What’s shaping the future of the institutional crypto market?

What’s shaping the future of the institutional crypto market?

2021 was a significant year for cryptocurrency. El Salvador was the first country to accept Bitcoin (BTC), as a legal tender. The price of Bitcoin reached an all-time high in November 2021, just shy of the psychologically significant $70,000 mark. Industry influencers such as Elon Musk have been sharing their excitement about cryptocurrency throughout the process.

As digital currencies grow to 1 billion users, I expect 2022 to continue to be a big year for digital currency. These are the five major trends I see for the coming year.

Institutional trading volume will grow

2022 will see institutional and retail cryptocurrency adoption continue to rise. PayPal, Square and Robinhood are two of the most prominent fintech companies. They have made it much easier to trade, buy and sell crypto. Public companies such as MicroStrategy and Tesla, Galaxy, and Square added substantial amounts of Bitcoin to their financial statements in 2021.

What is driving this growth? Apart from the general upward momentum, there are two indicators that the institutional crypto market is maturing: market cap as well as infrastructure.

The total cryptocurrency market cap was $5 billion in 2015. It has risen to over $2 trillion as of December 2021. Bitcoin’s market capital was $3.6 Billion on January 4, 2015. Its current market cap is $900 Billion. Even Ether (ETH), the second most popular crypto, has a market cap of around $400 billion. This is comparable to Visa and JP Morgan Chase.

Even five years ago, crypto’s core infrastructure was not as well developed. Institutions struggled to understand how to trade, clear, settle, and custody crypto transactions in a compliant and reliable way. There were no true prime brokers in crypto. The infrastructure has improved and institutions are more familiar with crypto. Institutional trading is expected to continue growing.

Despite this, spot crypto trading volume is still very fragmented, particularly Bitcoin.

The growth of the crypto derivatives industry will be accelerated by institutional adoption. There will be more regulation, which will also be positive as long as it includes public discourse and is tailored to industry products that allow for innovation and adoption while also meeting the regulatory needs.

Related: What can the crypto industry expect of regulators in 2022 Experts answer Part 1 and 2

Janet Yellen, Treasury Secretary, urged regulators in July 2021 to quickly create a regulatory framework to regulate stablecoins. Gary Gensler, Chairman of the U.S Securities and Exchange Commission (SEC), has called for regulation in this area and indicated that it is on the SEC’s agenda.

Market will see more institutional service providers and tools

Institutions still need the right tools and services. Startups are rushing to offer support services such as crypto asset storage and management, investment products and security, and mining hardware, software, and payment infrastructure.

By August 2021, multiple companies, including Blockchain.com and Fireblocks, Ledger, Paxos, had raised funding rounds in excess of $300 million. This trend will continue as more companies enter the crypto market to make it easier than ever. This will allow small- and medium-sized funds to gain access to new markets.

Ltcoins will be more popular

Altcoins will continue to grow in popularity next year as more people learn about their many uses. DApp development and a strong ecosystem are the driving forces behind Ether (ETH). Due to Ethereum’s scalability problems and high gas fees it has been challenged by blockchain startups like Solana, Cardano, and Avalanche. Investors see enormous growth opportunities while traders see volatility, cross-pair arbitrage and opportunities for cross-pair arbitrage.

Altcoins are expected to become more popular as crypto investors look for ways to diversify their portfolios. According to a report by Nasdaq, more than 100 altcoins were valued at over $1 billion as of October 2021. This “implies” that altcoins will become more popular as investors seek ways to diversify their crypto portfolios. However, many altcoins such Solana or Polkadot continue to be the top cryptocurrencies with the greatest potential to grow into the next big thing.

Related: Why did altcoin lose its relevancy?

Volume will shift from Bitcoin to Ether, and it is already starting to shift. Grayscale Investments is a digital currency asset manager that recently added a trust on Solana to its portfolio.

Grayscale CEO Michael Sonnenshein stated that they have been privy to crypto’s mainstream acceptance and adoption. He also added:

“Our Grayscale product line will expand along with this exciting asset class. We remain committed to providing investors access to the digital economy.”

Institutions will soon have Regulated DeFi

The 2022 year will be a significant year for decentralized finance. This is the new ecosystem of financial apps that uses blockchain technology. In 2021, the total value locked (TVL), in DeFi increased significantly.

Because of the inaccessibility of DeFi counterparties, institutions have been unable to participate in DeFi transactions. It doesn’t matter if an institution is looking to trade on a DEX or liquidity provider (LP), compliance and regulatory clarity are essential. Aave Arc, a permissioned DeFi platform was launched by Aave.

Most DEXs don’t require LPs to undergo compliance checks like Anti-Money Laundering and Know Your Customer. In 2022, I anticipate that DeFi growth will accelerate. There will be two challenges: lack of regulatory clarity, and lack of compliance checks for counterparties.

Similar: DeFi year to ten: Is mass adoption possible? Experts respond, Part 1Part2Part 3

As the SEC and other regulatory agencies provide new guidance, more regulatory clarity will likely emerge. Institutions will also see the rise of new DeFi platforms. These platforms will require traders and LPs to meet compliance requirements and will provide enough liquidity for institutions.

More institutions will be able to enter the DeFi market if they have more information and the right platforms.

Security solutions will be more common

Hacks are a long-standing part of crypto’s history. Bitcoin exchange Mt. Gox filed for bankruptcy in 2014 after hackers stole millions of dollars. Four years later, Coincheck was hacked by hackers. Hackers stole $600 million from Poly Network, a DeFi platform. MonoX Finance, another DeFi platform lost $31 Million even more.

Related: Report on Crypto Exchange Hacks: 2011-2020

Crypto exchanges are now making moves to protect their assets and are more inclined to work with qualified custodians in order to manage custody risk. To enhance multi-party computing capabilities, Coinbase purchased Unbound Security, a cryptographic security company. Curv, another provider of digital asset security, was also acquired by PayPal. Similar deals are expected to be made in 2022.

The crypto market is fast moving with many twists. One thing is certain: 2022 will see continued growth.

This article is not intended to provide investment advice. Every trade and investment involves risk. Readers should do their research before making any decision.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Christophe Michot, Apifiny’s director of business development, is a digital asset trading platform for institutions that offers a global network for international assets. Michot is a former senior manager at Kraken, Apple and Google. Michot has over 20 years experience in the tech sector, with 10 years dedicated specifically to Bitcoin and cryptocurrency.

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