Can Institutional Investors Bring in the Next Wave of Hype to the Crypto-Sphere?

[robbiearchibald10]

Bitcoin was created over a decade ago and remained quite popular among certain subgroups in the tech and gaming communities, but didn’t gain mainstream popularity until a few years ago. It has come a long way from being associated with illegal activities, for example, being used  in the infamous dark web site, Silk Road, the first modern-day darknet marketplace — to being used as a legitimate payment method by some of the largest companies on the planet, including AT&T. In just over a decade, blockchain, the underlying technology behind Bitcoin, has given rise to a new category of financial instruments: cryptocurrencies. Over the years, we have seen a greater push for mainstream adoption of cryptocurrencies. If the ICO boom was the buzz around town in 2017, and the bear market was prominent in 2018, institutional investment in the crypto industry is definitely the theme for 2019.

The ICO frenzy: First Major Wave in Crypto Adoption

The Initial Coin Offering (ICO) frenzy in 2016 and 2017 remains a very significant event in the cryptocurrency industry to date. Initial coin offerings, through the help of blockchain, allowed thousands of companies to raise funds from the general public rather than going the more traditional route of institutional investment or venture capital. To date, ICOs represent the most prominent use case of cryptocurrencies and smart contracts on the blockchain: fundraising. Within a span of two years, this use case brought in hundreds of thousands of people into the cryptocurrency space. By December 2017, the Bitcoin price had soared to almost $20,000 and the cryptocurrency market cap crossed the $800 billion mark. What was most interesting about this rally was the fact that up until then, institutional involvement in cryptocurrency investing was minuscule. And while ICOs managed to entice some, most people remained sceptical as the space still lacked a high degree of genuineness and accountability, bringing us to the next development in the space. After the 2018 bear market, companies are now focused on building products and services, with some shifting their focus to institutional investors.

Institutional Investors: The Need of the Hour

Institutional investors have remained the “gold standard” in determining the quality of investments. Institutional investors control large chunks of financial assets and have substantial resources at their disposal. Over the decades, institutional investors have built a reputation for themselves, since they have had access to companies that an average person does not. The 2013 crypto bubble was driven by technocrats and dark web trawlers, while the 2017 rally was led by speculative retail traders. Several research studies, as well as the involvement of reputable financial institutions deciding to take the plunge into crypto, are popularising the narrative around institutional investment and its potential impact, which is why most companies today believe that the growth in 2020 will be a result of financial institutions which are diversifying their portfolios and adding cryptocurrency trading to the mix.

Fidelity Investments, the financial giant that has over a trillion dollars worth of assets under management, revealed plans to launch its own cryptocurrency division after it saw huge interest from institutional investors and recently managed to receive the trust license from the New York State Department of Financial Services (NYDFS). According to a study conducted by Fidelity, the findings saw that most investors (72%) preferred to buy crypto investment products, while 57% prefered to buy crypto assets directly and another 57% preferred to buy an investment product that comprised digital asset companies.

Another big institutional player that has found its way into the crypto-sphere is Intercontinental Exchange whose long-awaited Bitcoin futures platform, Bakkt, was launched in October. After a very underwhelming start, the daily volume of the futures contract has gone up substantially.

Gradually, we are witnessing the entrance of some of the biggest players in traditional financial markets into the crypto space, and as a result, it has not taken long for the markets to deem that institutional investors will bring in the next wave of the crypto bull market. The question, however, remains: Can institutional investment help in the mainstream adoption of cryptocurrencies?

