As mentioned in a report by Morgan Stanley, the number of institutional investors involved in trading cryptocurrencies are steeply rising, but the number of retail investors continue to remain the same. The report highlighted its “rapidly morphing thesis,” which defined Bitcoin as “ digital cash”. The investors placed complete faith in it as a resolution for all drawbacks in the financial system. They named Bitcoin as a new “ Institutional Investment Class”.
Several discoveries in the Bitcoin space have resulted in the thesis evolving over time. The report details about the DLT, number of hacks, hard forks, new technologies, and other issues.
The group’s most recent thesis labels Bitcoin as a “new institutional investment class,”. The amount of crypto assets under management has been increasing since January 2016, with $7.11 billion currently being stored by hedge funds, venture capital firms and private equity firms.
Owing to the fact that major financial institutions are increasingly lending support towards cryptocurrencies further supports this thesis. The report cites Fidelity’s new crypto services division, investments in Seed CX, BitGo and Binance, regulatory approvals and Coinbase’s recent fundraising round as substantial claims for their thesis. The report threw light on persisting problems faced by investors in the crypto space. These were the absence of regulations in the space, lack of custodian solutions and a steep shortage of established financial institutions in the space.
Viability of Stablecoin Trading
The report also explored the arena of stablecoins, which aim to enable price stability in the much volatile crypto space. As mentioned in the report, Bitcoin is “moving increasingly towards trading vs the stable coin USD-Tether (USDT) [sic],” the report states, referring to the controversial, dollar-linked token operated by Tether. Half of all current bitcoin trading is now against another digital asset, continuing a trend which began last year. The fact that many crypto exchanges do not accept fiat currencies contributed to this state of affairs,
They went on to explain, “USDT took an increasing share of BTC trading volumes as cryptocurrency prices started falling. This occurred because many exchanges only trade crypto->crypto and not crypto->fiat. Trading crypto->fiat requires going through the banking sector which charges a higher fee. Also as bitcoin prices fell, so did almost all other coins so if owners wanted to come out of bitcoin holdings, they needed to go to another asset which was closer to the valuation of the U.S. dollar.”
Crypto startups are now eagerly boarding the bandwagon with exchanges and other companies keen on developing their stablecoins. However, researchers predict only the survival of stablecoins with low transaction costs, high liquidity, and well defined regulatory structure.