How Growing Institutional Investment Could Triple the Size of The Entire Crypto Market

January 5, 2022

Growth of the cryptocurrency market has been unprecedented in its size and speed. Today’s cryptocurrency market cap has soared to US$2.3 trillion — representing more than 10x growth from US$200 billion in January 2020.

More importantly, an increasing number of investors believe cryptocurrency has become a viable market to build long-term wealth, either by storing value in cryptocurrencies to hedge against fiat inflation or by supporting revolutionary new technology platforms.

In fact, 83% of millennial millionaires own cryptocurrencies in their portfolio, according to the CNBC Millionaire Survey. More than half (53%) have at least 50% of their wealth in crypto, while almost a third of these investors have put 75% of their investments in the asset class. Cryptocurrency has been the most important driver of millennial millionaire creation and this will impact how millennials view investment of their long-term wealth for decades to come.

However, it’s not just millennials taking notice. Crypto’s explosive growth has become too big to be ignored, and now large banks and institutional investors — those who were the most skeptical of the asset class in the beginning — have made it clear that the crypto asset class will become part of a long-term investment portfolio.

Bitcoin servicer NYDIG raised $1 billion in its latest funding round, highlighting Wall Street’s increasing interest in the crypto space.

The floodgates are opening…

Within the year Morgan Stanley and JP Morgan Chase have announced crypto products such as Bitcoin funds, with many other funds to follow. Bridgewater Associates hedge fund founder Ray Dalio espoused bitcoin’s similarities with gold while Interactive Broker’s chairman Thomas Peterfly has said that 2–3% of total wealth should be allocated to crypto.

As shown in the chart at the top of this post, given the enormous amount of capital in traditional investment portfolios even a minor asset allocation shift to crypto will dramatically increase the amount of capital invested in the crypto market.

If institutions allocate just 2% of their portfolios to crypto, this shift would cause the total cryptocurrency market cap to nearly double to US$4.4 trillion, all else being equal. A 5% allocation shift to crypto could cause the total market cap to reach US$7.5 trillion, more than tripling the entire market size.

While it may take some time for the institutional shift to crypto to evolve to such levels, 2022 will be a year of increasingly mainstream and institutional acceptance of crypto. Just a small shift will make a huge impact in the crypto market — it’s not a question of “if” but just rather of “when”.