Date: March 31st 2021
Published on: Global News
crypto AML, Crypto Compliance, Cryptocurrency, Cryptoregulation, digital assets, RiskAML, scorechain, Virtual asset,
In the past months, Bitcoin and Ether prices significantly increased: Bitcoin reached its all-time high value at $61,683.86 on March 13, 20211, and Ether rose to record highs at $2,036.29 on Feb 20, 20212.
At the same time, more and more institutional players have shown their interest in crypto assets and started to invest in them. According to Grayscale’s Digital Asset Investment Report for Q4 2020, 93% of its investments came from institutions3 while in Q4 2019 it accounted for 71%4. In Q4 2020, Grayscale’s average weekly investment in Bitcoin trust reached $217.1 million. Besides, Coinbase’s report “2020 in Review” revealed that “a growing number [of institutional customer] also took positions in Ethereum” in 20205.
Some say that this institutional interest in cryptocurrencies is one of the reasons that could explain the recent price increase of Bitcoin or Ether.
Who are the institutional investors moving to crypto?
Lately, there has been a lot of news about institutional investors and how they were buying cryptos. Here are a few examples of them:
Apart from buying cryptocurrencies, major financial institutions recently started to offer crypto-related services. For example, BNY Mellon, the US oldest bank, said it will be offering crypto custody and transfer services for its customers. Another bank, JPMorgan intends to launch a “Basket of Companies with Exposure to Cryptocurrency” according to a SEC filing from early March 2021. Others also made a move towards crypto. For example, Paypal offers crypto buying and selling services6 and will start offering crypto payment services7 to US Customers while Mastercard plans to start supporting cryptocurrencies this year8. Visa, the US financial services company also announced on March 29, 2021, the company’s first settlement transaction is USDC, a stablecoin backed by the US Dollar.
Why this sudden interest from institutional investors?
This trend could be explained, amongst other factors, by the fact that there is an increasing number of governments worldwide that have or are implementing a legal framework for cryptocurrencies. This was not the case a few years ago. Greater regulatory clarity around cryptocurrencies can reassure traditional companies to start investing in them.
Meanwhile, Bitcoin and other cryptocurrencies are more and more popular and used, which means that there is a larger customer need for crypto services. “Growing client demand for digital assets” is one of the reasons that led BNY Mellon to offer digital asset services in the first place. This also prompts other traditional financial companies to start offering crypto-related services such as PayPal, Mastercard, etc… Besides, BTC is also popular amongst some companies’ founders for example Elon Musk (Tesla) or Micheal Saylor (Microstrategy) believe in the cryptocurrency and started investing in it via their companies.
Moreover, Bitcoin and cryptocurrencies can be a way for institutions to diversify investments. Indeed, Bitcoin is not correlated with other assets and allows institutions to diversify their investments that are mainly composed of highly correlated assets. In addition, BTC and cryptos are very secure, borderless, and can create new opportunities that don’t exist in the traditional finance industry.
On the other hand, this greater crypto adoption from institutions also implies that new players must comply with existing AML/CTF requirements concerning cryptocurrencies.
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