One billion dollars isn’t cool. You know what’s cool? One trillion dollars. And it’s going to take institutional investment to get there.
For an industry with roots in online games and virtual goods–and whose most passionate advocates believe that the Internet should exist decentralized and without authority–it might be ironic that large, institutional investors hold the key to market growth. But they do.
With a current overall market capitalization of $250 billion, cryptocurrencies peaked at $800 billion in early January. The run-up in prices was largely driven by a rush of self-directed retail investors, and a slew of small hedge funds, into the market. With Bitcoin dominating headlines and tales of 10,000 percent returns, the fear of missing out was too strong for many to pass up.
Now, with cryptocurrencies taking a huge nosedive in the first quarter, and recent investors left licking their wounds, the market is in need of new money–big money–to sustain prices. More than likely, a capital infusion from institutional investors such as banks, pensions, or endowments is needed for cryptocurrencies to have any real shot at crossing the $1 trillion market capitalization threshold this year.
Although today’s prices might seem like a bargain, institutional investors have been sitting on the sidelines. Concerns around volatility, lack of liquidity, and regulatory uncertainty were more than enough to prevent the smart money from entering the arena.
Irwin Stein, a San Francisco attorney who structures offers for institutional investors, thinks sophisticated investors have better options. “If an institution wants to invest in a company that will likely deploy and profit from blockchain, they can buy IBM or Oracle. So the question is, what does the cryptocurrency market have that is of interest to institutions? Right now, not much.”
Robin Sosnow, Esq., founder of law firm Robin Sosnow, PLLC, and owner of the CrowdCrypto Newsletter, has a different perspective. “The tide is rising for institutional participation in cryptocurrency in the United States. Last week, the Securities and Exchange Commission announced that formal proceedings will begin to evaluate a rule change that would permit the listing of two Bitcoin exchange-traded funds (ETFs) on the New York Stock Exchange.
“The Bitcoin ETFs could be the beginning of a wave of cryptocurrency-backed ETFs that would enable widespread access these alternative investments without jumping through the hoops of opening wallets and creating accounts on various platforms to buy, trade and cash out,” Sosnow said.