but not direct ownership of it.

• Asset diversity:

Cryptocurrency exchanges, such as Binance or Coinbase, offer thousands of digital assets beyond Bitcoin and Ethereum. For investors who want to explore the vast world of altcoins, DeFi tokens or NFTs, an exchange is the only viable option, as ETFs focus on the largest and most regulated assets.

• Advanced features:

Exchanges are comprehensive trading platforms that offer features such as staking, lending, futures, options, and technical analysis tools. Active and experienced investors will continue to prefer exchanges for access to these tools that ETFs simply cannot offer.

The general public and the quest for simplicity

The incursion of ETFs and institutional investment will affect the behaviour of the general public, especially those who have been reluctant to enter the crypto market.

• Simplified investment:

For a large part of the public, the idea of ‘investing in Bitcoin’ through an ETF is much more familiar and less intimidating than opening an account on an exchange. They don’t have to worry about custody security, private keys or transfers. They simply buy a share through their traditional broker and that’s it.

• Trust and regulation:

As mentioned above, the approval of these products by regulatory bodies such as the SEC generates a level of trust that exchanges have historically lacked. This attracts an audience that values security and regulatory backing over autonomy.

• Different investor profiles:

Institutional adoption does not necessarily eliminate investment in exchanges. It is simply segmenting the market. On the one hand, there are traditional investors who want simple exposure to cryptocurrencies through an ETF. On the other hand, there are enthusiasts and active investors who prefer direct ownership and the advanced features that only an exchange can offer.

In conclusion:

Institutional involvement is not an attack on exchanges, but rather a catalyst for the expansion of the entire market. While ETFs open the floodgates for traditional capital, exchanges are consolidating their position as specialised platforms for active investors and technology enthusiasts.

This dynamic creates a healthier and more sustainable market. Passive investors have an easy and safe option, while more experienced investors can continue to benefit from the flexibility and variety that only exchanges can offer. Instead of competing for the same investor, they now target different profiles.

As more capital and legitimacy flow into the ecosystem, exchanges are likely to benefit indirectly.

With a more mature and stable market, it is easier for the next generation of investors, after trying cryptocurrencies through an ETF, to become interested in direct ownership or other opportunities that only exchanges can offer.

In this new era, the experience and infrastructure of exchanges are not threatened, but become more valuable than ever to the public seeking a complete immersion in the crypto world.

Disclaimer: The information set forth herein should not be taken as financial advice or investment recommendation. All investments and trading involve risk and it is the responsibility of each individual to do his or her due diligence before making a decision.