What will determine the future of the institutional cryptocurrency market?

2021 was a great year for cryptocurrencies. El Salvador was the first country to adopt Bitcoin (BTC) as legal tender. In November 2021, the price of bitcoin reached an all-time high, approaching the psychologically significant $70,000 mark. As a side note, industry influencers like Elon Musk have been tweeting their enthusiasm for crypto in general.

I expect 2022 to be an even bigger year for digital currencies as the market grows to over a billion people. Here are the top five trends I see on the horizon for the coming year.

Institutional trading volume will grow

2022 will be a year in which the institutional and private acceptance of cryptocurrencies and especially trading will continue to increase. Fintech stars PayPal and Square — along with mobile stock trading platform Robinhood — have made it easy to buy, sell, and trade cryptocurrencies. And public companies like MicroStrategy, Tesla, Galaxy, and Square added significant amounts of Bitcoin to their balance sheets in 2021.

What will determine the future of the institutional cryptocurrency market?
What will determine the future of the institutional cryptocurrency market?

What is driving this growth? Aside from the general bullish momentum, they are there two tests that reflect the current maturity of the institutional cryptocurrency market: market cap and infrastructure.

In 2015, the total cryptocurrency market cap was about $5 billion. By December 2021, it has massively grown to over $2 trillion. The market cap of Bitcoin alone was $3.6 billion as of January 4, 2015, and the current market cap is approximately $900 billion. Even the market cap of the number two cryptocurrency, ether (ETH), which has a larger ecosystem of enterprise applications, is around $400 billion, close to that of Visa or JP Morgan Chase.

Just five years ago, the basic cryptocurrency infrastructure was much less developed. Institutions have struggled to understand how to hold, trade, and settle cryptocurrency transactions securely and compliantly. There were no real brokers in the crypto industry. now The infrastructure is much more developed and institutions have a better understanding and are more comfortable with the cryptocurrency landscape. Therefore, I assume that institutional trading will continue to grow.

Still, The spot trading volume of cryptocurrencies, particularly bitcoin, remains highly fragmented.

The institutional adoption will also accelerate the growth of the crypto derivatives market. Also more regulation will comewhich will be a very positive development as long as it engages the public discourse and considers industrial products to enable adoption and innovation while meeting the demands of regulators.

In July 2021, Treasury Secretary Janet Yellen urged regulators to act quickly to create a regulatory framework for stablecoins. Since then, the Chairman of the United States Securities and Exchange Commission (SEC), Gary Gensler has also called for regulation of this space and indicated that it is on the SEC’s agenda..

Further institutional service providers and tools will come onto the market

Institutions urgently need the right services and tools. There has been a lot of activity among startups looking to provide support services such as crypto asset storage, security and management and investment products, as well as mining hardware and software and payment infrastructure.

As of August 2021, several companies had raised at least $300 million in funding rounds, including Blockchain.com, BlockFi, Fireblocks, Ledger and Paxos. I expect this to continue as new companies emerge that offer better access to the cryptocurrency market than ever before. This, in turn, will open new doors for small and medium-sized funds.

Altcoins are becoming increasingly popular

Next year, I also look forward to seeing altcoins rise in popularity as enthusiasts learn even more about their various use cases.. Ether (ETH), for example, is driven by the development of DApps with a strong ecosystem. However, due to Ethereum’s scalability issues and high gas fees, it has also been challenged by blockchain newcomers such as Solana (SOL), Cardano (ADA), and Avalanche (AVAX). Investors see tremendous growth opportunities, while traders see volatility and peer-to-peer arbitrage opportunities.

In general, I assume so Altcoins are growing in popularity as investors look for ways to diversify their crypto portfolios. A Nasdaq report found that there were more than 100 altcoins valued at over $1 billion as of October 2021, which “[implica] a thriving digital ecosystem.” While altcoin prices can be equally volatile — and investors should do their research first — many altcoins, including Solana and Polkadot, remain on the top lists of cryptocurrencies with the greatest potential to become something major.

Volume will shift from bitcoin to altcoin ether, and even starts with it. For more evidence, check out digital currency asset manager Grayscale Investments, which recently added a Solana-focused trust to its portfolio of investment products.

“We had a ringside seat to see the widespread adoption and adoption of cryptocurrencies and We are increasingly finding that investors are diversifying their exposure beyond digital assets such as Bitcoin and EthereumGrayscale CEO Michael Sonnenshein said in a recent statement, adding:

“Our Grayscale family of products will continue to expand alongside this exciting asset class as we remain committed to providing investors with access to the digital economy.”

Regulated DeFi is coming for institutions

2022 is set to be a big year for decentralized finance, or the burgeoning ecosystem of financial applications powered by blockchain technology. Total Value Locked (TVL) in DeFi has grown significantly in 2021.

So far, institutes have stayed out of DeFi because the counterparties in DeFi transactions are largely unknown.. Whether an institution wants to be a Liquidity Provider (LP) or trade on a Decentralized Exchange (DEX), regulatory clarity and compliance are paramount. Therefore, Aave launched a licensed DeFi platform, Aave Arc.

Most DEXs do not require LPs to pass compliance checks such as Know Your Customer and Anti-Money Laundering requirements. Looking ahead to 2022, I expect DeFi growth to accelerate. Two challenges are likely to be addressed: lack of regulatory clarity and lack of counterparty compliance checks.

More regulatory clarity will likely emerge as the SEC and other regulators provide new guidance. And new institutional DeFi platforms will gain traction. These platforms require LPs and traders to pass compliance checks and provide ample liquidity for businesses.

With more clarity and the right platforms, more institutions will enter the DeFi space.

Security solutions are increasing Security solutions are increasing in number

Hacks have long been part of cryptocurrency history. In 2014, for example, the Bitcoin exchange Mt. Gox filed for bankruptcy after hackers allegedly stole millions of US dollars. Four years later, hackers hijacked another cryptocurrency exchange, Coincheck. And in August 2021, DeFi platform Poly Network lost $600 million to hackers. MonoX Finance, another DeFi platform, lost $31 million more recently.

Now, Crypto exchanges are beginning to take steps to protect themselves and tend to work with qualified custodians to manage custody risks. For example, in November 2021, Coinbase acquired crypto security firm Unbound Security to boost its multi-party computing capabilities. PayPal also acquired another digital asset security provider, Curv. I expect there will be similar deals throughout 2022.

The cryptocurrency industry moves quickly with many twists and turns. But one thing is certain: the signs for 2022 point to further growth.

This article does not contain any investment advice or recommendation. All investing and trading involves risk and readers should do their own research when making a decision.

The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Christopher Michot is Director of Business Development at Apifiny, a global trading network for digital assets for institutions. Before Apifiny, Michot was a director at Kraken and Apple and a Google alumnus. Michot brings more than 20 years of experience in the technology industry, including 10 years of Bitcoin and cryptocurrency experience.

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