Big Investors, Big Confidence for Bitcoin

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TLDR. While Bitcoin is a volatile and nascent asset class, Bitcoin has consistently outperformed the Dow, S&P 500, and gold in the last decade. With more regulatory clarity, as well as more transparency from crypto exchanges, the risk of owning Bitcoin diminishes every day, bringing more institutional investors to the market.

We are starting to see the market mature. Researchers from the Institute of Nuclear Physics at the Polish Academy of Sciences, analyzed Bitcoin data data from 2012 and found that the BTC market now shows features similar to other established financial markets like Forex. The report states: “that while the Forex market needed the support of central banks and governments to mature, Bitcoin’s market maturity has been on its own, solely due to its own characteristics.”

Institutional investment in cryptocurrencies has increased significant lately. With the current global economy in a bleak state and a possible recession, Institutional money is coming to cryptocurrency markets, Big investors are now considering other alternatives for investment.

The entrance of big tech companies and institutional funds has helped the the crypto market mature, making it more legitimate. Fidelity’s announcement of institutional grade Bitcoin custodial services, Facebook’s announcement of Libra, Bakkt readying to launch its Bitcoin platform in Q3 and crypto-fund manager Grayscale tripling assets under management, are just some of the things that have been going on.

Since the CME started to offer Bitcoin futures we’ve seen a growth of over 700 percent. In April the CME recorded all-time high trading volumes in its Bitcoin futures product. On April 4, Bitcoin futures hit a record 22,542 contracts traded, equivalent to 112,710 Bitcoin with a notional value of $546 million. This record was smashed in May, with average daily volume up 27 percent from April levels. At the end of June, the CME reported that it saw a record $1.7 billion in notional value in Bitcoin futures.

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Bakkt is planning to launch its Bitcoin futures trading platform in Q3 2019. The highly anticipated platform will attract new flows of institutional money into the industry. While the company is still waiting for approval of its custody solution, it is reportedly already able to provide the infrastructure needed for investors to receive and deliver Bitcoin for U.S. dollars in a regulated and compliant manner. If Bakkt receives regulatory approval to launch its futures trading platform in combination with its custody solution, we could see a substantial jump in the price of Bitcoin.

New York-based crypto-fund manager Grayscale, revealed that the GBTC’s (Bitcoin-related) assets under management hit $2.56 billion, as of June 28. Over the last three months, assets under management tripled from $900 million to almost $2.7 billion.

Data from institutional crypto lender Genesis Capital, reportedly reveals a significant increase in activity from institutional counter-parties, with volumes 200–300% higher than they were twelve months ago.

At the beginning of July, the FCA in the UK authorized the first cryptocurrency hedge fund, launched by Prime Factor Capital. Prime Factor Capital Ltd., a London-based hedge fund manager set up by former employees of BlackRock Inc. and RWE AG, became the first investment firm focused on cryptocurrencies to win the stamp of approval from U.K. regulators.

A new $100 million investment firm, Darma Capital is opening to investors who want to go long. Investors can bet that digital assets like Ethereum are poised for a 10-year bull run. While Ethereum saw one of the largest cycles in crypto, rising 17,775% in 2017 to losing 94% of its gains by the end of last year, Darma’s founders are counting on Ether’s long-term potential.

Recently, Mike Novogratz’s and Galaxy Digital expanded its trading business to offer cryptocurrency options contracts, because of rising demand from institutional investors.

We are at a point in time, when it seems more advisable for institutions to engage in cryptocurrency trading, rather than ignoring or dismissing it. Research by Fidelity Investments, shows that institutional investments in cryptocurrencies are likely to increase over the next five years, with 47% of the institutional investors surveyed seeing digital assets as part of their investment portfolios. We already seeing a shift in sentiment, from widespread skepticism to curiosity for cryptocurrencies

But it’s no secret that one of the impediments to institutional investors entering the crypto market is the need for a suitable regulatory framework. On the international stage, things are much better. Regulators in the Americas, Europe, the Middle East, Asia and the Pacific region have all published guidance on investing in Bitcoin, other cryptocurrencies and ICOs. Institutional investor appetite for the cryptocurrency market, also requires other things: custodial services and liquidity. While, Bitcoin and Ethereum are much more liquid than in the early days, a single large order still can move the entire market.

Institutional investors have always been considered a key ingredient in the recipe for Bitcoin’s mass adoption. Adoption is the main driver of success for Bitcoin and other cryptocurrencies. Institutional capital is important because interest from large investors instills a sense of confidence with smaller retail investors. The more people that use it, the higher price it has and the more valuable it becomes.

In the last three months, Bitcoin and cryptocurrencies have taken a bigger role in our lives. We’ve seen big tech companies launch their own digital coins and presidents tweet about Bitcoin cryptocurrencies. I expect this will only get bigger, as we will see further regulatory clarity, more fiat on ramps, greater ease of use, and more institutional investments.

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Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

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