Institutional Interest in Cryptocurrency Is Rising, and It Is Not Surprising
The multi-week rally in cryptocurrencies has not gone unnoticed by the world’s major financial institutions. According to a recent survey conducted by Thompson Reuters, one in five traditional financiers is considering cryptocurrency trading as early as this year.
A Compelling Study
In a survey of more than 400 financial firms, researchers at Thompson Reuters concluded that institutional trading of cryptocurrencies could rise substantially this year. Among those that indicated a willingness to trade digital assets, 70% are planning to do so in the next three-to-six months. An additional 22% is planning to enter the market between six and 12 months from now.
The survey provides actual figures on a phenomenon we’ve observed since the cryptocurrency market bull rally began – namely, that banks are closely examining client interest in the digital asset class to determine an appropriate entry point. Some are farther along than others, such as hedge funds already trading cryptos and Goldman Sachs, which is already building its digital asset division.
Interest is likely to rise further as cryptocurrencies appreciate in value. The market peaked at $437.4 billion on Tuesday, a gain of nearly $190 billion from the Apr. 6 swing low. At current levels, the cryptocurrency market is at roughly half of its all-time high.
Changing the Conversation
The results of the survey also challenge the underlying assumption that banks are only interested in blockchain and not the currencies that run on them. While this may have been true 12 months ago, cryptocurrencies have emerged as a viable asset class that provide alternatives to the current system.
However, opponents of cryptocurrency still get hung up on arguments over the intrinsic value of digital assets. They often invoke rhetorical questions like what’s bitcoin actually worth? Of course, the same question can be directed at fiat currency, whose authority rests with the state but whose value depreciates almost yearly due to inflation.
That’s the conclusion researchers at the Federal Reserve Bank of St. Louis reached three months ago in a primer on cryptocurrencies. In addition to arguing that bitcoin “could over time assume a similar role as gold,” researchers Aleksander Berentsen and Fabian Schar reminded readers that “state monopoly currencies, such as the U.S. dollar, the euro, and the Swiss franc, have no intrinsic value either.”
While bitcoin’s short history has been filled with wild swings, the history of “state monopoly currencies” isn’t much different when taken as a whole. (An extreme yet true example: Zimbabwe’s national currency got inflated out of existence a few years ago.) As we’ve seen repeatedly throughout history, states can’t always convince the public that their currency is worth more than the paper or cotton it is printed on.
“This is why decentralized cryptocurrencies are a welcome addition to the existing currency system,” the researchers said.
The findings of the Reuters survey may not amount to much in the grand scheme of things, but in the meantime do provide a new starting point for how we debate institutional interest in cryptocurrency.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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