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When Solidus Labs was founded, a few years ago, the crypto and digital asset industry looked very different. Of all the many developments that brought our budding industry to where it is today, perhaps the most dramatic one has to do with the role of institutional investors in the space.
The prospect of meaningful institutional adoption has been hanging over the industry for a few years, yes. But for anyone involved in digital assets, 2020 was the year that institutional investments turned from an optimistic buzzword to a reality.
It's hard to overstate how fast institutional adoption of crypto is accelerating. Two years ago, any rare report indicating mild interest from traditional actors would have been huge news. Now similar news are daily and are backed by research, data, and real institutional money. As just a few examples, Microstrategy now holds 70,470 Bitcoin worth more than $1.1 billion, and it keeps on buying; Institutional-focused crypto funds like Grayscale reach numbers like $13.7 billion in AUM; 95% of university endowment funds report crypto allocations and 26% of pension funds plan to allocate within the next few years. BlackRock, JP Morgan, Goldman Sachs, Deutsche Bank, Morgan Stanley, Henyep Group, Square, MassMutual, Harvard and Yale are just a fraction of the growing list of traditional financial institutions and public institutions that jumped on the digital asset bandwagon just over the last few months.
One of the most extensive surveys, conducted by Fidelity among 800 of its institutional clients, indicate 80 percent of them want to invest in crypto, and 36% already have.
In addition to the huge potential gains demonstrated by Bitcoin’s bull run, this institutionalization is driven by regulatory clarity and is behind a general maturation of the market as digital asset firms race to attract institutional investors through better infrastructure like more effective risk monitoring. Notably, according to the same Fidelity study, 56% of interested institutional investors are held back by concerns about risk and market abuse. Another survey by AITE and eToro found that 60% of institutions look for institutional-grade risk monitoring and compliance when deciding what platform to use for their crypto investments.
At Solidus Labs, we are feeling the demand in the most tangible way possible—via our pipeline. Deal flow from the traditional finance segment has increased 10X during 2020.
Beyond news reports, research and our very own pipeline, another compelling way to understand institutional appetite is to examine the performance of institutional-oriented crypto products. In addition to Grayscale's GBTC, another example is CME Bitcoin futures, which have been traded the longest since December 2017. The chart above, provided by our partners CryptoCompare, demonstrates the growth trend over time. It also shows how institutional products like derivatives are becoming a significant portion of the crypto volume. This trend is expected to continue as more institutional products like ETFs provide institutions additional access.
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