Today’s crypto industry is radically different from what it was even ten years ago. Unknown and deemed a “scam” in the past, today’s Bitcoin is making a splash in institutional investment circles. Even the deepest Bitcoin unbelievers (such as Grayscale and Visa) changed their minds and integrated crypto, striving to keep up with the times and technologies. Today, we will briefly discuss the factors driving institutional crypto adoption and challenges on the way.
Institutional Crypto Investors: Why Buy Crypto?
Bitcoin, also called “digital gold”, is the most popular crypto asset among institutions that invest in crypto. Such companies as MicroStrategy, Galaxy Digital, and Tesla are among the biggest BTC holders. For example, Galaxy Digital owns 8,100 BTC, MicroStrategy – 174,530 BTC, and Tesla – 10,725 BTC.
To buy BTC directly, a company may use an institutional trading platform (for example, Coinbase or WhiteBIT) or through hedge funds, ETFs, or asset management firms that introduce crypto-related products.
Why do companies buy BTC? Here are some reasons:
- Diversification. Bitcoin provides a way for tech companies and financial institutions to diversify their investment portfolios.
- Innovation and future potential. Companies often invest in Bitcoin as a form of innovation and to position themselves at the forefront of emerging technologies.
- Hedge against inflation. Bitcoin is viewed by some as a hedge against inflation. Its fixed supply (21 million coins) is seen as a safeguard against the devaluation of fiat currencies caused by inflationary pressures.
- Client demand. Tech companies, especially those in the fintech space, may integrate Bitcoin services in response to user interest to retain clients and stay ahead of competitors.
Challenges on the Way to Crypto Institutional Adoption
Since the crypto market is young and is not managed by any central body like a bank or institution, it is highly volatile. For investment firms, a big concern with Bitcoin is its price volatility. While Bitcoin has surged in value by over 10 million percent since 2008, it’s also experienced sudden drops of 50% in a single day. These unpredictable swings in price can hold investors back from getting involved with crypto.
Another big concern deterring investors from buying crypto is the unclear regulatory framework. However, regulatory bodies worldwide are actively elaborating policies to facilitate blockchain technology integration and protect investors from illegal activities. An example may be the Securities and Exchange Commission (SEC) in the USA, Markets in Crypto-Assets Regulation (MiCA) in the EU, etc.
Conclusion
Companies invest in Bitcoin for diversification, innovation, inflation hedging, and meeting client demands. However, challenges include Bitcoin’s price volatility and the unclear regulatory framework, deterring some investors. Despite obstacles, the crypto industry continues to attract institutional attention, reflecting a changing landscape and growing interest in digital assets.