As of June, 2021, the use case for blockchain that has achieved the highest level of adoption among businesses is portfolio diversification. Indeed, digital asset trading volumes have become quite large: the total market cap of all cryptocurrencies is nearly equal to that of the high-yield bond market, and already half the size of the small-cap market as a whole. This growth shows no signs of slowing down.
Large trading volumes are not the only metric that indicates growing maturity for crypto. While Bitcoin remains dominant as an inflation hedge and gold alternative, the numbers show
that other cryptocurrencies are finding their places in both retail and institutional portfolios. Investors are no longer simply turning to one or two cryptocurrencies, but are increasing their exposure to a wider variety of tokens - thereby working principles of diversification into their digital asset portfolios. Growing regulatory certainty
Over the last few months, the approach that the United States intends to take with digital assets has become much more clear. In January, the Office of the Comptroller of the Currency (OCC) authorized
the use of stablecoins as a means of payment. Later, in April, former SEC Chairman Jay Clayton clarified previous statements by saying that Bitcoin had not been considered a security for some time and that the asset should be regulated.
Consequently, in May, Gary Gensler - the new and apparently crypto-friendly
SEC chairman under the Biden administration - announced that work had begun on a regulatory framework for cryptoassets. As a result, the US will join a list of 34 other major economies that regulate the new asset class, including the United Kingdom, Japan, Russia, Hong Kong, and Singapore. Institutional interest
Major publicly-traded companies and funds are investing in cryptocurrencies, too. Yahoo Finance maintains a list
that tracks public non-cryptocurrency companies with crypto exposure. The list includes Visa, Microsoft, Nasdaq, Goldman Sachs, Square, and MicroStrategy.
In the United States, a crypto ETF is on the horizon and similar digital asset funds are already trading in other countries, including Canada
. Analysts expect these funds to add significant value to crypto assets, just as was the case with gold, which rose sharply in price when the first precious metal ETFs were introduced in the early 2000s. Post-pandemic inflation fears
As things slowly begin to return to normal in the post-coronavirus world, the economic consequences of the pandemic are becoming more and more apparent. Inflation rates in the United States as of April
were at their highest in thirteen years and investors worldwide have been moving their money into inflation hedges. Bitcoin has become quite popular among this cohort.
We have already explained why we think this is elsewhere
, but the fact of the matter is that Bitcoin performed 10 times better than gold
in 2020. Bitcoin's unique characteristics are proving themselves to be quite attractive to certain groups of investors, including a growing number of fairly conservative money managers. No portfolio left behind
It is becoming more and more common for financial analysts and other specialists to recommend to retail investors at least single-digit exposure to digital assets. This is exciting news, as just 1% exposure from all retail investors in just the United States would leave plenty of room for the total cryptocurrency market cap to grow. It is not overly optimistic to expect greater levels of adoption in the not-so-distant future.