Institutional Adoption of the Crypto Ecosystem

Justin Stewart

Introduction

Cryptocurrency has been one of the most memorable technological upheavals of the 21st century, with an over 800% increase in usage in 2021 alone.

Cryptocurrency, referred to as ‘crypto,’ and its related blockchain technologies are arguably in a league similar to the development of cloud storage and digital transfer.

With technological advancements like that of crypto, many new doors are opened in the financial and technological worlds.

As more and more businesses and countries accept crypto in any of its various forms, large financial institutions such as banks and investors are getting more comfortable with crypto.

Despite crypto’s reputation as unstable, these institutions are warming up to their usage.

This adoption is especially evident as major economic players like the governments of the United States and the United Kingdom openly ponder how to integrate crypto into their economies.

Crypto In Corporate Transactions

Cryptocurrencies mean nothing if they are adopted solely by corporations.

The interesting aspect of Crypto lies in its usage by people, with many cryptocurrencies such as Bitcoin and Dogecoin coming to relevance by investors’ word of mouth.

As such, a growing number of corporations have accepted some form of cryptocurrency as payment for their products or services.

Tesla

Most notably, the car company Testa, owned and operated by the infamous Elon Musk, announced it would begin taking Bitcoin as payment in 2021.

This did not last long, and as of July 2022, Tesla no longer takes payment in Bitcoin. However, it does take payment in another Musk-backed cryptocurrency: Dogecoin.

Even though Tesla does not take the most popular cryptocurrency on the planet, citing environmental concerns, the company’s dedication to crypto is still evident in its usage of doge.

Microsoft

Interestingly enough, Microsoft also began accepting Bitcoin as payment as early as 2014. While Bitcoin was certainly around in 2014, it was relatively obscure when compared to its modern fame.

There was a time when Microsoft had ceased to accept Bitcoin, citing its volatility, but Microsoft has begun easing the acceptance of Bitcoin back into its operations.

Currently, Microsoft only accepts Bitcoin payments via its Xbox store, functionally limiting Bitcoin to a role in Microsoft’s gaming role.

However, Microsoft founder Bill Gates has stated his partialness to crypto, saying things like “Bitcoin is better than currency.”

Paypal

Another Musk-involved company, PayPal, hopped onto the crypto train early. PayPal began accepting Bitcoin payments in September 2014, a full three months before Microsoft did.

PayPal also allows users to check out with crypto, converting any cryptocurrencies they have received into regular currency with no extra fees.

For the moment, this only works with US dollars.

Tesla, Microsoft, and PayPal are all industry leaders.

With Tesla and Microsoft being at the technological forefront of their respective industries and PayPal being one of the most trusted financial companies, it makes sense that they seek innovation.

With their adoption of cryptocurrencies allowing consumers more options for payment, it only makes sense that more corporations will follow suit and accept crypto over time.

PayPal has already gotten many of its competitors to follow in its footsteps, with companies like Venmo and CashApp offering cryptocurrency options starting in 2021.

Digital Asset Management

Many large investors and hedge fund managers have noted a rapid increase in digital assets among individual users in recent years.

As new forms of cryptocurrency arise, more options mean that different types of crypto are available for every user’s tastes.

Wealthier, larger players may take on advanced projects such as NFTs while newer investors may stick with well-known currencies such as Bitcoin or Dogecoin.

However, individuals are not the only groups investing in crypto-based digital assets. Many signs point to large institutions actively diving into the crypto ecosystem.

The Benefits Of Crypto For Corporations

Beyond adopting crypto for customer transactions, large corporations are likely to buy crypto to sell for profit, much like corporations do with the stocks of other companies.

Beyond Tesla’s openly-announced acquisition of over $1.5 billion in Bitcoin in 2021, there are several indications that corporations may be choosing to quietly invest in crypto.

A filing with the SEC revealed that the Musk-headed company had almost $2 billion in Bitcoin by the end of 2021, almost a twenty-five percent rise from their original purchase.

Whether the value of Bitcoin truly increased that much or the company bought more, that growth bodes well for the future corporate investments of crypto, especially Bitcoin.

A report from the Department of Finance at Clemson University states that “institutions with crypto assets outperform their peers by around 2.8% per year.”

