Why Institutional Investors Are Already Preparing for the Next Bull Run

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Digital asset prices have been falling steadily since last November, with the combined market capitalization taking an over 60% hit by December 16, 2022.

In the meantime, Terra’s collapse, the bankruptcy of prominent CeFi providers like Celsius and Voyager, as well as the high-profile FTX scandal aggravated the negative impacts of the ongoing bear market.

Considering the above, the crypto industry’s short-to-mid-term outlook is definitely not looking ideal. That said, it seems institutional investors are refusing to sell their cryptocurrency holdings and even increasing their digital assets portfolio.

A Coinbase-sponsored survey published in November revealed that 62% of institutional investors in digital assets had grown their allocations in the past 12 months. Interestingly, only 12% decreased their investment in cryptocurrencies, with 58% of the respondents expressing their intentions to purchase more coins in the next three years.

The above data serves as evidence that institutions continue to see potential in crypto. But why are they so eager to accumulate cryptocurrencies amid the current bear market?

Institutional investors already see the big picture

While the crypto market moves in sync with the rest of the economy, its movement is more significant than others. Economic data that can impact commodities or stock prices by a couple of percentage points can move crypto markets by three or four times that.

And for many institutional investors, crypto’s volatility is a money-making opportunity, regardless of its direction.

This immediate earning opportunity must be coupled with crypto’s shorter window of bull and bear runs which themselves are closely aligned to Bitcoin halving. Compared to the highs of November 2021, Bitcoin lost roughly two-thirds of its value in a general downward market – yet only took a 15% hit since the collapse of Terra.

The next bitcoin halving is set for May 2024, when Bitcoin miners receive exactly 50% of the current mining rate.

This four-year event is built into market prices, and those that hold crypto today know that historically, about nine months before the halving, crypto prices will start to move upwards quite rapidly – perhaps by as much as 300% – and then after the halving by the same again if not more.

If Bitcoin and the crypto market follow the same historical trends as in the last 13 years, it is not unreasonable to expect BTC to hit $150,000 by the end of 2025.

Since this would mean a nearly 800% ROI for investors buying Bitcoin at the current price of $17,000, the upside for institutional players to get into crypto is massive. Simultaneously, the time horizon to realize these gains are not far away.

2022’s black swan events were not regulators’ fault

When we discuss institutional players, it is always important to mention regulation in the same context –especially considering that four in 10 professional investors in the Coinbase-sponsored survey cited regulatory clarity as the top catalyst for asset class growth in the future.

I believe the overall quality of a regulatory framework, as well as the complexity of complying with its rules, attract different types of actors. FTX’s collapse serves as an excellent example.

At first glance, FTX’s international entity and the United States-based FTX USA were the same company.

However, the latter was operated by professional managers, had regulatory experts on the board and needed to follow much stricter rules than its Bahama-based sister firm. Also, its platform only supported a handful of cryptocurrencies without a proprietary token. It was properly regulated from doing bad things.

So rather than be a relatively small exchange and fight with regulation, FTX established itself in a country with much weaker regulation and a less scary criminal regime and then did – from what we are now hearing – almost anything it wanted.

This is clearly a case of not just a badly run company but a criminally run company – and that can happen in any market, but we must look at the role that regulation played.

The USA is so tough that crypto companies are reluctant to go there to set up businesses, therefore choosing to move to weaker markets, with the consequences clear for all to see. We need a middle ground, one where companies can be both compliant with best practices and one which also permits those same companies to grow. If we don’t, there will be more FTXs to come.

Stablecoins will fuel the next bull run

Crypto will reach a new stage in adoption with each market cycle. I believe the next bull run will be driven by the wider adoption of stablecoins.

While the latter assets represent more than $130 billion of the total cryptocurrency market capitalization, their share will only get bigger by the end of the bear market.

Once their size reaches the ballpark figure of $1 trillion, it should start attracting the attention of major banks that have all the tools and proven instruments to launch their own stablecoins.

In turn, the mass adoption of stablecoins will positively change retail and institutional investors’ attitudes toward cryptocurrencies.

If HSBC, for example, issues its own digital asset, then it will become legitimized, and people will start to treat crypto as a real asset class in its own right that should no longer be viewed with skepticism.

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Austin Kimm is the director of strategy and investments at the crypto firm Choise.com. He is an experienced British CEO and C-level fintech business leader, having set up companies with a combined valuation of over $500 million. At Choise.com, he is responsible for handling investor relations, major partnerships and company fundraising operations.

 

Featured Image: Shutterstock/Tithi Luadthong

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