The crypto ecosystem has been challenged 'no fewer than probably 100 times' over its lifetime. Here's why many institutions are still piling into the asset class, and what roadblocks remain.

The crypto ecosystem has been challenged 'no fewer than probably 100 times' over its lifetime. Here's why many institutions are still piling into the asset class, and what roadblocks remain.
"Future of Finance," an Insider virtual event, was presented on June 8, 2021.Insider
  • As the crypto market continues to see its most notable boom yet, big companies in the sector have encouraged traditional Wall Street to venture into the space.
  • The crypto market is "much healthier and much more two-sided" than ever, said one investment firm CEO.
  • The conversation was part of Insider's virtual event, "Future of Finance," presented by Grayscale.

All eyes have been on the crypto space this year as it has undergone its most notable boom in history. The volatile and often-polarizing space has drawn criticism from the likes of famed investor Charlie Munger while attracting capital from hedge fund legends Paul Tudor Jones and Ray Dalio.

2021 may well mark an inflection point in the maturation of the nascent crypto ecosystem.
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"I think what we're seeing now is a market that is much healthier and much more two-sided than we've ever seen before. And the dynamics at play in the crypto market today are very different than they were in the 2017 run-up," said Michael Sonnenshein, CEO of Grayscale Investments, the company behind the world's biggest crypto fund, the $37 billion Grayscale Bitcoin Trust.
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"We've really seen the development of derivatives lending and borrowing, the development of order management systems indices, and further regulatory clarity around the asset class," he added.

Sonnenshein 's comments were made during Insider's recent virtual event, "Future of Finance," presented by Grayscale, which took place on June 8, 2021.

"[Investors] are now seeing that there is no more stigma or any career risk associated with getting involved in crypto," Sonnenshein said. "They're seeing notable experienced investors getting involved in the ecosystem."
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This panel, titled "Crypto - The Golden Child of Fintech?" was moderated by Bianca Chan, finance reporter at Insider and featured Sonnenshein along with Lauren Abendschein, head of Americas institutional coverage at Coinbase.

Sonnenshein said crypto is still in its early days, noting the recent proliferation of crypto use cases like stablecoins, reward tokens, governance tokens, and smart contracts. He said that sophisticated investors are recognizing that engagement in the space is more than just about short term price action. Abendschein said that historically, crypto has faced three key barriers: regulatory uncertainty, costing, trading, and lending infrastructure, and investor perception. She said all three areas have seen meaningful change that have helped encourage wider adoption.
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"I think this is where having incumbents like Coinbase and Grayscale who have performed over extended periods really helped to bring adoption from Wall Street," Abendschein said.

Sonnenshein said regulatory uncertainty is no longer an issue for investors. Chan, the moderator, pointed out that the US Securities and Exchange Commission has not yet approved a Bitcoin ETF despite longstanding efforts from the crypto community.

Sonnenshein said that Grayscale first began dialogue with the SEC about turning its flagship fund, the Grayscale Bitcoin Trust, into a bona fide ETF, in 2016. Grayscale pulled out of the approval process in 2017 after realizing regulators "were just not yet ready" for such a product, he added.
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"Some of the issues that regulators have cited around the crypto ecosystem are things like surveillance sharing, you know, these are the types of protections in monitoring that are in place for equities and other assets. And we just don't yet have that level of infrastructure around crypto markets and crypto order books and exchanges," Sonnenshein said.

Chan asked Abendschein about Coinbase's recent report on sustainability concerns surrounding Bitcoin's energy use. Abendschein said that the report found Bitcoin miners use green energy because of its abundance and low cost, and that they could actually help drive demand for more renewable energy.

Sonnenshein sees the scrutiny around Bitcoin's environmental footprint as a driver of progress for the asset class.
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"10 or 12 years into the life cycle of this asset, the fact that we are able to focus on things like sustainability and ESG, we're going to use this as an opportunity as an industry to put together new solutions employing new technologies because we've seen this ecosystem get challenged no fewer than probably 100 times over the course of its lifecycle," Sonnenshein said.

Sonnenshein noted the abundance of research and educational materials available to investors interested in crypto. "I think any investor who is deploying capital into crypto today is certainly doing so I would say from the most informed vantage point that we've ever seen."

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