Ever since the Covid-19 outbreak, banking firms have expanded their awareness of the virtual currency industry to supply their clientele with cryptocurrency investment options.
The crypto industry is currently going through a challenging period. Furthermore, the worth of the virtual currency market valuation has been declining since the May 2022 virtual currency disaster. The cap fell by 65% between November last year and the conclusion of July this year. Despite the difficult times, retail and institutional investors are increasingly interested in gaining access to the new market.
Cryptocurrency as a Tool for Investments
According to GlobalData’s 2022 Consumer Finance Poll, consumers all over the globe are interested in the virtual currency industry. The desire to use crypto as an investment tool is driving this curiosity. Just 18.5% of worldwide respondents who admitted to having virtual currency said they were compelled to generate revenue from it, while 77.4% disclosed utilizing it as a payment method.
Even before the global epidemic, the virtual currency sector has attracted a lot of attention from customers and investment firms. According to PWC’s 4th Annual Global Virtual Currency Private Equity Review 2022, the assets under the administration of the virtual currency hedge funds overviewed were $4.1 billion in 2021, 8% more than the preceding year.
Though hedge funds are making investments in the cryptocurrency industry, they are restricting their exposure, with roughly 57% of fund managers investing just under one percent of the total assets under administration in virtual currencies. Because of the industry’s extreme volatility, crypto is a speculative investment to put money in.
One of the primary strategies used by hedge funds with digital currencies is a market-neutral approach, which seeks to make a profit regardless of market position by reducing risk through the utilization of derivative instruments.
Insufficient Regulation Over the Crypto Industry
Aside from the market turmoil, the absence of an adequate legislative structure in the virtual currency sector is stopping banking institutions from dramatically increasing their stance within it. This absence of regulations creates uncertainty in the longer-term approaches that funds can employ as well as the kinds of virtual currencies in which they can put money.
Regulations in the industry could help to create peace by lowering assumptions, which is a contributing factor to the extreme volatility. Moreover, regulations can boost stakeholder faith in the industry by introducing defensive schemes and exposure to make transactions and investment opportunities safe and secure. This will also help put the industry under regulatory control.
As per GlobalData’s 2022 Consumer Finance Survey, roughly 60% of cryptocurrency owners have just under $15,000 in virtual currency assets, with 41% having under $5,000.
This is significantly greater than the percentage of survey participants with under $15,000 in shares (56%) and securities (52%). Investors who incorporate cryptos into their portfolios do so by deciding to take small market stances. This reduces the impact of a virtual currency market collapse on their portfolio.
Banking firms are subsequently paying close attention to the virtual currency industry to capitalize on its expansion. Though their invested capital is restricted, they are likely to expand their viewpoint, particularly when legislators finally implement legislative frameworks.
Why Financial Institutions Could Change the Crypto Industry
The normal investment scene is run by hedge funds and institutional investors who can manipulate the market by moving around large sums of money. As things stand in the crypto scene, these players are not involved, and as such, have very little influence over the market direction.
Should these major institutions become involved in the industry, it is likely that they would once again be able to influence the sector by introducing their massive capital into the blockchain.
This may not be entirely negative, as the introduction of huge amounts of investment could introduce some stability to the industry. Therefore, this could cause the use of cryptocurrency to become more mainstream for investors with a lower appetite for risk. The improved stability could also push us one step closer to the point of using crypto as a generally accepted payment method for everyday consumers.
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