How Institutional Investments Catalyse Mainstream Adoption

Institutional investors and top institutions make the news. In order to understand the impact of big-name firms entering the crypto-sphere, one may only need to look at Facebook’s Libra coin, that was announced earlier this year. In a short period of time, the Facebook-led stablecoin has garnered so much attention that lawmakers in the United States and around the world are holding hearings to review the project. Just a month after the whitepaper was launched, eToro commissioned a study in the US in which it found that 16% of respondents had heard of Libra, while only 12% of respondents had heard of Ethereum, the second largest cryptocurrency which has existed since 2015 and had a market cap of over $15 billion at the time of writing. If there is one lesson we can learn from Libra, it is the fact that big companies make the news — and that interests more people. The launch of Facebook’s Libra coin has been considered by many as one of the reasons for this year’s Bitcoin price rally. Keeping aside the viability of the stablecoin, there is no denying that it has been successful in bringing more people to the discussion table and fostered the conversation around cryptocurrencies, which is key to eventual mainstream adoption.

Institutional Investors = Increased Confidence

In addition, institutional investors instill confidence. Not everyone understands the financial markets and certainly, not everyone understands blockchain and cryptocurrency. Institutional investors not only invest large amounts of their capital, but also put their reputations at stake. Confidence is key when it comes to investing. People will not put their money into something they do not clearly understand unless they see some reputable and genuine source doing the same. General public sentiment has gradually evolved over the past few years. Keeping the volatility of cryptocurrency aside, people have become more confident about the future of tokenisation and blockchain technology. Furthermore, some of the world’s most reputable universities, including the likes of Harvard University, Dartmouth College, Stanford University, Massachusetts Institute of Technology (MIT) and the University of North Carolina, have invested in at least one cryptocurrency fund. Morgan Creek Digital made headlines by being the first US pension fund to invest directly in cryptocurrencies. Crypto requires credibility to achieve mainstream adoption and institutional investment has the potential to act as the catalyst.

Promoting Overall Growth

Furthermore, institutional investments foster overall growth in the market, from liquidity to product offerings to greater access. In order to entice institutional investors, an increasing number of companies are introducing crypto-based products. Almost all of the top cryptocurrency exchanges offer margin trading or at the very least, plan to offer margin trading in the near future. We have also started seeing the launch of more derivative crypto-based products. Bakkt, a major exchange operated by Intercontinental Exchange (ICE) and supported by several major companies, including the likes of Microsoft and Starbucks, is gradually gaining traction for its Bitcoin futures. Another leading exchange, Deribit, based in Amsterdam, is well known for being the first true Bitcoin options exchange. Issues around security are being addressed by several companies in the custodian business. The crypto community has seen some pretty bad examples of poor custodianship, such as when exchanges are hacked and lose millions of dollars of investors’ money, or when the exchanges themselves turn out to be fraudulent. The more we see institutional investors enter the space, the higher the bar is raised for stricter standards of custodianship. Institutions catalyse this process because they have a reputation to uphold.

Crypto’s Kryptonite: Volatility

Volatility in crypto markets is not a new phenomenon and is likely to be one of the major reasons why people do not invest in cryptocurrencies. Even though the cryptocurrency market cap is well over the $180 billion mark (at the time of writing), it still remains quite insignificant as compared to traditional financial markets. And since the liquidity is thin, any sudden price movements have the ability to turn the market on its head. Therefore, a growing interest from institutional investors presents in itself the opportunity for larger capital injection into the crypto markets, which in turn could help solve the volatility concerns to some extent. Coinbase, one of the most popular crypto exchanges, has also remained bullish on institutional investment in cryptocurrency. The company has a whole suite of products catered towards institutional investors, including custodial services to a professional trading platform. In August 2019, Coinbase CEO Brian Armstrong tweeted that Coinbase was receiving $200-$400 million in new crypto deposits from institutional customers.

