CEO of Alluva, Co-founder of Oddup
Bitcoin, cryptocurrencies, and blockchain became a much more common topic following the boom of late 2017. 2018’s ICO fundraising numbers proved that there were a lot of fresh retail investors thirsty for the technology and the investment potential. The market was discussed increasingly on traditional finance shows and headlines would ask such questions as “Is Bitcoin the new gold?”.
The market is known to be cyclical, and the recent stability of prices under $10,000 has optimists predicting a bull market in the months to come. They point to several developments as evidence, most notably the next halving event and the arrival of institutional investors.
The likes of Goldman-Sachs and Morgan Stanley have expressed great interest in the technology and the possibilities of digital currencies, and numerous entities have deemed cryptocurrencies to be a new asset class. A growing list of supporters includes Wall Street personalities and accredited investors.
While institutional investment has been experiencing an undeniable growth, does this point to a growth in Bitcoin’s price? What does this development, combined with others, say about Bitcoin’s potential market value?
Institutional investment has grown quickly in a short period, but for a long time, several barriers limited the entry of funds. Many big players were wary of the risk imposed by the market’s volatile nature. Trading infrastructure and custody of assets were also important priorities, especially since the transaction volumes of institutional investors are large.
Confidence in the asset class is at its highest yet, and besides improvements to the technical side of things, 2019 has seen the greatest amount of institutional interest. The cryptocurrency derivatives market has been paved a way for institutional investment, though exchanges and funds have themselves designed tools and investment vehicles which have persuaded investors. Derivatives platforms have removed the burdens of security and custody for institutional investors, giving them a convenient, profitable and hassle-free way to deal with a new market.
One could argue that cryptocurrencies have already become a legitimate asset class for institutional investors - and this is only likely to grow.
Exchanges have attempted to play their part in onboarding more institutional investors. The most industrious of these exchanges are Coinbase, Gemini, and Kraken. Exchange services aimed at institutional investors offer features that protect large transactions - better custody and lower rates, for example.
The Gemini exchange, created by the Winklevoss twins, launched an institutional-grade service called Gemini Custody, which let customers trade 18 cryptocurrencies directly on the exchange - but without having to move it from a secure cold wallet. Similarly, Coinbase, one of the world’s most well-known exchanges, launched a custody service called Coinbase Custody in 2019.
By lowering the barriers of entry, crypto exchanges play a vital part in attracting more investors. As storage, security and general investment solutions are refined over time, institutional investors could find exchanges to have greatly eased the investment process for the new asset class.
The rise of cryptocurrencies since 2018 - supported by other indicators like the increase in the number of wallets - points towards price rises in the near future. Institutional investors are playing an increasingly large role in shaping the legitimacy and perception of the market.
As with any other financial market, an increase in investment en masse will almost always lead to a net increase in prices. The deflationary nature of cryptocurrencies like Bitcoin also means that an increase in demand makes each unit that much more valuable. The rarer the asset, the more valuable it is.
Notable Bitcoin proponent, Anthony Pompliano, speaking to CNBC, said that Bitcoin has carved its place as a result of institutional investment, stressing that investor inflows could push Bitcoin to the 6-figure mark.
Institutional investment alone will not help push the market forward, however. It is still very early days, and several factors influence the market. While it is getting more stable, the smart investors will make use of every tool at their disposal to monitor trends and maximize gains.
Cryptocurrencies are edging towards the mainstream and it is not unreasonable to think that mass adoption will arrive at some point.
The 24/7 nature of cryptocurrencies make the market more daunting than the stock market. The novelty of its can be overwhelming, which is why investors recommend looking towards long term investment value as opposed to short term gains. Regardless, there is potential for strong returns either way - it just takes knowledge and the right tools.