Mar 9, 2022 - Economy

Executive order on crypto collides with new Wall Street asset class

Illustration of a torn hundred dollar bill revealing binary code beneath

Illustration: Sarah Grillo/Axios

President Biden's executive order today calling for policy recommendations on cryptocurrencies comes as trading by institutional investors has taken hold.

Why it matters: The order is an acknowledgement that crypto is here to stay, and moves the government one step closer to a policy framework that would legitimize — and regulate — its use in the U.S, as Axios' Ryan Lawler notes.

State of play: Institutional investors like hedge funds and pensions traded nine times as much value in crypto in 2021 compared to the prior year. Their $1.14 trillion in trades was more than double the $535 billion that of individual investors, WSJ reports.

  • Roughly 20% of hedge funds overall were investing in digital assets as of October 2021, according to S&P Dow Jones Indices.

The intrigue: One reason hedge funds are drawn to the space is the lack of widely available analysis of prices and trading volumes. They can create their own, and mine it for "inefficiencies" to make money, the WSJ noted.

The big picture: Crypto assets grew by roughly 200% last year, from just under $800 billion to $2.3 trillion in October. This growth has allowed institutional funds to step in over the past two years.

  • Bigger funds making bigger trades require markets that are active enough for them to make trades without swinging prices.
  • Digital asset investment products saw inflows totaling $9.3 billion in 2021, a 36% increase from the prior year.

What's next: Through the executive order, the White House seeks to understand both the risks and potential benefits of the technology. Biden aims to create a national policy for digital assets by working with multiple agencies in tandem.

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