It’s official: institutional players have entered the crypto race. Bloomberg reported that large buyers such as hedge and endowments funds have been consistently purchasing over $100,000,000 worth of digital coins through private transactions.
Miners are now scheduling regular, over-the-counter (OTC) coin sales. Some have even set up their own liquidity desks and operations to accommodate the estimated $250 million to $30 billion in trades.
Previously, large investors have stayed clear from the crypto-investing space due to high volatility of the key currencies. As bitcoin and ether prices have seemed to reach certain equilibrium this year, more and more traditional financial institutions have started diversifying their portfolios with crypto assets.
For individual investors, this active interest from larger player presents a range of new opportunities as well.
Considering the current demand, large investment firms will not stay away from launching dedicated crypto-investment products for much longer. In fact, Goldman Sachs Group has just become the first investment bank to offer a bitcoin trading product to its customers. At the beginning of November, the company started onboarding a small number of clients to test their new crypto trading desk, which allows trading bitcoin non-deliverable forward contracts.
Intercontinental Exchange (ICE), the owner New York Stock Exchange, has also scheduled a launch of their bitcoin futures product for later in December. The contracts will be backed by bitcoin reserves held in ICE’s Digital Asset Warehouse, meaning that actual bitcoins will change hands once the contract expires. All futures contract will also be validated through ICE Clear U.S.
“Legislative changes regarding financial products are bringing in more transparency and legitimacy to the crypto-trading space,” said Hayato Terai, Co-CEO of G8C token-issuing GanaEight Coin Ltd., a Ganapati Group company. “The ICO space will soon undergo similar changes as well. With better regulations and security mechanisms such as tokenized securities and stablecoins already being introduced, we should expect more interest and participation from institutional investors.”
Earlier this year, Goldman Sachs’ Principal Strategic Investments Group and Galaxy Digital Ventures LLC jointly invested in BitGo’s product – a new generation custodian purpose-built wallet for storing digital assets, designed specifically for institutional investors.
Clearly, institutional investors are growing their tech muscle to accommodate more crypto-trades. Individual investors should definitely stay alert for the new products entering the market.
Large volume crypto purchases took place over the counter to avoid swinging the crypto markets and crashing the exchanges. A lot in the industry fear that bitcoin liquidity may soon become a problem due to institutional investors’ participation. However, during the past two months, the crypto markets remained stable despite large volume purchases and did not tick upside.
In fact, institutional investors can “anchor” the current market whales, possessing significant crypto holdings and capable to distort crypto prices with little-to-no consequences. Unlike individuals, financial institutions are largely restricted in their abilities to manipulate the markets on a large scale. So their active presence may actually contribute to more stable prices.
One of the biggest issues preventing further market penetration for institutional investors is the lack of proper, secure infrastructure. At the moment, only a handful of custodians meet the security standards imposed by regulators.
Additionally, most players have not yet figured out the optimal KYC procedures for their customers. In fact, a staggering 68% of cryptocurrency exchanges operating in the U.S. and Europe are not fully KYC compliant. Most of them allow users to trade fiat and cryptocurrencies without providing any identification documents or undergoing a KYC check. Trust in the crypto trading space remains low, especially among the regulators, who, in turn, try to push stronger regulations and verification procedures.
However, most institutional investors are now working closely with the regulating bodies to develop clear KYC/AML policies and guidelines that favor both parties. Crypto EFT is getting closer to the approval with the SEC in the US. In Switzerland, Crypto Fund AG has recently become the first and only crypto asset manager, authorized by the local Financial Authority. The precedent has been set and more international regulators will move forward with approving new financial tools for both institutional and individual investors.
Institutional investors offer a fresh inflow of capital and liquidity and propel the development and adoption of new regulatory frameworks. Ultimately, this will add more transparency and legitimacy into the crypto trading space and push the markets further. It's too early to assess the exact impact of institutional money in the space, but clearly, it signifies a new major milestone for the cryptocurrencies.
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