The Real Reason Institutional Investors are Not Taking Chances with Cryptos
Towards the end of 2017, the cryptocurrency market began experiencing a downward trend. This got worse in early 2018 as governments launched crackdowns with the aim of protecting investors. This and other factors caused the value of digital assets to drop by almost 50%. As we enter the second quarter of the year, things seem to be looking up.
Entry of Big Money Spenders
Already, we are witnessing growing interest in cryptocurrencies among big money spenders who are looking to tap into this new asset class. George Soros has already given his fund, the Soros Fund Management, the go-ahead to invest despite labeling the market a bubble back in January 2018.
There’s also Venrock, the venture capital arm of the Rockefeller family. This firm has Bitcoin in its line of sight, while in Europe, the crown prince of Liechtenstein has stated his interest in using Bitcoins and investing in cryptocurrency.
Governments, such as North Korea have somewhat calmed down and are willing to allow trading of cryptocurrencies while the Japanese are now accepting Bitcoin as legal tender provided exchanges register and comply with regulations.
Cryptocurrency users have been protesting government interventions since inception of digital assets. However, as regulation ramps up, institutional investors are beginning to feel more confident due to reduced uncertainties in the market.
Institutional investors may have been waiting for the right time to enter the market as a way of reducing risks according to Kyle Sonlin, chief operating officer at FryEgg.
He says, “Institutional investors have been excited about this new investment vehicle just like everyone else from the public but have been looking for the right time to enter. Buying in at the top of a long bull run increases the risk, and with a correction in the market over the last few months, favorable entrance points in many cryptocurrencies are now apparent.”
The crypto market is also stabilizing and showing signs of maturity, it will experience greater legitimacy and an overwhelming show of support from the big players.
“Since December 2017 there has been a significant depreciation of the crypto market, with very interesting prices for the entry of large investors,” notes Luis Manuel Lopez, General Coordinator of Workchain Centers.
Not Taking Chances
Should cryptocurrencies become legitimate currencies in future, Institutional investors do not want to be left behind. In their view, a refusal to acknowledge this nascent asset class now could result to significant losses they are not willing bear as Vincent Lim, CEO of Fanfare Global observes.
He says, “If there is extra capacity, cryptocurrency presents itself as an excellent alternate investment opportunity. Other institutional investors have recognized the long-term potential and benefits of blockchain technology and its applications and are coming in as early adopters in the hope of reaping future rewards.”
Regulation will serve as a guardrail against fraud and anonymity while boosting accountability. Once suitably established, more institutional investors such as endowments and pension funds will feel comfortable entering the market.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.