What You Need to Know
- The brokerage arm of BofA issued a 141-page report extolling the growing importance of the crypto ecosystem.
- The crypto universe is expanding quickly due to retail, institutional and central banks' interest, the report says.
- But it notes regulatory and technology-based risks that could impact the growth of the crypto ecosystem.
“The digital asset universe is too large to ignore,” according to Bank of America Securities in its inaugural research report on digital assets.
The market has a value of more than $2 trillion, more than 200 million users and “has the potential to transform every industry by improving efficiency and reducing friction across transactions,” according to a BofA press release announcing the launch of the company’s research coverage of digital assets.
“Bitcoin is important, but the digital asset ecosystem is so much more,” said Alkesh Shah, head of Global Cryptocurrency and Digital Asset Strategy, in a statement.
According to the firm’s report titled Digital Assets Primer: Only the First Inning, ”crypto-based digital assets could form an entirely new asset class” as the use case of the digital asset ecosystem grows well beyond Bitcoin’s store-of-value thesis to include more product innovation, mainstream adoption and increased institutional usage along with regulatory clarity.
“The largest near-term risk” to that growth is “regulatory uncertainty,” but “regulation may drive increased investor participation over the long term once the ‘rules of the road’ … are established,” according to the report.
The 141-page report provides examples of the expanding crypto ecosystem and the drivers of that growth as well as the technological and regulatory risks that could slow it down.
Why Crypto Is Growing
These are the key developments behind the expanding crypto universe, according to the BofA Securities report:
Increasing corporate interest in the digital economy, which is at an all-time high, according to a BofA analysis of more than 161,322 earnings call transcripts from the first quarter through early August of this year.
Hundreds of companies are participating in the digital asset ecosystem providing infrastructure support, marketplaces and applications such as decentralized finance, supply chain, gaming and social media. T
hey include online payment companies like PayPal, which lets account holders to buy, sell and hold crypto in their digital wallets; banks like JPMorgan, which has established a network for instantaneous payments based on blockchain technology; and major media companies like Fox and Disney involved in the non-fungible token (NFT) space.
Growing retail interest, especially among millennials and Gen Z. These digital natives expect Internet transactions to be digital in real time and without multiple steps and middlemen. Even older adults are engaging in digital asset investing, according to the BofA report. Approximately 14% of adults own digital assets and another 13% plan to buy some this year, according to the BofA report, which says their average age is 44.