Crypto Cycle Update: From DeFi Innovation to the Era of “Institutions” During “Crypto Summer”
The cryptocurrency industry is characterized by its dynamic nature, often following a cyclical growth pattern marked by periods of decline, commonly referred to as "Crypto Winter," and phases of rapid expansion, known as "Crypto Summer.".jpg)
The DeFi sector has experienced rapid growth, introducing numerous innovations. Now, it appears that the industry is entering a Crypto Summer phase sooner than expected, driven by several factors, especially the increasing acceptance and integration of cryptocurrencies by institutions and large businesses, making them significant players in the crypto space. Other contributing factors include the substantial increase in the price of major cryptocurrencies, positive investor and media sentiment resulting in increased trading and speculative investment, and advancements in technology and the launch of new projects in the crypto space.
DeFi Innovation: The Beginning of the Digital Financial Revolution to Crypto Winter
The DeFi Innovation era was a time of numerous innovations in the crypto world, such as decentralized lending, decentralized exchanges (DEXs), and various blockchain-based applications, which increased accessibility to financial services for people without relying on central institutions.
Crypto Winter is a period of severe market downturn in the crypto space. The prices of various cryptocurrencies plummeted, and investor interest waned due to several negative factors and news, such as the Terra Luna incident, the collapse of FTX, and the failure of major banks in the United States..jpg)
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Crypto Summer and the Era of “Institutions”
After experiencing the DeFi Innovation era and the Crypto Winter, there are now signs that the crypto industry is entering a new era where large organizations and institutions play a more significant role. The clear starting point is the example of BlackRock, a global asset management giant, and other institutions and large businesses beginning to accept and integrate cryptocurrencies into their operations and starting to offer products related to Bitcoin or Ethereum.
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Key Factors Accelerating the Arrival of “Crypto Summer”
- Shifting Perception: Leading institutions and organizations are increasingly recognizing the potential of crypto and the importance of blockchain technology. This has led to changes in the crypto market, with financial institutions being attracted by the opportunities for high profits and low correlation with traditional asset classes such as stocks and bonds.
- Clearer Regulatory Progress: Increased regulatory clarity has given large organizations more confidence in investing in the crypto market. For example, the approval of Bitcoin and Ethereum Exchange-Traded Funds (ETFs) in some regions has made it easier for financial institutions to access crypto while operating within a regulatory framework.
- Technological Advancements Leading to Diverse Products and Services: Products and services that cater to the needs of institutions have been developed, such as futures, options, and mutual funds that invest in crypto. Notably, “institutional-grade digital asset custody solutions” have been developed to securely store large amounts of digital assets. Leading companies like Coinbase Custody, Fidelity Digital Assets, and Bakkt offer robust security features and insurance coverage.
Use Cases and Interesting Examples of Institutions Embracing Crypto
- BlackRock Bitcoin Trust ETF: BlackRock launched a Bitcoin ETF, providing an opportunity and a significant step for institutional investors to start accepting and accessing Bitcoin more easily.
- Ethereum ETF Launched for Trading in July: After the SEC approved the first Spot Bitcoin ETFs, about six months later, the SEC officially approved the first Spot Ethereum ETFs in July. A total of nine ETFs were allowed to trade on July 23rd, such as Bitwise Ethereum ETF (AETH), Fidelity Ethereum Fund (FETH), Invesco Galaxy Ethereum ETF (QETH), and BlackRock's iShares Ethereum Trust ETF (ETHA). On July 26th, BlackRock's Ethereum ETF (ETHA) received the highest net inflow among the group at $354.8 million, followed by Bitwise's ETHW fund at $249.9 million, and Fidelity's FETH fund at $180.1 million.
- MicroStrategy, the First Public Company to Hold Bitcoin: This major software company, led by Michael Saylor, made a groundbreaking decision to invest a portion of its reserves in Bitcoin as a hedge against inflation. Moreover, MicroStrategy has demonstrated a steadfast commitment to Bitcoin by continuously investing in it bit by bit for over four years.
- Tesla: The electric car giant Tesla announced in a filing with the SEC that it had purchased over $1.5 billion worth of Bitcoin and also stated that it would start accepting Bitcoin as a payment method for its products. It is undeniable that Elon Musk, the leader of this movement, also has an influence on the price movements in the crypto market.
- Mastercard: Partnered with various companies to develop blockchain-based payment solutions. The recent launch of Mastercard's euro-denominated crypto debit card in collaboration with Mercuryo is a significant step in connecting traditional payment systems with the crypto ecosystem, making it more convenient and easier for users to spend crypto from self-custody wallets.
Conclusion
The institutions and large organizations’ entry into crypto space is a crucial factor driving the rapid growth of the crypto industry in recent years, leading the crypto market into an upswing or Crypto Summer sooner than expected. It also confirms that crypto is no longer just a technology for retail investors but also an attractive asset for institutional investors.
Source:
https://www.cnbc.com/2021/02/08/tesla-buys-1point5-billion-in-bitcoin.html
https://www.forbes.com/advisor/investing/cryptocurrency/crypto-market-outlook-forecast/
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