The old adage “the cryptocurrency market is not for the faint of heart” was introduced recently when the industry’s total market capitalization plunged to a relatively low $1.75 trillion on September 20, only to make a strong comeback. Despite all this volatility, demand from institutional investors remains strong, with reports suggesting that big-money players have recently continued to “buy the dip”, especially in the wake of the recent blanket ban imposed by China which saw bears taking control of the market. , albeit for a short time.
In more detail on the matter, a recent CoinShares report revealed that during the last week of September, digital asset investment products generated $95 million worth of inflows for institutional crypto investment products — with Bitcoin (BTC) and Ether (ETH) in the provided with $50.2 million and $28.9 million in inflows respectively. In fact, on average, the last 30 days have seen inflows of Bitcoin products increase by a whopping 234% on a weekly basis.
It should also be noted that since April, US investment bank Morgan Stanley has doubled the total number of Grayscale Bitcoin Trust (GBTC) shares owned, which came to light when the financial giant submitted a report to the US Securities and Exchange Commission (SEC) on September 27.
Finally, investment management giant Ark Invest — run by CEO and crypto bull Cathy Wood — has also been in a GBTC buying frenzy, with the company acquiring more than 450,000 shares of GBTC through two separate purchases recently, raising its total volume To a large volume of 8.3 million GBTC shares.
Institutional demand is growing
To get a better idea of how active institutional players are in terms of their exposure to cryptocurrency, Cointelegraph reached out to Luuk Strijers, chief commercial officer of crypto options exchange Deribit. He noted that major banks such as Morgan Stanley, Citi and Goldman Sachs have started offering a wide range of digital assets to their clients, adding:
“We don’t see them become active on offshore derivatives platforms yet. However, we are already seeing second-tier companies, asset managers and hedge funds more and more active either actively investing/trading or alternatively hedging for venture capital investments .”
To back up his claims, he noted that about 20% of Deribit options volume is nowadays traded as an over-the-counter block, where that number previously hovered around the 5%-10% range. “Given the scale of these transactions, which clearly indicate the involvement of institutional parties, these transactions are better executed in a single block versus multiple on-screen transactions,” he explained.
Finally, Stijers noted that traditional financial institutions prefer futures and options trading over perpetual offerings, which are typically viewed as short-term exposure products due to the unpredictability of their financing. “Derbit has greater open interest in futures versus many of our peers as about 80% of our volumes are institutional driven,” he said.
Play the long game
Elena Sinelnikova, co-founder and CEO of the Ethereum layer-two aggregation platform Metis, told Cointelegraph that too often retail investors ignore consolidation periods and turn their attention to the crypto industry only when the market is pumping. On the other hand, institutional investors know that the best time to accumulate is when the market has drifted lower and/or held flat, indicating a long-term outlook on their part. She said:
“We’ve been through enough market cycles to know that the kind of pullback we’ve seen over the past few months often comes before a major uptrend. While no one can predict the future (in cryptocurrency or otherwise), institutions are using this quiet period to load their bags, in anticipation of a move Another great.”
In addition, Sinelnikova noted that investors need to remember that different phases of the market can lead to significantly different results. “Watch the Bitcoin dominance data to see if BTC or altcoins (or both) are driving the next move higher in the market,” she stated.
A somewhat similar view is shared by Douglas Horn, chief engineer of Telos network focused on scalability, who told Coitnelgraph that institutional investors can be likened to giant carriers — for example, it takes a lot of time and energy to move them, but once they do, It’s hard to stop them again. He said:
“Now that they have made the decision to go into cryptocurrency, some temporary volatility will not discourage them. If anything, they will be less volatile in terms of crypto buildup during recessions. By the time these investors bought their first Bitcoin, they definitely had. They spent years evaluating their incomes and goals and strategizing for them. They operate quite differently from the average crypto investors and traders.”
Horn stated that with the current situation, the groundwork has already been laid by companies like MicroStrategy for others to follow and a flood of new institutional investors are about to complete their lengthy due diligence processes to assess the long-term viability of investing in the digital asset market.
Not everyone agrees
Philip Junoy, chief marketing officer of the NFT ecosystem, Blockset, told Cointelegraph that while Bitcoin’s embrace by institutional investors has been progressive over the past several months, some remain cautious, especially as the regulatory climate surrounding this emerging industry continues to heating. From his point of view:
“Potential buyers of bitcoin are not a coordinated effort by these institutional investors, and as such, one can only know for sure the buying patterns of these investors when they are announced. While Morgan Stanley recently doubled down on its investments in Bitcoin, many institutional investors are opting for The option to fund venture capital, and they are pumping capital into companies that provide bitcoin-related services.”
Despite Gunwhy’s assertion, Wes Levitt, head of strategy for decentralized video streaming platform Theta, told Cointelegraph that institutional capital is still flowing into the blockchain space, as evidenced by the scale of crypto venture capital (VC) funding in the first half of 2021, which exceeded 17 billion dollars. He said:
“This interest may have waned somewhat in direct exposure to Bitcoin/Ethereum with the May crash spooked by many traditional investors, but according to reports, institutional flows remain positive for September. As always, reports of the cryptocurrency’s death are exaggerated. It’s very much there.”
I look ahead
To get an idea of where the increased adoption of institutional crypto may be headed, Cointelegraph spoke with Joshua Frank, co-founder and CEO of TheTIE, a crypto and blockchain analytics provider. From his point of view, the demand his company is seeing from traditional businesses has been staggering.
“There are dozens, if not hundreds, of multibillion-dollar trading firms, hedge funds, and other asset managers who have recently made their first crypto trades,” Frank said.
He further stated that while there have been some high profile announcements of funds investing in cryptocurrency, there are many such developments happening behind the scenes, which the public is not aware of. Typically, such operations start small — for example, the fund trades BTC with cash and carry as a proof of concept using partner capital — and grows over time, Frank said, adding:
“We find this money falling more and more down the rabbit hole. We have at least 5-10 clients that are the 50-100 largest hedge funds that actively employ crypto teams. That’s all I can say publicly, but that money is our clients, so we see it.” in real time.”
Finally, according to a recent survey, a growing list of traditional financial entities is increasingly looking to move into the world of digital asset trading/investment. According to the report, about 62% of global institutional investors who are not currently exposed to cryptocurrency have stated that they are looking to enter the crypto market within the next 12 months or so.
The survey took into account the opinions of 50 wealth managers and 50 institutional investors from various countries including the US, UK, France, Germany and the UAE. “There is no doubt that the crypto asset market is becoming more prevalent in the wealth management and institutional sectors,” the report stated.
As the cryptocurrency industry continues to grow from strength to strength – from an infrastructure standpoint as well as from a regulatory standpoint – it will be interesting to see how the aforementioned trend of increased institutional adoption is carried out.