The Institutional Series: How Institutions Actually Enter a New Asset Class
Institutional adoption of new asset classes generally follows a repeatable pattern. Understanding that pattern and where digital assets sit within it is more useful than a price forecast.
There is a particular kind of meeting that happens at major allocating institutions every few years. A senior member of the investment team stands up and makes the case for an asset or asset class the organisation has never seriously engaged with before. The room includes people whose job it is to approach any new opportunity with a high degree of scepticism. The organisation didn't get to where it is today, surviving market shocks, scares, and cycles, by saying yes to every idea presented to it.
There is a great deal to protect: reputation, credibility, the balance sheet, regulatory standing, client relationships. The person presenting the investment case knows this; and although they will have done their homework to ensure the pitch can withstand scrutiny, they know it will still be an uphill challenge.
That meeting happened with high yield bonds in the 1980s, when insurers and pension funds began treating what the market called "junk" as a legitimate credit asset class rather than a reputational risk. It happened with emerging market debt in the 1990s, following the restructuring of Latin American sovereign debt into tradeable Brady Bonds, and it survived its own early stress tests through the Mexican and Asian crises.
It happened with infrastructure in the early 2000s, as pension funds began treating toll roads, airports, and regulated utilities as a genuine institutional asset class rather than a public-sector asset. And it happened with private credit in the years following the 2008 financial crisis, as banks retreated from leveraged lending and direct lending funds filled the gap; a trend that has only accelerated in the current cycle.
Each time, the asset class in question could look, from the outside, like a speculative detour from the institution's core investment mandate. And each time, the institutions that engaged early, the ones that did the analytical work before the crowd arrived, were the ones that captured the structural return premium that comes from being early in an adoption curve.
That meeting has been happening at institutions around the world about crypto for the past few years, and much more seriously over the past twelve months.
The question worth asking is not whether digital assets belong in an institutional portfolio. That is ultimately a portfolio construction question, and every allocator will answer it differently based on their mandate, liability profile, and risk tolerance. The more useful question is one of pattern recognition: where do digital assets sit on the adoption curve that every other major asset class has followed? And what does that tell us about the decisions worth making now?
The Five Stages
Institutional adoption of a new asset class is not random. It follows a sequence that, with the benefit of hindsight, is remarkably consistent. I'd characterise it in five stages.
Stage one: Curiosity. The asset class exists, but it is not yet on institutional radars in any serious way. A small number of specialist academics and practitioners begin writing about it. The dominant institutional posture is awareness without engagement.
Stage two: Infrastructure buildout. Before serious institutional capital can move, the operational prerequisites have to exist. Custody solutions, legal frameworks, reporting and reconciliation capabilities, regulatory clarity (or at least regulatory acknowledgement), prime brokerage.
This stage is unglamorous and largely invisible to outside observers, but it is the essential precondition for everything that follows. Capital does not move into asset classes where the infrastructure cannot support it because their governance frameworks simply will not permit it.
Stage three: Pioneer allocation. A small number of institutions, typically those with longer time horizons, more flexible mandates, or greater in-house analytical capability, make initial allocations. Position sizes are small relative to total AUM. Mandates are often experimental or ring-fenced within alternatives buckets.
Stage four: Peer validation. This is the most consequential stage, and the most psychologically interesting one. Enough credible institutions have moved that the career risk calculus begins to invert.
In the early stages, the career risk for an allocator is being in an unproven asset class. In stage four, the career risk begins to shift toward being the institution with no informed view while peers are quietly building positions. Allocations grow and the asset class begins to appear in standard alternatives frameworks rather than as a standalone curiosity.
Stage five: Mainstream integration. Benchmark inclusion, broad product proliferation, generalist adoption. The structural return premium that early movers captured has largely compressed. The asset class is no longer a source of differentiation but it is a component of a standard institutional portfolio.
Where Crypto Has Been
Mapping digital assets onto this framework requires a degree of honesty that enthusiasm for the space sometimes makes difficult. The asset class has not followed a linear path, and some of the noise around price cycles has obscured the underlying progression.
The period from roughly 2018 to 2021 was, in institutional terms, stage one. There was genuine curiosity, and a small number of family offices and endowments made early exploratory allocations, but the infrastructure was not there. The operational prerequisites that institutional governance requires simply did not exist at the necessary standard.
The period from 2021 to 2023 was primarily stage two, even though it didn't feel like it at the time. The headline events of the bull run, the collapse of FTX, and the broader market downturn dominated the narrative.
But underneath that noise, the essential work of that stage was happening out of sight: specialist custodians were getting regulated, non-custodial architectures were maturing, prime brokerage capability was developing, and regulatory conversations were advancing in Europe, the UK, and eventually the United States.
