Crypto Still in Limbo But Investors Stay Confident in 2023
Last April, Fidelity Investments customers got the news that they will have the feature to add the digital commodity to their retirement plans through a first-of-its-kind service. At the time, Bitcoin was trading about $38,000, below 45% of its highest value.
When the company's 401(k) plan came to light the following fall, the value of Bitcoin took a steep dive. Prices fall due to the deteriorating financial conditions and the $60 billion collapse of the digital currencies Luna and TerraUSD. Bitcoin saw another bad year as it fell down to $20,000 in November. Meanwhile, the once $32 billion-valued cryptocurrency exchange FTX got a massive hit on the jaw and reached Chapter 11 bankruptcy. It imposed a shadow over the industry as the fallout from its collapse spread like wildfire. The quick demise of the exchange would further undermine investor trust in digital assets, driving Bitcoin's price to $15,480, its lowest level in two years.
Several U.S. senators, notably Dick Durbin and Elizabeth Warren, encouraged Fidelity to review its support for Bitcoin. The reason was that the digital assets exposed retirement funds to unjustified risk. “Any investment strategy based on catching lightning in a bottle, or motivated by the fear of missing out, is doomed to fail,” they stated in a letter. “We are already in a retirement security crisis, and it should not be made worse”.
One of many major companies that stands tall till now is Fidelity. It still claims openly that digital assets have a lot of potential. Ironically, given that Bitcoin's aim is to eliminate financial brokers and enable people to control their own money, traditional banking titans are gradually adopting cryptocurrencies. Their entry could cause crypto to deviate from its fundamentals and weaken the characteristics that make the sector unique, like asset's self-custody and transaction clarity.
Big Companies are Moving into Web3
Big enterprises are entering the market because they have the expertise to provide products that customers would instantly trust, including BlackRock and Fidelity.
BlackRock, the biggest investment manager in the world with $8.6 trillion in assets under administration, and Coinbase signed a collaboration agreement last August. The partnership will allow Aladdin clients to own and exchange digital assets including Bitcoin.
Nasdaq Digital Assets, the cryptocurrency initiative, came to market in September. The platform believes that its new venture would enable a greater level of institutional involvement in digital assets. It will start by providing businesses with a secure way to store cryptocurrency.
We have also BNY Mellon, the oldest bank in America, holding Bitcoin and Ethereum for its customers. Bitcoin and Ethereum are the first and second largest cryptocurrencies by market value right now. BNY Mellon has $1.8 trillion in managed assets and $42.2 trillion in assets under administration as of September 30.
Moreover, we have Wall Street giants Fidelity, Charles Schwab, and Citadel Securities founded EDXM, a crypto exchange. The facility combines cutting-edge technology with best practices from conventional banking, including an emphasis on regulatory compliance and conflict-of-interest mitigation.
These institutions have made it clear to use digital assets as a substitute for stocks/bonds when making investments. The bulk of funds that made investments in cryptocurrencies last year aimed to diversify their portfolios more by using digital assets.
Crypto's Inclusion in Investment Portfolio is a Necessity
Some businesses are learning about blockchain technology with the goal of using it as the foundation for future mainstream market operations. In the tokenization process, BlackRock CEO Larry Fink predicts that blockchain will help generate digital assets that replicate securities such as stocks and bonds.
Last year, despite a global market collapse, cryptocurrency remained more appealing than it was before. In a poll conducted by Fidelity of more than 1,000 institutional investors, the results were interesting. It came to light that 51% had a positive opinion of digital assets in 2022 as opposed to 45% in 2021. The significant advantage of digital assets was the major attraction for institutional investors. Majority of the institutional investors are of the opinion that Digital assets do have a concrete role in investment portfolios.
Despite cryptocurrency's severe volatile market in the year 2022, financial institutions and banks are happily involving themselves in the market. These institutions are positive and expect to drive higher trading volume. While financial firms trade tokens, retail traders are more likely to purchase and hold cryptocurrencies.
Cryptocurrencies are more transparent than conventional money. Experts have argued that ownership information is maintained on public digital ledgers. Theoretically, this also makes it simpler to follow the flow of cash among market players. However, many financial organizations are reluctant to reveal their plans in advance. Adam Struck, managing partner, and founder of Struck Capital said some people prefer to trade cryptocurrency with businesses like Galaxy Digital or Genesis to mask their tracks.
Despite the crypto winter and FTX collapse, many big names in investment firms and institutions are confident. They believe that crypto will bounce back and is here to stay.
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