Has institutional trust returned to crypto?

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With the Bitcoin (BTC) halving event less than a year away, several financial giants have filed applications for a spot Bitcoin exchange-traded fund (ETF), a scenario last seen ahead of the race. bullish from 2020 to 2021.

Institutional interest in the sector dried up after major crypto giants such as FTX collapsed amid an extended crypto winter in 2022. Bitcoin and many other cryptocurrencies traded largely sideways as several crypto exchanges have come under regulatory scrutiny.

However, on news that major financial institutions such as BlackRock, Fidelity, Valkyrie and others were filing applications to list a spot Bitcoin ETF, the price of BTC returned to over $30,000, again boosting investment on the crypto market.

One month bitcoin price chart. Source: CoinMarketCap

While several institutional giants have filed applications for Bitcoin ETFs with the United States Securities and Exchange Commission (SEC) in the past, all have either withdrawn their applications or been rejected outright by the regulator.

The SEC approved the first Bitcoin futures ETF in October 2021, the ProShares Bitcoin Strategy ETF, which debuted on the New York Stock Exchange on October 19, 2021.

However, the filing of the spot Bitcoin ETF by asset management giant BlackRock has increased the chances of the SEC approving the first spot Bitcoin ETF. That’s according to Eric Balchunas, senior ETF analyst at Bloomberg, who gives BlackRock a 50% chance of getting its Bitcoin ETF approved.

The latest wave of ETF filings began with BlackRocks filing with the SEC on June 16. WisdomTree, Invesco and Valkyrie also filed in the days and weeks that followed.

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On June 28, ARK Invest, which had previously filed a spot Bitcoin ETF in June 2021, amended its filing to make it similar to that of BlackRock. The next day, asset manager Fidelity Investments also applied for a spot Bitcoin ETF. A total of seven institutional giants have applied for a spot Bitcoin ETF so far.

Some industry observers believe that 2023 to 2024 will be crucial for the approval of a spot Bitcoin ETF. Robert Quartly-Janeiro, chief strategy officer of cryptocurrency exchange Bitrue, told Cointelegraph that now is the time, as inflation is rampant and the money supply is a mixed picture, interest rates are high and businesses are seeing decent revenue, which means crypto will need to perform in an economic environment where rates and inflation are key drivers.

Institutional Trust in Bitcoin

Bitcoin has weathered the 2022 aftermath remarkably well and recovered more than half of its price decline during the bear market, thanks in large part to continued interest in the asset from institutional investors.

Indeed, there are many more institutional investors in the crypto market than just a year ago. Until 2022, institutions kept their distance from the market, with even MicroStrategy stopping its routine BTC purchases.

Many large funds and companies have taken an interest in cryptocurrencies and are exploring their potential to invest in them.

Despite market volatility, global institutions show a steady interest in cryptocurrencies. Bitfinex CTO Paolo Ardoino told Cointelegraph that Bitcoin represents enormous value in terms of utility and unique nature as a perfectly rare asset that can never be degraded. He said: “The most traditional financial institutions recognize this, adding that it is hardly surprising that at a time of record inflation in both major industrialized economies, as well as in emerging markets, that the value of Bitcoin is better understood by the markets.

Recent new applications for Bitcoin spot market ETFs by some of the world’s leading asset managers demonstrate that there is demand from investors, as well as issuers, for Bitcoin, and it will only intensify. In addition to demonstrating increased institutional demand for Bitcoin, it will also attract new retail investors and encourage broader participation, Ardoino said.

While many institutions have moved away from crypto over the past year, much of this was due to the public relations disaster wrought by FTX, with bank failures further compounding it. Richard Gardner, CEO of Modulus, told Cointelegraph that institutions foresee the crypto industry simmering and decided to lay low and avoid political and public response in the wake of FTX, believing that they could reverse their decision before crypto explodes.

We were at the point where they were starting to weigh the risk versus the reward of getting back into the fray. Most institutions will likely be much more cautious, given the FTX disaster. They will be largely moved depending on the regulatory environment. As governments cobble together a comprehensive regulatory regime and bureaucrats decide how they plan to interpret the law, institutions will assess their response and move forward accordingly, Gardner said.

MicroStrategy, the leading Bitcoin investor and one of the drivers of institutional BTC adoption in 2020, continued its Bitcoin buying spree in 2023. When the company suffered significant losses as the price of BTC dipped below $16,500, CEO Michael Saylor maintained he had no intention of selling and would continue to add more BTC to his treasury. MicroStrategy currently holds 152,333 BTC acquired for approximately $4.52 billion at an average price of $29,668 per Bitcoin.

Institutional inflow revives bullish optimism

While the 2017 bull run was sparked by retail interest, the 2020-2021 bull run was sparked by institutional inflows, with companies like MicroStrategy and Tesla, and several other publicly traded companies adding Bitcoin to the mix. their balance sheet.

Gracy Chen, chief executive of crypto exchange Bitget, told Cointelegraph that institutions will act quickly once they see stable and predictable retail interest. Chen said, “The cumulative impact of institutions outweighs that of individual investors, and as a result, they will continue to be a driving force for the growth of cryptocurrency market capitalization.

She also pointed out that growing institutional interest could drive crypto adoption, helping to spark the next bull run:

Analysts expect that if the BlackRocks ETF app alone is approved, the Bitcoin price could double. Given BlackRock’s potential institutional investor base and influence, approval of their spot BTC ETF would have a greater impact on the growth of the crypto market. With their spot BTC ETF app, they are likely to inspire competition among the financial companies involved. This will direct more funds from traditional markets to Web3.

Apart from the institutional push, there have been major developments in the retail market, with Hong Kong opening the doors for crypto exchanges to offer services to retail clients. Ben Caselin, vice president of crypto exchange MaskEX, told Cointelegraph that in the previous bull run, US institutions were the main drivers of the upsurge, but they were arguably not ready to commit. deeply and behaved no differently than retail, essentially chasing gains and acting on the hype.

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I expect this bull market to be driven by Asia again, perhaps with Hong Kong leading the region, but based on my personal observations on the ground, I also expect that a significant push will come from the Middle East, especially the United States. The Arab Emirates, Saudi Arabia and other oil-rich jurisdictions, he added.

With the next Bitcoin halving scheduled for April 2024, growing interest from institutional investors is seen as a bullish sign for the price of Bitcoin and the broader crypto market. The bull runs historically started as the Bitcoin halving event approached, where the amount of BTC block reward is halved every four years. The scarcity factor is driving prices soaring as retail traders and institutional giants rush to add to their Bitcoin portfolios.

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