Are institutional investors the main silent partner of cryptocurrencies?

Imagine an institutional investor like an insurance company or pension fund decides to test the cryptocurrency waters. Or maybe a large company is looking to buy some Bitcoin (Bitcoin) To diversify its financial holdings. One thing they are unlikely to do is to announce their intentions in advance. This may push up the price of the digital asset they are trying to buy.

As a result, there is often a lag between the actions of large institutions—such as the purchase of $100 million in Bitcoin—and their public announcements. “Institutions participate in circular flows,” Diogo Mónica, co-founder and president of crypto custodian bank Anchorage Digital, told Cointelegraph. “When you hear about a new company joining cryptocurrency, we usually have been talking to them for months.”

A similar thing happened in the recent price increase-when Bitcoin, Ether (Ethereum) And many other cryptocurrencies reach all-time highs? Did companies and institutional investors quietly devour cryptocurrencies during the early fall period — so as not to raise prices when they were in the accumulation phase — whose impact only became apparent this week?

Why is the biggest investor?

Kapil Rathi, CEO and co-founder of the institutional cryptocurrency exchange CrossTower, told Cointelegraph, “Institutions are definitely starting or increasing Bitcoin distribution recently.” He admitted that most of them may have started in early October because of large investors It may try to enter before the launch of the ProShares Exchange Traded Fund (ETF)-and then it became a seller after the launch-but still, “the strong passive support has kept prices stable. This buying support looks more like institutional accumulation , Not the execution method of retail purchases.”

James Butterfill, an investment strategist at CoinShares, a digital asset investment platform, warned that his company’s data is only anecdotal — “because we can only rely on institutional investors to tell us whether they bought our ETP” — but “we see more More and more investment funds have contacted and discussed the possibility of adding Bitcoin and other crypto assets to their portfolios,” he told Cointelegraph, further explaining:

“Two years ago, the same fund thought Bitcoin was a crazy idea; a year ago, they wanted to discuss it further; now, they are increasingly worried about losing customers if they don’t invest.”

Butterfill added that the key investment rationale “seems to be diversification and monetary policy/inflation hedging.”

Lennard Neo, head of research at Stack Funds, said that this kind of participation may not necessarily come from the most traditional institutional investors—namely pension funds or insurance companies—but tends to favor family offices and fund funds. “But we do see an increase in risk appetite and interest, especially for specific crypto industries-NFT, DeFi, etc.-and broader authorizations beyond Bitcoin.” He told Cointelegraph of the investment received by Stack Funds The demand is two to three times that of the beginning of the third quarter.

Why now?

Why has the benefit of the organization been significantly improved? Neo stated that there are countless reasons, from “speculators to people who want to hedge against global macro uncertainty.” But some people recently announced that they believe that “blockchain and cryptocurrency will become an indispensable part of the global digital economy.”

Freddy Zwanzger, co-founder and chief data officer of the blockchain data platform Anyblock Analytics GmbH, saw a certain degree of fear of missing out or FOMO at work here, and he told Cointelegraph, “In the past, crypto investment was for managers – it could go wrong. ——Now it is becoming more and more a risk no Allocate at least a portion of the investment portfolio to cryptocurrencies, because stakeholders will get some examples from other institutions, and these institutions have indeed allocated and benefited a lot. “

In fact, large financial companies like MasterCard and Visa support Encrypted on their network, even Buy Zwanzger suggested that non-fungible tokens will only exacerbate FOMO.

St. Gotthard Fund Management AG director and co-founder Vladimir Vishnevskiy (Vladimir Vishnevskiy) told Cointelegraph: “The interest of institutional investors and family offices has been gradually rising throughout the year.” The approval of the BTC ETF in October will only exacerbate this trend, as it is now much easier to obtain this type of risk exposure.” Inflation concerns occupy an important place on the agenda of many institutional investors. Good hedge as gold.”

Listed company looking for cryptocurrency for balance sheet

What about the business? Are more people buying Bitcoin and other cryptocurrencies for their company funds?

Brandon Arvanaghi, CEO of Meow, told Cointelegraph that he saw the new acceptance of cryptocurrencies by corporate CFOs, especially after the global pandemic:

“When the inflation rate is 2% and interest rates are reasonable, corporate treasurers will not consider looking for alternative assets. […] The COVID shocked the world, and inflationary pressures made corporate finance executives not only willing but also actively seeking alternative sources of income. “

“From our perspective, we are seeing more and more companies buying cryptocurrencies to diversify their corporate funds,” Monica commented. In addition, “Banks are contacting us to meet the demand for these types of services, which shows a larger trend than just companies adding cryptocurrencies to their balance sheets. […] This means that soon, more people will have direct access to cryptocurrencies through the financial instruments they already use. “

Marc Fleury, CEO and co-founder of fintech company Two Prime, told Cointelegraph that macro trends are encouraging companies to add cryptocurrencies to their balance sheets. “Considering that the cash flow of U.S. listed companies has soared from US$1 trillion in 2020 to US$4 trillion in 2021, you will understand why many people are looking for new places to deploy these additional cash, and why this This trend will not abate.”

