What is Driving Institutional Investments into the Cryptomarket?
In the recent past, institutional investors have expressed interest in the cryptocurrency market. In the US, Venrock, the venture capital arm of the Rockefeller family, has joined forces with Coinfund to invest in cryptocurrencies and related projects.
Further, just months after he referred to cryptocurrencies as a bubble, George Soros has given his $26 billion family office, Soros Fund Management the greenlight to trade in cryptocurrencies.
In Europe, the crown prince of Liechtenstein revealed that his family is considering investing in cryptocurrencies. This institutional investor involvement is good for the cryptomarket because the entry of huge funds will increase trading volumes in the market and boost the its value. But what factors are driving this burgeoning institutional investor interest in cryptos?
According to coinmarketcap, the cryptocurrency market capitalization grew by 33% in 2017. However, in 2018, the market has experienced a downward trend. According to Kyle Sonlin, Chief Operating Officer of Fry Egg, institutional investors have been interested in cryptocurrencies as an investment option for a while. However, they have been waiting for the market to correct itself because entering into the market as investing during periods of price increase would be a risk.
"Institutional investors have been excited about this new investment vehicle just as 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," he says.
On his part, Luis Manuel Lopez, General Coordinator of WorkChain Centers feels the price depreciation that occurred on cryptocurrencies from the highs seen in 2017 has attracted the large investors.
“Since December 2017 there has been a significant depreciation of the crypto market, with very interesting prices for the entry of large investors,” he notes.
It is important to acknowledge that crypto-assets have the potential to solve many challenges that mainstream markets experience. During the recently concluded G20 summit, the world economic leaders pointed out that blockchain technology has the potential to increase efficiency within the financial market.
According to Todd Crosland, founder and CEO of CoinZoom, the entry of institutional investors is largely due to the influence that crypto-assets have, a fact that cannot be stopped since their underlying innovation can impact the global financial system as well as other aspects of the global economy.
“Globally, the “ship has sailed” in regards to blockchain and its role in continuing in disrupting fintech and other aspects of the global economy. While there are people who debate the valuations of cryptocurrencies, there is very little debate about the validity of blockchain technology and its impact on the global financial system. Smart money is definitely entering the cryptocurrency space,” Crosland says.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.