This is how institutional investors are entering crypto

02 Oct, 2018
by Will Heasman
This is how institutional investors are entering crypto

Talk of institutional money entering the crypto space has had traders and hodlers alike clinging to the edge of their seat in anticipation, now we know how the vast majority are entering.

For a long time, conversations have abounded about how and when this money will enter and what exactly that will do to the economic landscape of the crypto sphere. Many believe that an ETF would provide a clear and somewhat mandated entry point, others thought it may have been through venture capital funding of ICOs; however, It seems, that it is far more conventional than that.

According to a report by Bloomberg private transactions are the favored point of entry for buyers such as hedge funds, with any given transaction amounting to more than $100,000.

Bobby Cho, global head of trading at Chicago-based Cumberland, a crypto trading unit of DRW Holdings LLC, told Bloomberg that miners have set up their own liquidity desks and operations in order to offer institutions a point of entry:

“What that’s showing you is the professionalization that’s happening across the board in this space. The Wild West days of crypto are really turning the corner.”.

One major advantage of institutional money seeking out these miners is that they can guarantee that these newly minted cons are just that, new. This avoids concerns over a potential trail of criminal activity emanating from purchased coins.

Over-the-counter (OTC) markets also allow for a hefty increase in the amount readily available to trade, facilitating up to $30 billion in daily trades according to Digital Assets Research. This is a vast contrast when compared to exchanges which according to coinmarketcap, deal with around $15 billion daily – however, this figure also includes the exchanges that seem to openly wash trade and therefore may be somewhat unreliable.

Sam Doctor, managing director of Fundstrat believes that institutional investors look to OTC markets purely because demand is higher than crypto exchanges can offer:

“At this point in time, because more and more institutions are beginning to enter the market, there’s more of an imbalance. That’s why brokerage firms are springing up to help institutional buyers find inventory.”.

OTC markets haven’t been spared from the recent downturn, however, and have suffered similar (if not the same) decreases in volume as crypto exchanges. Cho evaluates this as the reasoning behind growing institutional investment, signaling that it may be due to reduced market volatility:

“One of the biggest criticisms of crypto by institutional investors has been the volatility. Over the last four to six months, the market has been trading in a very tight range, and that seems to be corresponding with traditional financial institutions becoming more comfortable diving into space.”.

Read more: New research shows industry maturity will bring in the awaited institutional money; Crypto space to grow by 14,000% in upcoming yearsThe sirens of crypto: Wash trading epidemic continues with $6b in false volume

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