Institutional investment in Bitcoin in 2024: how the big players were changing the market

Institutional investor activity in 2024

Institutional investors, including investment funds, pension funds, and insurance companies, play an increasingly prominent role in the Bitcoin ecosystem. According to analyst firm Glassnode, institutional investors invested over $15 billion in Bitcoin in the first quarter of 2024, a 40% increase from last year. This growth is due to massive inflows into new Bitcoin ETFs approved in the U.S. and Europe and increased buying by significant funds such as BlackRock and Fidelity.

Several key factors are driving this growth:

• Regulatory certainty. In 2024, several countries clarified their positions regarding regulating cryptocurrencies, making the market more attractive for major players. For example, in the United States, legislation was adopted to increase the transparency and stability of cryptocurrency exchanges. The introduced regulations obliged exchanges to comply with strict anti-money laundering requirements — AML and KYC procedures. In addition, regulatory bodies such as the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) established clear rules for listing new cryptocurrency assets, which reduced risks for institutional investors.
• Launch of new financial instruments. The development of Bitcoin ETFs provided more convenient access to the asset. In 2024, such ETFs received approval in several jurisdictions, including the U.S., Europe, and Asia. One of the significant developments was the approval of the first Bitcoin ETF in the U.S., managed by BlackRock, which attracted more than $5 billion in the first six months. In Europe, funds launched by Euronext and Deutsche Börse gained popularity, offering institutional investors low fees and high liquidity. In Asia, countries such as Singapore and South Korea created localized ETFs, allowing regional investors to become more involved in the cryptocurrency market.
• Increased trust. The proliferation of high-security cryptocurrency custodial services has also contributed to increased interest. In 2024, companies like BitGo, Fireblocks, and Anchorage Digital introduced updated cryptocurrency custody solutions, including multi-signature wallets and insurance mechanisms that protect assets from theft or loss. In addition, many custodial services have become compliant with major regulators such as the SEC and the Financial Conduct Authority (FCA), making them more attractive to institutional investors. For example, Fireblocks increased the number of clients served by 30% in the first quarter of 2024, attracting significant funds and corporations.

New funds and ETFs

A key development in 2024 was the mass approval of Bitcoin ETFs, which opened up new opportunities for institutional investors, allowing them to incorporate cryptocurrency into their portfolios with minimal effort and risk. Some of the most notable launches include the following.

BlackRock Bitcoin ETF

In the first quarter of 2024, this fund raised more than $7.5 billion in assets, becoming a record-breaker among cryptocurrency ETFs. This success has also spurred the development of similar products by other major players, such as State Street.

Fidelity Digital Assets Fund

The new product provides institutional investors with access to Bitcoin through specialized platforms. In the first three months, the fund raised more than $2 billion, offering favorable custody terms and low fees.

The ripple effect in Asia

Several local ETFs were launched in Asian countries, strengthening the region's position as a cryptocurrency center. For example, DBS Asset Management in Singapore launched a $1 billion Bitcoin ETF that has attracted local and international investors. In South Korea, KB Asset Management launched its first ETF, registering a daily trading volume of $50 million. These initiatives have made Asia one of the leaders in the crypto-ETF segment, contributing to the globalization of the market.

Impact of institutional investors on the Bitcoin exchange rate

The inflow of institutional capital significantly impacts the Bitcoin exchange rate.

The entry of large players is accompanied by increased demand, pushing the exchange rate upwards. For example, in the first quarter of 2024, the Bitcoin exchange rate rose by 25% on news of the launch of new ETFs such as the BlackRock Bitcoin ETF and the Fidelity Digital Assets Fund. This growth was further bolstered by the announcement of major Asian management companies' plans to introduce cryptocurrency products. In particular, the exchange rate reached $40,000, the highest in the last two years.

In addition, research from analytics firm Glassnode showed that institutional investors purchased over 100,000 BTC during January and February 2024, creating significant demand in the market. The ripple effect of these actions also affected other cryptocurrencies, such as Ethereum, which rose 18% in the same period.

