Correcting misconceptions about institutional interest in crypto and why Circle’s IPO could bring more regulatory clarity to stable coins in the United States.
So the consumer price index finally showed signs of inflation this week. And it came in hot, with year-over-year inflation in the United States hitting 5.4 percent, well above the Federal Reserve’s target of 2%.It’s also a 13-year high (FYI, that was 2008, which wasn’t exactly a good year for the economy). What’s the real kicker? Professional investors appeared unconcerned.
The 10-year Treasury bond yield, which happens to be used to set rates of mortgage and corporate debt borrowing costs in the United States, initially fell.Government-issued bond yields tend to rise, not fall, as inflation and economic growth expectations rise. Although the 10-year eventually rose, the initial reaction was unexpected.
With the markets in mind, I’d like to use this week’s newsletter to discuss the alleged lack of established interest in bitcoin (BTC, -0.36% ).(Hint: it’s obvious it’s not lacking.) I also wanted to explain why, as a result of Circle’s upcoming public listing in Q4 2021, I believe the industry is poised to see another surge of institutional interest in cryptocurrencies.
Institutions Allegedly Don’t Care regarding Crypto
The CEO of BlackRock, Larry Fink, made headlines this week when he said on CNBC’s “Squawk Box” that there was “very little demand” for crypto assets. “You’ve asked me about cryptocurrency and bitcoin in the past. “In my last two weeks of business travel, not a single question about that has been asked,” Fink said.
Fink was, after all, talking about how registered investment advisorsand retirement investing, pension funds, as well as insurance companies must build portfolios for their clients over the long term. He wasn’t referring to hedge funds, endeavour capital firms, or big corporations’ institutional investment policies.
So, while I don’t believe Fink was implying that institutional interest in crypto assets is low in general, I do want to focus on the misguided implication that institutions don’t care about crypto.Since the bitcoin price began to fall from its all-time high of $64,888.99, and anecdotal evidence like Fink’s statements began to suggest that the smart money was no longer in the crypto space, people have asked me questions about it.
VC Funds and Crypto Direct Investments
In Q2, we have not witnessed the same rush of companies purchasingbitcoin to place on their balance sheets as in Q1. Instead, we’ve seen a massive influx of capital into crypto companies via venture capital funds and direct investments. In the first half of 2021, there was more deal activity for blockchain-focused companies than there was in the entire year of 2020.Even though VC funding across all industries has reached new highs this year, the percentage of deal activity going to crypto and blockchainstartups has increased from 0.89 percent to 5.97 percent from H2 2020 to H1 2021.
The timeline below shows some of the most significant deals and fund raises over the last four months.In addition, VC funds have been raising record amounts of money in the last quarter. Andreessen Horowitz (a16z) announced on June 24 that its Crypto Fund III had raised $2.2 billion, making it the largest crypto-related fund to date.
The fact that venture capitalists are investing in crypto companies does not mean that all types of institutions are currently interested in the technology.To some, VC bets are one-in-a-hundred-thousand-thousand-thousand-thousand-thousand-thousand-thousand-thousand-thousand- (so goes the cynic). The public listing of crypto financial services firm Circle is one upcoming event that I believe will pique institutional interest in crypto.
Circle announced on July 8 that it intends to go public through a merger with Concord Acquisition Corp., a special purpose acquisition corporation (NYSE: CND).It may appear innocuous because $4.5 billion is nothing in the grand scheme of capital markets, but the butterfly effects of Circle going public could have far-reaching consequences for the crypto markets by bringing greater regulatory clarity to stablecoins in the United States.
The Introduction of a Regulatory-Compliant Stablecoin
Stablecoins are digital currencies that are pegged to the value of fiat currencies. Circle created USDC, a dollar-pegged stablecoin, in collaboration with cryptocurrency exchange Coinbase in 2018. USDC (-0.01%) is governed by Centre, a membership-based consortium that sets technical, policy, and financial standards for stablecoins, and is fully backed 1:1 by an audited reserve.USDC isn’t the only dollar-pegged stablecoin out there; it’s the second-largest after tether (USDT, -0.01%). (USDT).
Stablecoins are critical to the health of crypto markets because they address the issue of high volatility and fiat-to-crypto conversion. Stablecoins were critical for market growth when banking relationships were difficult to come by for crypto exchanges.
Circle Going public could be a crucial step in gaining regulatory simplicity and recognition for stablecoins in the United States, according to Circle co-founder Jeremy Allaire, who stated on CoinDesk TV that Circle’s goal for going public was to provide “greater reserves transparency” to auditors and the US Securities and Exchange Commission (SEC).Allaire also expressed interest in working with regulators to see “adjustments to various forms of banking and payments regulations to adapt to some of the nuances and characteristics of stablecoins,” according to Allaire.