What is Driving the Institutional Interest in Cryptocurrency Investment?

This year has been a defining one for a number of reasons. The world has faced a global pandemic, and the traditional markets and economies around the planet have had to try and deal with this unprecedented event. It has also been a year that looks set for greater interest in cryptocurrency investment.

Internally, the cryptocurrency space has been on the rise in the mainstream as regulations, governments, and traditional institutions have come to normalize and legitimize much of the space. But now, externally, there is financial uncertainty in the traditional space and many retail and institutional investors are casting their eyes to new avenues. 

We have seen Paul Tudor Jones praise Bitcoin for its potential as a speculative asset, stating he invests a small percentage of his portfolio in the coin, but expects it to be the best performer. We have also seen Grayscale Bitcoin Trust buying up a major portion of coins newly mined after the Bitcoin halving.

Citing comment from VP of Huobi Global Markets, Ciara Sun, "Huobi has seen influx of traditional and institutional traders join our platform and take advantage of the Huobi Futures market place. As of May 6, Futures and Swap Trading Volume at Huobi topped $5.2 billion, with 24 hour perpetual swap trading volume hitting $2.2 billion — this is off a product that was only launched in April."

According to Huobi, what is most interesting to see is that the Institution trading percentage on Huobi futures is estimated to as high as 30 to 40 percent.

But, what is it that is drawing institutional interest into the cryptocurrency market other than the current internal and external factors surrounding it. We spoke with a representative from Huobi Futures to find out more. 

What makes the market grow?

“The price volatility and high liquidity of digital assets are especially attractive to investors,” explained the representative from Huobi Futures.

"The crypto market is unique in that it can fulfill both demands in liquidity and volatility. For example, traditional investments like real estate have price volatilities but lack of liquidity. Foreign exchange markets have high liquidity but lack price volatility. Investors see arbitrage opportunities in crypto as an emerging market. A 10% range annual return can be seen as good performance in the traditional market, but is actually a quite mediocre return in the crypto derivative market.”

Clearly, the crypto market is an exciting place to be for investors. It is renowned for its high volatility, but this is a double-edged sword. For people who know how to trade well, and be safe, volatility is indicative of opportunity. 

But, there is also the opportunity to use crypto to be safe and to avoid risky situations.  

“Additionally, digital assets can offer investors a way to hedge risk against government intervention. Traditional assets are directly influenced by monetary policies and economic measures like quantitative easing, but digital assets are decoupled from the acts of any one nation or governing body. At a time when governments around the world are printing currency to stabilize their economies, digital assets can be one way to hedge against inflation,” Huobi Futures representative added.   

“On Huobi, we have seen a 3-4X growth in institutional trading on derivative markets since early last year. Institutional clients now account for 40% of our trading volume. Our growth in Russia is especially pleasing.”  

“Generally speaking, whether for institutional or individual traders, they want to choose a trading platform with good liquidity and market capitalization. Huobi manages 5% of crypto assets in the market and we are ranked the number 1 in liquidity by Coinmarketcap. 

A reliable platform

Part of the growth in interest in the cryptocurrency space from institutional investors is also part of the growth of cryptocurrency providers. The expansion of CME and Bakkt is one side of it, but many institutions are coming to places like Huobi because of the professional platform provided.