For the bitcoin price to rise from $50,000 to $250,000 in this current cycle, it must see more institutional adoption. Recall that institutional adoption is consists of fund managers adopting it, endowments and other larger entities, in addition to more firms like Tesla and Microstrategy owning bitcoin.
Indeed, more institutional adoption requires more infrastructure.
But firms have been working on institutional infrastructure for sometime now. firms like Galaxy Digital, Celsius, BlockFi, Bakkt, and others are genuinely working to further partnerships and get more large fund managers off of zero bitcoin holdings.
Crypto derivatives also keep on growing.
Here is why crypto futures and derivatives is another contributor to bitcoin growth.
Crypto Futures and Institutional Adoption
Recall that crypto futures trading enables more institutions to step into the cryptocurrency sector and make more bets without having significant risk if they understand how to structure it right. Now, this is very important for digital asset markets as it can enable them to rise to new heights. Derivatives such as crypto futures tools coupled with banking interest in offering custodial solutions for institutions, high net worth individuals, and others could lead to more adoption.
Private banking firms started to offer various cryptocurrency investment programs in 2017, and that has helped to boost further interest. For instance, Swiss bankers such as those at Falcon noted digital asset speculation operations, and digital vaults for bitcoin and ethereum, in addition to LTC.
A short while later, USCF provided permissions for LedgerX to deploy cryptocurrency contracts. Then, in 2017, the digital asset market was able to see further institutional infrastructure platforms with the respectable exchange, CME, a traditional markets broker, rolling out BTC futures. But they were not the only one’s. It is also true that CBOE did also launch bitcoin futures.
But this would only be the start of futures platforms. For instance, the Intercontinental Exchange (ICE), the group that owns the most legitimate stock entity in the world, would roll out Bakkt.
Bakkt is another crypto futures exchange, that serves a variety of parties from retail to institutions.
These various firms seek to bring in more interest, and leaders of these firms note that adding more institutional investment infrastructure certainly enables more opportunities within the digital assets sector.
It will not only bring in larger entities, but will also provide a novel standard in the emerging digital asset markets. Indeed, market infrastructure and regulatory certainty are necessary for more adoption by various investor classes.
But with more efforts and initiatives by household names in the traditional financial sector, global trust in digital assets will likely rise while increasing trade volumes.
It is essential to note that firms such as Microsoft and Starbucks, in addition to others, have either invested in Bakkt or have partnered with it for different initiatives.
Varying Investor Classes And Reasoning For Holding Bitcoin
But remember that there is a slew of investor classes. There are those that will speculate and those that will seek to invest over the long-term. That is why it is essential to note that entities such as Harvard, Stanford, Yale, and MIT have placed a portion of their funds in cryptocurrency fund managers. Further financial products have still yet to roll out, such as bitcoin exchange-traded funds, showing that there is potential for further growth over time. It also shows the level of regulation present in bitcoin, which is marginal compared to other asset classes.
Regulators and watchdogs can still argue in bitcoin’s early days that one could easily manipulate the bitcoin market and conduct fraud in a more straightforward fashion.
Further, one can see that Fidelity and the NASDAQ group have expressed their desire to participate in the crypto futures markets with their own segments at a point in time. As more entities invest in initiatives to allow institutions to purchase physical bitcoin or speculate with crypto futures, it becomes more difficult to push it aside and not have any allocation at all within a portfolio.
Especially in a world that has had perpetually low interest rates, with some central banks setting negative interest rates for bonds. The consensus is interest rates across the globe in key countries will stay low or even turn negative over time. But that is not the only component to look at when it comes to the value of cryptocurrency futures and their relevance in the modern era.
Inflation, Currency Debasement, and Decreased Trust in the System
One must also look at widespread currency debasement as a growing point of concern for many individuals and entities. As further dilution of currencies takes place, individuals must look at a broad segment of places to hold value in assets that will rise over time. That is why top-level value allocators and firms are in the process of looking at purchasing it for their respective balance sheets.
As such, fixed income fund managers will have to figure out how they will remain present within the industry and provide a valuable service that matters overall. Fixed income managers manage value for pensions and for large groups of people that depend on the right allocation for retirement.
So, many people are asking the question, if bonds will not yield the right value, then where should individuals look? Many are looking at the stock market and taking risks they would not have in the past. Others are looking at bitcoin as it seems that it will provide more upside for lower risk.
The main theme with bitcoin is that it can serve as digital gold. If it can serve as digital gold, then that means that it has the potential to surpass at least ten trillion in market cap. To be clear, ten trillion is the average market cap of gold. This (gold) is a market cap that has stayed relatively constant over time. That means that over time, bitcoin could overtake gold.
It is no surprise that one of the largest fund managers, BlackRock, amended the prospectus language, providing room for the option to invest in bitcoin futures if desired.
Now, it is true that we have talked about factors such as regulatory risks, and other market infrastructure. But there is another component that is essential to talk about with cryptocurrency futures in the larger picture. That aspect is merely volatility.
Bitcoin is quite volatile and can be over fifteen times as volatile as an average aggregate bond index over some time. But one deals with volatility by using futures.
As the infrastructure grows and traditional asset managers can see more value and minimize risk, it is likely that more will gain exposure to bitcoin for the reasons noted above.