The cryptocurrency market has proved to be highly volatile, demonstrating sharp ups and downs throughout its history.
This instability used to deter many companies and individuals from allocating funds to crypto.
However, when the leading digital assets Bitcoin and Ethereum broke through their historical heights in 2021, it attracted many more institutions to the space.
The price of Bitcoin has increased by over 540,000% between 2012 and 2022.
Companies from the traditional sector realized the profitability of investing in the cryptocurrency market.
On the other hand, they had great experience in funds management and risk assessment. Altogether, it contributed to the growth of crypto institutional trading.
How Companies Use Crypto
From 2020 to 2022, institutions poured billions into the crypto industry, particularly, in Bitcoin. There are some ways of how institutions invest in crypto:
- One common way is to buy and hold crypto. That is how MicroStrategy (158,400 Bitcoins) and Tesla (10,725 Bitcoins) did.
- Also, companies invest in crypto using ETF (exchange-traded funds).
- Come institutions use digital assets to hedge against inflation in traditional assets.
- Companies develop new products based on blockchain technology.
- Payment processors use crypto payments for cheaper and faster cross-border transactions.
To engage in crypto investments, institutions use an institutional crypto exchange.
Such platforms provide sufficient liquidity for large companies to trade efficiently and quickly.
Also, they offer market-making programs for financial companies that are willing to trade actively and provide liquidity.
Institutional exchanges allow for token exchange listing, brokerage services, and a variety of trading tools for investors.
An example is the Binance institutional cryptocurrency platform, Coinbase, or WhiteBIT.
Moreover, digital currency can deliver a new avenue to amp up a host of traditional Treasury activities like:
- Facilitating straightforward, real-time, and protected money transfers.
- Strengthen control over the capital.
- Risk management and opportunities in digital investments.
Thus, investing in crypto is typically a longer-term play.
Currently, the USA leads in Bitcoin trade volume at $1.5 billion.
According to the report by August 2023, 77% of American crypto owners hold Bitcoin. That is 1% lower than the global Bitcoin adoption rate – 37%.
Around $15 billion worth of crypto had been lost to exploits, hacks, and scams as of December 2020.
In Australia, 60% of crypto owners hold Bitcoin; in Mexico – 21%.
Interestingly, 50% of El Salvador’s population uses the crypto wallet launched by the government. At the same time, only 30% of them have accounts in banks.
In 2021, El Salvador became the first country to declare Bitcoin adoption officially on the state level.
Other countries that expressed plans to legalize Bitcoin include Ukraine, Cuba, Brazil, and Paraguay.
|Percentage of BTC owners
Table: Crypto owner’s percentage in different countries.
Nonetheless, Bitcoin makes up to 40% of the entire cryptocurrency market value.
Benefits of Institutional Crypto Adoption
One of the most commonly used cryptocurrencies operated by businesses is Ethereum. This digital currency is widely used in support of Web 3.0 applications.
Despite this, here are some of the benefits associated with the institutional crypto adoption:
Introduction to new liquidity and capital
Digital currencies have the potential to encourage businesses to raise new funds and boost financial liquidity.
With traditional banking, there were restrictions when borrowing fiat money.
But in this contemporary era where digital currencies are in demand, your company can also borrow them without having to worry about those restrictions.
It is a center of decentralized finance that is responsible for helping businesses with financial liquidity.
Transaction transparency and audibility
The foundation of Crypto is a blockchain technology that offers an unchangeable ledger. This is a tamperproof cryptographically assured record of transactions.
Nowadays, companies can monitor their audit transactions – thanks to the ledger’s high level of auditability.
According to the Morning Consult survey conducted in July 2023, 26% of millennials owned Bitcoin, compared to 14 percent of all U.S. adults.
What’s more? To facilitate exposure in determining if a transaction takes place, The ledger comes in and enables transparency for the same. Ultimately this potentially boots accountability as well.
In the contemporary age, there are still a few barriers that one might encounter.
Especially, when introducing their products and services globally since there are constraints related to handling fiat money payments.
While its value varies, the current value is consistent throughout the world.
It consequently, avoids the intricacies of currency translations and related transaction costs.
Therefore, it enables faster and more cost-effective transactions.
It’s still early to talk about the mass adoption of crypto assets on an institutional level.
However, since the world’s giants in technologies and finance have become early crypto adopters, this stimulated more institutions and companies to join this space.
It follows that we should expect further growth of institutional adoption of crypto in the coming years.