Recent developments in the crypto industry cannot be overlooked or simply pushed away. Until now, cryptos have mainly attracted individuals — tech enthusiasts, early adopters, “geeks” and retail traders — and while this has allowed the industry to grow initially, the fuel from this group of investors can only drive the growth so far. In the long term, mainstream adoption and large-scale growth require large capital infusion and legitimacy which institutional investors can bring with them.

https://www.etoro.com/blog/market-insights/can-institutional-investment-become-a-catalyst-in-promoting-the-mainstream-adoption-of-cryptocurrencies/

[avikz]

Institutional investors can definitely bring a fresh wave of hype as well as liquidity to the crypto market for good. But it's easier said than done! The first requirement to see institutional investors in the crypto market in noticable numbers, legal framework has to be present! Only a few handful of countries currently have it and that's why the desired volume of institutional money is not yet seen in the market.

I believe, if institutional investors start moving into crypto market, it will definitely shape the market for better. But the government nee3d to have a favorable legal framework first. That's the basic!

[cabron]

Well now that its now known to be accepted by big business unlike that dark net money reputation, I'm sure there will be more people not just the institutional investors that are going to come. You can say that the next waves of hype might just save Macaffee from swallowing his balls for its going to be bigger that altcoins you thought to be shitcoins will also be worth investing.

[ChrisPop]

Institutional investors and traders are already in the markets. It is just that only a few of the "sharks" from Wall Street have entered the market so far. CME and Bakkt have made the first steps towards creating a legal framework that would make the investors feel "safe" about their money. You won't see many institutional traders operating on exchanges like Bitmex or Binance that are not regulated and do not offer some kind of guarantee of the funds' safety.

Recently the Gemini exchange has announced the backing of their proprietary insurance company that would cover it with over $200M. The signs are there folks, institutions are slowly marching into the crypto sphere.

[webtricks]

There is a significant different between how a real world company operates and how a crypto-based project works.

Company's model: The founders of the company dilute their control over company by selling the portion of the company to investors either by the way of shares or a fixed percentage. In either way, investors now have a control over company's decision making and they share the profits earned by company. On the other hand, founders get required money to operate company.

Crypto Project's model: The founders of the project sell self-created cryptocurrency to the investors. In order to create the value of cryptocurrency, founders inculcate the use case of cryptocurrency into the project. Mostly, the sole way investors can earn back their money is when the value of cryptocurrency soar. They have no control over project and don't participate in project's decision making.

Now the concept of institutional investors fits perfectly in company's model. Institutional investors being the group of experienced investors can shape any company from embryo stage to full-fledged functional enterprises. In return they are owning share of companies which don't have any use case. Thus, the value of shares will increase with the performance of company. The both motives are perfectly correlated.

But in case of crypto-project, both motives are disjoint. You can't guarantee that the success of project in operations will increase the value of cryptocurrency too since the value of cryptocurrency mostly move by demand/supply factors. Also if institutional investors take the majority of the supply of the cryptocurrency, there will be no market. A sea with single whale and no fish can't exist.

Crypto-projects should be community driven only then they could succeed.

[Theb]

I don't think that "hype" is something that institutional investors would be able to bring once the majority of them are involved in the market, here's my point of view about it. Hype in the market we have is something that can't be played every time it is rolled out in the news, it gets worn out and it becomes less effective every time they recycle it in the news. One perfect example for this one is when BAKKT officially launch the market literally didn't react about it. Before that the hype for BAKKT on finally having a big company supporting Bitcoin with their Derivatives, futures trading, and custodian services it was overhyped by a lot of people especially the crypto news website that when it officially launch the price of Bitcoin neither go up or down. So imagine a news about institutional investors flocking the market officially or a more timely news about Bitcoin ETFs finally being available do you think it will create much hype as expected? I don't think so because the hype for them has or will die down before it ever happens. So if you are looking for the "next wave" to happen it won't really be because of the hype but because of the demand and money flowing in the market.

[FanEagle]

We have reached to a point where going from 8k to 80k will require so much money that regular people can't provide that at all. I understand back in the day when we reached from 100 dollars to 1000 dollars was easy and we have managed it but there is a HUGE difference between taking the price from 100 to 1k versus taking it from 8k to 80k, it requires billions of dollars going into the market.

