The global cryptocurrency market is worth over $1 trillion in 2023. Leading the way is the media’s favorite digital currency, bitcoin (BTC), with a market cap of nearly $539 billion.
In recent weeks, the bear market that took hold in 2022 started to show signs of a reversal. Cryptocurrency prices are on the rise again, thanks in part to the emerging US banking crisis.
The potential end of the so-called “crypto winter” is not the only change in the market of late. Crypto trends like the rise of ETFs and digital asset hedge funds are transforming the way most people view this asset class.
Are you considering making an investment in digital assets like BTC? There is a lot of gain from crypto investing, but first, you need to know what to expect. So, here are the most important cryptocurrency trends shaping the market today.
1. The 2023 BTC Rally
Cryptocurrencies like BTC saw poor performance throughout 2022. The bear market, also known as crypto winter, continued into the first few months of 2023. Prices dropped to their lowest value since 2018.
With the announcement of the failure of Sun Valley Bank (SVB) and Signature Bank New York (SBNY), it looks like the market is entering a new season. BTC alone rallied 27% in only one week.
Why the reversal? Many experts view crypto as a safe haven asset similar to gold. When the traditional market starts to decline, this theory goes, investors will move their funds to safer asset classes like crypto.
Analysts have been predicting a recession for over 18 months now. It looks like that prediction is finally about to bear fruit. That may explain why the market is taking a turn for the better.
Meanwhile, BlackRock CEO Larry Fink has warned investors from putting all their eggs in BTC’s basket. Consider investing in alternative digital currencies (called “altcoins”) in addition to bitcoin.
2. The Increasing Relevance of Crypto ETFs
Speaking of investing in other digital currencies, that is now more possible than ever before. Cryptocurrency exchange-traded funds (ETFs) allow investors to put their funds into multiple digital currencies at once.
So far, there are two types of crypto ETFs. The first works virtually the same as traditional ETFs. The fund tracks the cryptocurrency market index via a basket of different digital currencies.
The second type requires investors to work with crypto hedge funds and other investment companies. Investors pay for digital coins as they would traditional shares. Then, the fund manages the investment on their behalf.
Indexes the latter type of ETF tracks include the Chicago Mercantile Exchange (CME) and the S&P’s new Cryptocurrency Indices. The world’s first ETF tracked prices of BTC futures.
Both types of ETFs significantly reduce the risk for the investor. At the same time, investors can take advantage of any gains in the crypto market. As such, experts expect crypto ETFs to drive even further adoption of this asset class.
3. Moving Toward Crypto Tokenization
Tokenization is the process of turning company profits into marketable securities (AKA shares). Crypto tokenization, on the other hand, turns digital currencies into blockchain tokens. Then, investors can trade them like shares.
Cryptocurrency tokenization may not mean a whole lot to individual investors. But it will make it easier for financial institutions to manage crypto assets more easily than ever before. This will have an impact on individuals like you.
For example, investing in a single BTC will cost you around $28,000 as of this writing. Most people do not have the funds to invest that much. Even if they do, most investors don’t want to because crypto is still a risky asset class.
Tokenization also enables fractionalization. That means funds can offer fractions of bitcoins and other high-cost cryptocurrencies. You can pool your funds with other investors, similar to how you would invest in an ETF.
But asset tokenization is a trend that will not just affect the digital currency industry. It will also allow for easy fractionalization of real estate, bonds, rare artworks, and even gold.
4. The Question of US Crypto Regulations
The United States has shockingly few regulations when it comes to digital currencies. There are regulations around how to define crypto (is it an asset or security?). There are also regulations regarding cryptocurrency taxes.
Otherwise, the US has fallen behind other countries around the world in terms of regulation. That is part of the reason why institutions have entered the space only modestly.
Regulations would cut risk and reduce criminal activity. Crypto’s relationships with unsavory business is another primary reason financial institutions and major corporations have historically shied away from the asset.
The recent downfall of SVB, SBNY, and Silvergate Capital may spur these types of regulations. The three banks dealt greatly with crypto startups. Some sources have suggested that they didn’t apply anti-money laundering regulations to crypto the way they should have.
But most regulations will likely address the market. Crypto is a notoriously volatile investment. Putting risk management regulations in place can protect vulnerable investors.
5. Growth in Institutional Interest
Cryptocurrency may be in a bearish market. But that has not stopped big-name institutions from continuing to feed funds into digital currency investments. In fact, most institutions have increased crypto allocations.
A survey from Institutional Investor asked financial institutions about their crypto investing strategies. The majority (72%) said they take a long-term view of the industry. A similar percentage expects prices to rebound in the coming years.
Meanwhile, 62% of those surveyed said they increased allocations to crypto over the last year. 58% said they plan to continue putting funds into digital currencies from now until 2026.
Until now, retail investors have been the primary drivers of the crypto industry. They also drove the volatility of the market. Many big companies feared taking a position without the support of other large financial institutions.
The entrance of large banks and other financial institutions has increased trust in the industry. It is one of the first signs that digital currencies are here to stay.
6. The Corporate Crypto Revolution
Big banks are not the only economic giants taking an interest in crypto. The world’s largest and most well-funded companies are also taking bets on the space. Top companies like Google and Apple are among them.
Some companies like Tesla are only investing in crypto to hold it on their balance sheets. But other corporations are introducing innovative products that contribute to the industry more indirectly.
For example, Microsoft recently invested $27 million in a startup called Palm NFT Studio. The company produces non-fungible tokens (NFTs). They expect to use the funds to expand into gaming and other creative ventures.
Other companies like Amazon have considered accepting cryptocurrency payments. Amazon has even announced intentions to look into selling NFTs via its e-commerce platform.
These innovative companies are expected to increase crypto use cases even further. The rise of the metaverse and Web3 may also push corporate adoption of cryptocurrency and the technology that underlies it, blockchain.
7. The Rise of Crypto Hedge Funds
Hundreds of new cryptocurrency hedge funds have popped up over the past few years. And according to PriceWaterhouseCoopers, more than a third of all traditional hedge funds allocate to digital currencies.
As you can see from this article, reducing risk in the sector is critical for future adoption. The increase in hedge funds dealing in crypto furthers this agenda. Investors can reduce risk by having a specialized fund manager control their assets.
Working with a hedge fund that specializes in crypto offers even more benefits. These funds specialize in digital currencies. They are uniquely situated to research the industry and make smart investments on your behalf.
Additionally, crypto hedge funds tend to outperform their Wall Street counterparts. Crypto hedge funds have seen great returns over the last 36 months compared to traditional funds.
Do you want to learn more about the difference between traditional and crypto hedge funds? Check out this article on our blog, where we define the two and explain the top reasons to consider investing in this asset class.
Take Advantage of These Crypto Trends With TrueCode Capital
We have only scratched the surface with these seven crypto trends. The market is relatively new and constantly shifting with the latest regulations and innovations. Make sure you don’t miss out on this exciting new sector.
Are you looking for a crypto hedge fund to de-risk your investment? At TrueCode Capital, we help investors like you get into the digital currency space. Contact us today to learn more about our offerings.
