Institutional Investors Buying Bitcoin Weakness As VC Firms Accelerate Interest in Crypto

With the permissioned liquidity pools isolated from the regular Aave pools, institutions can now access DeFi without violating compliance rules. All points of differentiation explain why there has been very little institutional investment in crypto up until now. Institutions have a specific set of fundamental requirements that must be satisfied before considering entering the nascent crypto market. The most straightforward way of investing in crypto for institutions is to hold cryptocurrency on their balance sheets. Although bitcoin is often the first and the final step for major institutions, experimental institutions have recently stepped into other parts of the crypto industry. NFTs and the metaverse are two intertwined sectors in which institutions actively invest – rather than just passively investing in a cryptocurrency like bitcoin. Bitcoin, the largest cryptocurrency by market cap, is the gateway – and indeed the only stop – for many institutions that ventured into the cryptocurrency market. As of June 2022, 6.47% of all bitcoin that will ever exist is held by institutions, a broad category that includes ETFs like VanEck in Canada and sovereign governments like El Salvador. From putting bitcoin on their balance sheets to setting up shop in the metaverse, the ways brands and institutions are investing in cryptocurrencies continues to expand. “The biggest risk for all investors would be to assume that demand growth will continue just because their prices have recently gone up,” he said.

Prior to joining the team, he was a rankings data reporter at The Wall Street Journal, where he oversaw structured data projects for the Journal’s strategy team. In our recent Demystifying Crypto report, we found that 69% of CFOs see speed of settlement as a potentially revolutionary aspect of blockchain-based payments, helping to create new, innovative business models. However, not all corporates are getting involved in crypto solely for their treasury assets. T-Systems, one of Finoa’s corporate clients, saw an opportunity to provide staking and node infrastructure but required a custodian to safely manage the proceeds from their staking and node activities. So, I expect that you will have a number of very large assets in crypto, in our large-cap index. It is difficult at the moment to see how something could compete with a $500 billion market cap in Ethereum, or $1 trillion-plus in Bitcoin. But look at how quickly we’ve seen aspects of the space grow, so we just don’t know. And anyone who says they know, I think is either confused or telling a story.
Below, we give a rough sense of the allocation share that Bitcoin and Ether could have in a liquid institutional portfolio relative to other assets. In assessing liquidity, we take into account market cap, trading activity, and other relevant characteristics. We have normalized each market relative to US equities, the single most liquid and accessible market in the world. Cryptocurrencies are still far from being huge markets, but Bitcoin and Ether are now large and liquid enough that institutional investors could access them in relevant size. As a result, our rough estimate would be that an institutional investor could build a liquid cryptocurrency allocation that is comparable in risk exposure to gold or inflation-linked bonds. On BNY’s roster is Fireblocks, whose platform allows financial institutions to issue, move and store cryptocurrencies. Banks have been investing the most in the area of crypto custody, or services under which companies look after their clients’ digital assets for a fee, said Blockdata. It found 23 of the top 100 banks are either building their own custodial technology or integrating a tech provider’s product into their own systems.
In May 2021, Tesla reversed its decision to accept payments in bitcoin over environmental concerns after less than two months of trialing the cryptocurrency as a payment method for its cars. This about-face contributed to a large sell-off in the cryptocurrency market. Snappy comebacks aside, there are many reasons to invest in Bitcoin—and some reasons not to. The rationale for investing is the beginning of the road map for how to approach incorporating Bitcoin and other cryptocurrencies into a portfolio. All investing is subject to risk, including the possible loss of the money you invest. © 2022 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG LLP, a limited liability partnership, is a full-service Audit, Tax and Advisory firm owned and operated by Canadians. For over 150 years, our professionals have provided consulting, accounting, auditing, and tax services to Canadians, inspiring confidence, empowering change, and driving innovation.

