Crypto Institutional Investors  Why It Lags?

619

Introduction

Institutional investors are not stampeding into the space with abandon when it comes to crypto investments. A recent survey by Fidelity Digital found that just over one-third of institutional investors hold some form of the digital asset. That means advisors may be forced to wait a little longer before accessing the market. The https://biti-codes.io/ is coinbase, where people prefer to trade bitcoins.

Grayscale trusts

Crypto institutional investors can buy shares in several exchange-traded products from Grayscale Investments. The company offers two products, one for Ethereum and another for bitcoin. The former manages $6.4 billion in Ethereum, while the latter contains Bitcoin Cash, Ethereum Classic, Litecoin, Stellar Lumens, and Horizen. Besides the Bitcoin Trust, Grayscale offers single-asset funds for Bitshares, Filecoin, XRP, and Chainlink.

Grayscale’s Bitcoin Trust is the world’s largest publicly traded Bitcoin fund. It charges a 2% annual fee and requires a minimum investment of $50,000. The trust holds the private keys for the BTC that investors buy in the shares.

Direct ownership of Bitcoin

A new survey from Fidelity Digital Assets finds that institutional investors are increasingly interested in direct ownership of Bitcoin. While Americans and Europeans show varying degrees of interest in Bitcoin, most Asian investors indicated a willingness to invest in the currency. The survey found that 44% of institutional investors said they would consider purchasing bitcoin in the future.

Some companies bypass the bitcoin first strategy and instead purchase non-fungible tokens hosted on the Ethereum blockchain. One of these brands is MicroStrategy, which Bitcoin maximalist Michael Saylor leads. The firm purchased $175 million worth of bitcoin in August 2020. Other companies like Square and Tesla have also been investing in Bitcoin, buying up to $1.5 billion value of the digital currency in February 2021.

Impact of FOMO on price movements

As with any market, there are several reasons why cryptocurrency prices go up and down. In the cryptocurrency space, FOMO is particularly prevalent because the technology behind it is still in its infancy. Many people believe that cryptocurrency and blockchain technology is poised for exponential growth and, therefore, are inclined to buy in when it is cheap. In this case, FOMO can positively impact price movements, as the increased number of users can result in higher prices for individual coins.

The concept behind FOMO is simple: when investors are losing money, they are afraid they will lose money. This emotion can negatively affect a person’s health, mental state, and social life. Therefore, it is essential to consider the impact of this emotion on the market before deciding to invest.

Lack of investment research firms

While the number of crypto institutional investors is rising, few investment research firms are dedicated to this space. Even sell-side firms covering cryptocurrency are limited to the handful of coins worth several hundred million dollars. Coinbase, for example, has 22 analysts focusing on digital currency.

This gap may be a result of institutional investors delaying their investment. Besides, valuing digital assets requires a different set of skills compared to other assets. Furthermore, analysts need to be highly technologically advanced to evaluate crypto projects. Eventually, the number of crypto research firms will increase.

Conclusion

Institutional investors are lagging behind retail investors in cryptocurrencies. The lack of regulation and liquidity of cryptocurrencies means that funds cannot enter the market meaningfully until there is better liquidity. Until then, institutional investors are unlikely to invest in cryptocurrencies unless they can find ways to mitigate the risks. Moreover, they must ensure that the assets they invest in are liquid enough so that they can sell them quickly.

The biggest problem that prevents institutional investors from utilizing cryptocurrencies is their lack of understanding of the crypto market. Despite this, industry analysts have argued that cryptocurrencies can add value to institutional portfolios. While price volatility has been the main obstacle to institutional investment in crypto, they offer several key advantages.

While most of the capital investment in cryptos comes from pension funds and sovereign funds, institutional investors have yet to make the transition. They believe that a recent rate hike and negative GDP will dampen investor sentiment. Despite this, O’Leary is still recommending that investors go long. He thinks that Bitcoin’s price will double overnight as the crypto market begins to realize its potential of crypto. He estimates that this will happen by January or February 2023.

In the meantime, some investors are treating cryptos like stocks. The equity market has been the favorite of investors for a long time, and the factors that affect stock market prices and performance have been studied in detail. This makes it easy to see why institutional investors are wary of cryptocurrencies.