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Huge money and reputation. Why does the market need institutional investors?

Large investment funds, banks and other traditional financial organizations are getting closer to the blockchain technology. Under a certain scenario, they may bring this sphere to a new level.

An important stage in the development of the cryptocurrency market is the arrival of institutional investors. These are insurance organizations, banks, investment funds and other financial companies that manage large funds.

Institutional in this context means official, someone who already has a serious status in society. Such funds and companies require special conditions for storing a large number of assets and legal certainty, since they cannot participate in illegal or semi-legal transactions.

Therefore, with the advent of this kind of players, cryptocurrencies seem to come out of the underground, cease to be something unknown and frightening. Well, if such financial organizations pay attention to a certain sphere, it means that it is sufficiently developed and safe.

Interest from institutional investors is the most important indicator for the industry. The cryptocurrency sphere has matured in 2018, and in time, it will cease to be seen as fraud.

Any sphere of business or technological innovation passes the nascent stage. After the initial analysis, there is an understanding of relevance and profitability. It is at this instant that the sphere begins to be filled with money from large investors. The race and the struggle for a new market are on.

The year 2018 can be called the year of the growing up of the industry, as the crazy spikes of courses have stopped, regulation has appeared, and with it the first serious steps to create a stable business that operates according to classical rules. This, in turn, will help to further stabilize the situation with the cryptocurrencу rates, attract both private large businesses and state investments. All this will positively affect the crypto industry, which will cease to be perceived as a bubble.

In addition to the trust of users, institutional investors will bring a lot of money in the industry, which can positively affect the price of coins. The emission of bitcoin, for example, is limited to 21 million, so the supply will not grow as opposed to demand. Therefore, the cost of cryptocurrency will increase significantly when new players start pumping billions of dollars into the market.

Analysts from FXOpen say that the arrival of large investors will stabilize the value of digital money, but it will not happen until next year.

The digital money industry is extremely unsafe. Only within the past six months, hackers have stolen more than a billion dollars. They hack small cryptocurrency wallets and user accounts, as well as large exchanges. For example, they managed to steal $ 31 million from one of the South Korean exchanges.

According to the statistics, during the period between the second quarter of 2016 and the first quarter of 2017 $115 million worth of stolen crypto was attributed to phishing scams and $103 million - to exploitation of software and storage. Thus, 56 percent of all lost funds on ICO account for such type of fraud as phishing. Phishing hacks remain some of the most proven and true methods for cyber criminals.

At the same time, the local financial regulator monitors the trading platforms and demand serious security requirements from them.

Institutional investors cannot easily enter such a market. They have nowhere to safely keep their assets. That is why large exchanges, such as American Coinbase, began to develop services specifically for such players.

In early July, the exchange launched the Custody service to store assets of investors who are ready to invest at least $ 10 million.

The issue of storing large amounts of money with the help of the American company is partially resolved. However, a reliable network in which institutional investors can work with their assets is needed. Bitfinex exchange and Swiss Market Synergy - a Swiss communications provider - focused on it.

In mid-July 2018, they introduced a special network for professional traders. Large crypto exchanges most of all cooperate with authorities and seek to work the same as traditional platforms in order to attract more customers, be open, and users feel safe.

Positive changes in the industry are already clearly visible, but it is too early to talk about the mass interest of institutional investors.

On the euphoria wave, a large number of funds, which are practically inactive at the moment, appeared. However, as soon as the activity of investors resumes in the market, the necessary infrastructure, contributing to the rapid inflow of capital, will already exist. It is also worth remembering the possible emergence of cryptocurrency ETFs (on August 10, the SEC will decide upon the launch of the first such an instrument).

Platforms, despite the lack of a certain legal regulation, pay damages (at least partially) to users who suffered from hacking and reduce commissions for a certain period of time.

Exchanges are trying to show in every possible way that the industry is mature enough, transparent and safe for large investors to come. Therefore, they gradually begin to create services for such players to work with large amounts of money.

The arrival of institutional investors in the digital money market will definitely mean a step forward for the entire industry. However, at the moment the legal uncertainty from the governments of large states make difficulties.

The challenge of regulation remains the same and this is the real obstacle to the entry of institutions into the market. Most developed countries have not yet introduced such a regulation - there is no clear understanding of how to regulate the process of identifying the ultimate beneficiary of a digital currency yet. There is no understanding how to determine the origin of this currency in the customer's wallet. After the government determines how to regulate the industry, the demand for digital money will increase, and the price of coins will rise accordingly. The emergence of interest from institutional investors and their entry into the market will be uniquely a positive development.

 

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Greg Nilson

Greg Nilson

Financial Analyst

FXOpen

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Charlestown

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