Institutional investor in the crypto market

Reading analytical reviews and articles, we came across a work with the title: “Overview of Digital Assets of Institutional Investors”.

It would be possible to read briefly without focusing attention, but the author, the Fidelity Institutional Foundation, was too interested. Those who are familiar with the major sharks of the financial world will understand why such an author is interested.

So, Fidelity Digital Assets, Fidelity Applied Technology Center and Fidelity Consulting, together with Greenwich Associates, conducted a survey of almost 800 investors. And this is not their first study, but in this case, 300 more investors were interviewed, which allowed them to dive deeper into various investment segments and more widely cover the European market.

Here is what Tom Jessop, President of Fidelity Digital Assets, wrote in the preface:

“This year’s results confirm the trend we’re seeing in the market towards increased interest in digital assets and acceptance as a new asset class to invest in. Investor Concerns, primarily, focused on issues that will be addressed as market infrastructure evolves and we are proud to be one of the many service providers actively driving this evolution, for the benefit of the ecosystem and traditional investors”.

The study was conducted from November 18, 2019 to March 6, 2020, including interviews with 774 institutional investors. 393 respondents were based in the US, 381 in Europe.

The survey covered a variety of investor segments, including high net worth individuals, financial advisors, family offices, crypto and traditional hedge funds, and venture capital funds.

Results:

• 36% of institutional investors surveyed are currently investing in digital assets.
• Almost 60% of all respondents had a neutral or positive perception of them.
• About 80% of investors find the opportunities they need in digital assets: lack of correlation with other asset classes, the ability to use innovative technologies and high growth potential.
• The most common barriers to the adoption of digital assets are: price volatility, concerns about market manipulation, and the lack of a basis for measuring the corresponding value.
• Over 6 out of 10 investors list digital assets as an integral part of their portfolio. Nearly 40% believe they belong to an alternative asset class. 20% of investors claim that digital assets belong to an independent class.
• More than 80% of investors indicated that they are interested in institutional investment products that contain digital assets in the future.

It is interesting to see how rapidly the attitude of traditional institutional investors towards a new asset class is changing. In the United States, in just 1 year, the number of people who are wary or negative about crypto assets has decreased from 57% to 42%, which, of course, was facilitated by a number of publications by highly respected organizations in this community.

So, in 2019, Cambridge Associates published the work: “Cryptoassets: Venture into the Unknown” (Cryptoassets: an enterprise into the unknown). It contains a positive view of the crypto industry that invites investors to start exploring it.

Cambridge Associates itself has a certain weight in the investment world, as it manages $400 billion in assets, but, above all, investors listen to their fundamental views on the prospects of a particular industry, and in this case, their attitude is positive.

Deutsche Bank also published “Imagine 2030”, in which he wrote that “Cryptocurrencies: money of the 21st century”, and he included this concept in one of the twenty-four ideas for the next decade.

JP Morgan also contributed by publishing a Perspectives report on blockchain technology and cryptocurrencies. One of the conclusions states that “the crypto market continues to evolve and the participation of institutional investors in crypto trading is currently significant.”

Changes in the legislative sphere of a number of European countries (Switzerland, Luxembourg and Malta) also had a beneficial effect on investor sentiment.

In November 2019, the German legislature passed a bill that provides that banks must conduct transactions with bitcoin and other digital assets. Since the law came into force in January 2020, it requires new suppliers to obtain a license from BaFin, the German financial regulator. In the UK, the Financial Conduct Authority has issued prescriptions regarding the taxonomy (definition) of cryptoassets, which has provided clarity and has been helpful in reducing uncertainty regarding various digital assets.

Researchers from the Messari team believe that if institutional investors invested at least 1% of their capital in bitcoin, then the price of the cryptocurrency would reach $50,000.

Although, reading their arguments, it is hard to believe that the influx of $10.5 billion will be limited to an increase in the price of bitcoin to only $50,000. Looking at the reporting of the same Grayscale, we see that money was invested in the fund even at a price of bitcoin above $16,000, and these investors the subsequent price correction below $4,000 did not frighten them, because, unlike speculators, they think in other “timeframes”. And seeing the lack of liquidity that is present in the market and forces the most informed large players to enter into partnership agreements with OTC liquidity providers and large mining pools for the sake of access to the asset, it is not believed that they will give up their share to those who come after them.

A published study by the Fidelity Foundation states that:

“91% of institutional investors planning to allocate funds to digital assets expect to have at least 0.5% of their portfolio in digital assets within five years.” Given that only the Fidelity Fidelity Investments fund itself is one of the largest financial services providers in the world. The fund manages over $7 trillion in client assets and processes over 1.3 million trades daily!

But there is also Vanguard, BlackRock …

In conclusion, we dare to remind you that in the world today there are more than 47 million people with a fortune of more than $1 million, and the emission of bitcoin is 18.4 million with a total capitalization of only 174.4 billion.

Sources:

• https://www.fidelitydigitalassets.com/
• https://messari.io/article/when-the-institutional-investors-come
• https://www.cambridgeassociates.com/insight/cryptoassets-venture-into-the-unknown/
• http://imagine2030.org