Bitcoin Matured from Retail-Roots to Larger & More Conservative Institutional Investors Allocating: Coinbase H1 Report

“11 years from its inception, Bitcoin continues to lock in its network effects,” states Coinbase’s H1 report that points out how the world's leading digital asset storing $176 billion in value weathered a macroeconomic shock that saw it crashing to $3,800 only to rise back to $10,000.

All this while achieving a wide distribution of holders and growing its hash rate and security via mining, which “reinforced its staying power in the first half of 2020.”

The first half of 2020 also saw increasing direct institutional allocation to digital assets, maturing from its retail and crypto-fund roots.

Coinbase also saw more substantial and more conservative institutional investors allocating in bitcoin for the first time as part of their alternatives strategy.

“We saw a noticeable uptick in our institutional business’s growth in H1 and continued to add leading university endowments, traditional multi-strategy hedge funds, VCs, and large family offices to our roster of clients buying digital assets directly.”

According to Coinbase, investors are still in the early days of untangling the relationship between macroeconomic policy and crypto but are increasingly turning to BTC.

This also means the rising demand for prime brokerage. Just this week, Acting Comptroller of the Currency Brian Brooks, ex-chief legal officer at Coinbase, declared that banks can now hold bitcoin.

A “heightened interest” was noted among fintech and brokerages in adding crypto capabilities to their product suite in H1, a trend expected to “accelerate in the coming years.”

Eventually, the San Francisco-based crypto exchange, which is planning to have an IPO by the end of this year or early next year, sees all modern financial services businesses wanting to provide their clients with digital assets as the asset class continues.

Hot Trends of 2020

Through all the ups and downs in the first half of 2020, crypto derivatives gathered more stream than the spot market.

Daily open interest in BTC futures rose 30.0% in H1, from $2.6 billion on January 1st to $3.5 billion on June 30th, while daily futures volume was down 12.9% for the period.

BTC options meanwhile saw steeper gains, with open interest rising 236.0% in H1 from $305 million on January 1st to $1.0 billion on June 30th. Daily options volumes also rose 90.1%, with CME Group being a “strong catalyst” for this growth.

Currently, the majority of crypto derivatives volume is supported by unregulated trading venues based in Asia and Europe. While they have proven initial demand for these products, “regulated venues will play an increasingly significant role,” just like it has been in the spot market, Coinbase said.

2020 is also the year of USD-pegged digital assets, which grew 104.6% in H1 with Tether and USDC being the most significant gainers. Stablecoins provide lower transaction costs and ease of on-chain movement.

“Coinbase continues to see that when clients are given a choice, many prefer to keep their assets – including their fiat currency – on “crypto rails.”

Stablecoins bridge the gap between the traditional financial system and the crypto economy — which has been the focus of growing number startups in H1, a trend that Coinbase expects to “continue and for crypto dollars. To play a key part.”

The growth of stablecoins was further driven by decentralized finance (DeFi), a new paradigm that Coinbase believes “will be extremely powerful long-term,” but is still in its infancy.

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