The crypto-market has gained popularity over the past few years to the extent that those who viewed it as a speculative bubble are already having second thoughts. As the cryptocurrency adoption continues to grow, institutional investors now have their eyes set on this revolutionary market.
Recently, several institutional investors have taken concrete steps to invest in the cryptocurrency space despite the unprecedented drop in price and market cap experienced during the first quarter of 2018. Such investors include Venrock Capital Firm, associated with the Rockefeller family, and the Soros Fund Management, a family office linked to billionaire George Soros.
Regulatory Environment
While for years the crypto-market has remained unregulated, countries have started to address the loopholes, such as illegal activities and scamming schemes that defraud investors individually.
Steps that some governments have taken to streamline the crypto-market seem to have increased the confidence of institutional investors as reflected by their recent actions. As is the nature of institutional investors, they prefer investing in markets that have proper regulatory frameworks.
Even though no laws specific to cryptocurrencies exist, regulatory bodies in different countries, including the U.S. Securities and Exchange Commission (SEC), have started implementing securities laws to regulate the crypto-market and protect customers. This has created an environment where institutional investors are able to develop and implement their investment plans safely and efficiently.
According to Denis Farnosov, CEO and founder of AlfaToken, this is important because this investor class seeks capital-intensive, long-term investment opportunities.
“Institutional investors are patient, long-term investors. Their horizon is 5 years or more. They are not betting on a single cryptocurrency but the entire asset class,” Farnosove notes.
Growing Acceptance
The more people understand how the crypto-market works, including its underlying blockchain technology, the more mature it becomes. Adoption of cryptocurrencies is slowly increasing. Just recently, we saw some corporates going public to declare plans to integrate cryptocurrencies in their corporate models.
In fact, businesses are beginning to prefer the decentralized nature of cryptocurrencies more than centralized financial systems, which explains why adoption is inevitable. Efforts and commitments by governments to establish a robust regulatory framework shows cryptocurrencies are not bubbles. While suspension or banning of crypto project has been witnessed in the past few months, this was necessary to sanitize the market and enhance its acceptance.
It also helps eliminate fear, doubt and uncertainty among investors and for institutional investors, it is now the right time to become a party of this asset class.
“Additionally, waiting to invest has allowed the underlying platforms to grow and develop their industry disruptive products, many of which are anticipated to launch by late 2018, providing investors with real products to put their confidence behind,” Kyle Sonlin, Chief Operating Officer of Fry Egg, says.
Market Influence
Even though the market cap for cryptos remains low compared to that of many institutional investors, these investors are aware that with their big money, they can play an important role in sustaining both the price and value of the market.
Institutional investors can inject a significant amount of money into the market to prevent a plunge similar to the one experienced earlier this year. Before the drop, the rapid growth of the crypto-market demonstrated the potential it has if a good regulatory framework is in place.
Following the G20 Summit, it is possible that institutional investors have realized governments are keen on tapping the potential cryptocurrencies and blockchain offer. This may have influenced their decision to invest in this space especially when it dawned on them that they do not have a piece of the cryptocurrency cake.
“Institutional investors are starting to realize they are not the dominant player in the crypto-market. In fact, they are not even having any piece of the pie. Now, they intend to have their cake and eat it, in big proportions,” notes Vincent LIM, CEO of Fanfare Global Pte Ltd.
Participation of institutional investors will certainly affect crypto prices positively. In time, we will see their value rise gradually and possibly go beyond what we saw in December 2017.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article
David Drake is Founder and Chairman of LDJ Capital, a multi-family office which deals in various funds worldwide with over $1.5 trillion in assets, and maintains over 50+ global directors and family office partners.
More recently, Mr. Drake is viewed as a leader in cryptocurrency. Mr. Drake saw the value of digital assets when everyone was avoiding it. It all started in 2011 when Mr. Drake collaborated on the JOBS Act to create new laws underlying all fundraising in the U.S. for all ICOs. His crypto hedge funds hold crypto, ICOs, and FinTech equity as seed investments to help new coin to be made via ICOs. His company also offers bridge financing to seed upcoming ICO’s.
Mr. Drake was born in Sweden and is fluent in six languages. He holds an MBA in Finance and an MA in International Law and Economics from George Washington University in DC where he was awarded the Wallenberg Scholarship for academic merit.
