By Anton Chashchin, Managing Partner of Bitfrost
In the midst of a crypto winter, with $2.25 trillion lost across the market in the past few months alone, many institutional investors have been actively taking profits in an attempt to hold on to at least some of their assets, while others have crashed so as not to lose more in the event of a market fall.
Yet regardless of the economic downturn, applications of blockchain technology continue to grow in sophistication. One such area is DeFi (Decentralized Finance), which is the term given to the reinvention of financial services in Peer-to-Peer and blockchain. The aggregate value of assets deposited in DeFi transactions has grown from $601 million at the start of 2020 to $166 billion in 2022, according to blockchain data provider Amberdata.
However, unlike what we have seen before, this rise was not primarily driven by retail investors, but rather by institutional investors who have recently joined or are increasing their presence in DeFi because they understand that the digital asset will stay with us for a long time to come. As this trend has continued throughout the crisis, a few instruments are particularly noteworthy.
1. The Metaverse
Virtual reality, mixed reality, augmented reality, and other similar technologies have been around for a long time, but Decentraland and other companies in the crypto ecosystem are now fundamentally changing the way we think about the metaverse. Prophecy Market Insights forecasts that the global Metaverse Market was worth $337.23 million in 2020 and is expected to reach $1,003.06 million by 2030, growing at a compound annual growth rate of 11.50% in the meantime .
Following the integration of the metaverse across a range of media platforms, institutional investors have now begun to enter the market, which holds huge potential for growth thanks to the crypto-decentralized core structure that underpins it. Venture capital firm Andreessen Horowitz (a16z), for example, recently launched a $600 million fund focused on metaverse games.
Non-fungible tokens (NFTs) present a new frontier of promising investment opportunities for investors, asset managers, and creators by commodifying previously non-tradable assets. A panel of fintech experts from the Finder recently predicted that the market capitalization of NFT will reach $26 billion by the end of 2022 and rise to $146 billion by 2025.
Although the current narrative around NFTs often focuses squarely on art and collectibles, legacy institutions like Christie’s and Sotheby’s rapidly entering the space have further energized the market, giving it credibility as a class of assets and inspiring the confidence of retail and institutional investors who were previously watching in intrigue from behind the scenes.
For example, a number of prominent Silicon Valley crypto VCs recently supported a new upstart NFT fund led by Andrew Jiang and Todd Goldberg. The $30 million fund – Curated – is dedicated to buying and owning NFT artworks, including popular “prime NFTs” like CryptoPunks, Art Blocks and Bored Apes, as well as singular NFT works of popular artists.
More than a buzzword or a trend, the expansive and decentralized ecosystem of NFTs has the potential to generate immense value for the institutional investment industry. And while the whole usefulness of tokenization is in its infancy, the adoption of NFTs will likely impact every aspect of our economy for years to come.
3. Crypto Wallets
With the evolution of Web 3 ecosystems, alongside growing institutional interest, the issue of digital user identification is increasingly being raised among DeFi developers.
Far-sighted institutional investors are already paying attention to promising projects related to crypto wallets, which will become the key to being present in the metaverse, used as input in games, to help build collections of non-fungible tokens (NFTs), and enable commercial transactions. Crypto wallets will operate independently of crypto exchanges and will be connected to everything users and businesses are already doing online.
A time to be vigilant
Given the recent volatility in digital assets, it is natural to be skeptical of future opportunities in the DeFi space. But it would be irresponsible to ignore their intrinsic value.
With crypto regulatory work intensifying and the very real possibility of a long crypto winter, every institutional investor should at the very least maintain a watchdog position. More active institutional crypto advocates will enjoy a significant head start once the freeze finally begins to melt.