Vitalik Buterin wants the digital assets industry to taper its pursuit of institutional investors.
He argues that the ecosystem had not yet attained the sort of maturity that would enable them to thrive with other classes of investors.
The inflow of institutional capital has played a vital role in keeping distressed projects afloat in the middle of a freezing “crypto winter.”
Ethereum’s co-founder Vitalik Buterin has expressed scepticism over attracting institutional investment into a growing virtual currency ecosystem as the debate over their participation heats up.
Buterin noted via Twitter that the industry “should not be enthusiastically pursuing large institutional capital at full speed” because of the seeming lack of maturity plaguing the sector.
“Basically, especially at this time, regulation that leaves the crypto space free to act internally but makes it harder for crypto projects to reach the mainstream is much less bad than regulation that intrudes on how crypto works internally,” said Buterin.
With a call for improved regulation, Buterin wants policymakers to improve frameworks for decentralized finance. He suggests that limits on leverage, transparency on audits, and “usage gated by knowledge-based tests instead of plutocratic net-worth minimum rules” should be implemented.
He adds that in the absence of proper regulatory frameworks, he is “happy” that some exchange-traded funds (ETFs) are being delayed. Since the Securities and Exchange Commission (SEC) approved the first Bitcoin ETF in Oct 2021, spot-based ETF applications have been rejected on the grounds of not offering proper protections for investors.
Buterin’s comments drew approval from several ecosystem key players like FTX founder Sam Bankman-Fried noting that “policymakers/regulators would find it pretty interesting” to hear Buterin’s opinion. Binance’s founder Changpeng Zhao gave approval to the comments with a thumbs-up sign while Sean Adams, co-founder of Bankless, nodded.
Institutional investors are banging at the door
A survey carried out by the Institutional Investor Digital Assets Study noted that out of 1,000 institutional investors, 16% pointed that murky regulations were a stumbling block preventing them from wading into cryptocurrencies. However, 81% of respondents stated that digital assets would play a significant role in investment portfolios in the future, while 43% are already pining for Bitcoin ETFs.
The inflow of institutional capital has been the precursor for several bull runs that the industry has experienced over the years and serves as a critical indicator for some investors. The approval of future-based ETFs by the SEC opened the window for institutional investors but giving the green light to spot-based ETFs has the potential to lead to an avalanche for the ecosystem.