While a 2.8% growth sounds small to many individual investors, it helps to keep in mind that corporations not only make billions in profits but are very concerned with any extra percent.

In the early 2020s, several unprecedented world events occurred, from the global pandemic of the coronavirus to the war in Ukraine.

This rapid domino effect of unprecedented events saw the demand for diversification grow, and with the crypto ecosystem being a diverse market, it is the perfect place for corporate interest.

The Whale Addresses

Additionally, several Bitcoin-based analysis firms reported a rise of Bitcoin-holding ‘whale’ addresses by up to 10% in 2022.

In cryptocurrency, a whale account is an account that stockpiles crypto, such as an account that has one thousand or more Bitcoin.

Accounts holding between ten thousand and one hundred thousand Bitcoin raised exponentially from March to May 2022.

Except for more-wealthy billionaires who are already known to be invested in cryptocurrencies, such as Elon Musk and Bill Gates, there are very few people who are likely to own these accounts.

As such, the evidence points to many of these Bitcoin whale accounts being owned by major corporations and institutions, stockpiling crypto to sell at a later date for a profit.

It also does make sense that these addresses would be dedicated to Bitcoin, as Bitcoin is the most widely-known cryptocurrency. Corporations likely consider it to be the most stable.

Therefore, while it seems likely that more and more corporations will openly adopt the crypto ecosystem, the odds are good that many major ones already have.

Major Roadblocks To Institutional Adoption

As of right now, there are still several major roadblocks to the widespread institutional adoption of the crypto ecosystem.

The first roadblock is that crypto is not yet adopted among the populace. While an estimated thirty-four million American adults own crypto, this is a relatively small number.

Consider that the 2020 census of America counted 331.4 million people living in the United States, and it shows that under ten percent of the population owns crypto.

This number seems to be why many large companies are offering crypto options, but only as an aside.

Corporations will always want to make as much money as possible, but going all-in on crypto can ultimately harm their profits in the modern era.

Additionally, there is a rising anti-crypto sentiment, especially concerning NFTs.

In December 2021, President Biden’s nomination for the U.S. Treasurer stepped down after several accusations, including the evidence that he was anti-crypto.

With people in high-ranking offices joining the anti-crypto ranks of the Twitter mobs who made NFT-holders into online laughingstocks, corporations may be wary about openly supporting crypto.

While cryptocurrencies are undoubtedly on the uptake, institutions are wary about dealing with such a relatively new and unregulated market.

This worry marks an issue. One of the biggest draws of cryptocurrency is its decentralization and deregulation.

What draws so many individual investors to crypto is the same thing that turns away larger institutions.

In this case, many individuals would be content with sacrificing corporate investment for decentralization, though many investors want corporate investments as a mark of legitimacy.

Additionally, corporate adoption of the crypto ecosystem would almost assuredly give crypto prices a major boost in price and stability.

Ultimately, while the roadblock of decentralization remains, the crypto community may be divided on how to handle it. Many would agree that it isn’t a roadblock, but a feature!

The Crypto Crash

Crypto’s biggest roadblock to institutional adoption is large enough to warrant a separate header. Like any stock, crypto will crash sometimes, but crypto crashes can leave a bad taste.

Likely the biggest roadblock to the major institutional adoption of crypto, however, is its volatility. Crypto has always been notoriously volatile, though stable for long periods.

However, in May 2022, crypto took a major hit. While much of the stock market went down, cryptocurrencies seemed to get hit the worst out of everything.

As all forms of cryptocurrency trended downwards for several months, big-name currencies like Bitcoin and Ethereum hit a low of over seventy percent.

Smaller coins such as TerraUSD and its support coin Luna fell to a price of almost zero, with their collapse wiping out over $45 billion in a single week.

As of July 2022, the market still has not recovered from this colossal collapse, though many expert analysts believe it will recover by the Christmas season of 2022.

However, some analysts consider the burst that comes with many economic bubbles, such as the housing market collapse of 2008 or the similar housing market crash that many experts foresee for post-2022.

Either way, crypto will recover most of its prior prestige- and, hopefully, become adopted by many major institutions.