Growing Number of Clients Bought ETH, But Only A Select Group of VC Funds & Family Offices Investing in DeFi: Coinbase
DeFi remains retail-driven just like the early days of Bitcoin adoption, says Coinbase whose clients are interested in Ethereum’s evolving potential as a store of value and its status as a digital commodity.
2020 brought “traditional hedge funds to the forefront of participation,” states Coinbase in its 2020 in the Review report.
Covering the year “crypto cemented its status as an institutional asset class,” said the largest cryptocurrency exchange in the US, which is planning to launch its IPO, noting that macro funds are the earlier adopters with several large funds now begun trading Bitcoin and Ethereum directly with investor capital as well.
The company's clients invested in Bitcoin for a range of reasons, including as a store of value, as an inflation hedge and/or insurance against new potential monetary policy risks, as a portfolio diversification tool, and as a treasury reserve asset.
Coinbase is particularly expanding its business in Europe and Asia, with Singapore as the staging post for Asia expansion because of its regulatory clarity. After opening its third office in Europe, Coinbase now has 120 full-time employees in the region.
A Trend Occurring out of View for Most of Wall Street
“While our institutional clients predominantly bought Bitcoin in 2020, a growing number also took positions in Ethereum,” reads the report.
The second-largest cryptocurrency, which has been more volatile than Bitcoin, is seen by Coinbase’s institutional clients as a “decentralized computing network that shares Bitcoin’s properties of trustless store and transmission of value, along with more flexible programmability via smart contracts.”
Ethereum’s evolving potential as a store of value and its status as a digital commodity required to power transactions on its network are the clients’ reasons for owning the digital asset. However, the community needs to settle on a clearer and simpler narrative, which Coinbase says is both a challenge and an opportunity for Ethereum.
Decentralized Finance (DeFi) is also seen as one of the most important growth developments for the Ethereum network as Coinbase clients believe this sector has “potential to reinvent financial products and services.”
Coinbase hasn’t yet seen significant investment in DeFi assets from institutional clients, except for “a select group of venture capital funds and family offices.”
DeFi remains retail-driven; just like the early days of Bitcoin adoption, Coinbase added maturity would take time.
“We can imagine a future in which institutional investors can access both traditional and decentralized financial services through trusted, regulated onramps,” which may be difficult to imagine today given the relatively small size of the DeFi market, a bottom-up trend that is occurring out of view for most of Wall Street.