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2021: Year of Institutional Bitcoin Adoption as VC Crypto Funding Hits $25B

2021 might be the year when institutional bitcoin (BTC) adoption finally happened, with venture capital funding for crypto asset firms rising 720% year-on-year to $25.1 billion, according to data by The Block Research.

Throughout the year, several companies bought BTC, it says, including Jack Dorsey’s Square, which allocated nearly 5% of its assets to bitcoin. The idea is that as a reserve asset, BTC is a solid hedge against fiat inflation.

While Marathon Digital Holdings kick-started the institutional migration with an $150 million bitcoin purchase (rising to $181 million later) in January, it is Michael Saylor’s MicroStrategy Inc. that carried the torch of corporate adoption.

The U.S. technology firm went all out on bitcoin, and has spent a total of $3.66 billion on the digital asset to date. MicroStrategy now holds 122,477 BTC – the most of any publicly traded company – with a current market value of $5.91 billion, according to Bitcoin Treasuries.

MicroStrategy’s decision to buy BTC as a strategic primary reserve asset – though considered controversial at first – became an important stamp of institutional approval of the crypto’s credentials as a mature, safe-haven asset.

The firm’s Bitcoin Summit in February, where Saylor front-ran corporate bitcoin naysayers, eliminated doubt – if there was any – of MicroStrategy’s new strategy going forward.

No sooner had Tesla CEO, Elon Musk, added #bitcoin to his Twitter profile than the electric carmaker announced the purchase of $1.5 billion worth of BTC. In March, Tesla started to accept bitcoin for payment, but later rescinded the decision due to environmental concerns.

Today, Tesla holds 43,200 BTC valued at $2.1 billion. Altogether, several public companies – and some governments – now hold bitcoin in reserve, much of it bought during the first six months of 2021.

Larry Cermak, vice president of research at The Block, said while institutional adoption remained “extremely speculative, the [crypto] space is now infinitely more mature than ever before. Unlike 2017 when it was not clear, it is now obvious crypto is not going away.”

Legacy financial institutions muscle their way into crypto

A few entities have already been taking multiple forms of crypto for payment prior to 2021. However, that list grew in size this year, as some market leading names such as WeWork, Substack and insurance giant, AXA, began accepting payments in bitcoin.

According to The Block Research’s150-page “Digital Asset Outlook” report, banking and other traditional financial institutions also started to engage directly with cryptocurrencies in 2021.

Companies like PayPal, and BNY Mellon, which has $25 trillion of assets in custody, muscled their way into crypto custody, with strategic acquisitions of like-minded entities. Titans such as State Street and Finserv also claimed a stake in the space.

In March, Goldman Sachs, the U.S. investment bank, relaunched a crypto trading desk that it closed shortly after opening during the 2018 bull cycle. In May, the company executed its first bitcoin derivatives trades.

Immediately after this, another U.S. banking group, Morgan Stanley, said it had opened access to three funds that provide bitcoin exposure for high-net-worth clients. Later in June, Spanish bank BBVA, launched a crypto trading and custody service for private customers from Switzerland.

Bitcoin ETF approval marked with excitement

To cap it all, the U.S. Securities and Exchange Commission (SEC), separately approved three bitcoin exchange-traded funds (ETF) that invest in futures contracts. Applications from Proshares, Valkyrie and VanEck received the green light between October and November.

While the Canadian securities regulator approved Purpose Investments’ bitcoin ETF as the world’s first such product in March, excitement centered around an exchange-traded fund from the U.S., which booked its first application from the Winklevoss twins eight years ago.

It was little surprise when BTC sprinted to a record high of $69,000 on Nov. 10, a few weeks after the SEC’s first ETF approval.

To date, bitcoin futures volume on the Chicago Mercantile Exchange (CME), now used for bitcoin ETFs, have climbed to $700 billion this year from $130 billion a year ago, says the report.

‘It’s been a historic year for cryptocurrency and blockchain technology, and not only due to the rising price of bitcoin,” Emil Angervall, co-founder of Corite, a blockchain-based digital music distributor, told BeInCrypto.

“While the top crypto asset took the spotlight in the first quarter of the year, fuelled by growing corporate and institutional interest…the bigger trend of the year in crypto was the surprise emergence of a lesser-known technology: non-fungible tokens (NFTs),” he added.

Crypto venture capital funding grows

Meanwhile, in 2021, there was more private investment allocated to crypto companies than the previous six years combined [totalling $14.4 billion], said Larry Cermak, The Block VP of research.

So far this year, venture capital (VC) funding into crypto amounts to $25.1 billion, up 719% from 2020. In total, VC money was put in 1,703 crypto or blockchain deals this year.

There were at least 38 venture capital rounds worth an average $176 million each in the crypto space in 2021, the report says, referring to these transactions as “later-stage deals”.

Cumulatively, deals could be worth anything from a few millions to hundreds of millions of dollars. Companies focusing on NFTs or gaming, trading or brokerage, infrastructure and crypto finance attracted the biggest funding.

“2021 was a defining year for the blockchain and cryptocurrency sectors where it matured from a nascent industry to a budding industry that lays host to a diverse set of mid to later-stage firms that are generating revenue,” it said.

“Unlike the previous cycles — most recently, 2017, the sectors were prepared and had the infrastructure in place to service the demand from institutions, traditional investment funds, asset managers, family offices, and high net worth individuals.”

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