Has institutional trust returned to crypto?


With the Bitcoin (BTC) halving less than a year away, several financial giants have filed applications for a spot Bitcoin exchange-traded fund (ETF) — a scenario last seen before the 2020 to 2021 bull run.

Institutional interest in the sector dried up after major crypto giants like FTX collapsed during a protracted crypto winter in 2022. Bitcoin and many other cryptocurrencies largely traded sideways as several crypto exchanges fell under regulatory scrutiny.

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

Bitcoin price chart for a month. Source: CoinMarketCap

While several institutional giants have filed mock Bitcoin ETF applications with the US Securities and Exchange Commission (SEC) in the past, all have withdrawn their applications or faced outright rejections from the regulator.

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

However, the filing of 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 Bloomberg senior ETF analyst Eric Balchunas, who gives BlackRock a 50% chance of getting its spot Bitcoin ETF approved.

The most recent wave of ETF filings began with BlackRock 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 for a spot Bitcoin ETF in June 2021, amended its filing to make it similar to BlackRock’s. The next day, asset manager Fidelity Investments also filed for a spot Bitcoin ETF. In total, seven institutional giants have applied for a spot Bitcoin ETF so far.

Some industry observers believe that 2023 to 2024 will be critical for the approval of a spot Bitcoin ETF. Robert Quartly-Janeiro, chief strategy officer of the cryptocurrency exchange Bitrue, told Cointelegraph that the timing is right as “inflation is rampant and money supply is a mixed picture, interest rates are high and companies are seeing decent earnings, which means crypto will have to perform in an economic environment where rates and inflation are key considerations.

Institutional trust in Bitcoin

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

Indeed, there are significantly more institutional investors in the crypto market compared to just a year ago. Until 2022, institutions kept a safe distance from the market, with even MicroStrategy stopping routine BTC purchases.

Many major funds and companies have become interested in cryptocurrencies and are exploring their options for investing in them.

Despite the market volatility, global institutions are showing a steady interest in cryptocurrencies. Bitfinex chief technology officer Paolo Ardoino told Cointelegraph that Bitcoin represents tremendous value in terms of its usefulness and uniqueness as a perfectly scarce asset that can never be debased. He said, “Most traditional financial institutions recognize that,” adding, “It is not surprising that at a time of record inflation in both major industrialized economies and emerging markets, the value of Bitcoin is better understood by markets.”

“The recent new applications for Bitcoin spot market ETFs by some of the world’s leading asset managers demonstrate that there is demand for Bitcoin from both investors and issuers, and it will only grow. Aside from demonstrating greater institutional demand for Bitcoin, it will also attract new private investors and encourage wider participation,” said Ardoino.

While many institutions have moved away from crypto over the past year, it was largely due to the PR disaster caused by FTX, with bank failures exacerbating it. Richard Gardner, CEO of Modulus, told Cointelegraph that institutions foresaw the simmering of the crypto industry and decided to lay low and sidestep the political and public backlash in the wake of FTX, thinking they could review their decision before crypto would skyrocket.

“We’ve gotten to the point where they’re starting to weigh the risk against the reward when they get back into the fray. Most institutions will probably be much more cautious given the FTX disaster. They will be largely moved based on the regulations. As governments cobble together an entire regulatory regime and bureaucrats decide how to interpret the law, institutions will gauge their response and move forward accordingly,” Gardner said.

MicroStrategy – the leading Bitcoin investor and one of the drivers of BTC institutional adoption in 2020 – has continued its Bitcoin buying spree in 2023. When the company suffered heavy losses as the BTC price dipped below $16,500, CEO Michael Saylor claimed 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 bull run optimism

While the 2017 bull run was fueled by retail interest, the 2020 to 2021 bull run was fueled by institutional inflows, with the likes of MicroStrategy and Tesla, and multiple other publicly traded companies adding Bitcoin to their balance sheets.

Gracy Chen, director of crypto exchange Bitget, told Cointelegraph that institutions would act quickly once they observe “stable and predictable retail interests.” Chen said, “The cumulative impact of institutions outweighs that of individual investors, which is why they will continue to be a driver of cryptocurrency market capitalization growth.”

She also stressed that the growing interest from institutions could drive crypto adoption, which could help spark the next bull run:

Analysts expect that if BlackRock’s ETF application is approved alone, Bitcoin’s price could double. Given BlackRock’s potential institutional investor base and influence, the approval of their spot BTC ETF would have a greater impact on the growth of the crypto market. With their BTC spot ETF application, they are likely to encourage competition between relevant financial companies. This will funnel more money from traditional markets to Web3.”

Aside 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 at crypto exchange MaskEX, told Cointelegraph that during the previous bull run “U.S. institutions were the main drivers of the uptick, but they were arguably not ready to go deep and behaved no differently than retail , essentially chasing profit and acting on hype.”

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“I expect this bull market to be driven by Asia again, perhaps with Hong Kong at the helm for the region, but based on my personal observations on the ground, I also expect significant impetus from the Middle East, particularly from the United Arab Emirates. Emirates, Saudi Arabia and other oil-rich jurisdictions,” he added.

With the next Bitcoin halving scheduled for April 2024, the rising interest from institutional investors is seen as a bullish sign for the price of Bitcoin and the broader crypto market. Bull runs have historically started leading up to the Bitcoin halving event, where the amount of BTC reward per block is reduced by half every four years. The scarcity factor is driving the price increase as retail traders and institutional giants scramble to add to their Bitcoin portfolios.

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