When Will We See Institutional Capital into Crypto?

In this article, we seek to answer the question regarding when will we see institutional capital into crypto. We start off difficulties that institutional investors face, mentioning factors such as volatility, and a number of cryptos. Next are limitations regarding regulations, risk management, and trading platforms. Finally, we conclude with outlook with the future prospects of crypto institutional investment.

We would recommend reading our guides on regulations concerning cryptos ion different countries to gain deeper understanding of the industry.

The volatility of the Market

What makes cryptomarket interesting for traders is its price fluctuations. Bitcoin and many other altcoins (if not almost all of them) have large value changes on an hourly basis. Looking at the overall bitcoin’s graph from CoinMarketCap below, these changes are evident.

Since the beginning of 2017, bitcoin grew by 1.800% at the end of it, only to fall down over 70% in May 2018. Companies that make large-scale investments have so far been engaged in the more stable environment.

Since stability is not exactly a word that can describe cryptos, it is evident that these investors are waiting for the market to mature. Though other might signify this as a chance, the long-term institutional investment would be risky indeed.

Number of Cryptocurrencies

When bitcoin only started out in 2009, the number of cryptos in the market was limited to only a few. Now, there is over a 1.000 of them, with the number steadily increasing as time passes by, as seen below.

The industry is largely decentralized, meaning that no central figure control their creation or disappearance. Although similar to stocks and other commodities’ markets, the major difference lies in their life cycle.

Large companies or investors do not back many of these currencies. Thus, there is little that can push the digital asset onward for a long period of time. On the other hand, most popular coins seem to have a good foothold in the market existing for several years already. Thus, in terms of larger cryptocurrencies, long-term investment opportunities do exist.

Past Efforts and Speculations

If we are to believe the rumors, George Soros, a Hedge Fund Company owner, is reportedly interested in cryptos, according to the Bloomberg. This is not the first time for institutional investors to be linked to cryptos. However, mostly these kinds of deals are made behind the closed doors. ICO projects could also base their operations form institutional funding, though investors are usually not enclosed or the public.

However, we can safely say that cryptocurrency industry is far away from getting the support it needs. In most cases, these rumors turn out to be false due to large price surge upwards or downwards. In essence, most of the trading volume and value comes from smaller companies and individual traders.

Regulations

So, when will we see institutional capital into crypto? Institutional investors work under heavy regulations as the security of market is of their top priority. With large funds in question, unregulated markets are vastly devoid of these enterprises. Cryptocurrencies are not an exception to this rule, with several countries only being attractive enough to start the bases of operations.

The USA is the leader in this field, due to the government’s active role in controlling and regulation of the crypto market. China, on the other hand, represents a step backward, as government representatives bannedICOs. Such negative stance definitely can hamper crypto industry chances in attractive institutional funds.

Sincecryptocurrencies operate on the global level, the major turning point for large investors remains on the company that offers to trade. Some countries, like Russia and UK, do not have strict regulations regarding digital currencies, pushing crypto companies to fund their operations form individual traders mostly.

Risk Management

One of the main issues that plague the cryptocurrency industry is lack of risk management tools. Decentralized nature of the coins leaves these digital currencies into the hands of market participants. There are no central figures or institutions that would control the industry or have policies that could have any major impact.

Fiat currencies, commodities, and stocks are all under the jurisdiction of central banks. Banks are backed as well, providing the necessary stability for the market. In these circumstances, institutional investors have a lot to lose. The sole size of their investments is thus on jeopardy on daily basis, since value fluctuates.

Another issue with risk management is hacking incidents. In2017, over $70 million worth of coins were stolen from Bitfinex accounts. Without good security and tight regulations from government, investors can lose a lot.

Exchanges and Trading Platforms

In connection with risk management and regulations, platforms also play a large role. Currently, there are many of these, with power divided into several giants, such as Bitfinex, GDAX/Coinbase, and Binance. Although large in trade when compared to the overall value of industry, these companies might not have enough firepower to sustain institutional investors’needs.

On the other hand, security measures are also very important, making cold storage a must. This is especially true in the case of large investors, due to the sheer amount of volumes needed. With decentralization being the main motto of the industry, large capital would swing the power towards the chosen platform.

Outlook on the Future

When considering all findings from our guide, there are several scenarios that might play out in the near future. Firstly, institutional investors would wait for the end of the year for all improvements to take place. They would wish to see how the market will play out, especially after the value dip. Additionally, they would wait for deeper governmental involvement in order to further centralize cryptocurrency market.

The other scenario is that they would support big players in the market in the near future. This would bring centralization in the process, stabilizing the coins’ prices. However, it would require further development of the exchange, perhaps even synergy with several other exchanges.

Conclusion

We aimed to answer the question of when will we see institutional capital into crypto. No matter the scenario, it is evident that further development is needed for the market to reach maturity. Issues regarding blockchain improvement, security features, and centralization of the market will continue to drive the industry.

Institutional investors, as they have large funds, would rather see a more stable and regulated market by default. If this article peaked your interest in cryptotrading, be sure to check out our guides regarding trading strategies, like scalping and hedging.

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