Cryptocurrency investors have long believed that institutional investors will lead to the next Bitcoin pulling event but this is a false narrative built on nothing or just a hope from them.
For the last two years, cryptocurrency media agencies and Bitcoin (BTC) supporters have emphasized the need for institutional investors to embrace the cryptocurrency sector. The stated belief is that the institutional capital inflow will lead to mass adoption and a surprising spike in the value of cryptocurrency assets in general.
Fast forward to the present, and the total crypto market capitalization has yet to reach an all-time high of $ 750 billion seen at the end of 2017.
The slow recovery in cryptocurrency prices raises a few difficult questions to answer. If institutional funds have been flowing into cryptocurrencies, why haven’t they seen a significant price increase in the past three years?
There is an almost infinite selling pressure – which is not a barrier when the total market capitalization of cryptocurrencies is only $ 248 billion – or this theory holds that institutional investment will pump the price of cryptocurrencies without holding. Here are three reasons why institutional investors have not yet entered the cryptocurrency market.
There is long and steep way ahead
Investing in Bitcoin or the top-ranked cryptocurrency assets on CoinMarketCap (CMC), remains a significant headache for major mutual fund managers, especially when considering their Bitcoin risks. Add to that the necessary additional buying steps, compared to more traditional assets, and the process of buying cryptocurrencies only is inappropriate. Some Internal Regulations don’t allow investment in specific products, while others are ousted by low liquidity in regulated and approved locations.
There is no guarantees a bull market
Renaissance Technologies Medallion Funds’s recent entry into CME’s Bitcoin futures markets showing that the arrival or presence of institutional investors does necessarily translate into green market.
Moreover, it is noted that since CME futures are cash-settled, they don’t necessarily involve any Bitcoin trading activity. More importantly, a hedge fund can also open short positions.
Some of investors wonder: Why should they celebrate a $10-billion fund potentially entering the space looking to bet against Bitcoin’s price?
Yes, there has been significant growth in the crypto derivatives market, and these are preferred instruments among institutional-size investors, but they remain incredibly complex for the average retail investor.
Building positions via futures might come in at a high cost, as contracts expire every two months. Furthermore, this would mean investors would take on the risk of trading at a negative premium to the spot market, as there is usually a cost involved in switching to the next expiry.
Simply, futures contracts are not designed for long-term holding.
The crypto sector is too small compare with traditional markets
While Bitcoin makes incredible profits, there are many other reasons why a $ 94 trillion industry will not just blindly buy cryptocurrencies anytime soon.
No matter how many times the chart above has been seen, it is still quite impressive. Cryptocurrencies SHOWING a $ 248 billion market is only a weakness among capital markets. Currently, Japanese yen banknotes are circulating up to 1 trillion dollars, and this does not include bank deposits as well as treasury.
The world’s largest asset managers 20 combined supervision of $ 42.3 trillion. A 0.5% investment in cryptocurrencies will end at $ 211 billion – equivalent to 84% of the total market capitalization.
Although the past few years have shown that cryptocurrencies can provide an infinite advantage, one must admit that cryptocurrencies are not even close to the same playing field as traditional markets. Grayscale Investments manages $ 3 billion, the largest publicly traded medium available for institutional investment in cryptocurrencies.
Despite such a significant amount, it is still insignificant in the eyes of the world’s largest money managers.
Currently, cryptocurrencies are in no way a threat to Master Card, Visa, Wells Fargo, Charles Schwab or Chubb. It doesn’t matter how sizable Bitcoin transactions are right now or how well decentralized finance is performing. Therefore, the question investors should be asking is: What would it take to get them to invest in cryptocurrencies, and what is preventing institutions from engaging?
Regulatory pressure is still an obstacle
In May 2019, U.S. Congress member Brad Sherman called on his colleagues to be outlawed on cryptocurrencies. President Donald Trump tweeted back in July 2019:
“I’m not a fan of Bitcoin and other cryptocurrencies, not money and have very volatile values and are based on thin air.”
Recently, US Treasury Secretary Steven Mnuchin promised “important new requirements” about cryptocurrencies.
In October 2019, U.S. senators sent letters to three companies supporting the Facebook cryptocurrency project Lib Libra, citing “the project risks posed to consumers and financial institutions.” regulated and global financial system “.
While Bitcoin is not considered a competitor to fiat money, it is almost certain that it will be if the cryptocurrency reaches a trillion-dollar market cap.
Liquidity and easy access
For ages, retail Investors awaited BAKKT’s launch, as its arrival was prophesied to be a signal that the crypto sector had received the blessing of institutional investors. Estimates of a new all-time high being reached in 2018 and 2019 were relentless and more often than not, wrong.
After launch, what seemed like a perfect solution produced an average daily volume, which to this date, remains irrelevant. There are numerous reasons this could be taking place:
- Few brokers currently offer BAKKT’s products.
- Many funds ’internal regulations do not allow the ownership of physical Bitcoin-based investments.
- Additional bureaucracy (controls) is required for funds to be approved by BAKKT.
- Physical Bitcoin not accepted as margin for leverage trading.
- Limited Sunday to Friday 8:00 p.m. to 6:00 p.m. trading hours.
While internal fund rules may be changed to single Bitcoin investment, currently may not make sense for multi-billion dollar investment funds. Portfolio analysts and managers proposing the addition of a new asset class in secular mutual fund managers will take immense personal risk.
Cryptocurrencies can and will scale without institutions
The purpose of this section is not to exclude Investors from Bitcoin and cryptocurrencies. Pundits and composers with no real market experience have promised scenarios that can’t happen for too long. If the Bitcoin market capitalization is still below $ 1 trillion, rest assured that early graduation comes to the party, and that is not necessarily a good thing.
There may be an unlimited increase for this type of property and the institutional investors’ entrance is almost certain to occur after the festival, then abruptly. Right now, it is essential to realize that a multi-trillion dollar industry of mutual funds has missed enough reason to invest in such a young asset.
Cryptocurrencies don’t need the mutual fund industry; That is another way. Bitcoin is money for regular and self-investing people.