In 2020, crypto stood out among other assets so much so that it was initially perceived as a financial bubble. But this time it is here to stay in the market. The biggest factor responsible for crypto growth is its adoption by financial institutions. Cryptocurrencies, especially bitcoin, witnessed a large sum of institutional interest and money flowing into them. Top firms like Grayscale, Microstrategy, Square, Massachusetts Mutual Life Insurance, Ruffer, CoinShares, One River Digital Asset Management, Skybridge Capital, Galaxy Digital Holdings, and 3iQ were among many institutions that invested in Bitcoin in 2020. Following the momentum in 2021, bitcoin is embraced or likely to be from Wall Street giants such as JPMorgan, Tesla, Morgan Stanley, Bank of New York Mellon, and BlackRock. Soon Mastercard will begin allowing its customers to use some cryptocurrencies as a payment method. This has created a market trend and increased the adoption of cryptocurrencies as a new asset class. According to a recent survey by JPMorgan covering 3400 investors from 1500 institutions, 58% believe that crypto is here to stay. Though the investor community is still divided on the future of crypto, the parabolic rise in Bitcoin has garnered the attention of both institutional and retail investors alike. The main reason behind this frenzy is the prospect of high returns from the investments. Analyzing the market trends, bitcoin provides an excellent hedge against inflation and currency devaluation. Many investors are interested in the technological potential of blockchain and would like to explore the new market. But there are many hurdles in the way too. The financial market is a heavily regulated industry. As they manage funds for other people it is required by law to fulfill rules regarding financial investments. However, the infrastructure of the legacy system is slow and tedious to transform and adapt to rather unregulated crypto space. Interest in DeFi Space DeFi refers to the peer-to-peer financial services that enable trading, loans, derivatives, and more capabilities in the crypto ecosystem. A few giant players have moved forward from investment in Bitcoin towards investing in DeFi products. According to the year 2020 survey by Fidelity Digital Assets among 800 U.S. and European investors, it is revealed that almost 80% of institutional investors surveyed in the U.S. and Europe believe that digital assets should be a part of their investment portfolios. The survey included financial advisors, family offices, pensions, crypto and traditional hedge funds, high net worth investors, and endowments and foundations. 36% of them are currently invested in digital assets directly and via futures. Financial institutions find digital assets appealing as they are uncorrelated to other asset classes and have high potential upside. Some investors feel that it is good these assets are free from government intervention. Other factors that help are the low transportation, transaction, and storage costs, and unique return drivers. Some of the most experienced trading firms in Chicago are joining forces to promote decentralized finance (DeFi). TD Ameritrade, Cumberland, CMT Digital, DV Trading, and Jump Capital, venture capital firm Volt Capital, and the DeFi startup Compound, all joined forces in the Chicago DeFi Alliance (CDA) to provide advisory services to crypto startups. The alliance’s mission is to connect traditional proprietary trading firms with rising start-ups in the DeFi space to build long-term, mutually beneficial relationships. The opportunity also helps DeFi start-ups to educate traditional trading firms on technical advancements, unique opportunities, and risks associated with this new financial frontier. Again helping is Bitwise Asset Management, which has recently launched the world’s first DeFi crypto index fund. The new Bitwise fund holds a portfolio of crypto assets that power these DeFi services and seeks to track the Bitwise Decentralized Finance Crypto Index. Holdings are screened for important risks, weighted by market capitalization, and rebalanced monthly. Some fintech firms are coming up to build DeFi products as well. One such example is xSigma, which is a stable coin exchange and a liquidity mining platform backed by Nasdaq-listed company ZK International Group. Lattice Exchange (LTX), a decentralized platform, is supported by institutional funds such as GDA (Global Digital Assets), Hillrise Capital, Moonrock Capital, Alphabit Fund, and FBG Capital. Daniel S. Loeb, the founder of a New York-based hedge fund, Third Point, retweeting on the growth of NFTs, said that he has been doing a deep dive in crypto lately. Attractive Features of DeFi DeFi provides a unique opportunity for financial investors to put their crypto funds to use. Many DeFi applications of lending and borrowing allow bitcoin investments to be used rather than simply holding. It simply provides a good opportunity for investors looking for higher yield opportunities. The DeFi space is attracting investments by the promise of providing high return yields. Another interesting reason for investments in DeFi is the growth of creative products and fast-paced innovations in the DeFi space. … Continued
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