What the past 18 months have represented, in my reading of the market, is the transition from stage two into stage three, with early indicators of stage four beginning to emerge.
The Evidence for a Stage Transition
The most important data point is not bitcoin price, it is the identity of the organisations making infrastructure investments.
BNY Mellon, the world's largest custodian, does not extend operational capability into new areas speculatively. Its Digital Asset Custody platform, scaled since 2022, represents a long-duration institutional commitment made after a rigorous governance process, in response to existing client demand. That is a stage two-to-three signal, and it is not an isolated one.
Standard Chartered's move in May 2026 to take full ownership of Zodia Custody, the digital asset custodian it had backed since 2021, alongside Northern Trust, is instructive precisely because of how it was structured.
The regulated custody function is being folded into the bank's core Financing and Securities Services business, while the underlying technology platform is being spun out separately, as Zodia Solutions, to continue serving Standard Chartered and other banks as a shared infrastructure provider.
BitGo's IPO earlier in 2026, the first by a crypto-native custodian, and Morgan Stanley's application for a national trust bank charter specifically to custody and stake crypto assets, both point in the same direction. This is no longer a side experiment being run by a fintech-adjacent subsidiary. It is being built as core financial infrastructure.
BlackRock is not moving alone either. BUIDL, its tokenized Treasury fund, grew from nothing at launch in March 2024 to roughly $2.5 billion in assets by May 2026, making it the largest product of its kind globally, and in May 2026 BlackRock filed with the SEC for two further tokenized fund structures, extending rather than testing the model.
Franklin Templeton runs a comparable on-chain government money fund across Stellar and Ethereum with daily NAV updates on-chain. JPMorgan has its own tokenized deposit token plans in progress, representing commercial bank money in digital form.
The broader tokenized real-world-asset market crossed $32B by May 2026, roughly tripling over the preceding year. None of these are pilot programmes run to generate a press release but rather they are production infrastructure with real institutional money moving through them.
The regulatory developments reinforce this reading. MiCA has provided a comprehensive regulatory framework for many cryptoasset services across the European Union. The reversal of SAB 121 in the United States removed a significant accounting obstacle to bank custody of digital assets.
And the FCA's publication of its final cryptoasset policy statements on 30 June 2026 has provided materially greater clarity on the future UK regulatory framework, notably naming staking as one of the specific activities brought within the regulatory perimeter, though the regime itself does not take full effect until October 2027.
None of these are the work of regulators responding to speculative retail enthusiasm. They are the work of regulators responding to the legitimate demands of regulated institutions that need a framework to operate within.
The picture that emerges is consistent with stage three, with stage four beginning to come into view.
What the Playbook Says Comes Next
If the historical pattern holds, and there is no particular reason to believe digital assets will deviate from it, the stage three to four transition is characterised by several things.
Product standardisation. In private credit, this was the emergence of standardised loan documentation, rating agency frameworks, and CLO structures that allowed capital to flow at scale.
In digital assets, the equivalent is already visible: regulated ETF structures or regulated-equivalent investment structures depending on jurisdiction, staking protocol reward products with institutional-grade risk frameworks, and on-chain fund vehicles such as BUIDL, Franklin Templeton's OnChain fund, all operating within existing regulatory perimeters rather than around them.
It's worth pausing on why the ETF wrapper specifically matters here, beyond simply being familiar and liquid. An ETF collapses a set of operationally intensive decisions: which validators to use, how slashing risk is managed, how exit queues and redemption timing are handled, into a single line item a generalist allocator can hold within an existing mandate, without building any of the underlying capability themselves.
That is the function ETFs have played in every prior asset-class transition: a gold ETF didn't require a wealth manager to understand vaulting and assay; a private credit BDC didn't require a family office to underwrite individual middle-market loans directly. The wrapper does the operational absorption so the allocator doesn't have to.
What's different this time is that the operational complexity being absorbed is unusually large, since staking carries live protocol risk rather than a static asset sitting in a vault, which means the infrastructure quality behind the wrapper matters more, not less, than in previous cycles.
In effect, the ETF issuer becomes the largest and most demanding institutional buyer of validator and custody services in the market, and its own diligence standard becomes the benchmark the rest of the industry gets measured against. Expect more issuers and more products to come to market through 2026 to provide this mass-scale access point.
What matters most about this is not the access itself but that each new product routes retail and institutional demand through regulated custody and professionally-managed validator infrastructure rather than self-custody or unregulated venues. It is my view that this is doing more to professionalise the operational and counterparty risk profile of the industry than anything else happening in the space right now.
Specialist managers gaining share before generalists. In every asset class, the stage three to four transition favours specialists, firms that have built deep operational capability during the infrastructure phase and can offer institutional clients something a generalist bank or asset manager pivoting into the space cannot replicate quickly.
