Crypto has had a lacklustre summer but there are three key steps which could put life back into the market, according to Ben Laidler, Global Markets Strategist at eToro.
Laidler says that despite a slow summer for performance, crypto as an asset class is in fact one of the best performers of 2023 so far.
He points out the market has lower volatility than gold, but institutional adoption could prove a real driver of the market in the months ahead.
“The $1.2 trillion crypto asset class is by far the smallest but the best performing this year, he says. “Crypto’s correlation with tech stocks has plunged, and its volatility is now below competitor gold.
“The near-term investment case focuses on approval of the first spot Bitcoin ETFs, the emerging regulatory clarity, and next April’s bitcoin ‘halving’.
“A slower moving but big driver is institutional adoption, with the asset class pioneered, and already well-owned, by retail investors.”
Laidler sees three big institutional adoption catalysts coming for the market. The first is new accounting rules to make company crypto ownership more attractive.
He says: “The US accounting standards board (FASB) is set to make it easier for companies to own crypto. The move from an historic cost to new fair value treatment would see regular price adjustments pass through the income statement.
“This would better reflect their value, even if it introduces more earnings volatility. Only around 55 of the c.50,000 publicly listed companies globally own bitcoin today, representing 1% of the total supply, led by MicroStrategy, Marathon Digital, and Tesla.
“By contrast, companies, through share buybacks, have become the biggest single buyer of US stocks, purchasing $920 billion last year alone.”
Secondly, he points out the introduction of international bank limits on crypto holdings, while low in percentage terms, are a potentially vast demand accelerant for the market.
“Global bank regulators set crypto exposure limits, to be implemented by mid 2025. Banks are limited to holding riskier cryptoassets equal to 1% their total Tier 1 capital, up to a max of 2% including stablecoins.
“With global tier 1 capital at around $10 trillion, this is an upper limit of c.$200 billion ownership.”
And finally, Laidler believes a major central bank could soon announce a forex position in a major cryptoasset such as bitcoin.
“Central banks may further diversify their huge FX reserves to include bitcoin alongside gold. Gold is 17% of global total FX reserves today.
“This is worth $2 trillion – or three times Bitcoin market cap. None have been announced yet but a first may be coming.”
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