Wall Street interest in Bitcoin has hit all-time highs in the past week.
For years, Bitcoin adoption has largely depended on retail investors trading on crypto exchanges. But as Bitcoin has grown up as an asset class, it has gained serious adoption by traders on traditional public market exchanges too.
Two primary sources of Bitcoin adoption come from Grayscale’s Bitcoin Fund and futures markets operated by both the CME and Bakkt. And the reason these funds are so vital to Bitcoin adoption from institutional investors, is that most large family offices and funds have restrictions over what they can invest in.
With these restrictions in place, fully-regulated markets are often the only place funds can go to for Bitcoin exposure. And since Bitcoin’s price drop in March, these funds have been piling into Bitcoin at an unprecedented rate.
Grayscale operates a number of crypto funds to give institutional investors exposure to Bitcoin. But a large majority of Grayscale’s AUM is devoted to Bitcoin. As of Grayscale’s most recent update, they hold $3.7 billion of crypto under management, and over $3.3 billion is Bitcoin.
This is a massive increase of $1.5 billion since Grayscale’s Q1 investor letter, showing that the adoption of Bitcoin by institutions has rapidly increased in just the last 45 days.
The CME operates a Bitcoin futures market that gives institutional investors exposure to Bitcoin and a way to hedge against future prices. It officially launched in 2018, but adoption has been slow by Bitcoin standards. Open Interest had never exceeded $400 million, even at times when Bitcoin spot markets were doing over $1 billion of daily volume. But in the last 45 days, Open Interest has spiked to almost $500 million - another promising sign of increasing institutional adoption.
Why Does Institutional Adoption Matter?
Institutional adoption isn’t necessary for the success of Bitcoin. But it sure helps. Having traditional asset management firms invested in Bitcoin lowers the chance that severe regulatory restrictions are placed on Bitcoin users. The pool of institutional capital is also far deeper than that of retail investors.
But perhaps most importantly, the increase in institutional interest means Bitcoin is outgrowing its branding as ‘a tool for criminals and money-launderers’, and is increasingly seen as a sound money instrument that can be used by anyone in the world to store and protect their wealth.