Crypto

And then on the back end, we look for really robust, thoughtful approaches that can scale that are regulatory compliant, and that meet a set of standards that we’re in the process of helping define for the asset class. In recent years, a range of options has become available to those who are interested in crypto’s upside potential. Grayscale’s Bitcoin Trust, for example, allows investors to speculate on bitcoin without needing to buy it directly. The fund is currently valued at well over $20 billion, and the asset manager has additional index funds dedicated to several altcoins such as Filecoin, Basic Attention Token, and Chainlink. Getty In its formative years, bitcoin was dismissed by institutions as a showy worthless digital asset favored by criminals. Gradually the tectonic plates that shape sentiment in the corridors of power shifted. Bitcoin, which appeared to be on an ideological collision course with institutions in its first decade of existence, recently bears the hallmark of institutional acceptance. This new report from Notified offers statistics, analysis and candid quotes on 8 key areas of stakeholder engagement, including ESG, retail investors and IR websites. On the other hand, a much lower percentage of everyday investors has expressed the same belief about digital currencies like Bitcoin and Ethereum overtaking traditional investment assets, although still a majority 54%. Institutions need to know there is sufficient liquidity in the markets they participate in to execute trades in short order.

But Roger Aliaga-Díaz, chief economist for the Americas and head of portfolio construction at Vanguard, cautioned against speculating in cryptocurrencies, which are largely unregulated and accompanied by considerable risks. San Francisco attorney who structures offers for institutional investors, thinks sophisticated investors have better options. “If an institution wants to invest in a company that will likely deploy and profit from blockchain, they can buy IBM or Oracle. So the question is, what does the cryptocurrency market have that is of interest to institutions? Right now, not much.” Now, with cryptocurrencies taking a huge nosedive in the first quarter, and recent investors left licking their wounds, the market is in need of new money–big money–to sustain prices. More than likely, a capital infusion from institutional investors such as banks, pensions, or endowments is needed for cryptocurrencies to have any real shot at crossing the $1 trillion market capitalization threshold this year. Institutional investors aren’t just looking for ways to expose part of their portfolio to crypto price changes. DeFi opens up a ton of possibilities with new, sophisticated financial products. And institutional investors always like to be able to access more markets and more products. 2022 will see more financial services organizations offering crypto asset services, says Geoff Rush, Partner and National Industry Leader for Financial Services. Of institutional investor respondents, 57 per cent reported getting into crypto assets between 2020 and 2021, but most investments were relatively small, with 71 per cent allocating less than two per cent of their portfolio to the asset class.

SheeldMarket raises $10 million for its institutional crypto investment platform

Read more about eth value calculator here. IEQ now has $80 million in Bitcoin across all of its portfolios, which its co-CEO Eric Harrison anticipates will double or triple in the not-too-distant future. “There is no enduring economic or investment rationale to expect cryptocurrencies to generate positive real returns,” Mr. Aliaga-Díaz said. “For investors, adding exposure to cryptocurrencies would mean reducing allocations to traditional asset classes, such as stocks, bonds, and cash, which Vanguard views as the building blocks of a prudent, well-balanced investment program.” Nearly one quarter said their comfort investing in the space will grow as more institutional investors adopt crypto assets and more than half say they plan to let institutional investors “test the waters” first before they make the plunge. More than half of the 1,100 institutional investors surveyed globally by Coalition Greenwich on behalf of Fidelity Digital Assets between December and April said they had digital asset investments. The institutional DeFi world is at an incredibly exciting moment in its adoption cycle. Larger regulated crypto funds, hedge funds, and traditional fund managers will lead the early majority.

That’s less than 1/20th of the inflow required to move gold by the same amount. The return of more than five million percent since Bitcoin’s inception in 2009 won’t be repeated, but bulls’ long-term targets are still exponentially higher than today’s price. Whereas forecasts of long-term stock returns are given in terms of single- or double-digit percentage growth per year, Bitcoin forecasts tend to be quoted https://www.beaxy.com/exchange/eth-usd/ as a “5x” or “10x” return. The rise could be notable as it corresponds with an upward lift in Treasury yields as well. Meanwhile, technical traders say Bitcoin has broken through an important resistance level. The development is also of interest to Coinbase , which is prepping for a direct listing. The Spanish lender’s list includes Covault, whose technology is used to store, share and verify identities.

