Apart from revolutionizing the payment industry, cryptocurrency is destined to make investing available to everyone. In 2017, it was the biggest investment opportunity for retail investors. In 2019, not only is the number of retail investors increasing rapidly, but hedge funds, banks, and large financial institutions are also joining the market.
How are all of these market participants supposed to manage their digital assets? The risk is huge now since hackers consider institutional cryptocurrency funds as “honey pots”. Do they all have competent resources to handle the security requirements on their own?
Companies like MPCX, Bitwise, and Coinbase believe that outsourcing cryptocurrency management to experts who can oversee all security concerns and apply traditional wealth management principles in order to maximize profits is the best choice.
It’s hard to argue with that when only in 2018, $1.7 billion worth of cryptocurrencies were stolen, and 2019 is on track to be even worse, with $1.2 billion already missing in the first part of the year.
What’s stopping new investors from joining the cryptocurrency market?
A quick recap of the cryptocurrency market’s capitalization reveals an exponential growth of 4,500% in just one year; from $17.7 billion at the start of 2017 to $800 billion in 2018. The possible returns of an investment would shock anyone.
Deutsche Bank global financial strategists Masao Muraki, Hiroshi Torii, and Tao Xu mentioned, “Although institutional investors recognize that stocks and other asset valuations may have entered bubble territory, they cannot help but continue their risk-taking. Now, a growing number of institutional investors are watching cryptocurrencies as the frontier of risk-taking to evaluate the sustainability of asset prices.”
However, while cryptocurrency investment outplays the returns of other investment classes, such as stocks or real estate, it comes with additional risks related to the way one is managing his or her digital assets. The process of purchasing and securing cryptocurrencies is currently harder than buying and holding regular equities.
Regardless of the amount to be invested, an individual or financial institution has to go through a complex technical process in order to make sure the funds remain safe during the transaction and beyond. At present, new investors must:
- Set up a wallet that accepts the cryptocurrency they wish to invest into
- Find an exchange that lists it
- Participate in a lengthy verification process
- Deposit their funds through one of the supported payment methods
- Place the correct buying orders
- Withdraw the newly acquired coins in their wallet
And this is just the purchase process. From this point one, the proper security methods should be put in place to prevent malicious parties from access.
While this is certainly doable, the process’s complexity represents a significant barrier for retail and institutional investors looking into cryptocurrency.
Iurii Riabykin, Founder & CEO of MPCX, noted, “Overseeing all the possible issues of managing a diversified portfolio of crypto assets can become overwhelming in no time, even for the more experienced investors. Navigating through long verification processes, lack of transparency, and slow digitization without the right knowledge or established relations can reduce your winning chances considerably, especially if you’re just joining the market.”
As cryptocurrencies attract more market participants, the need for straightforward tools designed to help investors manage their crypto portfolios is increasing. And with the increasing demand of concerned investors, new solutions have been developed.
In this article we handpicked a series of projects that could fit the needs of most retail and institutional investors who are considering entering the cryptocurrency market right now.
MPCX, all-in-one financial crypto services solution, comes with a unique approach to digital wealth management using DLT technology. The platform applies traditional wealth management principles to create value for its investors. Two of its features are distinctive in this digital space:
- Investable Crypto Indices are set to provide a passive management solution for users looking to invest in cryptocurrencies.
- Digital Smart Investment Mandate (DSIM) enables users to have an intelligent, diversified portfolio created within minutes.
While MPCX offers financial crypto services for investors, Bitwise Asset Management is a cryptocurrency index fund that holds the top 10 cryptocurrencies weighted by a 5-year diluted market cap and rebalanced monthly. For those investors who are looking for diversified exposure to crypto assets and moderate returns, Bitwise lowered the entry barrier.
Speaking about entry requirements, Coinbase Custody finds itself at the other end of the spectrum. Coinbase helps financial institutions by storing and protecting their investments through the use of a proven, secure infrastructure. Their service is open to anyone, but given the $100,000 set-up fee and 0.01% fee-per-month on the assets being held, we can safely assume that it’s not for everyone and that only large institutions and hedge funds can afford their premium service for now.
