During the last decade, numerous conventional companies ventured into the world of cryptocurrency. These are technology and software companies like MicroStrategy, funds such as Fidelity, Wall Street titans such as Morgan Stanley and Goldman Sachs, and many others.
Institutional crypto-providers offer cryptocurrency-related products and institutional services tailored to the needs of institutional clients, such as banks, hedge funds, family offices, and other large financial entities. Large and regulated crypto exchanges are designed to meet the requirements of institutions in terms of deep liquidity, safety, compliance, variety of tools, and connectivity through APIs. In addition, exchanges allow investors to participate in market making to trade and receive fee discounts and rebates, e.g. WhiteBIT market maker services.
While many institutions already utilize these earning opportunities, many still refrain from doing so. Unclear regulations and the high volatility of the crypto market deter them. This article will discuss what needs to be done to lower skepticism around crypto and boost its acceptance by institutions.
What Factors Will Drive Institutional Adoption of Cryptocurrency?
The institutional adoption of cryptocurrency is influenced by several critical factors, including:
- Effective nationwide regulation. Institutional investors in cryptocurrency require more precise and more effective regulations. It would provide a legal framework for institutions to engage with cryptocurrencies confidently. Encouraging institutional participation can be significantly boosted by implementing nationwide rules that strike a balance between innovation and investor protection. Such regulations can reduce uncertainty and establish a level playing field for all market participants.
- Expansion of intrinsic knowledge amongst regulators and institutions. As the understanding of cryptocurrencies and blockchain technology deepens among regulators and financial institutions, they are becoming more adept at navigating the market. It helps them make informed decisions and develop quality products and services related to crypto. It can lead to more comprehensive regulatory guidelines and institutional cryptocurrency adoption.
- Simple and low-risk products. The availability of simple, low-risk crypto investment products, such as ETFs (exchange-traded funds) and index funds, can attract institutions wary of the market’s volatility. These products provide a familiar and less risky entry point for institutions looking to invest in crypto without directly buying them.
- Clarity about the source of funds. Institutions require assurance that the assets they are dealing with are compliant with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. Clarity and transparency regarding the source of funds can reduce these concerns, making institutions more comfortable engaging with crypto assets.
Together, these factors can significantly accelerate institutional adoption of crypto, fostering a more mature, stable, and accessible market for all participants.