So, institutional investors would make up that difference, regular people will still be involved and maybe even more of them would be involved and the price could reach to 20k or even 30k without whales help but in the end in order to take the next step we will need billions of dollars from the big companies to go into the market all together to create some sort of hype and take it to next level for sure.

[aoluain]

Institutional investors and traders are already in the markets. It is just that only a few of the "sharks" from Wall Street have entered the market so far. CME and Bakkt have made the first steps towards creating a legal framework that would make the investors feel "safe" about their money. You won't see many institutional traders operating on exchanges like Bitmex or Binance that are not regulated and do not offer some kind of guarantee of the funds' safety.

Recently the Gemini exchange has announced the backing of their proprietary insurance company that would cover it with over $200M. The signs are there folks, institutions are slowly marching into the crypto sphere.

This is exactly what I was going to post, Institutional investors are
already playing with crypto as above.

The volatility is an issue for institutional investors in general, CME's allow
them to make "investments" without actually buying crypto. Some will see
the long term benefits too.

The Gemini exchange will add more investors also especially when
they know their investments are insured. Here is an interesting thread
about the recent move by the winklevoss twins > https://bitcointalk.org/index.php?topic=5218462.0;topicseen

The EU have also given a green light for Euro banks to get directly involved
in Bitcoin and crypto starting this year, here is a thread I started back in
November > https://bitcointalk.org/index.php?topic=5205690.msg53217178#msg53217178

More here > https://www.fxstreet.com/cryptocurrencies/news/new-eu-law-states-that-banks-may-hold-and-sell-bitcoin-from-2020-201912030544

The European Union has recently proposed a new bill on the fourth Money Laundering Directive which will allow European banks to hold and sell Bitcoin. The bill is expected to come into effect in 2020. Earlier, banking institutions were not allowed to hold or offer any form of digital assets. The German Bundestag recently passed its own bill to implement it. However, further approval is required before the law can be enforced.

[outatime1]

Institutional investing will drive the price up, reduce volatility, and it will make Bitcoin a more accepted investment.  I see it as a positive and something that is inevitable.

[ecnalubma]

Institutional investors are one of the key factors that could hype the crypto industry again. But due to lack regulations or clarity about the assets it will be difficult for them to get involve. I think crypto should mimic some of the regular stocks framework.

[Wexnident]

If you were to talk about how Facebooks Libra influencing the rally, you could also say how investments made by institutional investors don't bring any assurance towards their investment. It is inevitable though, for decisions made by institutional investors to somehow influence the general populace, especially those who were just attracted by the news and decided to invest. With how advertisements work and all that.

Crypto-projects should be community driven only then they could succeed.

But isn't that how Institutional investors affect the market? The community is swayed by the investors, and the market is swayed by the community. It all comes down to how the investors present the usefulness of their project to the community, as well as how famous they are in general.

[NathanJB]

It actually could. I have always been in the thinking that sometimes institutional investors are urgently needed for the people to follow. Institutional investors could play the role as herders or shepherds and the majority of the masses as the flock of sheep. If the big names such as Google, Microsoft, Amazon, Ebay, Apple, and others would announce that they are already accepting Bitcoin in their businesses, I am sure millions would immediately jump into the Bitcoin train.

[ashmodeus]

what i think about institutional investors is about how crypto-sphere will be more regulated,more rules,in the positive side crypto-sphere will be easy to be recognized by public, they will be have no worries anymore about crypto which full of scamming before. but on negative side, everything will be full with regulations by goverment and i hate that.
Because what they want is about long term investement, so to make that happen, everything like regulations etc. must be applied to prevent market crashes, momentary pumping dumping, liquidation, minimizing fluctuations etc.

[TheCoinGrabber]

Hype they can definitely bring in, it's how much new money they can inject into the system that needs to be seen. One positive thing with this is that it brings in an air of legitimacy to the crypto industry, since these would be eventually regulated.

