Thought Piece – Crypto Trends in the Next 12 Months – Part I – Institutional Adoption

Arabian Bourse foresees an acceleration of a trend that has begun to emerge in the last 12 months, which is institutional investor adoption of Crypto assets. Since the beginning of the year, we have seen a recognition among leading institutional investment firms, particularly those in the US, that Crypto is a bonafide & necessary asset class for them to participate in.

Some of the catalysts for this was Bitcoin becoming a $trillion dollar market cap asset in Q2 2021, thus becoming sufficiently scaled & de-risked for them to begin participating. During this same period, we also saw several corporates adopting Bitcoin as a treasury asset, with MicroStrategy being a trailblazer in this regard by raising debt to buy Bitcoin, as well as Tesla & Square acquiring the asset.

In an increasingly inflationary monetary environment awash with liquidy due to the ongoing quantitative easing programmes being executed by leading global central banks, we expect further institutional adoption of Crypto as firms attempt to capture the outsized returns available in this asset class.

The total market cap of Gold is around $12 trillion, roughly 12x Bitcoin. Given the fundamental advantages that Bitcoin holds over Gold, such as:

  • Impossible to counterfeit
  • Can be stored discreetly
  • 24/7 liquidity, in any geographic locations
  • Finite supply, creating a deflationary profile
  • Is not majority controlled by a central power such as a Central Bank or Government

Given the above, it is not unreasonable to expect Bitcoin to increase in value to match & eventually overtake Gold in terms of Market Cap. Given the profile that Gold holds in the portfolios of institutional investors as a store of value & inflation hedge, it is expected that many institutional investors will begin rotating out of Gold into Bitcoin.

Furthermore, the global stock of negatively yielding bonds is approximately $13trillion, it is not unreasonable to expect some holders of these assets (notably pension & insurance funds) to rotate into Bitcoin.

All of the above points to increased institutional adoption of Bitcoin over the next 12 months.

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