While some financial services executives are skeptical about the value of cryptocurrencies, others are making sustained commitments to Bitcoin and other cryptocurrencies. Moreover, the widespread adoption of distributed-ledger technology, including blockchain innovations, has made cryptos attractive to institutional investors. As a result, banks are not able to ignore this growing interest in cryptocurrencies. However, the government and other regulatory bodies are doing their part to ensure that the public’s trust in these technologies does not become diluted.
One reason institutional investors are gaining trust in cryptos is that the price has yet to fall. While cryptocurrency investments have historically been considered speculative, there is no underlying value. That makes them risky and not backed by anything. Still, Bitcoin devotees claim that the value of the cryptocurrency derives from its scarcity. Moreover, the computer algorithm behind Bitcoin mandates a maximum supply of 21 million digital coins, but only 19 million have been produced. Apparently, institutional investors are relying on the theory of a greater fool.
Meanwhile, the Federal Reserve will release its report on the digital dollar in early September. A few years ago, it was thought that institutional investors should not invest in cryptocurrencies. Now, that belief is being questioned. While institutional investors should not invest their entire money in a particular company, they should invest a small portion in crypto. As a result, they can profitably diversify their investments.
