- Bitcoin has rapidly evolved over the past decade, with its development fuelled by large pools of institutional capital flows.
- Institutional investment in bitcoin has long been considered paramount to reach a multi-trillion-dollar market capitalization.
- For institutions to tap into the market potential digital assets can offer, robust, institutional grade infrastructure is a prerequisite.
Bitcoin has come a long way over the past decade, from relative obscurity to a serious and recognized player in capital markets. Whilst retail investors have played an important part in its development, the role of institutions will be critical to its evolution and widespread adoption.
2021 marked a rapid increase in institutional adoption, from corporates to hedge funds, to major investment banks looking at ways to access the fast growing asset class. Most of the biggest names on Wall Street have now announced digital asset plans driven by client demand.
So, why Bitcoin?
Bitcoin’s unique properties separate it from nearly all other assets, with a fixed supply, a decreasing inflation rate, and a decentralized network maintained by thousands of computers worldwide.
Additionally, there are several factors both near and long-term to support the increased awareness around bitcoin, including the fact that it has also become a lot easier from both a regulatory and practical perspective for institutional investors to hold and invest in bitcoin.
Some institutions have been reluctant to embrace the asset, but this is rapidly changing. Institutional investors have three main ways to invest in bitcoin: exposure through spot markets like LMAX Digital; exposure through derivatives like our own recently launched bitcoin futures, and exposure through investment vehicles including investment trusts. All have become exceptionally popular over the past few years.
On LMAX Digital, the leading institutional spot cryptocurrency exchange, trading volumes have grown substantially, averaging at $2 billion/day throughout 2021. This growth trend is a direct reflection of the current institutionalization of the bitcoin market, and we only expect this to rise significantly in 2022.
What are institutions looking for?
From an exchange perspective, this question is crucial to the evolving bitcoin and wider crypto offering.
A familiar exchange technology infrastructure with high throughput, no downtime, and a regulated trading environment are essential for institutional investors to trade this asset class.
Platforms must have venue controls to ensure an orderly market. This enables the exchange to handle high volumes during times of extreme volatility and ensure 100% uptime. Also, given the sizes traded, deep liquidity is of utmost importance.
Understanding this, LMAX Digital itself was launched in 2018 with a mission to serve institutional-only clients with access to this budding asset class supported by robust, trusted technology to trade efficiently and securely.
The road ahead
Institutional investment in bitcoin has long been considered likely to a reach a multi-trillion-dollar market capitalization. With institutional infrastructure in place and broader acceptance as an asset class, the leading cryptocurrency is primed for driving increased institutional activity, which we expect will continue to strengthen during 2022 and beyond.
This post is commissioned by LMAX and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results
© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.