Is Institutional Crypto Adoption Still In The 'Early Stages'?

Is Institutional Crypto Adoption Still In The ‘Early Stages’?

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More widespread institutional crypto adoption could cause significant gains. (Photo by Yuriko … [+] Nakao/Getty Images)

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Institutional investors have trillions of dollars’ worth of assets under management, and yet most of them have not put any money into digital assets, according to a 2020 survey.

The poll, conducted by Fidelity Digital Assets, found that while 36% of the close to 800 participants had invested in these innovative assets, nearly 80% specified that they found something “appealing” about them.

While 33% of respondents noted that these assets had significant potential for upside, 36% focused on their lack of correlation to other asset classes. Another 34% highlighted the innovative technology involved with digital currencies.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Last month, Katie Stockton, the founder and managing partner of Fairlead Strategies, LLC, spoke to investor adoption of crypto, describing it as being “in the early stages” during an interview at Yahoo Finance’s All Markets Summit Plus.

“We’re at the very low end of that curve that could accelerate to the upside,” she stated.

She emphasized that pension funds are a source of substantial assets, which for the most part have not been put into cryptocurrencies.

Obviously, if these institutional investors allocated even a fraction of their assets to digital currencies, it could result in them experiencing significant gains.

Several market experts weighed in on this situation, speaking to the possibility that organizations like pension funds will embrace cryptocurrency.

“Institutional adoption is definitely still in the early stages,” said Chad Steinglass, head of trading at digital assets firm CrossTower.

“While hedge funds and other nimble institutions have already gotten involved, there are still many funds and investors who are eager to allocate part of their portfolio to crypto but face hurdles that are preventing them from jumping in just yet,” he stated.

Steinglass offered further clarity, nothing that the “hurdles” he was referring to were regulatory ones.

“I think that these barriers are already starting to come down, with trusted custody solutions and eventually the approval of ETFs paving the way for institutions and individual investors who don’t have the flexibility to just go out and buy crypto themselves to finally get involved.”

Charlie Silver, CEO & Chairman of Permission.io, also provided some input.

“Crypto adoption by US institutions is still in the early stages,” he stated.

“Even ones that own digital assets are doing it on a ‘test and learn basis,’” said Silver.

“I have no doubt that crypto will become a true asset class on par with equities, bonds, real estate, and precious metals,” he stated.

Cryptocurrency Price Volatility

Silver also weighed in on the potential impact that institutional investment could have on digital asset prices.

“When pension funds, endowments, corporate and government treasuries begin to allocate even a small percentage of 1-5% of AUM, you will begin to see price action that only the most bullish predictions have anticipated.”

Amber Ghaddar, cofounder of decentralized capital marketplace AllianceBlock, also commented on the potential implications of institutions putting their assets into digital currencies, more specifically the sharp volatility it could cause.

“A quick back-of-the-envelope calculation shows that if pension funds allocated 1% of their total assets to crypto that would represent 17.1% of total crypto assets. A 5% allocation brings this to 85.5%,” she stated.

“The crypto asset class is relatively still too small, illiquid and lacking depth to absorb large pension funds like institutional investments that would otherwise move the markets,” said Ghaddar.

Regulatory Considerations

Other analysts also offered their perspective, but they emphasized the key role that regulatory considerations will play in institutional adoption.

“Cryptocurrencies have come a long way over the last decade despite just a small portion of global institutional capital still being allocated to it,” said Kay Khemani, managing director at Spectre.ai.

“The adoption rate remains minuscule relative to where it can be once appropriate regulations and standards come to be.”

Brett Sifling, an investment advisor for Gerber Kawasaki Wealth & Investment Management, also weighed in.

“Crypto has put our government and institutions in a situation that often happens, where innovation is outpacing the legislation put forward. As we get clearer regulatory guidelines, we believe institutional adoption will increase.”

“At the end of the day, we have to have a regulatory framework that these institutions and the public can trust, rather than the many grey areas that we currently have,” he stated.

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether and EOS.

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