Crypto Markets Keep Falling

The cryptocurrency sector has been very much a retail phenomenon up until this point. Institutions are no doubt making moves, but full adoption is still underway. Once it is clear that the industry is at a tipping point, we will likely see the institutional floodgates fully opened. Closely linked with NFTs is the metaverse, an oft-ambiguous term that refers to a digital space where humans interact with one another through avatars. Since Facebook rebranded to Meta in October 2021, multinational corporations have beefed up marketing and strategy investments in the metaverse. Some companies have invested in crypto domain names, particularly the Ethereum Name Service that are sold as NFTs.

In other words, there’s a potential portfolio-risk-reducing, and Sharpe-ratio-increasing, diversification benefit to having a Bitcoin allocation, even if its future returns can’t match its past trajectory. At some point, governments may seek to regulate or restrict cryptocurrencies, or issue a digital version of their own currencies. Some investors may be willing to bet on sustained crypto price increases based on the belief that crypto demand will always outpace its supply. “The fact that cryptocurrencies are not issued by a central bank is actually the very reason why they can’t achieve the quality of other well-accepted currencies,” Mr. Aliaga-Díaz explained. “The role of a central bank is precisely to preserve the value of the currency by keeping inflation under control. That’s why prices are more predictable under Federal Reserve management of the U.S. dollar money supply.” “We appreciate SheeldMarket’s advanced platform because it allows us to execute very large trades across multiple global crypto exchanges, in a regulated way, using advanced algorithms.

Plummeted in tandem with tech stocks, substantially denting the value of companies’ Bitcoin holdings. The 2022 crypto crash has seen the value of their holdings plummet from the highs of the bull market. Firms including MicroStrategy, Tesla and Coinbase have purchased billions of dollars worth of Bitcoin between them. Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience. We are already seeing the effect of returning buying volume on the market as Bitcoin has finally broken through the consolidation channel that has been forming since June 19. MetaMask Institutional Introduces New Reporting Features for OrganizationsTo help organizations save time, decrease the likelihood of error, and make monitoring and reporting easier, MMI is introducing Snapshots and Transaction Notes. The code behind certain cryptocurrencies is open to anyone to read and improve, much in the way that Wikipedia is, for example, so successive generations of enthusiasts contribute to refining the system – always without any formal legal structure.

Regulation is also catching up, and the ecosystem required to support institutional-grade investment is forming. When it comes to custody and ownership where digital assets are concerned, things are likely to be more straightforward for the individual investor, who owns the asset directly. Institutional investors may not hold the asset — ultimately, their clients are the owners of the assets. It’s harder than ever to dismiss Bitcoin as a fad or a fraud, and even longtime skeptics have come around to at least a grudging acknowledgment that cryptocurrency isn’t going away. Digital assets are rapidly entering the mainstream, and financial advisors are fielding myriad questions from clients about this rapidly growing asset class. “Cryptocurrency prices depend mostly on speculation about their adoption and use,” Mr. Aliaga-Díaz said. “And that speculation creates volatility that, ironically, undermines their potential use as either a currency or asset class in an investment strategy.” According to Dara Albright, Founder of Dara Albright Media, they may be looking at other strategies to enter the market. The KPMG poll of over 1,000 Canadians found 13 per cent of respondents have bought Bitcoin or Ethereum directly, while 11 per cent have purchased Bitcoin exchange-traded funds or other crypto asset funds. One in five who hadn’t yet invested said they are interested in making direct and/or indirect investments.
Institutions that manage money for other people have to weigh risk carefully and none has to our knowledge put more than a couple of per cent of clients’ money into bitcoin or other crypto assets. Some have their value pegged to that of a normal currency such as the dollar; here there is a need for an organisation to own the traditional currency and ensure that the digital money is backed by it. For example, Tether is a cryptocurrency backed by the dollar and it has a company, also called Tether, to manage it. Cryptocurrencies and digital assets represent a new frontier of financial innovation, underpinned by technology known as blockchain. We may see support for increased “cryptofication” of existing financial products, such as lending, remittances and payments, as institutional players look for new margins on legacy financial technology.
Furthermore, the total number of crypto assets and investment products has also expanded from 9 to 15 in 2021. The cryptocurrency market witnessed a mega bull run during the last year of 2021. On Tuesday, January 4, institutional crypto investing platform CoinShares shared annual stats regarding institutional inflows in the crypto space last year. KPMG Canada’s Managing Partner, Benjie Thomas, summed it up best, saying, “This investment reflects our belief that institutional adoption of cryptoassets and blockchain technology will continue to grow and become a regular part of the asset mix.” Around 90% of those interested in investing in future said they expected their company’s or their clients’ portfolios to include digital asset investments within the next five years, the research found. Around 88% and 75% of respondents exposed to cryptocurrencies have invested in these cryptocurrencies, respectively. However, institutional investors appear to be increasingly interested in security tokens. Out of the 39% of investors that plan to invest in the future, security tokens were more popular than Ethereum and other alternative coins. In the fast-moving and often volatile world of crypto trading, firms need to successfully bridge the pricing gaps across multiple exchanges, which are located at points all over the globe.

