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The risk of not participating in crypto is now outweighing the risk of non-participation
Blockdata | SJonathan Knegtel | Sep 17, 2021
Say it 5 times fast:
The risk of not participating in crypto is now outweighing the risk of non-participation
This can be seen in the enterprise blockchain boom, as well as the pick-up in the banking arena. Out of the top 100 banks by assets under management,55 have invested in cryptocurrency and/or blockchain-related companies, either directly, or through subsidiaries.
Not only that, according to a PWC crypto hedge fund report, over 42 percent stake crypto, 32.6 percent lend and 23.6 percent are borrowing these digital assets.
The desire for more access to DeFi for banks and other institutions has set forth a new wave of institutional DeFi service providers that are much more in tune with regulators and their needs. Speaking of the regulators, the SEC's head, Gary Gensler, has called on Congress to give the agency more authority to police cryptocurrency trading, lending and platforms. This is actually a good thing as ambiguity and lack of clarity holds institutions back far more than set rules and regulations.
Crypto is a Proven Gateway to DeFi
We watched how, in 2018 especially as Bitcoin's price was flailing, enterprises on the level of Nestle, HSBC, Google and Amazon were all dabbling in what pure blockchain technology could do. Fairly centralized, permissioned blockchain solutions from IBM, with Hyperledger Fabric; Quorum, and Corda, were the open doors for these billion-dollar companies to get a feel of the blockchain space.
See: SEC Inks Deal With Blockchain Analytics Firm AnChain.AI to Monitor DeFi Transactions
The high profile purchasing of Bitcoin by Tesla and Microstrategy is only the tip of the iceberg with many other major companies also seeing the potential for this asset to accrue value as an investment, on top of its technical properties with blockchain.
It would be safe to say that the institutions and enterprises coming into blockchain and crypto at this stage are part of the early majority
Further, the more progressive hedge funds and even banks — are much more in line with an early adopter mindset; DeFi is thus the next logical step.
Looking at how crypto hedge funds are using Bitcoin and other cryptocurrencies other than for investment purposes, PWC probed about staking, lending or borrowing of digital assets. Interestingly, over 42% were staking, 32.6% lending and 23.6% were borrowing in 2020.
See: Goldman Sachs Files Defi ETF Application
"DeFi is the logical next step for investors into crypto, '' explains Philip Gradwell, Chief Economist of Chainanalysis.
"Bitcoin taught them that they could hold a crypto asset, DeFi is teaching them that they can use crypto assets in a wider range of financial activities.
But it really is still early days. The most common institutional exposure to DeFi that I've heard of is gaining yield on stablecoins. This appears low risk and analogous to a money market fund but with better returns."
See:
On the Brink Podcast: George Selgin of the Cato Institute on Stablecoins, Bitcoin and Free Banking
Is Staking Crypto The Same As Interest?
"DeFi has arguably engaged banks more quickly than bitcoin did. Banks are really providers of financial services, and there are not that many financial services you can offer with bitcoin (custody, brokerage, derivatives). It seems that banks expect to be able to offer more financial services in DeFi. However, that could just be posturing, as the role of banks in decentralized finance is less clear.
The growth of DeFi participation is undeniable, such as Deloitte finding 80% of organisations ready to seek new revenue streams from crypto and related products; and Financial Times quoting research forecasting hedge funds to hold 7% of assets in crypto in the next five years.
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