The Institutions are Coming…

Market Insights May 05, 2022

… The Institutions are Coming!

By Lionel Rebibo, 5th May 2022

In my most recent blog, I shared just a few of my observations from Paris Blockchain Week, one of which was about institutional adoption of digital assets. This was a hot conversation among both panelists and peers, and it was universally believed it wasn’t a question of if, but when. This is something I have firmly stated since my days in traditional finance and our early days at Trakx.

Over the past few years, we have seen more money flow into digital currencies, new currencies introduced and along with them, new products and services. Companies have virtually been born overnight, many of whom are now multi-billion-dollar enterprises and growing. Some of the largest and most respected companies in the world have embraced the use of digital assets for not only payments, but for operational and transaction purposes as well. This in turn, has led to even more solutions coming to market, a continuous stream of investments in tomorrow’s leaders and new investment vehicles from leading financial institutions.

Let’s face it: global adoption has already taken place but in the grand scheme of things, we are still in the early innings of what I believe will be the biggest “innovation boom” since the Internet. And that is because those in traditional finance see the massive potential for value creation and no longer are sitting idly on the sidelines. This is the single most important factor when I think about institutional adoption and why there is still so much runway ahead of us. It all starts and ends with innovation and education.

Digital assets and companies touching this ecosystem were born through entrepreneurism and innovation. There was no regulation when this all began, but people knew it was coming. It was a new category with many risks and unknowns – but there was money to be made – and those with knowledge and resources (or access to), always figure out ways to capitalise on trends and monetise their investments. As government scrutiny heightened, education became paramount to the future. Competitors collaborated. Market peers aligned. Different sectors came together to form associations and organisations that would spearhead efforts to help shape public opinion and policies in the best interests of society (that can be debated at a later date). Whether regulated or not, decentralised or centralised, digital assets and the blockchain are here to stay.

And now, as regulations have been put in place across the globe, with more countries in the process of developing or instituting new policies and reforms, there is more trust in the system. This trust was created through education and by finding new ways to ensure compliance, security, custody and liquidity. Investments always have risk. But knowing capital is secure is the #1 driver for what I believe will be mass-scale institutional adoption in the years to come.

In the most recent Blockworks Crypto Pulse Survey consisting of 28,000 respondents across 23 countries, and a mix of both institutional investment strategy decision-makers and retail investors, it was found that 80% of institutions are bullish on crypto’s future and believe that crypto will overtake traditional currencies within the next 10 years. This was not surprising to me, but probably to many reading it when you think about the pace of change over centuries! The survey was all about trust – can investors trust the investment, the infrastructure supporting it, and the currency as a viable entity? The Survey is definitely worth the read.

A few thoughts on barriers and opportunities as we look forward:

  • Regulation is needed for further institutional adoption and trust hinges on regulation.
  • Whether DeFi or CeFi, regulation will play a role and bridge the gap between traditional finance and this new digital asset ecosystem.
  • Credit provisions, credit risks, settlements and custodians – oversight is upon us and as rules become clearer, most if not all financial institutions will participate.
  • Crypto is an asset class and it’s here to stay. Once banks fully understand provisioning and determining the impact to their balance sheets, look out.

When customers want solutions, you have no choice but to embrace change and that is what is happening today. Digital assets and blockchain technology from this perspective are no different than any industry and new economies have been formed – based on supply and demand. If your customers want something, you have a choice – figure out the best way to service their needs, or someone else will. Consumers are embracing digital assets. Companies are allowing digital assets to be a form of payment. Banks are now lending based on crypto collateral. New funds and financial instruments are emerging and will continue to do so – but even faster than we have seen over the past few years.

Why? Education. Once there is a clear framework and everyone understands the rules of engagement, there will be nothing in the way of global adoption and no reason for institutions to hold back. They simply have to respond to customer demand and customers want cryptocurrency products – ones they can trust.

In closing and coming back to my initial thoughts at Paris Blockchain: financial banks, hedge funds, mutual funds and traditional institutions will be driving market adoption at a pace and scale that we have not seen before. And companies and the world better get ready! No longer are they wary of unregulated markets, these new technologies and asset classes, and the uncertainty they posed. They are beginning to embrace the digital asset revolution.

Which brings me to my message for industry: Do not lose the entrepreneurism and innovation that drove your success. That is what drove your success and that of our industry.  No matter what regulation or change may come, maintain your sense of innovation!

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Carole Laizet

Senior marketing manager with 15+ years of experience in the Financial Industry (traditional Banking as well as Crypto Assets). Responsible for market research