How Cryptocurrencies are Changing the Landscape for Institutional Investors


More than a decade after Bitcoin’s debut in January 2009, the cryptocurrency industry now has a cumulative market capitalization of more than $ 300 billion. While technology enthusiasts and retail investors were largely responsible for the initial growth of the asset class, institutional investors are now entering the mass cryptocurrency market. Hedge funds, banks and other financial institutions have legitimized the industry, especially with the recent momentum of institutional products such as Bitcoin futures and stock traded products (ETP).

Increasing hedge funds

Oliver von Landsberg-Sadie, CEO of the financial services group, BCB, told Nasdaq that future growth in the crypto market would be largely driven by professional institutions and investors. He said, The 2013 bubble was driven by technocrats and dark network operators and the 2017 rally was led by the whims of speculative retailers; The growth of 2019 belongs to financial institutions that are diversifying obsolete portfolios and finally have the professional machinery to do so. ”

Grayscale Investments, a cryptocurrency asset management firm, recently revealed that its total assets under management (AUM) have soared to a whopping $ 2.7 billion as a result of the spikes in digital currency prices and the improvement of market sentiment In terms of individual funds, Grayscale’s quarterly returns ranged from 147% to 179%. Since the beginning of 2019, the company registered investments worth $ 127 million, of which approximately 80% come only from institutional investors.

Even the Ivy League university endowments have expressed great interest in the cryptocurrency market. In October 2018, the online media, The Information, reported that Harvard University, the Massachusetts Institute of Technology and the University of North Carolina have invested in at least one cryptocurrency hedge fund. Earlier this year, Harvard University revealed its first direct investment in the sale of tokens in Blockstack, buying 95.8 million tokens valued at approximately $ 11.5 million. According to a CNBC report, Yale University also invested in two digital currency funds last year, one of which is managed by Silicon Valley-based venture capital firm Andreessen Horowitz.

Decentralized exchanges and applications: the next frontier for institutions

Exchanges of cryptocurrencies and other private sector companies are also increasing their technical infrastructure to meet this growing institutional demand. Last year, Coinbase launched a set of products specifically aimed at institutional investors, which include an improved custody solution and execution services for high-volume over-the-counter operations and algorithmic orders. Gemini, another American cryptocurrency exchange founded by the Winklevoss twins, applied for a stockbroker license with the intention of selling securities registered on the platform.

Meanwhile, decentralized applications (DApps) like Alluva are giving retail and institutional investors an unprecedented level of knowledge about cryptocurrency market trends. Alluva is a free web-based application that allows anyone to earn rewards for predicting future prices of various cryptocurrencies. The Alluva platform combines this crowdsourcing prediction data along with other objective factors to measure the growth potential of a cryptocurrency.

In this way, exchanges and DApps are making cryptocurrencies more attractive and accessible to institutional investors. With $ 300 billion, the cryptocurrency market still has a long way to go before surpassing its previous high valuation of $ 810 billion. With the downward trend last year that now shows signs of reversal, it may take a short time before the asset class exceeds the benchmark of $ 1 billion.

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