Markets

Are Institutional Investors Finally Moving into Crypto?

This past January marked 10 years since the launch of Bitcoin introduced the world to blockchain-based cryptocurrencies. It’s been a wild ride, with bubbles and busts, including a Great Bitcoin Spike of December 2017 that saw the token peak near $20,000 – and on the flip side, the long fall from those heights, during which BTC has lost more than 80% of its trading value.

Through it all, however, cryptocurrencies have mainly remained the preserve of hardcore fans who bought in early and stuck with it or short-term traders who have tried to ride the incredible volatility of the crypto tokens for quick profits. The big institutional investors – banks, hedge funds, pension funds – have kept away from blockchain, seeing it as more fad than serious investment.

This stance is best summed up by Warren Buffett, who has steadfastly refused to take any investment position on crypto, and has said of the industry generally, “I can say with almost certainty that they will come to a bad ending.”

We may be seeing the stirrings of change, however.

Institutions are Interested in Blockchain

Last month, we wrote in this space about the JPM Coin, the new blockchain asset released by JPMorgan Chase. The newly released cryptocoin is issued by the bank for use by institutional clients, primarily to facilitate international money transfers between bank customers. In effect, the JPM Coin is a way of letting the bank’s biggest customers get the advantages of blockchain technology.

Also in February, Morgan Creek Digital Assets entered into a partnership with two US pension funds, raising $40 million. The partnership will focus on digital asset investments, primarily Bitcoin. The new venture fund, Morgan Creek Blockchain Opportunities, was formed to meet investor demand for entry into crypto assets. As the name suggests, this fund, like the JPM Coin, is designed to bring the benefits of blockchain to a wider audience.

A Major Move from Fidelity

In the latest move of institutional investment money toward blockchain, Fidelity last week launched Fidelity Digital Assets, following up on its October 15 announcement of the new, blockchain-centered, subsidiary. Fidelity Digital Assets will work with “select clients” at first, including hedge funds, endowment and pension funds, and family businesses. The company hopes that a successful launch for digital assets management will allow expansion of the client base.

For now, Fidelity’s digital subsidiary will only work with Bitcoin, but pending the success of the initiative, the financial giant intends to add additional cryptocurrencies. As its name suggests, Fidelity Digital Assets was formed primarily to provide asset management in the digital sphere; an important secondary function is to explore the potential of blockchain tech for investors. Per a statement from the company, FDA is to “create a full-service enterprise-grade platform for storing, trading, and servicing eligible digital assets.”

As with MCDA, Fidelity Digital Assets was started to meet customer demand within the parent company. In this case, the parent company, Fidelity Investments, controls and manages more than $2.4 trillion in assets, making it one of the world’s largest financial institutions. That clout increases the impact of this move into the blockchain space.

Tom Jessop, head of Fidelity Digital Assets, sums up the new company’s raison d’etre: “The creation of Fidelity Digital Assets is the first step in a long-term vision to create a full-service enterprise-grade platform for digital assets.”

Is Crypto Finally Going Mainstream?

All three of these recent developments indicate a growing interest by institutional investors in blockchain and cryptocurrency. The importance of this development to the cryptocurrency markets cannot be overstated. Until now, cryptos have mainly attracted individuals – small traders, blockchain tech geeks, and other early adopters – and while that was enough to build the industry and power its initial growth, it cannot sustain the current array of cryptocurrencies for the long term. Only the large-scale cash infusions of the big institutions can do that.

Analysts have been predicting a move by institutions into the crypto space for over a year – since shortly before Bitcoin’s runup to its peak value in December 2017. It looks now like that move is finally starting to happen. Does this mean that crypto is at long last coming of age?

These are interesting time for the crypto markets. Watch it unfold, with real-time trading data at CoinWatch.com.

Author: Michael Marcus

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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