Unlike the stock market, which is seeing its eight-year bull run thanks, in part, to institutional investors, crypto-markets are dominated by individual investors. This is evident by almost every metric.
Crypto-exchanges, which are havens for individual investors, are overwhelmed. Popular crypto-exchange, Binance recently revealed that they added 250,000 new users in a single day. Kraken is onboarding 50,000 new accounts daily and they are logging an astonishing 10,000 new support tickets every day. In a blog post, Kraken developers wrote:
“The recent unexpected explosion in demand has been overwhelming.”
Some exchanges including Binance, Bitfinex and CEX.io have temporarily halted new account registrations so that they can update their technology and better prepare their platforms for the rush of individual investors flooding the market.
Moreover, the much-anticipated Bitcoin futures contracts are also being dominated by individual investors. According to The Wall Street Journal:
“In a sign of how more conservative firms are keeping their distance, the CFTC data show near-zero trading in Cboe’s Bitcoin futures by banks and asset managers.”
Institutional money is on its way
There is endless speculation about a crypto-bubble. Whenever prices begin to shift, or the famously volatile crypto-market fluctuates, pundits are quick to declare the bubble burst and the movement over. When cryptocurrencies endured a flash crash before Christmas, commentators flooded the internet with their crypto post-mortems. Of course, most prices recovered within a single day.
In reality, the crypto-party isn’t winding down. It’s just getting started.
Institutional money is on its way, and when that happens, digital currency values will receive a significant boost. Even JP Morgan Chase CEO and infamous crypto-skeptic, Jamie Dimon, recently expressed regret for describing Bitcoin as a fraud. In an interview with Fox Business, Dimon acknowledged that “the Blockchain is real.” He went on to express support for cryptocurrencies that represent traditional currencies like dollars and yen.
Dimon’s comments were made as CNBC reported that altcoin Ripple has more than 100 clients from the mainstream banking industry using its XRP token. On January 11th, MoneyGram signed on to test Ripple’s XRP token as a digital method for sending money. Ripple’s price rose 25% after the news before receding later that day.
The burgeoning opportunities for institutional investment
As Blockchain use-cases become more prevalent, expect increased institutional investment in cryptocurrency markets.
In October, The Wall Street Journal reported that investment juggernaut Goldman Sachs is considering offering a Bitcoin-related investment product. In comments to the Journal, a Goldman spokesman said:
“In response to client interest in digital currencies, we are exploring how best to serve them in this space.”
Ultimately, individual interest spurs institutional interest, and that will have a significant impact on the value of digital currencies.
Bitcoin futures contracts on Chicago based exchanges run by CME Group and Cboe Group represent burgeoning opportunities for institutional investment. Specifically, they indicate that much anticipated crypto-ETF funds may soon be available for investors. Moreover, according to estimates by Morgan Stanley, in 2017 hedge funds invested more than $2 billion in crypto-related assets. This is a lot of money, but it’s a small percentage of the possible investment.
In short, Bitcoin hedge funds are counting their profits in thousands of percent and institutional investors can’t stay away forever.
As digital currencies continue to gain exposure, they are proving remarkably resilient to investors’ worst fears. Technology is rapidly improving, and many of the same features and safeguards currently maintaining traditional investment markets are increasingly present in crypto-markets as well.
Although the total crypto market cap is tremendous, it’s far from its full potential. Cryptocurrencies are just now becoming household names, and they are still shedding some of our preconceptions that stigmatized investment. However, the real growth driver will be institutional investments, which will be spurred on by the individual investors who want to participate in crypto markets through institutional platforms and by the market forces that make the possibility of considerable profits too essential to pass up.
Alexander Kravets co-founder of XTRADE.IO, a technology company looking to bring mature Wall Street technologies to the world of cryptocurrency. Before he served as Managing Director of a self-clearing broker/dealer that handled four percent of the daily trading volume on NASDAQ and successfully launched Sogotrade, a retail investing platform with over 100,000 clients.