2018 has been a crazy year for Bitcoin and crypto so far, with its price fluctuating wildly around the psychological price point of $8,000, and not succeeding in maintaining itself on its higher side. Bitcoin has shed as much as 70% from it’s all-time high of nearly $20,000.
Industry experts claim that the market is correcting itself, and the reason for it can be attributed to the regulatory uncertainty that still persists with regards to cryptocurrencies. Various countries have taken a stand in favour of or against cryptocurrencies, and many of them are still in the process of evaluating cryptocurrencies before declaring their verdict. However, with news of companies like Goldman Sachs considering launching cryptocurrency custody services, and exchanges like Coinbase adding new cryptocurrencies to their custodial services, the ongoing trends point towards the the increasing interest of institutional investors in crypto assets.
Here are 5 reasons why cryptocurrencies are going to be the next big thing for institutional investors.
1. Enhancement of custodial services
Coinbase recently announced that it is considering adding new crypto assets to its custodial services to enable institutional investors to store their cryptocurrency holdings safely. The new additions are likely to have been spurred by a potential demand for custodial services for these cryptocurrencies, which also reveals that institutional investors are looking at cryptocurrencies other than Bitcoin and Ethereum for investment. </p?
Goldman Sachs is also considering offering cryptocurrency custody services which will apparently help overcome the barrier of lack of trusted custodianship for institutional investors. Ledger, the hardware crypto wallet manufacturer, which sold over 1 million hardware company also announced its support for 8 new cryptocurrencies recently.
2. US SEC’s stance on crypto assets
While the US Securities and Exchange Commission has rejected Winklevoss brothers’ Bitcoin ETF, its stance towards cryptocurrencies seems fairly positive. It highlighted that the proposal’s disapproval did not rest on an evaluation of whether bitcoin, or blockchain technology has utility or value as an innovation or investment, but it was owing to the inadequacy of tools for preventing fraud and manipulation with customers.
Kin-Wai Lau, the CEO of Fatfish Internet group recently said in an interview that the world is experiencing a second wave of cryptocurrencies which is being driven by institutional demand, and it just a matter of time before the SEC opens its doors to cryptocurrencies.
3. Regulated crypto ETFs on the cards
After the rejection of Winklevoss brothers’ bitcoin ETF, the US SEC will be looking at 9 ETFs in the next two months and announce its final decision on their status. The SEC highlighted that it is open to the possibility of approving crypto-derivatives in the future. In Europe in the meanwhile, Amsterdam-based speed trader Flow Traders NV announced that it was expanding its trading products to exchange-traded notes (ETNs), which are based on bitcoin and ether.
In Asia, the Singapore-based Huobi exchange had revealed in June that it was creating its own ETF. With all these efforts being made to launch ETFs, the day is not far when the world will see its first regulated crypto ETF.
4. Past performance of cryptocurrencies
It is no secret that the unregulated nature of cryptocurrencies is a double-edged sword. One of its favourable consequences has been the rapid growth is it has witnessed since its inception. Bitcoin, between 2012 and 2016, witnessed a yearly growth of around 106%, which is 6.5 times more than regular tech stocks. In fact, just the last year, Bitcoin saw a growth of 1,318%, with its highest at $19,783 on December 17th, 2017. Ripple was the biggest gainer of 2017 with 36,018% growth. According to Jesse Powell, the CEO of Kraken, the market value of cryptocurrencies will touch 1 trillion this year.
5. Favourable cryptocurrency regulations emerging globally
Many countries are recognising the pressing need to develop a regulatory framework for cryptocurrencies and Initial Coin Offerings (ICOs) to leverage the ongoing transformation which Blockchain is bringing about in the world. In Japan, bitcoin is a legal tender and the country officially recognizes several cryptocurrency exchanges. The country also had a government-backed study group develop guidelines for ICOs, which are being evaluated by Japan’s Financial Services Agency and might become the law in the coming future. In Switzerland, the Swiss Financial Market Supervisory Authority (FINMA) released guidelines for conducting ICOs earlier this year.
Thailand and Philippines have recently launched a regulatory framework for ICOs which dictates that entities seeking to conduct an ICO must file an application and submit the required documents to the respective regulatory bodies of the countries for evaluation. This regulated environment for cryptocurrencies and ICO projects is going to encourage investors to explore the market with confidence.
NewsBTC. 5 Reasons Why Institutional Investors are Entering Crypto. 2018. https://www.newsbtc.com/2018/08/10/5-reasons-why-institutional-investors-are-entering-crypto/ (accessed 16 Aug 2018).