Institutional Investors In Cryptoassets Will Shift From Funds To Direct Investment
In 2018 we have seen increasing interest from institutional investors to gain exposure to the cryptoasset space. Investment funds such as Grayscale, who raised $248 million within 6 months, stated that more than half of the raised capital came from institutional investors.
Endowment funds from Harvard, Stanford, Yale, Dartmouth and MIT have all allocated capital towards cryptoasset investment funds throughout 2018. Simultaneously, other institutional investors have either invested in funds, or expressed their interest for cryptoasset products.
Until now, the involvement of institutional investors has primarily been by investment into funds, most of which offer products tracking Bitcoin, Ether or a basket of cryptoassets. 2019 may see a shift towards direct investment as opposed to fund investing. The primary obstacles to this shift have been custody solutions and access to regulated exchanges that are secured against both hacks and price manipulation.
The obstacle of custodianship is actively being tackled, with great results to show for. Goldman Sachs and Galaxy Digital Ventures invested in BitGo as a custodian, with the goal to become the first to hold $1 trillion in cryptoassets. Meanwhile there are a multitude of regulated alternatives such as Coinbase, Gemini, Ledger and ItBit that offer custodianship. Fidelity, who holds $7.2 trillion in customer assets, will also offer custody solutions along with their trading platform. Bakkt, which is set to launch in January, will offer custodianship in their highly secured digital warehouse.
The entrance of the NYSE (Intercontinental Exchange) with Bakkt and Fidelity with their Digital Asset Services platform brings improved market surveillance to cryptoasset trading to prevent price manipulation. Cryptoasset exchange Coinbase is developing a surveillance program in-house, while Gemini adopted a surveillance solution from the NASDAQ. Two other leading exchanges by volume, Bitstamp and Bitfinex, use Irisium for market surveillance.
SEC Chairman Jay Clayton mentioned during the Consensus Invest Conference (November 2018) that custodianship, as well as market surveillance (preventing price manipulation), are the primary obstacles towards an eventual ETF approval. The introduction of Fidelity and Bakkt, as well as the rapid improvement shown by existing cryptoasset exchanges, should ensure that regulatory standards will soon be met for an ETF to be approved.
The rapid development on the industry infrastructure will enable new products (ETF’s, mutual funds etc.) to soon be released that allow direct investment from institutional investors. Fidelity works with 13.000 institutional clients (and 27 million total customers) that upon launch of their Digital Asset Services platform will be able to directly trade cryptoassets within a safe framework.
The direct access for institutional investment and the resulting investment activity is speculated to ignite an upcoming bull market that can raise Bitcoin above its previous high of nearly $20.000. The current market conditions are widely considered to be a great entry point for new institutional investors to enter the market.
Originally published at Countach Research.