Butterfill said that at the same time, the number of listed companies that announced their holdings of Bitcoin has increased from 14 in the same period last year to 39 today, with a total holding amount of US$13.7 billion.

Speaking of companies, are more companies ready to accept crypto as payment for their products and services?Recently, Tesla Rumored to accept BTC soon As payment for its car (again).

Mónica told Cointelegraph, “Fintech companies are contacting us to help them not only support Bitcoin, but also various digital assets, which shows that large companies are increasingly willing to support encrypted payments in a broader plan.”

As far as Fleury is concerned, he doubts whether cryptocurrencies—with one notable exception, stablecoins—will be widely used as a medium of exchange. “Variable cryptocurrencies like BTC and ETH are not suitable for payment. Period,” Fleury said. He said that what makes cryptocurrencies a great reserve currency, but almost intentionally, makes them unable to be exchanged for cheap currencies, adding that “stable currencies are another matter.”

Is the inventory-to-flow model convincing?

In the crypto community, much work has been done on the so-called stock-to-flow (S2F) model used to predict the price of Bitcoin. In fact, the S2F model of PlanB, an anonymous institutional investor, predicts that the BTC price will exceed $98,000 by the end of November. Do institutional investors take stock-to-flow models seriously?

“A lot of institutional investors asked us this question,” Batfield recalled, “but when they studied the model more deeply, they found that it was not credible.” Inventory-to-flow models usually infer the current data range of the regression set. Data points beyond the future-statistically speaking, this is a dubious practice.

In addition, the method of comparing the existing supply of assets (“inventory”) with the new supply (“flow”) entering the market (such as through mining) “of course does not apply to other fixed supply assets, such as gold,” Butterfill Said, adding, “In recent years, people have taken other methods to enhance the S2F model, but it is losing the trust of customers.”

Rathi said: “I don’t think institutions will pay too much attention to the stock-to-flow model, although it is difficult to discredit it because it has been proven to be very accurate so far.” He said that compared to institutions, it seems to be more popular with retail investors. . On the other hand, Vishnevskiy is not ready to abandon inventory flow analysis so quickly:

“Our fund focuses on this model and more than 40 other indicators. This is a good model, but it cannot be used alone. You have to use it with other models, and also consider fundamentals and technical indicators.”

If it is not an institution, who is pushing up prices?

Given that the involvement of institutions in the latest cryptocurrency launch at this point seems largely anecdotal, it is worth asking: If companies and institutional investors have not swallowed most of the cryptocurrency, then who?

“This is a retail-led phenomenon, and it makes sense,” Butterfill replied, “because we have witnessed the birth of a new asset class, and with it the confusion and hesitation of regulators.” He suggested. , This regulatory uncertainty is still a continuing obstacle to institutional participation, adding:

“In our recent survey, regulations and corporate restrictions are the most commonly cited reasons for not investing. The survey also found that compared with wealth management institutions, institutions with much more flexible mandates, such as family offices, have much larger positions.”

Nonetheless, even in the absence of firm data confirmation, many people believe that institutions’ participation in the digital asset market is increasing. Mónica told Cointelegraph, “With the improvement of encryption security, technical infrastructure, and regulatory clarity, it has opened the door for a wider range of institutions to participate in the industry over the years,” adding:

“In the next few years, we will see many payment methods through encryption, including stablecoins and DeFi. I also hope that we will see more interconnections between blockchain-based payment tracks and traditional payment tracks.”

For Fleury, the trend is clear. “In the next cycle, pension funds, endowment funds, sovereign funds, etc. will adopt cryptocurrencies in their investment portfolios.” However, they are prudent investors and it will take time to conduct the necessary due diligence.

related: Cryptocurrency and pension funds: like oil and water, or maybe not?

But he added that once institutional investors make a commitment, they tend to quickly expand the size of the commitment. “We are still in the early stages of this institutional cycle. We will see more interest from pension funds.”

At that time, A single $1 billion crypto transaction Fleury said-just like the record-breaking time that happened in late October-it will be “something that will happen every day.”