Will Institutional Capital Boost the Growth of Crypto Market in Coming Months?
After losing more than 50% of its value this year, the cryptocurrency market is likely to experience steady growth in terms of trading volumes and reduced volatility in upcoming months. This, analysts believe, will happen because governments are now taking steps to establish a regulatory framework for cryptocurrencies.
At the beginning of the year, countries, such as South Korea, reigned in on the cryptocurrency market, banning anonymous trading and requiring traders to link their cryptocurrency accounts with their bank accounts. In the US, the SEC appeared to treat crypto assets as securities when it subpoenaed more than 80 companies that had issued initial coin offerings.
Within the tech sectors, tech giants like Google, Twitter, LinkedIn and Facebook, seemed to push governments towards developing regulation for the industry when they announced they were banning cryptocurrency ads, citing the need to protect investors.
While regulation of cryptocurrencies is critical to the growth of the market, the presence of institutional investors in the crypto space is likely to boost transaction volumes in the industry. Lately, investment bigwigs, including George Soros and the Rockefeller family, has expressed interest in crypto investors.
Just recently, Soros reportedly gave an approval to his family office based in New York to trade in cryptos. At the same time, Venrock Capital, an investment firm linked to the Rockefeller family, announced partnership with an investment firm, CoinFund, in making crypto investments.
Some players in the cryptocurrency space have viewed the entry by institutional investors as strategic for the industry because it validates cryptocurrencies as an asset class worth investing in.
Ruslan Guseynov, co-founder and Head of Strategy & Development at Soundeon, says, “Ever since the U.S. and European QE strategy took its toll, institutional investors, deprived of yield, have been struggling to obtain the necessary returns across financial markets. Credit barbelling has become a common strategy amongst institutional investors. With little surprise, some of the industry’s mavericks have found their way into cryptocurrencies, hence validating it as a distinct asset class.”
Value for Investors
Contrary to the belief that cryptocurrencies have a short lifespan, institutional investors are now realizing they are here to stay. The fact that leaders from world-leading economies declared that blockchain – and by extension cryptocurrencies – can improve efficiency in the financial sector may have sent a strong message to institutional investors on the numerous possibilities these innovations can present to the financial sector.
“Time has told that cryptocurrencies are not a flash-in-the-pan idea, as many once feared. While the market has had its bumps and bruises over the years, there is still a market! I am sure that as more investors familiarize themselves with the technology adoption will continue to increase,” notes Piers Mana, Systems Architect and founder of Roux.io.
According to Denis Farnosov, founder of AlfaToken, profitability could be driving investors into the crypto market.
He says, “Institutional investors realize there is increased demand from companies particularly across Europe to invest directly in cryptocurrencies. They want to be profitable in the long run and not miss out on important innovation.”
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.