It only makes sense: Oversight of crypto attracts more investors

A crackdown by the U.S. Securities and Exchange Commission and other watchdogs who have been investigating crypto's naughtiest companies is proving to be a boon for the industry, with market participants saying they're more likely to invest in the space following greater enforcement action.

Almost 60% of the 564 respondents to the latest MLIV Pulse survey indicated they viewed the recent spate of legal action in crypto as a positive sign for the asset class, whose trademark volatility has all but dissipated in recent months.

Major interventions include the U.S. regulatory investigations of bankrupt crypto firms Three Arrows Capital and Celsius Network, as well as an SEC probe into Yuga Labs, the creators of the Bored Ape collection of nonfungible tokens, or NFTs.

"I'm in the 'yes' camp. As a professional investor, you need a regulated investment opportunity and it opens the doors for more professional investors to get involved in crypto, if it's more regulated," said Chris Gaffney, president of world markets at TIAA Bank. "The more they can get crypto out of the Wild West and into traditional investing, the better off it's going to be."

The sentiment extends to Bitcoin. Most investors were slightly more optimistic about the crypto than they were when asked in July. Almost half of respondents expect the world's largest cryptocurrency by market value to continue trading between $17,600 and $25,000 until the end of this year — a departure from this summer's sour outlook, when most said it was more likely to first drop to $10,000 than to climb to $30,000.

To be fair, respondents this time had a broader menu of options to choose from than were available in the previous survey.

"Our investors recognized and the market recognized that the decentralized protocols have unique advantages that not only can benefit crypto markets, but also traditional markets more broadly," Mary-Catherine Lader, Uniswap Labs COO, said in a Bloomberg TV interview.

Volatility has also largely subsided, with the T3 Bitcoin Volatility Index down 33% since the token hit its all-time high of almost $69,000 on Nov. 10, 2021. Bitcoin was trading around $20,000 last week.

Bitcoin has held a strong correlation to risk-on assets as well as the S&P 500 since March, barely changing its position in the last three months as investors tarred crypto with the same brush as everything else in an environment of rising interest rates.

Some 42% of respondents said they think crypto's correlation to tech stocks will stay the same over the next 12 months, while only 43% said they would increase their exposure to digital assets over the same period.

It's been a tale of two halves for crypto in 2022, with the first half of this year dominated by chaos. There were bankruptcies, like Voyager Digital Ltd.'s, and the $40 billion wipeout of the Terra blockchain ecosystem. Roughly $2 trillion in overall value was erased from the industry's late-2021 record.

In June, things began to shift. Crypto started to plateau to its current range-bound level as the broader macroeconomic environment soured and traders turned to more traditional assets like bonds and currencies. The lower volatility is "likely regarding the indecisiveness out there," said Katie Stockton, managing partner at Fairlead Strategies.