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Maybe This Time? Key Signals That the Institutions Really Are Coming to Crypto

source-logo  financemagnates.com 20 November 2023 14:45, UTC

During the peak of the last crypto bull run, as BTC was, in 2021, approaching its $69,000 all-time high, there was, along with plenty of liquidity, and animal spirits running rampant, a prominent driver for the bullish narrative: the belief that the institutions were coming to crypto.

This referred to institutional demand for and adoption of Bitcoin and other protocols, but was it an accurate suggestion? In some ways, yes, the beginnings of institutional involvement were apparent. Most notably, MicroStrategy led the way with its ongoing purchases of BTC as a treasury asset, and Tesla partly joined in this endeavor, although not nearly to the same extent, and with some selling later, while as well as holding BTC, the carmaker very briefly accepted it as a payment option.

However, as 2022 brought with it the collapse of FTX and other crypto entities, and coin prices across the board went into freefall, that promise of institutional inroads began to look less certain, while confidence in the industry took ongoing hits.

A Year Is a Long Time in Crypto

As we near the end of 2023, the crypto landscape is looking very different from how it was one year ago, when FTX went under. FTX's Founder, Sam Bankman-Fried, has been found guilty on all counts so far relating to his criminal mismanagement of the exchange, the BTC price is up well over 100% from its 2022 lows, and, with the halving approaching next year, you can hear a familiarly optimistic claim echoing around the crypto landscape: the institutions are coming, again, and this time they really mean it.

As for whether or not this narrative is becoming a reality now, there have been several developments to suggest that these expectations have substance backing them up.

Are Spot Bitcoin ETFs Nearing Approval?

The major story that’s been catching attention and helping to drive prices higher recently, is that in the US, spot Bitcoin ETFs may be on the verge of approval from the SEC. What’s more, BlackRock, in addition to making moves towards a spot Bitcoin ETF, now also has a Nasdaq filing for a spot Ether ETF.

Notably, there was a moment of drama when news broke on X of a filing from BlackRock for an XRP ETF. This quickly turned out to be entirely false, but not before it had very briefly spiked the XRP price upwards.

When it comes to the spot BTC ETFs, there is debate as to the extent to which they will move price, and over what time period, but what is generally agreed upon is that, from a traditional finance point of view, they bring greater legitimacy to Bitcoin and, by extension, the rest of crypto.

Okay, we're nearing in on deadline dates for 3 spot #Bitcoin ETF applications. I want to get ahead of it because there's a pretty good chance we'll see delay orders from the SEC. Delays WOULD NOT change anything about our views & 90% odds for 19b-4 approval by Jan 10, 2024 pic.twitter.com/LE7sOlHAHM

— James Seyffart (@JSeyff) November 14, 2023

PayPal Restates Crypto Intent

Last week, PayPal, which launched its own stablecoin, PYUSD, earlier this year, published a post titled Pay How You Want, the content of which emphatically clarifies the payments giant's intent to enable crypto use.

The post begins by explaining that transactions are “an expression of our financial autonomy”, tells the historical story of the digital shift brought by internet technology and ecommerce, and details the three-decades long requirement for “fast, cheap, global payments”, before concluding that:

“Blockchain is the new financial rail — the new payment rail. Blockchain technology collapses how payments look and how they actually operate. Settlement times are near instant to both a customer and a business — at any time, anywhere in the world. This cannot be understated; blockchain technology is the only technology that offers a fundamentally new way of doing payments.”

FASB Crypto Accounting Changes

Earlier this year, MicroStrategy's Executive Chairman, Michael Saylor, suggested that three things are required for Bitcoin to dramatically take off: spot ETFs, banks that custody BTC and lend against BTC, and crypto-related changes to some of the rules at the Financial Accounting Standards Board (FASB).

As we've seen, those ETFs await approval, but new accounting rules are incoming, as the FASB in September announced that it will allow companies to use fair-value accounting on crypto assets, meaning balance sheets can accurately capture changes in crypto asset valuations. Up to now, gains in value have not been reflected on balance sheets, but the new rules have changed that, making holding crypto more viable for companies wishing to explore the asset class.

HSBC Token Custody Services

Over at HSBC, the bank is expanding its scope to offer further blockchain-based services to institutional clients, although it should be noted that this is in relation to tokenized versions of non-crypto assets.

The bank already offers custody of tokenized securities through its Orion platform and is now planning, in collaboration with digital asset specialist Metaco, to offer tokenized representations of physical gold and other traditional assets.

JP Morgan Coin Surges in Use

JP Morgan launched operations using its in-house JPM Coin back in 2020, and while this is a stablecoin run on a private blockchain for institutional clients, it's quietly proving the worth of round-the-clock blockchain solutions within traditional finance. In fact, in October, JP Morgan let it be known that daily transactions with JPM Coin now amount to over $1 billion.

This demonstrates a huge increase in use, as just a few months ago, in June, it was reported that there had been $300 million in JPM Coin transactions since it first launched. Part of the subsequent increase may be due to an expansion this year to enable transactions in euros as well as in US dollars.

CME Overtakes Binance for Bitcoin Futures OI

An indicator of mainstream interest in Bitcoin trading can be found in the data on BTC Futures Open Interest. This week, marketplace operator, CME Group, briefly took the largest share of the futures market, pushing Binance into second place. This is significant as CME is overwhelmingly a venue for traditional finance, while Binance is crypto-native.

Bitcoin Futures Open Interest
Bitcoin Futures Open Interest (from CoinGlass)

While Binance was, at the time of writing, back on top again, a trend towards the involvement of traditional finance is nonetheless apparent, and it’s one that only looks set to heighten in the coming year, as the institutions, this time, appear ready to make their presences felt.