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David Drake

April 12, 2018 Article

The Real Reason Institutional Investors are Flocking the Crypto Market

A few months after he called digital currencies a bubble, George Soros has given his New York-based $26 billion family office, Soros Fund Management, the greenlight to trade in digital currencies. The move by Soros has caught many by surprise due to his previous anti-cryptocurrency stand. Until recently, the successful investor issued media statements warning people of the 'bubble' characteristics depicted by the cryptocurrency market. But Soros' family office isn't the only institutional investor that is stepping into the cryptocurrency space. In Europe, the Lichtenstein crown prince recently expressed interest in purchasing cryptocurrencies including Bitcoin as investments. The venture capital arm of the Rockefeller family, Venrock, has also expressed interest in the cryptocurrency space. Venrock is partnering with CoinFund to support entrepreneurs in the cryptocurrency space to launch blockchain projects. According to reports on Fortune, David Pakman, a partner at Venrock said the venture capital firm opted to partner with a team that was already investing in the cryptocurrency space by helping crypto projects and economies.

A Timely Entry
The entry of institutional investors into the cryptocurrency market is largely seen as timely and could trigger fresh interest for crypto-assets among investors who are conventionally cautious about them. Some players in the cryptocurrency space already feel that it is a good thing for the industry because it shows that the market is ready for takeoff after a tough first quarter this year. Anindya Chanda, the Vice President at Avalon Labs, says, "Seasoned investors like the Institutional and family offices mentioned above have been known to enter a market at the right time - when prices are low and about to go up. This is a clear signal that the market has corrected itself and is ready to start on its next boom."
The cryptocurrency market is set to benefit more from the flow of institutional capital. Their presence in this space is also likely to increase transactions and help reduce market volatility, according to Chanda.
"As more smaller investors follow the lead - increased buying activity will deter the kind of volatility that we've seen over the last few months," he notes.

A Promising Future
Liquidity challenges and regulatory uncertainty have made it difficult for the cryptocurrency market to attract institutional investments. Though the uptake of crypto-assets has generally be slow among institutional investors, the entry of Bitcoin futures last December became the first indication that money from this class of investors would start flowing into the crypto market.
There is a strong feeling that the promising future of crypto-assets and blockchain is motivating the flow of institutional capital into this market.
Clarence Wooten, founder and CEO of RoleCoin by STEAMRole, says, "Because blockchains are decentralized and globally distributed, they are here to stay. It’s a disruptive asset class that will win across many sectors in the long term. So the crypto asset class is too attractive to ignore in the long term. To ignore it and not find a way to participate won’t make it go away. So despite its volatility, you have to find a way to participate or risk being disrupted or becoming irrelevant."
Further, institutional investors are most likely alive to the fact that great opportunities abound in the nascent cryptocurrency industry as noted by Tali Rezun DBA, CEO and co-founder of 4th Pillar.
Rezun states, "Since the cryptocurrency market is still in its infancy stage, there are great opportunities for institutional investors. Some years have passed therefore some trading analytics are already available. They offer investor support. In comparison to other investment opportunities, cryptocurrency markets, despite their volatility risks, offer extensive rewards and are just too attractive to miss."

 Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.

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