The Digital Asset Industry Enters a New Growth Cycle as New Macro Factors Emerge

VYSYN Weekly Release #95: Several trends driving mainstream adoption of digital assets

The digital asset industry is evolving at a breakneck pace and there have been some substantial changes in the markets. Several trends are driving massive attention to digital assets, which indicates the industry is entering a new growth phase. With rapidly expanding adoption, emerging solutions, and surging interest, the industry is faced with fresh challenges and a lot of room to evolve.

This week's edition of the VYSYN release will focus on some of these macro conditions that are driving the next wave of digital asset growth. We will also evaluate some of the effects of this shift and how they benefit investors and the industry at large.

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Institutional interest expanding to accommodate digital assets

The global financial ecosystem is currently in a large-scale transition as mainstream adoption of digital assets increases. A growing number of individual and institutional investors recognize the value of digital assets and seek to own them. This surging interest in digital assets simultaneously drives up the demand for ancillary service providers.

The industry has been witnessing spectacular growth in digital assets on-ramps and off-ramps. These are pathways that facilitate the conversion of digital assets to fiat and back. They are essential for bringing new capital into the industry and bridging the gap with the traditional financial industry.

Despite being hostile to cryptocurrencies and other digital assets in the past, major financial institutions have recently acknowledged that digital assets will form a huge part of their financial strategy. Hence, they are offering digital asset services and creating their own solutions based on them. Major players like BNY Mellon, JP Morgan, Visa, Mastercard, and BlackRock are just a few of the financial institutions providing such services.

In a recent report by Sifted, Szymon Sypniewicz, CEO of Polish crypto payments startup Ramp Network noted, "We see major trends where big telecoms, big social platforms, big banks even, are looking into Web3 and developing their own solutions based on that." The increase in on-ramp and off-ramp solutions make buying digital assets as easy as making online purchases. It also affords them flexibility, knowing that they can easily convert their digital assets back to fiat.

London-based fintech company, Revolut, recently announced that it intends to expand its foray into the digital assets industry. The company noted that it is looking at building decentralized crypto wallets. Providing this service will increase the exposure of Revolut's 18 million users to the vast opportunities the digital asset industry offers. While the company currently offers crypto trading, it acknowledged that adding decentralized wallets to its range of products will significantly boost its plans to become a "superapp". This move will provide current users with more flexibility on how to use their digital assets and encourage the increased adoption of these assets as they become even more easy to use and accessible.

Speaking of adoption, the Central African Republic made headlines as the first African country to adopt Bitcoin as legal tender, the second country in the world to do so. Following El Salvador's bold move to adopt Bitcoin last year, several governments have begun exploring the idea of adopting and regulating it. The Panamanian government is one example, as the country's Legislative Assembly recently approved a bill regulating crypto in Panama. The increasing adoption of digital assets by countries is also playing a huge role in boosting adoption and affecting overall price movements in the market.

However, as investors are trooping into the industry, they need to be sure that their digital assets are safe. This is a legitimate concern, considering that criminals have stolen over $15 billion worth of digital assets in recent times. Hence, the emergence of another ancillary service — digital asset custodial services.

Custodial services another piece of mainstream adoption puzzle

Recent digital asset trends are attracting a hoard of institutional investors seeking custodians that offer the level of services and protection they enjoy with assets like stocks and bonds. In response, a growing number of financial institutions, including banks and other traditional financial services providers, are providing infrastructure to investors to securely store, buy, and sell digital assets. 

With demand for digital asset custodial services blowing up in recent years, these financial institutions either manage investors' assets themselves or use a sub-custodian. This way, traditional financial institutions get to do what they do best — maintaining custody of clients' assets — instead of opposing the rapidly expanding digital asset industry.

Dolf Diederichsen, CEO of the Amsterdam-based fintech firm Hyphe, noted a major shift in the way traditional institutions view digital assets. "Two years ago banks couldn't trade cryptocurrency and they couldn't hold it. Now, this has been addressed, and all of the banks we talk to already have chosen a custody solution, or there's regulated custody partners,” he said.

Diedrichsen went on to explain that something has fundamentally changed in the industry. “It means that these banks can hold coins for their customers and be a custodian of funds, which has been one of the core banking services since the beginning of time,” he said.

The stock market crash of 1929 exposed the risks of self-custody and played a pivotal role in the development of the current financial ecosystem. Global governments also drafted regulations that served to protect investors and stabilize the market, paving the way for the multi-trillion dollar stocks and bonds market.

While the digital asset industry operates with a slightly different approach, clear regulations will boost the industry's growth. With digital asset custody becoming a big thing, regulations will create a clearer path for providers and encourage traditional institutions to support the growing demand for digital asset custody services. For instance, 55% of respondents to a BitWise survey of financial advisors believed that the murky state of crypto regulation is the biggest barrier to the industry's adoption.

(Source: Bitwise)

The involvement of professional custodians will increase investor confidence in digital assets, reassuring them that the ecosystem has matured significantly in recent years. More importantly, it will increase capital inflows from large institutional investors.

More institutional capital is expected to pour in as the regulatory landscape becomes clearer and governments realize the boundless opportunities offered by digital assets. These emerging trends are fast ramping up adoption, solidifying investors' confidence in digital assets, and suggesting a rosy future for the industry.

About VYSYN Ventures

VYSYN Ventures is a longstanding venture capital company that specializes in funding and supporting disruptive startups in the blockchain and cryptocurrency industry. We have provided early-stage support to several projects that have grown USD market capitalizations of hundreds of millions and even billions. Our incubation program focuses on providing capital allocation, versatile marketing support, and tech assistance.