Companies, small and big alike, are now involved in the cryptocurrency world more than ever. If we’re going to define what institutional investment is in this field, we can say it refers to businesses and large financial entities investing significant capital in the cryptocurrency space. This includes direct ownership of crypto assets, yes, but it could also extend to indirect investments such as venture capital for startups, crypto-focused funds, and exchange-traded funds (ETFs) linked to crypto.

They’re investing a pretty penny in this, too. As of early 2024, institutional investors and companies have poured billions into the cryptocurrency space. In Q1 2024, over $2.4 billion was invested by venture capital firms in crypto startups, signaling renewed interest after a period of decline. Besides, major firms like MicroStrategy alone hold over $14 billion in Bitcoin (BTC), and a report by the research firm Absrbd indicated that over 70% of institutional investors are planning to put money in crypto this year.

Of course, this is a risky investment for retail and institutional investors alike. One major concern is the high volatility of cryptocurrencies, where prices can fluctuate dramatically, leading to potential losses. Regulatory uncertainty could be another risk, depending on jurisdiction. Liquidity issues can arise as well, as the market might not always have enough buyers or sellers to accommodate large transactions, making it harder for institutions to move in or out of positions smoothly. Three Arrows Capital (3AC), a crypto venture fund that went broke after the Terra (LUNA) fatal crash, would have to say a lot about this.

Against all odds, there are several reasons why institutional investment in crypto keeps growing. Companies are learning to navigate the risks to reap the rewards.

High Growth Potential and Returns

Well, these are just facts. Within a year (from September 2023 to September 2024), the total crypto market capitalization has grown by over 109% [CMC]. In 2021, Chainalysis calculated that all crypto investors made around $163 billion in realized gains. Not to mention what individual coins and crypto startups have achieved over the years, without no one fully expecting it. In 2023, for instance, the memecoin Pepecoin (PEPE) had a price rally of over 7,000% in a single month just after launching. And yes, companies are investing in that one too.

Another example is the crypto exchange Binance, founded in 2017. It raised a total funding of $21 million from several venture capital (VCs) firms, and now it has annual revenues surpassing $12 billion. Of course, it’s not the only case: other successful firms like Coinbase, Chainalysis, and Ripple have gotten their initial funding from VCs, which keep making huge investments in the sector. Indeed, they provided $527 million to crypto startups in July 2024 alone.

It’s difficult to imagine companies just avoiding such good investment opportunities on purpose, despite potential risks. Even if cryptocurrency prices decrease at some point, in most cases, history has shown that they tend to recover and go higher than before. Besides, the market continues to mature, with events like the development of new platforms and the rise of decentralized finance (DeFi) pushing interest further.

Diversification of Investment Portfolios

Decentralization is a good idea when investing, and it’s used in traditional finance too. Portfolio diversification involves spreading investments across various assets to minimize risk. By avoiding concentration on a single type of investment, an individual or institution can reduce the impact of poor performance in one area, making their overall investment strategy safer and more stable. In other words: companies can (and should) invest in many things at the same time, including different coins or brands as well.

Crypto, as a relatively new asset class, offers an alternative to traditional investments like stocks and bonds, providing opportunities that can complement and diversify existing portfolios. Incorporating cryptocurrency into a portfolio can be a strategic move, especially since it behaves differently from traditional assets.

While cryptocurrencies are influenced by conventional market forces in the same way as stocks and bonds, cryptocurrencies often have their own unique market drivers too. This can offer potential benefits like reduced correlation with traditional assets, possibly improving overall portfolio performance. Besides, it’s more likely in crypto to reap huge rewards quickly if a startup or coin turns out to be successful.

Friendlier Institutional Environment

Unlike previous years, in 2024, companies are finding a friendlier environment for crypto investments thanks to improved regulations and expanded infrastructure. Many governments and regulatory bodies have worked toward clearer guidelines, reducing the uncertainty that once surrounded cryptocurrency.

For example, countries like the U.S. and Canada have made strides in approving crypto-related products, such as Bitcoin and Ethereum Exchange-Traded Funds (ETFs), which allow companies to invest in cryptocurrencies more easily through traditional financial markets. These regulatory improvements make it safer for institutional investors to engage in the crypto space, attracting more corporate interest.

Additionally, advancements in crypto custody services have made it easier for companies to securely store and manage their digital assets. Reputable financial institutions like Fidelity and Coinbase Custody offer enterprise-level solutions to protect crypto holdings. This improved security infrastructure has given businesses more confidence in entering the market, reducing the risk of theft or mismanagement that previously kept many companies from investing in crypto.

Other investment services tailored for institutional clients have also expanded, providing more options for corporate crypto investment. Crypto-focused asset managers, such as Grayscale and Galaxy Digital, offer professionally managed products that allow companies to diversify their portfolios with crypto assets. As regulations continue to evolve and infrastructure matures, more businesses are expected to incorporate crypto into their investment strategies, benefiting from a growing environment.

Technology Investment

Beyond the mere holding of coins, the adoption of Distributed Ledger Technology (DLT) is becoming a key driver in institutional crypto investments. Many companies are recognizing the potential of DLT, which underpins most cryptocurrencies, as a powerful tool for a variety of applications. As a result, institutions aren’t only investing in crypto assets but are also funding the development and adoption of DLT to streamline business operations and improve transparency.

Many companies are now using specific DLT platforms to build their own products and services. For example, industries such as finance, supply chain management, and healthcare are increasingly integrating distributed solutions to reduce costs and automate processes. Institutions like the firm R3 have developed their own DLT-based platforms, such as Corda, which is designed especially for business needs.

On the other hand, by building on top of existing DLT platforms, businesses can create tailor-made solutions that address their unique needs while leveraging the security and efficiency benefits of this technology. As more companies develop DLT-based products and services, we can expect to see increased investment in both crypto assets and the infrastructure that supports them, driving innovation and expanding the use cases for DLT across sectors.

Obyte for Businesses

Obyte, with its Directed Acyclic Graph (DAG) technology, offers significant advantages for businesses looking to build on decentralized ledger systems. Unlike blockchain networks, Obyte eliminates block producers, removing middlemen and gatekeepers. This allows everyone to operate without relying on centralized entities that could censor or delay transactions.

For industries where transaction speed and certainty are crucial, Obyte’s structure provides faster processing and deterministic finality, ensuring that once a transaction is confirmed, it remains final and cannot be rolled back. These features could make Obyte an appealing platform for businesses seeking reliable, censorship-resistant environments for their operations.

One practical example of Obyte’s business use is Aufort, a company that integrates Obyte’s DAG technology with its eCommerce platform for gold trading. By using Obyte, Aufort links its products and services seamlessly, providing secure storage for gold in audited vaults. Customers can buy, sell, or withdraw their gold with ease, while Aufort registers and handles the processes in the DAG.

Obyte offers predictable transaction costs, high throughput, and a truly decentralized infrastructure. This allows companies to develop and scale their own products on a robust platform. As industries might want to seek alternatives to blockchain-based solutions due to their high concentration of power and weak censorship resistance, this DLT platform provides an effective solution, combining speed, security, and, most importantly, decentralization for a wide range of institutional applications.

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