Crypto losing institutional cash.

Key Takeaways

  • Crypto.com has closed its institutional exchange in the US due to lack of demand.
  • The regulatory climate in the US has become more hostile, making crypto less practical for institutions.
  • The macro environment and scandals in the industry have also contributed to the exodus of institutional money.

Two months ago, an article was published analyzing institutional money and crypto, questioning whether institutional cash had fled the industry. This weekend, Crypto.com announced the closure of their institutional exchange in the US, citing a lack of demand. The retail platform will remain open, while the institutional platform will not be operational.

The announcement comes amid an increasingly hostile regulatory crackdown in the US. Both Binance and Coinbase were sued by the SEC last week, and there are concerns that crypto will be pushed offshore.

However, regulation is not the only reason for the exodus of institutional money. The macro environment, including the transition to tight monetary policy and the increasing interest rates, has pushed institutions back on the risk curve. Additionally, the industry’s reputation has been damaged by scandals such as the collapse of the UST stablecoin and FTX’s downfall.

Macro environment

During the pandemic boom, Tesla announced its purchase of Bitcoin to hold on their balance sheet. Fund managers discussed the heightened demand from their clients to offer Bitcoin investment vehicles. Fast forward eighteen months, and things are slightly different. Despite a run-up of 55% this year, Bitcoin remains 60% off its peak as markets across the financial system have struggled. This follows a transition to tight monetary policy, which has pushed institutions back on the risk curve. Bitcoin is even more risk-on than tech and has struggled to attract funds as a result.

Reputation

The damage to the industry’s long-term reputation is also a concerning development. Scandals such as the collapse of the UST stablecoin and FTX’s downfall have contributed to this. For some, FTX’s demise may have been the straw that broke the camel’s back. The issue of reputation ties into the problem of regulation, which is making it significantly harder for institutions to buy crypto in the US.

Regulation

The crackdown on crypto in the US is a pressing issue that is making it harder for institutions to buy crypto. There is concern that the American crypto industry is being curtailed to such a degree that companies will be forced to migrate elsewhere. Despite this, some counterparties in the crypto industry have not helped themselves, damaging the industry’s reputation further. In any case, it is getting harder for institutions to buy crypto, and that is all that matters.

Final thoughts

In this article, there is no new information or groundbreaking ideas presented. The developments discussed are obvious and easily visible. There are no charts or much data presented, just some basic observations. However, this is actually the main point of the article. The change in the cryptocurrency industry over the past year, especially in institutional attitudes towards it, is quite notable.

The cryptocurrency market has faced many ups and downs in the past, but this time the concern is that the previous bear markets did not occur on such a large scale. Although the percentage decline may be similar, the reputational damage is much greater this time around due to the increased visibility and attention on the industry. Institutions were seriously considering cryptocurrency as a legitimate asset class that was entering the mainstream.

While this could potentially allow Bitcoin to differentiate itself from other cryptocurrencies and establish its own niche, it is still a setback for the industry as a whole. The main concern is with the other cryptocurrencies, which will face a much tougher battle to regain any sense of legitimacy.

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