Institutional participation makes the cryptocurrency market less susceptible to sudden price fluctuations. For example, research by Chainalysis found that the share of long-term investment wallets increased by 15% in 2024, reaching 70% of total Bitcoin holders. This trend came amid large purchases from players such as pension funds in Canada and Norway, which have invested hundreds of millions of dollars in the cryptocurrency for long-term holding.

In addition, the growing popularity of exchange-traded funds (ETFs) such as the BlackRock Bitcoin ETF has helped to reduce short-term speculative activity, as most investors in these funds are focused on stable returns over several years. As a result, Bitcoin volatility in the first quarter of 2024 is down 12% year-on-year. An example of stabilization was in February, when the market barely reacted to negative news about hacker attacks, thanks to the dominant influence of institutional players keeping assets in their portfolios.

The emergence of institutional players increases liquidity, making the market more efficient and sustainable. In 2024, the total Bitcoin trading volume on leading exchanges such as Binance, Coinbase, and Kraken increased by 35% due to the participation of large institutional investors.

In addition, expanding lending opportunities and using Bitcoin as collateral on institutional platforms such as Genesis and BlockFi have helped increase working capital. Also noteworthy is the increasing share of over-the-counter (OTC) transactions, where liquidity was provided by major players such as Galaxy Digital and Grayscale. These changes allowed the market to react faster to external events and reduce bid-ask spreads.

Risks and challenges

Despite the positive trends, institutional investment in Bitcoin comes with several risks and challenges:

1. Regulatory uncertainty. In some countries, regulatory rules remain vague, deterring potential investors. For example, in India, the government has yet to provide a clear framework for cryptocurrencies, limiting itself to temporary tax rulings and bans on certain transactions.

Despite a strict ban on cryptocurrency transactions in China, there are gray areas where crypto assets continue to be used through offshore platforms.

At the other end of the spectrum, countries such as the U.S., although they have taken steps towards regulation, still face disagreements between regulators such as the SEC and CFTC over the classification of cryptocurrencies. This makes it difficult for companies to understand regulatory requirements accurately, leading to a cautious approach to investing.

2. Cyber threats. Security remains a key concern for institutional investors, especially given the rise in cyberattacks on cryptocurrency platforms. For example, there have been several significant incidents in 2024, including an attack on the KuCoin exchange that resulted in the loss of more than $150 million in crypto assets. Such incidents underscore the need for stronger security measures. Many platforms, such as Coinbase and Binance, have begun implementing multi-factor authentication, cold wallets, and artificial intelligence-based security technologies to prevent data breaches and hacks.

3. Macroeconomic factors. Global economic instability related to inflation and changes in monetary policy may affect interest in Bitcoin. For example, in 2024, accelerating inflation in several countries, such as Turkey and Argentina, led to increased interest in cryptocurrencies as an alternative asset. These countries have seen a surge in Bitcoin trading volumes on localized exchanges such as Binance and LocalBitcoins.

In addition, changes in U.S. monetary policy, including interest rate hikes by the Federal Reserve, have reduced liquidity in traditional markets, forcing some institutional investors to refocus on Bitcoin as a means of asset diversification. For example, several significant U.S. hedge funds, such as Ark Invest, have announced purchases of BTC amid a weakening dollar.

However, at the same time, economic instability in Europe, caused by the energy crisis and rising government debts, is curbing the interest of some European funds, which are wary of additional volatility in a highly uncertain environment.

Future outlook

In the long term, institutional investment will likely continue to play a key role in the development of the Bitcoin market. By 2025, the share of institutional capital in the cryptocurrency market is predicted to exceed 50%, leading to further integration of Bitcoin into the traditional financial system. For example, companies such as BlackRock and Fidelity plan to expand their cryptocurrency portfolios further, which will catalyze attracting new players. Bloomberg research indicates that assets under management in cryptocurrency ETFs could reach $1 trillion by 2025, further strengthening Bitcoin's position as an investment vehicle.