Crypto has come a long way since its inception more than a decade ago. Initially, it was viewed as something akin to the Wild West, with little to no oversight or institutional interest. However, over the past few years, that perception has slowly started to change.
According to Harry Han, the head of digital assets at Cantor Fitzgerald, institutional interest in crypto is now “maturing.” What does that mean, exactly? And what implications does it hold for the future of the space?
To understand where we are and where we’re headed, it’s helpful to take a look back at the evolution of institutional interest in crypto thus far.
In the early days, the vast majority of crypto investors were either hobbyists or retail traders. Some venture capital firms dabbled in the space, but for the most part, institutional investors stayed away, either due to lack of understanding, concerns about regulatory clarity, or other factors.
However, as the crypto market grew, so did its appeal to institutional investors. In 2017, we began to see the first signs of this shift, as funds like Grayscale started offering clients exposure to crypto assets like bitcoin through investment trusts. While these products were still relatively niche, they gave institutional investors a way to dip their toes into the crypto water without having to fully engage with the complexities of the market.
Fast forward to today, and it’s clear that institutional interest has continued to grow. Firms like Fidelity, Coinbase, and Bakkt have all made major plays in the crypto space, either through investing in or acquiring startups, launching new products, or otherwise expanding their presence in the industry.
Additionally, we’ve begun to see more traditional financial companies like Goldman Sachs and JPMorgan explore the possibility of offering crypto services to their clients. While these firms have been slow to fully embrace the crypto revolution, their interest is nonetheless a sign that the market is starting to gain greater credibility and institutional recognition.
So, what does all of this mean for the future of crypto? In Han’s view, the fact that institutional interest is “maturing” is a sign that the market is starting to move out of its infancy and into a more established phase.
As he notes, “We’re seeing more traditional funds like pension funds, endowments, and family offices explore investments in digital assets. They’re looking for broader diversification and a long-term store of value. And we’re seeing more platforms emerge that cater specifically to institutional investors, with features like trade execution, liquidity management, and custody services.”
In other words, the institutionalization of the crypto market is well underway. What started as a niche interest for a few early adopters has now become an increasingly mainstream area of investment, with more and more institutional players getting in on the action.
Of course, this evolution hasn’t been without its challenges. Regulatory clarity continues to be a major issue for the crypto space, and some investors remain wary of the volatility and uncertainty that can come with investing in largely untested assets.
However, as more institutions enter the space and demand greater clarity and stability, it’s likely that regulators will be forced to take a more active role. Similarly, as more institutional players get involved, it’s possible that the market will become more stable and less prone to wild price swings.
Overall, then, Han’s assessment that institutional interest in crypto is “maturing” is an encouraging sign for the industry. While there are certainly challenges ahead, the fact that more and more institutional players are getting involved bodes well for the future of the space. As the market continues to evolve and institutionalize, we can expect to see new opportunities and developments emerge, as well as greater stability and more mainstream acceptance of what was once seen as a fringe interest.
Despite the recent dip in popularity for crypto among institutional investors, there is growing interest in the sector, according to Elliot Han, who leads Cantor Fitzgerald’s investment banking division for digital assets, blockchain, and crypto. While many investors got into cryptos in 2021 in hopes of high returns, the focus has now shifted toward exploring just how crypto and blockchain tech can be used. At a recent conference, Han said the buzz around this new space was causing significant excitement, with companies exploring various angles and potential use cases.
Many conference attendees were most focused on the ability to “tokenize” assets, like gold, on a blockchain. This feature can help institutions to better inform clients about their investments via improved data and information delivery. Indeed, this use case is one of the most significant emerging topics for this space.
This shift in attitude toward the crypto sector is a significant move from when people hoarded cryptos without regard for potential use. “Back then it was more of a frenzy,” Han noted, adding that people were not looking at cryptos from a use case perspective, but rather solely as a way to profit.
This is not the first time the institutional world has shown interest in blockchain technology while turning away from bitcoin and crypto use cases. Back in 2015 and 2016, almost every U.S. bank went through a test-and-learn phase for blockchain tech, though this was on private blockchains, not on public ones like the Bitcoin network. These early efforts focused more on how to deploy the technology within private banking systems.
Today, “we’re seeing a lot more maturity,” Han said, citing an increase in regulatory stability and more institutional players entering the space. Nonetheless, Han stressed that this is only a gradual move forward. Most large banks that started investing in the space seven years ago are still in the market, and family offices and small venture capital funds are also entering the market.
However, investment in cryptocurrencies themselves has not gone away. Han acknowledges that there is still a need for some sort of allocation to these assets, but investors should not “bet the farm” on them. There continues to be a high level of volatility and regulatory action surrounding cryptocurrencies, which reinforces the need for institutional investors to be cautious.
Despite this caution, it is safe to say that many forward-thinking individuals remain involved in the crypto space. They are keen to explore this new tech and identify its potential use cases. Ultimately, Han suspects that this new interest and exploration will only continue to evolve with time.