Slowly but surely, Bitcoin is continuing to be adopted by institutions

The proposed rules have sparked concern among cryptocurrency owners, who worry about the implications for their privacy. Earlier this month, the European Parliament voted in favour of new traceability rules for crypto asset providers requiring them to collect information on the holders they interact with. But trust on a global level is mostly driven by developing countries, the survey showed. Unless you’ve been living in a cave for the past five years, you’ve undoubtedly heard about cryptocurrencies. You’ve also likely been asked about what cryptos are and whether you should invest in them—or, perhaps, why you haven’t invested in them yet.

“We are approaching the tipping point,” says Ric Edelman, a longtime advisor who now runs the RIA Digital Assets Council, a resource for educating advisors about blockchain technologies and cryptocurrencies. “In the past several years, the question was, ‘Why are you investing in Bitcoin? They are not a traditional currency, commodity, or asset class, though they share characteristics of each. There are more than 6,700 cryptocurrencies today; among the better known are Bitcoin, Dogecoin, Ethereum, XRP, Tether, and Litecoin. Institutional investment continues to increase with Chinese internet firm Meitu reported to be the latest large company to execute a Bitcoin treasury strategy.

Noah Perlman, COO of Gemini Exchange, says government and regulators know they need to do something, so either they indicate they will do a study, or say they are putting a plan in place for a plan. 3 That assumes that the company is not required to apply specialized industry guidance, such as the guidance in ASC 946 Financial Services – Investment Companies. 2 The FASB decided at its October 21, 2020, meeting not to add a project on digital currencies to its agenda. Governing risk is rarely a matter of “set it and forget it.” Risk is a constantly moving target, and adjustments frequently need to be made within an agreed-upon band of risk tolerance. Kim is confident, however, that these slow adoption rates will change — and quickly. “We’re going to hit this tipping point in the next year or two where it will be a fireable offense not to have exposure,” she said. Alkemi Network – A permissioned liquidity pool facilitating programmatic borrowing and lending through a trusted institution-grade liquidity network.

• Block has also made further efforts to build out the Bitcoin ecosystem, launching a $5 million fund to further crypto education and leaping to Bitcoin’s defense with a white paper defending the cryptocurrency’s environmental impact.
• The SEC may have crypto trading platforms and tokens in its sights as chair Gary Gensler has indicated these are like traditional securities and must play by the same rules.
• Bitcoin news portal providing breaking news, guides, price analysis about decentralized digital money & blockchain technology.
• Grayscale’s Bitcoin Trust, for example, allows investors to speculate on bitcoin without needing to buy it directly.
• Further inflows in Q1 of 2021, combined with the continued rising price of Bitcoin, grew Grayscale’s Bitcoin trust to $36 billion under management, as of May 5th, 2021.
• One of the main sources of selling pressure on the first cryptocurrency could be gone from the market as the largest cryptocurrency miners announced that they have successfully realized most of the funds they used for stabilizing their operations.

