Institutional Investors Shape the Future of Crypto
Traditional financial institutions are increasingly shaping the narratives in the crypto sector, and are poised to benefit the most from the current trends. This shift has been dominated by institutional investors, investment vehicles like exchange-traded funds (ETFs), governments, and stablecoin issuers. The total cumulative flow of Bitcoin ETFs shows that billions of dollars in capital has been siphoned into Bitcoin investment vehicles.
According to Arthur Azizov, founder of B2 Ventures, a private “alliance” of crypto services and financial tech companies, big banks will accelerate this trend in the near future, once they have regulatory clarity to interact with crypto. Azizov believes it will only be a “matter of months” between the time these banks receive regulatory clarity and the time it takes them to launch a stablecoin. He notes that banks have a substantial user base and existing clients, making it relatively easy for them to implement crypto into their operations.
The Increasing Presence of Institutional Investors
The increasing presence of institutional investors, banks, and companies in crypto has created tension between these traditional financial institutions and the cypherpunks that started the crypto movement, who advocate for the complete decentralization of the financial system. This tension is likely to continue as governments also drive the institutionalization of crypto, with economic incentives to regulate the industry and bring it under the purview of the traditional financial system.
Azizov explains that the narrative is to regulate crypto, not only because it is mainstream, but also to attract technology companies, young talent, and fintech startups. This increased regulation means a greater focus on anti-money laundering (AML) regulations and Know Your Customer (KYC) requirements. AML and KYC are already required for retail crypto consumer applications throughout much of the Asia-Pacific (APAC) region and Europe, and Azizov expects this trend to also take shape in the US.
The Impact on Decentralized Finance
The emphasis on consumer surveillance and officially registered accounts runs contrary to the value proposition of decentralized finance (DeFi), which promises permissionless access to a censorship-resistant financial system. As traditional financial institutions continue to shape the crypto sector, it remains to be seen how DeFi will evolve and whether it will be able to maintain its core principles of decentralization and permissionless access.
Azizov’s comments suggest that the future of crypto will be shaped by the interests of institutional investors and traditional financial institutions, rather than the cypherpunks who initially drove the movement. As the crypto sector continues to evolve, it will be important to monitor how these competing interests play out and what implications they have for the future of decentralized finance.