[Hydrogen]

Institutional investment is a dual edged sword, producing both tangible negatives and positives.

On the plus side, it has potential to legitimize the crypto sphere and catalyze mainstream adoption as OP's article mentions. It can boost consumer confidence despite lack of familiar brand name appeal. It could introduce additional competition to currency and investment markets, which will produce greater value to consumers over the long term. Undoubtedly there are many positives which will arise.

I think that people shouldn't forget however the student debt crisis arose as a byproduct of wallstreet owned and operated for profit colleges, approaching homeless people on the street and offering them government sponsored loans. There are negative trends associated with wallstreet factory farms. Negatives associated with wallstreet for profit prisons. Without going in depth, suffice it to say, its not all fun and games as far as institutional investment goes.

[panganib999]

They are kind of yes. Could be. But the name of Institutional Investors isn't all positive and all of that. They can also bring about negative results with their decisions. See, Libra coin indeed hyped the news of Crypto towards the world, but it also brought negative effects since the coin that let the world know that the crypto world isn't all fun and games, and that losses can be quite huge. We all acknowledge, and know of this, but in terms of BTC adoption, this kind of seems a setback of sorts.

[qiwoman2]

Institutional investment coming comes in for one reason only - PROFIT. most institutions want to make sure that their portfolios are profitable for their rich clients and customers and making bank is what they are all about. Now is this a good or a bad thing you may ask? It depends on who they have trading for them in the markets. If they ar emaking a ton of profit shorting the markets through margin trading, then it's not that much beneficial for all the little retail investors and hodlers, but if they are building diverse portfolios and growing them for generational wealth and long term appreciation value for their clients, then it's a boon in disguise as it will be marketed to future generations that it will be normal and good to hold a percentage of their savings in a basket of cryptocurrencies.

[TrevorS]

It is a little strange that a similar topic arose right now (once again). I remember that throughout the whole of 2018, everyone was waiting for when institutional investors finally came to the market.
Everyone was waiting for the opening of BAKKT and other gateways for the institutional. But when the discoveries took place, nothing happened.

[davinchi]

With the money coming in from the whales, we can have both rewards and risks that would put bitcoin to a whole new level. The reward is that, if you purchase 1+ billion dollars worth of bitcoin inside this year, you will increase the price a lot, even if people start selling more, the risk is that if you sell 1+ billion dollars worth of bitcoin you will cripple the market for a long time as well.

So, it is both good and bad, however one good thing that can't be risky is the fact that when companies go into bitcoin it becomes news and even if they end up selling, any news is good news for us since getting our name heard is the most important part of bitcoin world. Let's hope that people actually end up supporting the moves of institutional investors make and encourage them.

[The Sceptical Chymist]

If the ICO boom was the buzz around town in 2017, and the bear market was prominent in 2018, institutional investment in the crypto industry is definitely the theme for 2019.

I have the attention span of a chipmunk, so I didn't read the whole article here but the above quote pretty much summarizes everything I skimmed through.

Those big institutional investors are nice and all, but they aren't actually buying cryptocurrencies as far as I know.  They have way too much money to actually buy bitcoin itself, so they have to bet on its price through options/futures on exchanges like Bakkt.  I don't think they're actually helping bitcoin's price, its adoption, or its popularity.  They just think of places like Bakkt as a big casino and while they'll make money for sure, I don't think they're benefiting crypto as a whole.

Everyone was waiting for the opening of BAKKT and other gateways for the institutional. But when the discoveries took place, nothing happened.

Yeah, I remember that as well.  Lots of hype around Bakkt's launch and there were quite a few threads with members speculating what the impact would be--and the first thing bitcoin did after it happened was to drop in value.  Quite a bit if I remember correctly.  And I don't even think Bakkt had anything to do with that, although there could have been some market manipulation happening. 

Ultimately I'm not sure if these institutional investors are as important to crypto as this article would suggest.