Institutional investors are already here
Institutional investment in cryptocurrency is set toward steady growth despite the ups and downs of the market. Fidelity Investments, the world’s fifth-largest asset manager, surveyed 441 pensions, hedge funds, and other institutional investors regarding their involvement in cryptocurrency.
Out of these, 22% already own cryptocurrency. That’s an impressive number, given the fact that in 2016 the percentage of institutions owning any cryptocurrency at all was near zero. Furthermore, 47% are already considering adding digital assets to their portfolios for the next five years.
And institutional money comes in large amounts. When Mike Novogratz, billionaire hedge fund manager, started his fund on cryptocurrencies, he set the cap to $500 million. His statement was, “The institutionalization of this space is coming. It’s coming pretty quick.”
Last year, Bloomberg reported that large buyers such as hedge and endowments funds have been consistently purchasing over $100 million worth of digital assets through private transactions. All this money flowing in are additional to the billions of dollars from retail investors all over the world.
Following the previously stated survey, currently:
- 18% of respondents use third-party custodians
- 13% perform self-custody
- 6% use non-custodial exchanges
Anyway, self-custody for institutions won’t be sustainable for long due to the regulations and legal obligations they must adhere to, and that’s on top of all the external risks.
The fact that we’re starting to consider the legal aspects behind the technical process of storing cryptocurrency is a sign that the market is maturing, as knowledgeable investors to dip their toes in. So, who’s going to welcome them in?
Asset management tools are already common in the more traditional financial markets. The emergence of companies offering this service for crypto assets can be considered the next natural step in the market’s evolution.
Bitwise Asset Management comes as a fund that, beside management, invests on behalf of its customers. In the four months after its creation, there was already a reported 51% return. That’s impressive! But that was last year.
Investors want and need more control this year. They need a custodial solution with a proper, secure infrastructure that meets the security standards imposed by regulators.
Who is serving the new investors?
The first to offer compelling solutions were, of course, exchanges. They already have a similar infrastructure in place for their own platforms, so extending it as a third-party service comes naturally.
That’s why Coinbase, the world's largest Bitcoin broker, came up with Coinbase Custody, an institutional-grade, qualified custodian that offers staking services for assets held offline.
As Elliott Suthers, Coinbase Director of Communications, stated, “Institutional is one of our fastest growing businesses and institutional customers are driving a lot of growth for us right now. We currently serve a broad spectrum of institutions from asset issuers and crypto funds at one end to university endowments and pension funds at the other.”
Bitwise is an easy way for those who want to taste those cryptocurrency gains. Coinbase Custody is a top-notch solution for those who can afford it. But what’s an all-in-one solution for the retail and institutional investors of any level?
We believe that MPCX Platform is the perfect tool that offers an easier path to entry and better management solutions for cryptocurrencies without being exclusive to a particular group of investors. MPCX is a blockchain-driven platform who puts all of its financial crypto services under one place.
Investors can buy and sell cryptocurrencies with a large range of fiat currencies on a centralized or decentralized exchange directly on the platform.
From a regulatory point of view, the MPCX platform is structured as a holding and registered in England and Wales as a company. The platform operates out of Gibraltar as a subsidiary-owned company using local banking to process and settle their clients’ fiat and cryptocurrency transactions.
It offers three crypto investable indices as a passive management solution as well as a digital smart investment mandate that can create an intelligent, diversified portfolio from thousands of options within five minutes.
The MPCX platform is fully integrated with blockchain technology, hence there is a XDMC token that will be utilized to pay for the services inside the platform. A demo for the exchange is already available for anyone who’d like to give it a try. No real data or funds are required.
A great responsibility
It seems that as infrastructure is being further developed in the cryptocurrency space, so is investment interest. The number of retail investors is already growing at a fast peace and it’s expected that institutions are set to offer a fresh inflow of capital over the next five years. Their presence could bring more liquidity and propel cryptocurrency adoption even further.
It's too early to assess the exact impact of institutional money in this space, but clearly they are here and they need a clear path to enter the ecosystem, as well as a simple and more convenient way to manage their investments.
By supporting and promoting crypto asset management platforms, the cryptocurrency market will finally open itself up to a much broader audience. The next generation of digital asset management tools may be the consolidation of cryptocurrency investment gateways.