The Power of Institutional Investments and the Perpetuation of Crypto Winter
The influx of institutional investors is what the crypto community has been relying on as a source of inflow for the market. However, the crypto winter is still abounding and there does not seem to be an institutional player in sight. While there is plenty of interest from these types of investors, shown with the recent funding and M&A activity, there have been some roadblocks.
One of the most hopeful products that were meant to bring in newly interested investors with the Bitcoin ETF. However, the public watched as the SEC rejected nearly every proposal. VanEck ended up pulling their application during the shutdown, considering the work that needed to be done on it at the time. The intense volatility has been one of the major reasons that the bitcoin ETFs have been rejected.
In a recent publication at CoinDesk, the media website outlined multiple factors that the public needs to pay attention to, helping to understand what has gone so wrong with institutional investment funds. The writer reminds readers that most institutional investors are individuals, suggesting that they are driven by the retail functions of the industry. They add further that, if the investor's clients do not want the company to take on cryptocurrency, they will not either.
Retail investors are much different from institutional investors, but there has been no promise from regulators to protect them from fees. With this type of exception, there is a possibility that their funds would be pushed into cryptocurrency instead.
The fundamentals of cryptocurrency are improving at this point, which is another factor that the writer points out. Scalability is getting better, use cases are becoming more prevalent, and the overall regulation of cryptocurrency around the world is evolving in a way that allows for innovation without massive risks to investors. The conditions of the market, with the welcomed innovations and the maturity, could help.
However, the contrast between the evolution of cryptocurrency, paired with the diminished value of traditional stocks, could push institutional investors towards crypto as a safe harbor for their funds.
The final factor that CoinDesk brings to the forefront is the “herd mentality,” which is the suggestion that consumers will generally follow the trends of the group, though there’s plenty of exceptions. Basically, this validates the theory of a “wall of institutional money,” as the majority of institutional investors move as a collective.
Still, there has to be a trigger to make this transition, and there’s no way to tell what it will ultimately be. It could be a regulation to protect the new investors, a liquid product, or a well-trusted traditional name in finance that decides to take the plunge (like Bakkt of the Intercontinental Exchange). Whatever the cause it, many analysts and investors are undoubtedly hoping for anything to make a difference as soon as possible.