Banks will keep the regulated, client-facing relationships in-house while licensing the specialist technology and operational infrastructure underneath from firms that have spent years building nothing else. Expect the same split to repeat across staking, settlement, and tokenised fund administration.
The crypto equivalent of the specialist credit manager is the regulated, non-custodial infrastructure provider: the firm that knows how to operate validator infrastructure, manage slashing risk, and deliver protocol rewards at institutional quality standards.
A natural continuation of this dynamic is consolidation among the specialist infrastructure providers themselves. As banks and asset managers settle into a build-versus-license position, they are unlikely to want to run separate due diligence against a dozen small operators with inconsistent controls and reporting.
They will gravitate toward a small number of providers who can offer the certifications, uptime history, and scale that a risk committee can underwrite once and rely on across multiple relationships. That favours consolidation, whether through acquisition by custodians or exchanges bringing the capability in-house, or through providers themselves scaling to serve multiple asset classes and jurisdictions from a single compliance base.
This mirrors what happened in prime brokerage in the 1990s, and in fund administration as private credit matured: a fragmented early market consolidating around a handful of trusted names once institutional volume arrived. The providers who survive this phase are the ones who got the operational and compliance layer right early, and can demonstrate it.
The regulatory runway becomes concrete rather than aspirational. The FCA's naming of staking as a defined regulated activity, with applications open from September 2026 ahead of the regime's October 2027 commencement, changes the posture available to allocators. The next twelve months are less about waiting for clarity and more about positioning within a framework whose shape is now fixed.
The peer conversation changes character. The question in the investment committee stops being "should we look at this?" and starts being "what is our position?" This is a subtle but important shift, and it is one that a meaningful number of major allocators are already experiencing.
Inside the System, For Now
It's worth being precise about what this transition does and doesn't mean, because it is easy to overstate. In the near term, digital assets are being absorbed into the existing architecture of traditional finance, rather than replacing it.
Crypto, at this stage, is a new asset class and a new operational capability sitting inside a familiar structure and has become a component of the system, not a challenge to it (although the dreamers find this hard to swallow).,
That absorption is also visible in the range of products emerging, and is much broader than staking alone. Tokenized government money market funds and Treasury products are becoming a standard cash-management line item rather than a novelty. Deposit tokens let banks digitise their own liabilities on programmable rails without handing the relationship to a third party. Tokenized trade receivables and other credit assets are bringing near-real-time settlement to a corner of finance that has run on paper documentation and correspondent banking delays for decades.
Collateral mobility is a further step behind these: the ability to move tokenized collateral between counterparties and venues intraday, rather than waiting on end-of-day settlement cycles, is the kind of capability that doesn't generate headlines but genuinely changes how liquidity is managed inside large institutions.
Each of these matters for a similar reason: they take a known institutional workflow and make it faster, cheaper, or more transparent, without asking the institution to adopt a new risk paradigm.
The longer-term picture may look different, though I would hold this more loosely than anything else in this piece. If settlement finality, continuous markets, and programmability prove structurally superior to the batch-processed, correspondent-bank-dependent rails much of the financial system still runs on, it isn't hard to imagine the underlying rails themselves, not just the assets sitting on top of them, becoming default infrastructure for a much wider set of institutional activity: cross-border payments, trade settlement, intraday liquidity management, even the plumbing beneath instruments that have nothing to do with crypto today.
In that scenario, the institutions positioned today, whether as owners or licensees of the infrastructure, hold the option value on a much larger shift than the one we can see clearly right now.
But that is a multi-year thesis, not a near-term prediction, and the honest position is that we are watching an absorption phase play out now, with the disintermediation question still genuinely open.
The Most Important Observation
I want to close with the single observation I think matters most for how allocators should be thinking about this right now.
In every asset class adoption curve, there is a window between late stage two and early stage four where the combination of maturing infrastructure, emerging regulatory clarity, and limited mainstream competition creates the most favourable conditions for analytical engagement. Before that window, the operational prerequisites don't exist. After it, the return premium has compressed and the differentiated insight available to careful early movers has dissipated.
That window, in digital assets, I believe is open now. I am basing this on a pattern recognition argument. The infrastructure exists, the regulated frameworks are in place, the pioneer allocators have moved, and the peer validation phase is beginning.
Every institution in this space is quietly running the same calculation: the cost of being early against the cost of being late. History suggests those two numbers are not the same size and it rarely pays to find that out last.
There are several more of these commentaries coming from me over the next few weeks, each working through a different part of the same question: what an institution actually needs to know before it forms a view on digital assets. I post them on LinkedIn as they land.
Next week, I’ll explore how ETF approval was a distribution event, not a price event, and what it means for reward-seeking allocators.
