Brokerage firm Bernstein has advised institutions to get into crypto and abandon their “zero crypto allocation” strategy.
In a research report released Monday, the asset manager said crypto is poised to transition from an infrastructure-heavy thesis to an application-heavy thesis in 2023, laying the groundwork for an “age gold” of a decade of innovation for cryptocurrency applications. The company also said that 2023 would be the best year for institutions to create their crypto strategy.
“Get out of zero crypto allocation. For institutional investors with no crypto allocation, 2023 might be the best time to start placing the building blocks of a long-term strategy.”
Bernstein said retail traders have been the driving force behind crypto development to date. “Going forward, we expect growth to be driven by institutional investors with a stake in on-shore regulated structures,” wrote analysts Gautam Chhugani and Manas Agrawal.
Therefore, Chhugani and Agrawal believe there will be “massive opportunities” for institutional capital growth in areas such as custody, market making and prime brokerages.
Specifically, Bernstein analysts expect the institutional services opportunity to grow to a staggering $30 billion by 2033, a compound annual growth rate of 37%. The growth will see crypto-related custodial solutions become an $8 billion market, with market making and prime brokerage also reaching $8 billion and $14 billion, respectively.
Additionally, the asset manager predicts that cumulative crypto revenue will increase sixteenfold over the next 10 years, growing from around $25 billion in 2023 to around $400 billion by 2033. Bernstein claims that “decentralized blockchain-based revenue” will make up nearly half of that tally, up from just 15% today.
Bernstein also expects the channel’s revenue to grow from less than about $4 billion today to nearly $200 billion over the next decade, driven by “innovation in scalability.” of blockchain and the growth of applications in the financial services and consumer technology segments”.
Decentralized exchanges (DEX), lending and structured/tokenized products are expected to account for the bulk of on-chain finance app revenue, the broker added.
As noted, the World Economic Forum (WEF) has said the technology that underpins cryptocurrencies and digital assets will continue to be an integral part of the modern economy. In a report earlier this month, the organization said:
“Indeed, to test the resilience of digital assets and blockchains at the heart of financial services (and other areas of the global economy), look at what big banks and mature financial services companies are doing, not what they say.”
The WEF compared the adoption of crypto and blockchain technologies to the adoption of cybersecurity and digital transformation. “Adoption of crypto technology is also inevitable, even though the term sounds like a dirty word,” the organization said.