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A large number of new institutional investors are conducting their own due diligence on the long-term feasibility of investing in the digital asset market.
Original title: “The Long Game: Institutions’ interest in encryption has just begun”
Written by: Shiraz Jagati
Compiler: Lin Qi
The old saying “cryptocurrency market is not for the faint-hearted” has been fully reflected recently, when the total market value of the industry fell to a relatively low of 1.75 trillion US dollars on September 20, but it made a strong comeback. . However, despite these volatility, institutional investor demand remains strong. There are reports that big money players have continued to “buy down” recently, especially after China’s recent comprehensive ban.
Related reports show that in the last week of September, digital asset investment products brought in capital inflows worth 95 million U.S. dollars to institutional crypto investment products, with BTC and ETH leading the way with capital inflows of 50.2 million U.S. dollars and 28.9 million U.S. dollars, respectively. In fact, in the past 30 days, the inflow of Bitcoin products has surged by an average of 234% every week.
It is also worth mentioning that since April, the US investment bank Morgan Stanley has doubled the total number of Grayscale Bitcoin Trust (GBTC) shares it holds. Matters exposed when the Securities and Exchange Commission (SEC) filed a report.
Finally, the investment management giant Ark Investments, led by the CEO and cryptocurrency bull Cathie Wood, has also been in the GBTC buying frenzy. The company recently acquired more than 450,000 GBTC shares through two separate purchases. The total trading volume has reached a considerable size of 8.3 million GBTC shares.
Institutional demand is growing
Luuk Strijers, chief commercial officer of the crypto options exchange Deribit, stated 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 yet to see them becoming 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.”
He pointed out that now about 20% of Deribit’s option trading volume is carried out as over-the-counter transactions, while 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 the multiple transactions on the screen.”
Finally, Stijers pointed out that traditional financial institutions prefer to trade futures and options rather than perpetual products. Due to the unpredictability of their funds, perpetual products are usually regarded as short-term risk products. “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.
Elena Sinelnikova, co-founder and CEO of Ethereum’s Layer2 aggregation platform Metis, said that retail investors usually ignore the integration period and turn their attention to the cryptocurrency 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 kind of pullbacks we have seen in the past few months usually precede a big uptrend. Although no one can predict the future (crypto or other areas), each Institutions are using this quiet period to load their luggage in anticipation of another big rise.”
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 blockchain network Telos, which focuses on scalability, has a similar view. A supertanker moves, 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 repelled by some temporary volatility. If anything, they will not accumulate cryptocurrency during the downward trend. When these investors buy their first Bitcoin , They must have spent years evaluating and setting their goals. Institutional investment is operating 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 conducting their own due diligence on the long-term viability of digital asset market investments.
Not everyone is absolutely in favor
Philip Gunwhy, Chief Marketing Officer of Blockasset, the NFT ecosystem, said that although institutional investors’ acceptance of Bitcoin has been increasing in the past few months, some people are still cautious, especially around the regulation of this emerging industry. When the environment continues to heat up. In his opinion:
“Unless it is officially announced, it is impossible to determine the buying patterns of these investors. Although Morgan Stanley has recently increased its investment in Bitcoin, many institutional investors are choosing venture capital to inject capital into companies that provide Bitcoin-related services. .”
Despite Gunwhy’s view, Wes Levitt, head of strategy for the decentralized video streaming platform Theta, stated that institutional capital is still pouring into the blockchain field, just as the amount of encrypted venture capital funds in the first half of 2021 exceeded $17 billion. As proved. He said:
“It may be due to the crash in May, which undoubtedly frightened many traditional investors, and their interest in direct exposure to BTC/ETH has diminished. However, it is reported that the institutional capital flow in September was still surplus. As usual. , Reports of the death of cryptocurrencies have been quite exaggerated.”
Looking to the future market
Joshua Frank, co-founder and CEO of encryption and blockchain analysis provider TheTIE, said that the demand his company sees from traditional companies is staggering.
“There are dozens, maybe hundreds, of $1 billion proprietary trading companies, hedge funds, and other asset management companies that have recently conducted their first crypto transactions,” Frank said.
He further stated that although some funds have made high-profile announcements about investing in crypto, there are more such developments happening behind the scenes, and the public is ignorant of this. Frank mentioned that, usually, this kind of operation is simple at the beginning. The fund uses the capital of its partners to carry out cash self-contained bitcoin transactions as a proof of concept, and it continues to grow over time, adding:
“We found that these funds are sinking deeper and deeper into the “rabbit hole”. We have at least 5-10 clients, and they are all of the top 50-100 largest hedge fund companies actively recruiting crypto teams.”
Finally, according to a recent survey, more and more traditional financial entities are increasingly looking 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 encryption industry continues to grow and develop, it will be interesting to continue to focus on the growing adoption rate of these institutions, whether from an infrastructure or regulatory perspective.
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