THE FUTURE OF INSITUTIONAL CRYPTO INVESTMENT
What size of institutional capital would make a change?
We bumped into an article written by Omid Malekan, the author of “The Story of the Blockchain, a Beginner’s Guide to the Technology Nobody Understands”. The article was published by The New York Times. It elaborates on the big question of what happens when institutional investors start to back Bitcoin, and how much investment it takes to create a significant impact.
Malekan writes that he asked a friend on Wall Street a few years ago if her colleagues ever brought up the topic of crypto-currencies. She answered that one person would sometimes mentioned Bitcoin and then the room would clear out.
“This was during Wall Street’s Bitcoin is stupid period, which fell between the initial, I don’t understand it era and the more recent it’s a bubble phase”, says Malekan. “Since the advent of the first crypto-currency nine years ago, professional money managers have almost universally dismissed it as a potential investment. Although many have come around on the power of the underlying technology, crypto-currencies have often been ignored or ridiculed.”
Last year, when the increasing value of crypto-currencies was making headlines on a daily basis, Wall Street repeatedly vocalized their view that the crypto sector was nothing more than a pyramid scheme. It is quite possible that they were really convinced about that but there might have also been some jealousy behind their attack because, as Malekan explains, “Wall Street money managers are not used to standing on the sidelines while amateurs get rich off something the pros don’t really understand, or worst yet, own.”
One of the reasons why Wall Street is still keeping some distance is that crypto storage is not considered, in their view, as guaranteed. It is because stock investors don’t have to worry about a hacker attack against their servers. Regarding crypto-investment some investors are still hard to convince about security, although some of the latest hardware solutions are proven to guarantee security for institutions.
Malekan points out the introduction of Bitcoin futures: “Then there are the recently introduced Bitcoin futures at the Chicago Mercantile Exchange and the Chicago Board Options Exchange. These products allow institutions to gain exposure to crypto markets while bypassing the storage issue altogether. None of this means that the world’s pension funds and endowments are about to dive in. But for the bullish thesis to work, they don’t have to. Just the fact that they will start to consider the option is a major change.”
It will take a long time for institutional investors to fully accept crypto-currencies as an investment option, but 2018 seems to be a milestone in that process.
And what happens when institutional investors start to turn their attention toward crypto investment?
Here’s what Omid Malekan has to say: “The answer lies in basic math. Institutions control so much money that they own half a trillion dollars’ worth of Apple alone, and that’s just one stock within a single asset class.” It means that if only a fraction of the total capital controlled by institutions is committed to a portfolio of crypto-currencies, that in itself may simply double the crypto market capitalization.