Institutional interest in encryption has just begun


The old saying “cryptocurrency market is not for the faint-hearted” has recently been fully reflected. On September 20, the total market value of the industry fell to a relatively low point of $1.75 trillion, but it made a strong comeback.However, despite all these fluctuations, the demand from institutional investors is still strong, and the report shows that big money players continue Recently “buy on dips”, especially after China’s recent comprehensive ban, bears control of the market, albeit for a short time.

To further elaborate on this matter, a recent report by CoinShares disclose In the last week of September, digital asset investment products brought an inflow of US$95 million worth of funds to institutional crypto investment products-including Bitcoin (Bitcoin) And ether (Ethereum) Leads with inflows of US$50.2 million and US$28.9 million respectively. In fact, on average, the inflow of Bitcoin products has surged by 234% every week during the past 30 days.

It is also worth mentioning that since April, the US investment bank Morgan Stanley Doubled The total number of shares of Grayscale Bitcoin Trust (GBTC) it owns, which came to light when the financial giant filed a report with the U.S. Securities and Exchange Commission (SEC) on September 27.

Finally, the investment management giant Ark Invest-headed by the CEO and cryptocurrency bull Cathie Wood-has also been in the GBTC buying frenzy, the company has already acquired More than 450,000 GBTC shares Recently, through two separate purchases, the total quantity reached 8.3 million shares of GBTC.

Institutional demand growth

To better understand how active institutional participants are in cryptocurrency exposure, Cointelegraph contacted Luuk Strijers, chief commercial officer of the crypto options exchange Deribit. He emphasized that large banks such as Morgan Stanley, Citigroup and Goldman Sachs have begun to provide customers with a wide range of digital assets, adding:

“We have not seen them become active on offshore derivatives platforms. However, we do see the size of secondary companies, asset management companies and hedge funds becoming more and more active, either actively investing/trading or Hedging venture capital.”

In support of his statement, he pointed out that about 20% of Deribit’s options trading volume is now traded as over-the-counter transactions, and this number previously hovered in the range of 5%-10%. He explained: “Because of the scale of these transactions, this obviously means that the parties involved in the institution are better executed in one block than multiple transactions on the screen.”

Finally, Stijers pointed out that traditional financial institutions prefer to trade futures and options rather than permanent issuance. Due to the unpredictability of their funds, permanent issuance is usually regarded as a short-term exposure product. “Compared to many of our peers, Deribit has larger open futures contracts because approximately 80% of our trading volume is driven by institutions,” he said.

Play long-term games

Elena Sinelnikova, co-founder and CEO of Ethereum’s second-tier aggregation platform Metis, told Cointelegraph that retail investors usually ignore the integration period and turn their attention to the crypto industry only when the market is rising. On the other hand, institutional investors know that the best time to accumulate is when the market goes down and/or stagnates, which indicates that they have a longer-term outlook. she says:

“We have gone through enough market cycles to know that the type of pullback we have seen in the past few months usually precedes a big uptrend. Although no one can predict the future (in cryptocurrency or otherwise), institutions are taking advantage of this Load their luggage in a quiet period in anticipation of another big move.”

In addition, Sinelnikova pointed out that investors need to remember that different stages of the market will produce very different results. “Pay close attention to the data on Bitcoin’s dominance to see if Bitcoin or altcoins (or both) are driving the market’s next upswing,” she said.

Douglas Horn, chief architect of the scalability-focused blockchain network Telos, has a similar view. He told Coitnelgraph that institutional investors can be likened to supertankers—that is, they need to spend a lot of time and energy. Let them move, but once they do, it is difficult to stop them again. He said:

“Since they have decided to enter the crypto space, they will not be dissuaded by some temporary fluctuations. If anything, they will not accumulate cryptocurrency during the economic downturn. When these investors buy their first Bitcoin , They must have spent years evaluating and formulating their entry and goals. They operate in a very different way from typical cryptocurrency investors and traders.”

Horn said that as far as the current situation is concerned, companies such as MicroStrategy have laid the foundation for other companies, and a large number of new institutional investors are about to end their own long-term due diligence process to evaluate investment in the digital asset market.

Not everyone agrees

Philip Gunwhy, chief marketing officer of NFT ecosystem Blockasset, told Cointelegraph that although institutional investors have gradually accepted Bitcoin in the past few months, some people are still cautious, especially as the regulatory environment surrounding this emerging industry continues to heat up. Down. In his opinion:

“The potential buyers of Bitcoin are not the joint efforts of these institutional investors. Therefore, unless announced, it is impossible to determine the buying patterns of these investors. Although Morgan Stanley has recently increased its investment in Bitcoin, many institutions have invested People are choosing venture capital to inject capital into companies that provide bitcoin-related services.”

Despite Gunwhy’s assertion, Wes Levitt, the head of strategy for the decentralized video streaming platform Theta, told Cointelegraph that institutional capital is still pouring into the blockchain space, as evidenced by the number of crypto venture capital (VC) funds in the first half of 2021 , More than 17 billion U.S. dollars. He said:

“It may be that the crash in May undoubtedly frightened many traditional investors, and their interest in direct exposure to BTC/ETH has diminished. However, according to reports, institutional capital flows in September were still net positive. As usual. , Reports of the death of cryptocurrencies have been greatly exaggerated.”

Look to the future

To understand where more and more institutional encryption adoption might go, Cointelegraph spoke with Joshua Frank, co-founder and CEO of encryption and blockchain analysis provider TheTIE. In his view, the demand from traditional companies that his company sees is amazing.

“There are dozens, if not hundreds, of proprietary trading companies, hedge funds, and other asset management companies with a scale of $1 billion that have recently conducted their first crypto transactions,” Frank said.

He further stated that although there are some high-profile announcements about fund investment in crypto, there are more such developments happening behind the scenes, and the public is ignorant of this. Frank said that usually, this type of operation starts out simple-that is, a fund uses partner capital for cash and carries BTC transactions as a proof of concept-and grows over time, adding:

“We found that these funds are getting deeper and deeper. We have at least 5-10 clients, and they are the top 50-100 largest hedge funds actively recruiting crypto teams. This is all I can say publicly, but these funds are Our customers, so we are checking in real time.”

Finally, according to a recent survey, More and more traditional financial entities More and more seek to enter the field of digital asset trading/investment. According to the report, about 62% of global institutional investors who have not been exposed to cryptocurrencies currently stated that they hope to enter the crypto market in the next 12 months or so.

The survey considered the views of 50 wealth management institutions and 50 institutional investors from different countries such as the United States, the United Kingdom, France, Germany, and the United Arab Emirates. The report said: “There is no doubt that the crypto asset market is becoming more and more mainstream in the field of institutions and wealth management.”

As the crypto industry continues to grow and develop—both from an infrastructure or regulatory perspective—it will be interesting to see how the above-mentioned trend of increased adoption by institutions develops.