Institutional interest in crypto is just beginning


The old adage “The crypto market is not for the faint of heart” was brought to light recently when the industry’s total market capitalization fell to a relatively low level of $ 1.75 trillion on September 20. , only to make a comeback. Despite all of these swings, however, demand from institutional investors remains strong, with reports suggesting that the big players have recently continued to ‘buy the downside’, especially in the wake of China’s latest blanket ban which saw the bears. take control of the market. , albeit briefly.

To dig deeper into the matter, a recent CoinShares report revealed that in the last week of September, digital asset investment products generated $ 95 million in inflows for institutional crypto investment products – with Bitcoin (BTC) and Ether (ETH) leading the way with $ 50.2 million and $ 28.9 million in admissions, respectively. In fact, on average, the last 30-day period saw Bitcoin product inflows increase 234% week-over-week.

It’s also worth mentioning that since April, US investment bank Morgan Stanley has doubled the total number of shares held by Grayscale Bitcoin Trust (GBTC), which was revealed when the financial giant filed a report with the United States Securities and Exchange Commission (SEC) on September 27.

Finally, investment management giant Ark Invest – led by CEO and crypto bull Cathie Wood – has also been on a GBTC buying spree, with the company having recently acquired over 450,000 GBTC shares through two different separate purchases. , bringing its total to 8.3 million GBTC shares.

Institutional demand is increasing

To get a better idea of ​​what institutional players are doing in terms of crypto exposure, Cointelegraph reached out to Luuk Strijers, Commercial Director of crypto options exchange Deribit. He pointed out that big banks like Morgan Stanley, Citi and Goldman Sachs are starting to offer their clients a wide range of digital assets, adding:

“We don’t see them becoming active on offshore derivatives platforms yet. However, we are seeing tier two companies, asset managers and hedge funds becoming increasingly active, either actively investing / trading or hedging their venture capital investments. “

To substantiate his claims, he pointed out that around 20% of Deribit’s options volume is today treated as an OTC block, with this number hovering previously around 5% to 10%. “Due to the size of these transactions, which clearly implies that institutional parties are involved, these transactions are best executed as a single block compared to multiple on-screen transactions,” he explained.

Finally, Stijers pointed out that traditional financial institutions prefer to trade futures and options over perpetual offers, which are generally considered short-term exposure products due to the unpredictability of their funding. “Deribit has a greater open interest in futures than many of our peers, as around 80% of our volumes are institutionally focused,” he said.

Play the long game

Elena Sinelnikova, co-founder and CEO of the Ethereum Metis layer two stacking platform, told Cointelegraph that more often than not, retail investors ignore periods of consolidation, focusing their attention on the crypto industry. only when the market is booming. On the other hand, institutional investors know that the best time to accumulate is when the market drops and / or stops, suggesting a longer term perspective on their part. She said:

“We’ve been through enough market cycles to know that the kind of pullback we’ve seen over the past few months often comes just before a strong uptrend. While no one can predict the future (in crypto or otherwise), institutions are taking advantage of this quiet period to load their bags, in anticipation of another big boost.

In addition, Sinelnikova stressed that investors should remember that different stages of the market can produce drastically different results. “Keep an eye on the Bitcoin dominance data to see if it’s BTC or altcoins (or both) that are driving the next market move,” she said.

A somewhat similar perspective is shared by Douglas Horn, chief architect of scalability-focused blockchain network Telos, who told Coitnelgraph that institutional investors can be compared to supertankers – that is, it takes a lot of time and energy for them to get them moving, but once they do, it’s just as difficult to stop them again. He said:

“Now that they’ve made the decision to get into crypto, they won’t be deterred by some temporary volatility. On the contrary, they will be less hesitant to accumulate crypto during downturns. By the time these investors bought their first Bitcoin, they had surely spent years evaluating and strategizing for their entry and goals. They operate very differently from typical crypto investors and traders. “

Horn said that as it stands, the ground has already been laid by companies like MicroStrategy for others to follow and a deluge of new institutional investors are about to conclude their own lengthy due diligence processes. reasonable assessment of the long-term viability of investing in the digital asset market.

not everyone agrees

Philip Gunwhy, marketing director of the NFT Blockasset ecosystem, told Cointelegraph that while the adoption of Bitcoin by institutional investors has been gradual in recent months, some are still cautious, especially since the regulatory climate surrounding this nascent industry continued to heat up. To his eyes :

“Potential Bitcoin buyers are not a coordinated effort of these institutional investors and, as such, the buying habits of these investors cannot be said for sure except when they are announced. While Morgan Stanley recently doubled its investments in Bitcoin, many institutional investors are choosing the option of venture capital funding, injecting capital into companies offering Bitcoin-related services.

Despite Gunwhy’s claims, Wes Levitt, chief strategy officer for decentralized video streaming platform Theta, told Cointelegraph that institutional capital is still flowing into the blockchain space, as evidenced by the amount of funding from the venture capitalist ( VC) crypto in the first half of 2021, which topped $ 17 billion. He said:

“Interest in direct exposure to BTC / ETH may have waned somewhat, as the May crash has undoubtedly scared off many traditional investors, but according to reports, institutional flows are still net positive for the market. September. As always, reports of crypto deaths are greatly exaggerated. “

Look ahead

To get a sense of where the growing adoption of institutional crypto is heading, Cointelegraph spoke with Joshua Frank, co-founder and CEO of TheTIE, a crypto and blockchain analytics provider. In his opinion, the demand his business is witnessing from traditional businesses has been staggering.

“There are dozens, if not hundreds, of billion dollar prop trading companies, hedge funds and other asset managers who have recently done their first crypto trades,” Frank said.

He further stated that while there have been some high profile announcements of funds investing in crypto, there are many more of these developments going on behind the scenes that the public has no knowledge of. Frank said that usually such trades start off simply – that is, a fund performs a BTC cash-and-carry transaction as a proof of concept using a partner’s capital – and grow over time. over time, adding:

“We are seeing that these funds are falling further and further down the rabbit hole. We have at least 5-10 clients who are the 50-100 largest hedge funds actively hiring crypto teams. That’s all I can say publicly, but these funds are our customers, so we see it in real time.

Finally, according to a recent survey, a growing list of traditional financial entities are increasingly looking to enter the digital asset trading / investing arena. According to the report, around 62% of global institutional investors with no current cryptocurrency exposure said they are looking to enter the crypto market within the next 12 months or so.

The survey took into account the views of 50 wealth managers and 50 institutional investors based in different countries, including the United States, United Kingdom, France, Germany and the United Arab Emirates. “There is no doubt that the crypto asset market is becoming increasingly mainstream in the institutional and wealth management sectors,” the report says.

As the crypto industry continues to grow more and more, both from an infrastructure and regulatory perspective, it will be interesting to see how the aforementioned trend of increased institutional adoption plays out.

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Raymond I. Langston

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