Lately, there has been a lot of buzz around institutional investors entering the crypto market. Since we believe that understanding the market dynamics and staying up to date with important events is essential when investing in crypto, we have decided to share with you some facts about institutional investors and their influence on the crypto space.
First of all, who are institutional Investors?
Institutional investors are the “big guys,” investors that account for about three-quarters of the volume of trades on the New York Stock Exchange. They move large sums of money and have a huge influence on market movements. Some people also refer to them as elephants or smart money, since some of the world’s brightest minds are behind it. They are mostly financial institutions like pension funds, mutual funds, money managers, insurance companies, investment banks, hedge funds, private equity investors, sovereign funds, etc.
Another important thing that we need to point out is the fact that in many cases, different regulations apply to them compared to the average Joe or smaller so-called ‘retail investors.’ This is also the case when it comes to crypto since, in most countries, this is still an asset class that is not clearly defined and regulated. As a result, institutional players still face many barriers when trying to enter the crypto market.
Are they really entering the crypto space?
With the development of the industry and new financial products tied to cryptocurrencies, institutional investors are slowly starting to dip their toes into the crypto waters. With Bitcoin futures contracts, VanEck’s SolidX Bitcoin Trust, multiple licensed custodians on the market and regulated crypto exchanges, their entry into crypto is becoming easier and easier. So, if you heard the rumor about institutional players entering the crypto space, your sources are right, they really are coming!
In fact, some of them have been in the market for quite a while already. As a matter of fact, speculation is that they already represent most of the trading volume and are significantly influencing the price of Bitcoin, and consequently other cryptocurrencies.
What kind of difference will institutional players make in the crypto market? And, is this important?
A global phenomenon
First of all, seeing them joining the “crypto party” means that we have come a long way since the start of the cypherpunks movement, and later on the creation of bitcoin. What was once an experiment is now becoming a global phenomenon that is being recognized in the financial industry all over the world. More importantly, crypto is slowly but surely becoming a new asset class revolutionizing the financial industry. What makes it so interesting for the financial industry is the fact that it has a low correlation to other asset classes (stocks, bonds, precious metals, real estate, etc.), and so appears to be included in everyone’s portfolio.
Due to the increased demand for cryptocurrencies, institutional investors will bring additional analytics, development, and media coverage to the crypto space.
If we were to make a bold prediction, we could say that soon, every financial institution will have a department dedicated to digital assets – which will further enhance the development of the industry as a whole.
Considering that it is becoming easier and easier for institutional investors to invest in Bitcoin and other leading cryptocurrencies, there is no doubt that more and more institutional investors will invest money into this new asset class. Their entry into the crypto market will bring the trading volumes and market capitalization to new highs. In addition, it will improve liquidity of the assets, which will lead to the lower volatility of crypto assets.
Will there be Lambos?
(the supercar brand has become synonymous with crypto-generated wealth)
That we cannot promise. But what is sure is that the industry is maturing, and that we can expect the crypto market and value of digital assets to significantly increase in the coming years. Since the industry is still very young, our suggestion would be that you shouldn’t bet on only one horse. Instead, you should diversify your investments and spread the risk.