Article by, Jesper Johansen founder & CEO at Northstake;

$1.4 trillion USD — that’s the entire market cap of the crypto industry as of October 2023. While it’s an impressive figure, it’s nearly three times smaller than the all-time high figure of over $2.9 trillion USD achieved back in 2021. In the last year, several crypto behemoths including Chainalysis, Yuga Labs, Ledger, and Coinbase announced layoffs. This, in addition to the myriad of projects that went bankrupt, points to one thing — we are in the throes of a crypto winter. But this bear market won’t last forever, perhaps not for too long either. In fact, considering the factors coming into play in the coming weeks and months, 2024 is now shaping up to be a potentially pivotal year for the crypto industry, particularly for institutional investors.

With various factors converging, including the pending approval of Bitcoin and Ethereum Exchange-Traded Funds (ETFs) in the United States and the implementation of the Markets in Crypto-Assets (MiCA) legislation in the European Union, the stage is set for a significant shift in the adoption and mainstream acceptance of crypto assets. Additionally, the Bitcoin halving event occurring in April 2024 adds further excitement and potential for a massive bull run. I would argue that there is every reason as to why 2024 will mark a turning point for institutions entering the crypto space which in turn, will unlock the industry technology for mass adoption like never before.

Macroeconomic Turbulence

The global macroeconomic landscape plays a crucial role in shaping the investment decisions of institutions. In recent months, we have witnessed repeated fiscal and monetary unrest, accompanied by excruciatingly high-interest rates, owing to international wars, pandemics, protectionist trade policies, and supply chain disruptions. This has created an environment ripe for alternative investments — with investors scrambling to secure their funds in secure stores of value. And for the first time in a long time, Bitcoin and other digital assets have seriously emerged as contenders for this. In fact, a recent report highlighted that one of the biggest reasons why Bitcoin grew in popularity, was due to its demand as a digital store of value.

As well, we have witnessed multiple examples of institutional experimentation with the crypto space, such as Standard Chartered enabling clients to participate in staking. However, despite growing interest, the entry of institutions into the crypto market is still in its nascency, and the industry is yet to reach its full potential as a global and mainstream asset class.

Unlocking the Potential

In line with the institutional state of mind, what would truly open the floodgates for crypto’s adoption is backing from multi-trillion dollar asset managers from across the globe. In the last year alone, we’ve witnessed the likes of Blackrock ($9.4 trillion USD in assets), GrayScale ($17 billion USD in assets), WisdomTree ($81 billion USD in assets), and VanEck ($76.4 billion USD in assets) submit applications to the SEC for spot or futures crypto ETFs. All in all, over 10 Bitcoin spot applications have been filed, with all of them still awaiting approval by the Securities and Exchange Commission (SEC).

Due to the aforementioned companies’ stature, reputation, and massive asset portfolios, their involvement in cryptocurrency undoubtedly carries significant weight. Being among the largest asset managers globally, their interest in Bitcoin and the crypto market as a whole signals a growing mainstream acceptance. As such, this increases the chances of the SEC approving said applications, due to the influence and credibility associated with BlackRock and its peers, making it challenging for them to dismiss the proposal outright.

As well, one of the primary concerns regulators express regarding crypto ETFs is the potential for market manipulation. However, with major asset managers offering these products, the chances of market manipulation are highly minimized. With their robust risk management practices, compliance standards, and market surveillance capabilities, they enable a more transparent and stable environment for crypto asset offerings.

The sheer size of the institutional investment potential and the influx of institutional capital inflows could create substantial buying pressure for cryptocurrencies — potentially driving up prices and generating positive market sentiment.

Favorable Legislation

In addition to the potential approval of ETFs, the implementation of the Markets in Crypto-Assets (MiCA) legislation within the European Union is expected to have a significant impact on institutional interest in crypto assets. By creating a comprehensive regulatory framework for digital assets within the EU, MiCA provides clarity and legal certainty, paving the way for institutions to confidently engage with cryptocurrencies, and fostering increased trust and mainstream adoption. With the regulatory landscape becoming more favorable, institutions will follow suit, becoming more inclined to allocate a portion of their portfolios to digital assets.

A Catalyst for Bull Runs

Another event on the horizon that could fuel the growth of the crypto market is the Bitcoin halving scheduled for April 2024. Historically, each halving event has preceded substantial bull runs, characterized by significant price increases. The reduction in the rate of newly minted Bitcoins entering the market creates a supply-demand imbalance, leading to upward price pressure. If history repeats itself, then the 2024 halving could potentially ignite another explosive bull run, attracting institutional investors seeking to capitalize on the potential gains.

Driving Value and Adoption

If all goes to plan and as institutions enter the crypto market, their participation will continue to drive value in projects, use cases, and overall adoption. Institutions bring credibility, expertise, and substantial capital, which can lead to increased liquidity, stability, and the development of sophisticated financial products. As more institutions embrace crypto, the industry will gain further legitimacy and attract a broader range of users. This increased adoption could pave the way for the next billion users to join the crypto ecosystem, fueling its democratization and pushing the boundaries of financial inclusion.

Looking at another industry that has nearly saturated both the developed and developing world: smartphones, it’s hard to imagine that it all began 30 years ago with IBM’s Simon Personal Communicator. This promising device could handle calls, emails, and faxes but with a battery life of just one hour. From this point, it took a further 15 years before an industry giant called Apple stepped in and helped make smartphones truly mainstream. With the invention of the iPhone in 2007, Apple built on IBM’s initial idea of a multipurpose device and democratized the technology to millions of users like never before. Institutions will do the same for the crypto industry. And when it happens, it will scarcely be recognizable to the landscape that exists today.

As more and more traditional finance (TradFi) enterprises begin experimenting with crypto applications, it will give rise to interesting utility cases for users to interact with Web3 applications. People will be able to leverage these apps in their day-to-day lives, moving on and off-chain, seamlessly switching between traditional and decentralized finance (DeFi) platforms.

With an ever-increasing integration between crypto and institutional investment, it wouldn’t be remiss to suggest that 2024 could be the year when crypto payments are advanced, and potentially used to fund government and private campaigns — further driving the price of these assets.

A Pivotal Year

With all these dominoes in play, 2024 is looking like it holds tremendous promise for institutions looking to capitalize on the cryptocurrency market. The convergence of regulatory developments, the Bitcoin halving, and the favorable macroeconomic conditions set the stage for increased digital asset adoption and mainstream acceptance. As institutional interest grows, the industry will experience heightened liquidity, stability, and the potential for explosive bull runs. This influx of institutional capital and participation will not only drive the value of said assets but also pave the way for billions of users to access and benefit from the advantages of blockchain technology. As we approach 2024, it is evident that the crypto industry is on the cusp of a significant transformation, driven by the entry of institutions and the democratization of finance on a global scale.