In the report, we discuss how much professional investors have already invested, how much they expect to invest over the next year, and what sectors of the industry are attracting the most investment. In juxtaposition to the demand, the report covers the supply of investment vehicles in the crypto asset space by documenting what products exist, what their assets under management are, returns and risks. This helps investors to learn about the products that are currently available and which ones are the most popular. This report can also help business development teams that are considering entering the cryptocurrency space by highlighting the gaps in product offerings. There are several products that are being demanded by institutional investors that are not currently on the market.

However, this is changing, with many jurisdictions set to bring in regulatory regimes aimed at crypto service providers and their activities, such as the Markets in Cryptoassets Regulation in the EU. Another clear signal of this is the $65M external investment ConsenSys raised from a balance of global financial services firms like J.P. Morgan, Mastercard, and UBS, along with crypto companies and VCs including Protocol Labs, the Maker Foundation, Fenbushi Capital, and Alameda Research. In funding ConsenSys, traditional institutions are helping build DeFi infrastructure while also gaining visibility into Web3 applications being developed on the Ethereum blockchain. Goldman Sachs relaunched its trading desk for digital assets, and aims to offer a “full spectrum” of investments across the emerging asset class to its wealth management clients. Right now financial regulators do not regulate crypto assets in the way they do, for example, banks and stock exchanges. Some governments have, however, banned their citizens from using crypto assets; others have put restrictions on intermediaries that offer access to them . The regulatory landscape in relation to cryptoassets is constantly evolving and most regulators have signaled an intent to look more closely at this asset class. At Finoa, we serve a wide variety of institutions that choose to get involved in crypto for a variety of reasons.

When these returns are compared to US stablecoins that yield between 2% and 12%, and more exotic DeFi protocols that yield north of 250%, it is clear why 80% of institutions across the US and Europe have expressed interest in digital assets and cryptocurrencies. First, there is no legal entity or organisation on which proof of your ownership of the asset depends. Second, the database record that an online stockbroker would use to confirm your ownership of a stock is replaced in the case of crypto assets by a vast number of separate but identical digital records, distributed across the internet. A significant design driver for cryptocurrencies was the removal of single points of failure or influence along with synchronizing data across all database participants.
When we look at what is holding institutions back, some of the barriers cited in surveys are about the nature of the asset class (e.g., it is volatile, hard to value, etc.), and others are more structural (e.g., custody issues and regulatory uncertainty). The investment by many of the major Wall Street banks over the last year in building out new trading desks and infrastructure for Bitcoin and crypto is another indication of expectations that institutional adoption of crypto will grow over the longer term. Many entrepreneurs are betting that blockchain technologies will become a backbone of much of the global economy over time and are building businesses using these technologies. For institutional investors, investing in these companies provides exposure to the potential of distributed ledger technologies—or indirect exposure to the cryptocurrencies themselves in some cases. Exposure is small relative to their large balance sheets but easy to do, as they often already have buckets carved out for VC, and a few large IPOs in the last year or so created public equities that can provide exposure. Crypto exchanges are a particularly popular growth investment for institutions, and we’ve seen several large investors take stakes in FTX, Gemini, and of course the publicly listed Coinbase. Crypto assets have emerged as an investible alternative asset class among institutional investors, with many gaining exposure through regulated investment products such as exchange-traded funds.
Although there are bitcoin spot ETFs in Canada and Europe, the financial instrument isn’t approved in the US. Instead, there are ETF-like instruments, like the Grayscale Bitcoin Trust, a closed-end trust that tracks the value of Bitcoin. (Grayscale Investments, which manages the trust, is a unit of Digital Currency Group, which also owns CoinDesk.) It had $18.5 billion worth of assets under management as of June 2022. If you want to start investing in cryptocurrencies as an institutional investor, you have to deal with several products and services, such as exchanges, custodians and over-the-counter providers. Other investment vehicles in the decentralised finance ecosystem also show strong levels of trust, the survey showed, adding that stable coins, NFTs and blockchain are rising in trust across retail and institutional investors. One day, maybe someone will invent a game where fastball pitchers add value on a basketball court.