Cryptocurrency Adoption by Institutional Investors

By Jessica Larkin

The popularity and adoption of cryptocurrency is hard to ignore, especially with several institutional investors tossing their hat into the digital ring. Like anything new in financial services, change is hard and adoption is slow. But believe it or not, the cryptocurrency alternative asset class has been around since the inception of Bitcoin in 2009.

Until recently, major financial players and corporations have been skeptical about crypto; however, with more than 100 million users worldwide, the trend is hard to ignore and there is money to be made. It is estimated that the total market capitalization of cryptocurrencies is more than $1.6 trillion. Further, fintech companies such as PayPal and Square have enabled new users to join the Bitcoin economy and global infrastructure has expanded, making participation easier.

What is cryptocurrency?

Cryptocurrency, or “crypto”, is a digital currency that can be leveraged for goods and services. It uses online ledgers with cryptography to ensure secure online transactions. Blockchain, a decentralized technology spread across a multitude of computers, manages and records transactions. 

As noted by Money Crashers, “Bitcoin was the original cryptocurrency, and the first to be widely adopted. However, hundreds of cryptocurrencies exist, and more spring into being every month.” Non-Bitcoin cryptos are referred to as “altcoins”, or alternative coins, a differentiator from the original. 

Crypto is considered an alternative asset class and is not regulated by national governments. This lack of regulation has been one of the predominant hindrances to virtual currency being backed by the major financial institutions. 

Highlevel Pros and Cons of Crypto

The crypto alternative asset class is appealing due to its incredible data security thanks to the complex code systems developers have utilized. Blockchain acts as the public ledger of record, storing activity and transactions. 

Depending on the stakeholder, cryptocurrency’s political independence can be viewed as both a pro and a con. For instance, with traditional currency, a government has the ability to seize or freeze a bank account, which is not the case with crypto. Transversely, there are risks associated with digital currency, such as lack of liquidity and market volatility. The activity of cryptocurrency users drives the supply and value, under the principle of decentralized control. This lack of regulation has been one of the reasons major financial players have been slow to jump into the digital currency arena.

Institutional Investors Get Onboard

As crypto continues to mainstream, institutional investors are allocating capital into this arena at a record pace. In fact, it is estimated that at the close of 2020, there was $15 billion of institutional assets under management that had been dedicated to the cryptocurrency asset class. 

Earlier this year, JPMorgan Chase, the largest U.S. bank, announced that it was looking to issue debt linked to cryptocurrency-focused companies to avoid falling behind in digital finance. 

Echoing this sentiment, Goldman Sachs Group Inc. noted that they are seeing a substantial demand for digital assets from institutions as it works to restart its cryptocurrency trading desk. However, a Goldman representative highlighted, “ U.S. banks need to cope with regulations that bar them from trading physical cryptocurrencies.”

Slow adoption is a hallmark of the financial services industry, largely due to apprehension of the unknown. Marketplace lending, for example, is another alternative asset class that was incredibly slow to mainstream–today it’s commonplace to see news from SoFi or Upstart. If history is any indicator, we anticipate continued adoption by financial services, a domino effect if you will. 

Cryptocurrency Boom Driven by Institutional Investor Interest

As the demand for digital currency continues to rise, institutional investors have had no choice but to take notice. The prolific rise of Bitcoin, ether, and dogecoin can likely be attributed to several recent factors, such as easier access to crypto markets, more free time thanks to the pandemic, access to information via social media, and additional money from stimulus checks. 

For crypto to move from an alternative asset class to mainstream, adoption from investors must continue and ease of access needs to move forward. One thing is for certain, change is the only constant and we look forward to seeing the continued adoption of cryptocurrency as the market continues to progress.  

TravelBank’s Innovative Crypto Rewards Program 

Have you heard the news? TravelBank has announced the launch of its cryptocurrency rewards solution in collaboration with Brex. The first-of-its-kind initiative will deliver a unique reward redemption experience for companies already earning industry-leading multipliers through the Brex Rewards program. Rewards are the perfect entrypoint for companies to start experimenting with digital currencies such as Bitcoin and Ethereum, which have become more mainstream, and is a welcome evolution for a younger and more progressive workforce.

To learn more about Brex’s crypto rewards program, check out their press release and be sure to visit our Partners page to learn more about how we can partner together.

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