“Institutional Investors Will Not Accumulate Crypto But It Will Help The Field Grow”
Institutional players are coming to the crypto ecosystem, but how will they affect the industry? Will they increase the price or crash it?
The state of the world economy has prompted institutional investors to seek alternative investment methods. Increasingly, Bitcoin (BTC) is becoming such a tool.
Since August, business intelligence firm MicroStrategy has acquired a total of $ 425 million worth of BTC. At the same time, digital asset manager Grayscale Investments collected a record amount of money in both the first and second quarters of this year ($ 1.4 billion in total).
But should we celebrate institutional investors as “saviors” of crypto money? Or are they, on the contrary, the ones who will lead to the collapse of the digital asset industry?
Safe Assets in a Worldwide Crisis
Before answering the above questions, let’s look at the main reason institutions are interested in crypto. There is a worldwide crisis when it comes to generating returns on the traditional market’s secure assets. Low-risk instruments such as savings accounts and high-quality bonds such as the US Treasuries have been generating minimal returns in recent years. The returns on these assets are so low that inflation often consumes profits and leaves investors a negative return on investment.
Also, some countries such as Denmark, Switzerland, and Japan are using negative interest rates to stimulate the economy. While it is a good way to combat deflation, negative and low interest rates discourage people from investing in safe assets. However, this does not mean that traditional instruments fail with investors. Instead, we are going through a stage in the development of the world economy where low-risk investments are not yet providing reasonable returns to investors.
However, this will increase interest in cryptocurrencies until the global economy moves to a stage where traditional assets start to perform well again. Compared to the general market, the digital asset industry is developing much faster, and there are many reasons behind this phenomenon. The regulatory scrutiny surrounding the market is limited, and crypto projects have a different mindset. Also, the current level of technology allows and encourages businesses in the field to innovate.
As a result, cryptocurrencies have become a maturing industry with a history of providing investors with excellent returns. Moreover, even in the midst of a global economic crisis, Bitcoin’s volatility is at record lows. And the less volatile an asset is, the lower the risks for investors.
While the above makes crypto attractive to individuals, the current digital asset market offers institutional investors a way to meet their investors’ ROI expectations. The risks are high and they are looking at Bitcoin for a very good reason.
The Impact of Recent Institutional Increase on Crypto
People in crypto often think institutional investors will be the main facilitators of the next Bitcoin boom. However, this is not the case here. And vice versa is also not true. In other words, it is not true that institutions will disrupt the crypto market with their whale-sized investments.
Institutional investors are making the crypto market more efficient by helping the crypto market mature, rather than “destroying” the cryptocurrency market or removing Bitcoin “to the moon”. For example, when BTC is priced low, they use this inefficiency to increase it and lower it when the digital asset is over-priced.
As institutional investors are experienced investors with extensive money market experience, they follow the above practices to limit their risk and maximize their returns. This reduces the situation volatility and increases the liquidity of the market. However, factors such as Bitcoin’s adoption rate and the current macroeconomic situation have a more significant impact on long-term BTC price action than institutional investors.
On the other hand, a more mature market means that potential earnings from crypto investments will also decrease. However, this will not lead to the collapse of the digital asset industry. This development is a sign of the natural development that all new markets go through when they enter the stage of mass adoption. It will appear to result in a more mature, more stable, and less volatile cryptocurrency industry.
However, taking strong positions in crypto, as MicroStrategy has done recently, provides a buy signal to other institutional investors who will see the cryptocurrency as a serious asset class. It should be noted that MicroStrategy’s relationship with Bitcoin is of great importance, given that the firm is a public company traded on the Nasdaq stock exchange.
As such, it has strict requirements for financial care for its shareholders. MicroStrategy believes that by purchasing significant amounts of BTC, this move will not have a negative impact on the share price or corporate social responsibility.
If a private business – no matter how big – were to take the same position in crypto, that wouldn’t be big news like MicroStrategy’s.
Crypto Space Is Looking forward to a Brighter Future with Institutional Investors
In 2017, we didn’t have many institutional investors in the cryptocurrency market. With so much fear of hijacking, deception, fraud, and cyber threat, speculation was the main force driving the initial cryptocurrency offer frenzy and extreme bull market.
With effective regulation across multiple jurisdictions and institutional investors making the market more effective, the crypto space has become more mature than ever. Less risk and good returns make Bitcoin an attractive alternative investment for institutions. And now they come to the industry with a large number of institutions.