The entire cryptocurrency community has been waiting for institutional investors to step into the cryptocurrency space for a long time. This drive grew with announcements made by institutional moguls such as Intercontinental Exchange and Fidelity. However, despite the interest of these institutions, the space is yet to witness a massive adoption by institutional investors.
In an interview with Ran NeuNer for CNBC Crypto Trader, Dimitri Sogoloff, the Founder of Nexyst, spoke about the reason why institutional investors were hesitant to invest in the cryptocurrency space.
According to him, institutional investors are worried about the market risks associated with the cryptocurrency space, along with associated infrastructure and operational risks.
He went on to say that this is quite different in mature markets as they have already solved most of the risk factors. However, this situation is different from the cryptocurrency space as everything is “brand new”.
This was followed by the founder speaking about whether the total risk of the asset class was summed up by volatility and adoption, and infrastructural and operational risks. He said:
“Total risk of any investment including of course crypto investment that part is the most difficult to quantify there is no actual number that you can put to link to an operational risk of any investment.”
He further added:
“With crypto, everything’s brand new so it’s a really tough proposition for a large institution to accept an unknown risk that goes into this formula and then they would really have no idea how much risk is is attached to their investment.”
Furthermore, Dimitri stated that cryptocurrency is “a little bit” away from wide adoption by institutions. However, he added that they are going to step in, but there were problems associated with custody, settlement, security, compliance, and regulatory framework. He said:
“No institution is going to deploy a meaningful amount of capital and a meaningful amount of capital means roughly one to five percent of their assets”
This was followed by the host asking about what the numbers would look if 1% of institutional investors portfolio is in cryptocurrency. He said:
“The numbers are staggering these are probably 30 to 50 trillion dollars in assets across the world”