Institutional investment still looks like a long way for the cryptocurrency industry. Earlier this year highly anticipated federally regulated platform for Bitcoin (BTC) futures trading, Bakkt was launched. There were high expectations regarding Institutional Investors finding Bitcoin futures trading a good investment. It turned out to be that, Bitcoin futures trading wasn’t an appealing investment for the Institutional sharks.
Analysing these matters, Binance Research has published the second edition of Institutional Market insights. The Survey was conducted among their large institutional and VIP clients. There were 76 participants, English and Mandarin speakers, most of which are firms, funds, and institutions with allocations to crypto-assets ranging from USD 100,000 to more than USD 25 million.
A part of the survey states that almost half of the participants considered platform-based security risks as the most dangerous risk for the crypto industry and something that is actually responsible for lack of institutional investments in the industry. Previous failures and mishaps like the MtGox hack where the exchange had lost a total of 744,408 bitcoins that belonged to their customers or the Einstein exchange incident where the mysteriously lost $12 million worth of customer cryptocurrencies, are the reason why these investors are hesitating.
Proper custody of cryptocurrencies plays a key role in helping develop a peace of mind for institutional buy-in. Amongst other issues like global regulatory uncertainties and the on-going legal issue with Tether, the custodial risks are considered the most notorious.
Other than proper regulations being the only barrier for institutional investments, there is also the need for better liquidity. This also plays a very important role in the decision making of investors. The cryptocurrency market is new, exciting, and highly volatile. Lack of proper liquidity means the institutional investors won’t be able to cash out immediately without creating a ripple in the market, this is another probable reason.
As Justin Chow, Head of Business Development Asia for Cumberland said at Blockshow Asia 2019:
“Custody, liquidity, and regulations are the top three petitions from institutional investors jumping into crypto.”
Despite the various risks and fears that the crypto industry holds, more and more investors are still getting in. Just this year the world’s most popular social network and America’s largest bank got in on the cryptocurrency bandwagon.
The use cases of blockchain technology and cryptocurrencies exist in various industries that range from insurance to supply chain. According to a report from Statista, the total market capitalization of blockchain industry could hit $23.3 billion by 2023.
Apart from friendly regulations, an added boost to this crypto drive would be Bitcoin ETFs, as per the report from Binance. This would provide a safe space for more institutional investors and contribute to the growth of the industry.
The crypto industry still needs to address a lot of loopholes before we actually see a flow of institutional money. The industry is evolving at a rapid pace, but there are miles to cover before we reach our goal.