Author: Stablecoin Sean, Partner at FinTech Collective

Translation: Felix, PANews

We are currently in the midst of the cryptocurrency conference season in the United States, so it is expected that the usual "institutions are coming" or "what technologies or protocols will institutions adopt" will permeate all conferences. The fundamental issue is that in the United States, the term "institutions" encompasses too much, and you must have a very detailed understanding of the different types of institutions and their relationship with cryptocurrencies. Here is the author's view on the current situation of institutional involvement in cryptocurrencies in the United States:

Large Asset Owners (pension funds, endowments, foundations): They have definitely slowed down their allocation to crypto funds and direct funds, and most of them are not even involved with cryptocurrencies at the moment. Perhaps they are attending conferences, but they will definitely not allocate. They are the most conservative, so their actions will certainly be the slowest and the last when/if the market recovers.

Asset Management Companies (such as Fidelity, Van Eck, Franklin Templeton, BlackRock, etc.): Asset management companies are constantly in the news about applying for ETFs and disrupting banks with blockchain technology. Because today's financial disintermediation is taking money directly from the pockets of asset management companies and leaving it directly to banks. Asset management companies are the most supportive of cryptocurrencies, with companies like Franklin Templeton actually running nodes on public blockchain networks such as Ethereum, putting MMFs (money market funds) on-chain, and running SMAs (simple moving averages) for clients to provide alpha for cryptocurrencies.

Banks (such as JPMorgan, Goldman Sachs, Morgan Stanley, etc.): Permissionless cryptocurrencies are not their friends. Cryptocurrencies are most disruptive to their monopolistic/fee structures, so it is best to believe that they are lobbying behind the scenes to protect their businesses and consumer finance from the impact of DeFi and other things. Apart from BTC and ETH, they cannot touch other cryptocurrencies due to the strictest compliance and regulations. Banks are running private versions of some public chains, which are neither truly open access nor open source, just to cut the costs of back-end operations.

Enterprises (real enterprises, not real institutions): They are experimenting with blockchain technology in new use cases and have historically been directly distributed. For example, stablecoins from companies like PayPal and Visa, loyalty points from companies like Starbucks, and NFTs.

Smaller Asset Owners (family offices, high net worth individuals): They suffered the most losses in 2022 and 2023, and over-allocated to all technology sectors, including cryptocurrencies. These institutions will not enter the cryptocurrency field so quickly.

The next time someone uses the term "institutions" related to cryptocurrencies, if they cannot distinguish between these categories, it is best to keep their comments appropriately cautious.

So, where do high-frequency funds, venture capital, and fintech companies belong, are they worth categorizing, and what is their current market position?

The author believes that fintech companies definitely belong to the aforementioned clear enterprise category—currently experimenting and willing to use DeFi as better, faster, and cheaper backend and middleware than traditional systems.

Compared to large asset management companies, high-frequency investment funds/venture capital funds are classified as a small part of "asset management companies." Hedge funds are very speculative about this field and are interested in cryptocurrencies because they can extract value—arbitrage, MEV, quant, systematic strategies, market-making, and even potential radicals (evidently present in protocol governance/DAO)…. But most high-frequency funds are currently struggling with the small size of the crypto market, strong regulatory opposition, and immature trust issues with trading infrastructure/control/custody, and they hope this situation will change to allow for more participation.

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