Bernstein Analyst – Institutions Need to Give Up on Zero Crypto Strategies and Start Allocating Now

Brokerage firm Bernstein has advised institutions to dabble into crypto and give up their “zero crypto allocation” strategy. 

In a research report on Monday, the asset manager said crypto is poised to pivot from a fat infrastructure thesis to a fat application thesis in 2023, laying the foundations for a decade-long “golden age” of innovation for cryptocurrency applications. The company also said 2023 will be the best year for institutions to create their crypto strategy.

“Get off zero crypto allocation. For institutional investors with no allocation to crypto, 2023 might be the best time to start placing the building blocks for a long-term strategy.”

Bernstein said retail traders have been the pushing force behind the crypto development to date. “Going forward, we expect growth to be driven by institutional investors with participation in on-shore regulated structures,” analysts Gautam Chhugani and Manas Agrawal wrote.

Consequently, Chhugani and Agrawal believe there will be “massive opportunities” for the growth of institutional capital in industries like custody, market making, and prime brokerages.

More specifically, the analysts at Bernstein expect institutional services’ opportunity to reach a staggering $30 billion by 2033, a compound annual growth rate of 37%. The growth will see crypto-related custody solutions become an $8 billion market, with market making and prime broking also growing to $8 billion and $14 billion, respectively. 

Furthermore, the asset manager predicts the cumulative crypto revenue to increase by sixteen fold in the next 10 years, from around $25 billion in 2023 to about $400 billion by 2033. Bernstein says that “decentralized blockchain-driven revenue” will account for nearly half of that tally, compared to only 15% today. 

Bernstein also expects on-chain revenue to jump from less than around $4 billion today to close to almost $200 billion in the next decade, driven by “innovation in blockchain scalability and application growth across financial services and consumer tech segments.”

Decentralized exchanges (DEX), lending, and structured/tokenized products are predicted to account for the bulk majority of revenue within on-chain financial applications, the broker added.

As reported, the World Economic Forum (WEF) has said the technology underpinning cryptocurrencies and digital assets will continue to be an “integral” part of the modern economy. In a report earlier this month, the organization said:

“Indeed, as a test of the staying power of digital assets and blockchains at the core of financial services (and other areas of the global economy), watch what the big banks and mature financial services firms do, not what they say.”

The WEF compared the adoption of cryptography and blockchain technologies to the embrace of cybersecurity and digital transformation. “The embrace of crypto technology is equally inevitable, even if the term feels like a bad word,” the organization said.