Bitcoin & “Institutional FOMO”: What Does It Mean for You?
Last year, the total cryptocurrency market cap peaked at around $800 billion. Bitcoin’s value went from $1000 USD to $20,000 in just under 12 months, bringing ethereum and hundreds of altcoins along for the ride. Yes, the bubble burst, and we’ve been living with the consequences ever since…but the fact remains that a relatively new asset much of the world had not even heard of did 20x in less than a year. The initial coin offering (ICO) also emerged as a popular alternative to traditional methods of raising capital, and returns on many altcoin projects were comically, ridiculously high.
When you’re talking about growth of this magnitude, it is inevitable that it would catch the attention of institutional investors. So what does this mean for ordinary investors like you?
Almost all the growth you saw last year was caused by private citizens — ordinary folks like you — investing their personal funds. Even most of the “whales” were just individuals who had either bought when prices were low and held for a long time, or those who already had a lot of money to invest. Either way, the crypto bubble we saw last year was not driven at all by Wall Street.
Some prominent figures in mainstream financial institutions were intrigued, while others like JP Morgan’s Jamie Dimon were openly hostile to it, but none felt quite ready to dip their toe in the water just yet. It was an entirely new asset classes which few of them understood and had, out of nowhere, grown into one of the largest bubbles of all time. It’s understandable they felt a simultaneously curious and spooked by what was happening.
As last year’s irrational exuberance has faded however, financial institutions enthusiasm has only increased. In last week’s article “Is Crypto Really Dying?”, we pointed out regardless of the despair many are feeling over current prices, the groundwork is quietly being laid for a golden era of cryptocurrency adoption.
Just yesterday, crypto advocate and former institutional investor Mike Novogratz appeared on CNN Money to say that in spite of everything, he still expects prices to go back up in Q4.
Why? It’s simple really: “institutional FOMO” (Fear Of Missing Out) is driving big money to get in on Bitcoin and other crypto assets while prices are still (relatively) low.
If you pay attention to what’s been happening in the news, you’ll see he’s not wrong.
Recently investment bank Goldman Sachs announced that it is preparing to offering crypto custody services for institutional investors. What this means is that Goldman Sachs will manage the actual custody and storage of crypto assets on behalf of investors who don’t want to bother with learning how addresses work or how to manage a wallet. Now, Coinbase has also announced they will be offering custody services, but a world-renowned name like Goldman Sachs is getting into this is another thing entirely.
This will no doubt be of interest to hedge funds, which are legally required to use a custodial service. While newer hedge funds focusing on cryptocurrency like Pantera Capital have been around for a while, this move by Goldman Sachs will inspire confidence in older hedge funds with billions to invest, but who still don’t understand this whole bitcoin thing the kids are talking about.
Perhaps the biggest example of institutional FOMO out there concerns the Intercontinental Exchange (ICE), one of the most powerful financial institutions on the planet. ICE, in case you didn’t know, owns a little thing called the New York Stock Exchange, not to mention 20+ other exchanges and marketplaces for traditional assets around the world.
In November, ICE will be launching a joint venture with Microsoft and Starbucks called Bakkt, a new global “regulated ecosystem” aimed at both everyday consumers and institutional investors. Their goal is to create a sort of crypto counterpart to the NYSE. The first offering on this new platform will be physical Bitcoin futures, which will allow traders to trade BTC against USD, EUR and GBP.
In Novogoratz’ words, Bakkt will serve as a “scalable on-ramp for [for crypto markets] aimed at merchants, institutions [and] merchants”.
What does this mean for you?
What this all means is that there could soon be a flood of money coming into the crypto market, which means BTC’s value will go back up. So when can we expect an upswing?
Novogratz stated that while we won’t see the insane growth of 2017, 30% growth by the end of 2018 is possible, which would put the price of BTC at around $8400.
That’d be pretty nice if you ask us. But of course, once you breaking through those psychological barriers, it’s possible we could see $10k too…It’s too early to be certain, but we’re thinking positive— and it seems like a lot of financial institutions are too.
“You’re not going to see the massive run until the institutions actually start buying in a lot” said Novogratz, “and the architecture is being put in place now”.
Best case scenario— we could be looking at major movement in the market in Q1 2019. Nice way to start the new year, if you ask us.
Right now, the best thing to do is stay on top of the news, check your sources carefully, and get in on the game BEFORE the institutional investors do with Faast— the safest, easiest way to build a strong portfolio before the next bull run.