Regulatory clarity would provide an additional incentive
Cryptocurrency adoption continues to grow at an unprecedented rate as millions of people are able to earn, save, and grow their wealth in new ways.
According to Chainalysis, the global adoption of cryptocurrencies has increased by 880% in the last year. This figure may seem astounding, but it represents the ease with which traders and investors from Nigeria to the Philippines can quickly switch in and out of various cryptocurrencies and fiat currencies. A report from Galaxy Digital shows that venture capitalists have invested over $33 billion in crypto and blockchain startups - a milestone for the industry as the Web 3 movement continues to gain momentum.
Cryptocurrencies aren't only being used by retail investors. Institutional investors are also invested in cryptocurrencies in search of high-growth investment opportunities for their clients. Yields on 10-year U.S. Treasury bonds, for example, have yielded a meager 1% in recent years.
Funds and publicly traded companies are beginning to invest in digital assets such as bitcoin and ether, as both offer higher returns than traditional safe investments such as government bonds, even considering the volatility inherent in crypto markets. Dollar stablecoins have also become an attractive investment option, earning investors returns between 2% and 12%. Some of the next generation decentralized financial and metaverse tokens represent a new frontier that's already attracting significant interest from investors.
Even long-time skeptics in the banking industry have overcome their initial hesitation: Goldman Sachs revived its crypto trading division last year and JPMorgan continues to experiment with its own digital asset, the JPM Coin.
As clients continue to demand exposure to this new, high-growth asset class, more and more banks will offer their clients varying degrees of exposure to cryptocurrencies. Morgan Stanley, for example, already offers bitcoin exposure to its high net worth and asset management clients, while Goldman Sachs regularly publishes prices of key digital benchmark assets for its larger institutional clients. Bank of America has taken a particularly progressive approach to digital assets by offering crypto futures trading to select clients, calling the crypto industry's $2 billion total market capitalization "too big to ignore."
The changing attitude of major financial players, coupled with the launch of several Bitcoin exchange-traded funds and the continued growth of institutional funds like Grayscale, indicates that a new financial era is dawning.
The key for the entire industry now is to continue this growth in 2022 and beyond.
Decentralized finance continues to generate significant interest in the institutional landscape, while areas such as the Metaverse and non-fungible tokens have undoubtedly entered the mainstream, in turn triggering new participation in the crypto ecosystem.
Experts continue to stress that the biggest hurdle preventing more companies and institutions from becoming more involved in the crypto arena is regulatory clarity. Fortunately, a broader, comprehensive regulatory framework is quickly emerging in countries with large crypto markets - the United States, the European Union and the United Arab Emirates.
Any new regulations should aim to make participation in the crypto world as inclusive and accessible as possible, protecting traders, investors, and funds from fraud while encouraging and supporting innovation.
Greater momentum in cryptocurrency regulation and legislation will ultimately amplify change and potentially spur new innovation in the field. An open, progressive approach to technological innovation could provide a rising tide that drives participants across the industry.
The institutionalization of the crypto industry is at a critical inflection point in terms of growth. Clear regulation and greater interaction between traditional finance and the crypto ecosystem could create significant opportunities for growth and innovation.
Stephen Stonberg is chief executive officer of Bittrex Global.