Bitcoin (BTC) has long been described as a movement to phase out institutions. But ironically, it is institutions that many cryptocurrency investors have claimed to rely on to boost Bitcoin to fresh all-time highs.
Yet, as of now, institutions have seemingly yet to have made a large impact on the crypto markets. Industry upstart BlockFi, for instance, reported earlier this month that the metaphorical “crypto virus” has only “infected 1.3% of the total private fund population” as of 2019. This may be for good reasons.
Institutions Still Not in Bitcoin
CryptoOracle, a community-centric industry venture capital firm, recently held a conference call with four industry venture capitalists/investors: Matthew Welsh of Castle Island Ventures, Matthew Le Merle of Blockchain Coinvestors, Eli Mizroch of Silver Castle Digital Currency Investment Group, and Travis Kling of Ikigai Asset Management.
While these are investors from all over the world with presumably distinct theses, they all centered around similar ideas regarding institutional involvement in Bitcoin and cryptocurrency. Kerner, in a post mortem of the star-studded conference call, wrote:
“While all the speakers have drank the Kool-Aid, they were all measured in their responses, and aware of the challenges ahead. The consensus was that institutional investors are coming in scale, but we’re still 1+ years away.”
They attributed this idea to immaturity in “three key infrastructure categories”: qualified custody, regulated spot ventures and futures exchanges, and robust data providers at an institutional scale.
Right now, there exists institutional-grade solutions in all these three categories, yet it’s not good enough according to Kerner & Co. In one of Kerner’s slides, he noted that for custody, “custody clarity under SEC is needed”; and for exchanges, surveillance sharing agreements and mature settlement services are needed.
While institutions have yet to delve into Bitcoin at scale, there is evidence to suggest that they’re getting their toes wet, so to speak.
Just last week, Grayscale Investments, a leading cryptocurrency investment services provider, revealed that its products saw a record quarter, drawing in $254.9 million in three month’s time. What’s interesting about this statistic is that a majority of these inflows, to both the Bitcoin and altcoin funds of Grayscale, came from institutional players. A report said, in fact, that “a majority of investment (84%) came from institutional investors, dominated by hedge funds.”
Grayscale isn’t the only important platform for institutional players. Bakkt launched its Bitcoin futures in September.
Speaking with this writer, analyst PlanB, who has quickly become a leading crypto commentator, remarked that Bakkt provides liquidity to this market in that “it gives investors an additional way to sell their investment, another exit.” He added that this extra exit “could be a reason to buy in the first place. I never buy if I am not sure that I can sell at a reasonable market price.”
And arguably most importantly, Fidelity Investments just revealed that it has started to ramp up its crypto operations. The firm’s cryptocurrency division launched late in 2018 (a year ago now) is “now engaged in a full rollout of its custody and trading services for digital assets,” the report noted citing Fidelity’s pro-Bitcoin CEO, Abigail Johnson. It isn’t clear what group/subset is “eligible” to use the firm’s digital asset custody and trade execution products, yet Fidelity has some $2.4 trillion of assets under management.
Not Needed for Bitcoin to Succeed
Sure, there is a large focus on institutional players, but are they really needed in this revolutionary industry? According to Kerner, not really. Per previous reports from NewsBTC, he said that Bitcoin doesn’t need involvement from the institutional subset to succeed, citing the fact that a majority of the asset’s growth has been retail-based. Kerner even went as far as to say that the institutions will be the followers in this market, not the trailblazers.
Indeed, a majority of BTC’s growth from effectively zilch to $20,000 over the course of a ten-year time period was catalyzed by mom & pop investors, the cypherpunks, early adopters, venture capitalists, and other non-institutional groups.