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Digital asset prices have been falling steadily since last November, with the combined market cap increasing hit over 60% until December 16, 2022.
Meanwhile, the collapse of Terra, the bankruptcy of prominent CeFi providers like Celsius and Voyager, and the high-profile FTX scandal compounded the negative impact of the ongoing bear market.
With that in mind, the near to mid-term outlook for the crypto industry definitely doesn’t look ideal. However, institutional investors seem reluctant to sell their cryptocurrency holdings and even expand their portfolio of digital assets.
A Coinbase-sponsored poll released in November uncovered that 62% of institutional investors in digital assets had increased their allocations over the past 12 months. Interestingly, only 12% reduced their investments in cryptocurrencies, with 58% of respondents expressing intentions to buy more coins in the next three years.
The above data serves as evidence that institutions continue to see potential in crypto. But why are they so eager to accumulate cryptocurrencies amid the current bear market?
Institutional investors are already seeing the big picture
While the crypto market moves in sync with the rest of the economy, its movement is more significant than others. Economic data that can sway commodity or stock prices by a few percentage points can move crypto markets three or four times.
And for many institutional investors, crypto’s volatility is an opportunity to make money, regardless of direction.
This immediate earning opportunity needs to be coupled with the shorter window of crypto’s bull and bear runs, which are themselves closely aligned with Bitcoin’s halving. Compared to the November 2021 highs, Bitcoin fell roughly two-thirds its value in a general down market but only lasted one 15% hit since the collapse of Terra.
The next bitcoin halving is scheduled for May 2024 when bitcoin miners receive exactly 50% of the current mining rate.
This four-year event is built into market prices, and those who hold crypto today know that historically, around nine months before the halving, crypto prices will start moving quite higher fast maybe by up to 300% and then again after the halving, if not more.
If Bitcoin and the crypto market follow the same historical trends as they have over the past 13 years, it is not unreasonable to expect BTC to hit $150,000 by the end of 2025.
Since this would mean an almost 800% ROI for investors buying Bitcoin at the current price of $17,000, the upside for institutional players in getting into crypto is huge. At the same time, the time horizon for realizing these gains is not far off.
The Black Swan events of 2022 were not the fault of regulators
When we talk about institutional actors, it is always important to mention regulation in the same contextespecially considering that four out of 10 professional investors in the Coinbase-sponsored survey cited regulatory clarity as the top catalyst for the asset class’s growth going forward.
I believe that the overall quality of a regulatory framework, as well as the complexity of complying with its rules, attracts different types of actors. The collapse of FTX serves as a prime example.
At first glance, FTX’s international unit and US-based FTX USA were the same company.
However, the latter was run by professional managers, had regulatory experts on its board and had to follow much stricter rules than its Bahamas-based sister company. Also, its platform only supported a handful of cryptocurrencies without a proprietary token. It was properly prevented from doing bad things.
So instead of being a relatively small exchange and struggling with regulation, FTX established itself in a country with much weaker regulation and a less scary criminal regime and then did itfrom what we are hearing now almost anything it wanted.
This is clearly not just a badly run company, but a criminally run companyand that can happen in any market, but we have to look at the role that regulation has played.
The US is so tough that crypto companies are reluctant to go there to set up businesses, thus choosing to move to weaker markets with the consequences for all to see. We need a middle ground, one that allows businesses to both adhere to best practices and one that allows those same businesses to grow. If we don’t, more FTXs will follow.
Stablecoins will fuel the next bull run
Crypto will reach a new phase of adoption with each market cycle. I believe the next bull run will be fueled by broader adoption of stablecoins.
While the latter assets more than represent $130 billion of the total cryptocurrency market cap, its share will only increase by the end of the bear market.
Once its size reaches the $1 trillion order, it should attract the attention of large banks that have all the tools and proven tools to launch their own stablecoins.
The mass adoption of stablecoins, in turn, will positively change the attitude of retail and institutional investors towards cryptocurrencies.
For example, if HSBC launches its own digital asset, it will be legitimized and people will start treating crypto as a truly distinct asset class that should no longer be viewed with skepticism.
Austin Kimm is the director of strategy and investments at the crypto firm Choice.com. He is an experienced UK CEO and C-level fintech executive who has founded companies with an aggregate valuation in excess of US$500m. At Choise.com, he is responsible for managing the company’s investor relations, key partnerships and fundraisers.
Disclaimer: Opinions expressed on The Daily Hodl are not investment advice. Investors should do their due diligence before making any risky investments in bitcoin, cryptocurrency or digital assets. Please note that you transfer and trade at your own risk and any losses you incur are your responsibility. The Daily Hodl does not recommend the purchase or sale of cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
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