US Crypto Regulation Attracts Institutional Investors as Demand Remains Nascent

Analysts say that demand for crypto is still nascent. But according to Reuters, its surge to a new high earlier this week has raised questions about the role that institutional investors could be playing in driving its value up.

Digital assets have captured the interest of many in recent years. Demand from institutional investors could rise as pension funds and other buyers make Bitcoin an integral part of their portfolios.

Legal Clarity

At the beginning of this week, the value of the world’s most valuable crypto hit a high of $122,000. This surge was largely driven by the anticipated pro-crypto policies in the US. On July 17, the House of Representatives approved the development of a regulatory framework for dollar-pegged crypto tokens known as stablecoins.

President Donald Trump will be signing the legislation into law on Friday, 18. The House also passed two crypto-related laws that are now headed for the Senate. The move to develop regulations for the crypto industry has caused institutional investors to warm up to cryptos.

Big US lenders like Citigroup and Bank of America are working on unveiling stablecoins. The US is set to introduce a bill that will define digital commodities and outline the role of agencies in digital assets oversight. This regulatory clarity will make it easier for institutional investors, who have stayed away from the sector for a long time, to invest in crypto.

According to Global Co-Head at data provider TP ICAP, Simon Forster, the number of institutions that will be active in the crypto industry is set to grow by the year 2026.

Bitcoin Demand Still Nascent

Long-term investors like endowment and pension funds hold less than 5% of Bitcoin Exchange Traded Fund assets. About 10 to 15% of these assets are held by wealth management firms or hedge funds. Analysts say it’s still early for institutional investors.

“We’re still in the early innings when it comes to institutional ownership,” Research Head at 21Shares Adrian Fritz said.

Fritz added that the crypto markets are still dominated by retail investors. According to him, wealth managers buy digital assets on behalf of ultra-high networth clients, which means the bulk of Exchange Traded Fund ownership remains retail.

Financial research company Vanda says there is a connection between rising crypto prices, retail purchases of Exchange Traded Funds and crypto stocks. Data from the firm shows that crypto retailers purchased more digital assets towards the end of 2024 when prices soared following President Trump’s election win. Trump had committed to being a crypto president on the campaign trail.

Crypto purchases also rose recently, following the Bitcoin rally. Institutional demand is set to continue as US lawmakers pass pro-crypto laws. The most consequential of these laws is the Genius Act, which is set to define rules governing the fast-growing aspect of the crypto market- stablecoins.

Active Role of Bitcoin Treasury Firms

Analysts say that Bitcoin treasury firms are also playing a critical role in driving demand despite the opaque nature of cryptocurrency markets. Bitcoin treasury firms are listed companies whose initial focus was on video game and software retailing. However, they now focus on owning and making wealth from Bitcoin positions in their balance sheets instead of gold, cash, or short-term securities. Some Bitcoin treasury firms include GameStop and Strategy.

In the last year, Strategy shares have surged more than the value of Bitcoin. Most investors are now seeking to purchase stocks as a way of getting into the crypto industry while maintaining investment in the mainstream financial market.

According to Juan Leon, an analyst at Bitwise Asset Management, the ability of Bitcoin treasury companies to buy the crypto means they represent a larger source of demand compared to pension, hedge, and endowment funds. The latter continue to be the main players in the stock and bond markets.