Did you know that nearly 52% of institutions spread across Asia, Europe, and the U.S now invest in digital assets? As per a study conducted by Coalition Greenwich, more and more institutes are now participating in cryptocurrency trading. Along with trading, the market’s structure is also evolving. Therefore, institutional investors are not in the crypto business only for the sake of investment. Rather, they’re also trying to understand what role blockchain technology could play in changing the way financial systems function. Though these units are constantly funding new innovations and trades, at large the market sentiment continues to be reluctant. This is because the risk associated with market volatility cannot be negated. Visit multibank.io
With large companies, the major issue is that they have pools of investors’ money that are entrusted with them with an expectation of constant returns. Therefore, the possibility of losing millions in a few seconds has been a matter of concern. That said, bitcoin’s relatively steady movement along with continuous attempts to regulate the market appears to be paying as institutional investors seem to be warming up to this digital currency.
The banking sector and the financial sector, in general, have been experimenting often with digital currency, especially in the last year. Activities such as payments, transfers, settlements, record keeping, etc are being actively taken up as cryptocurrencies emerge as a reliable way to store value.
Is the dark cloud of skepticism clearing?
Though the crypto revolution took the internet by storm and invited several small but influential players, institutional investors are yet to embrace it with open arms. Pumping in funds into an unregulated and notoriously volatile market has kept them from spending their investors’ money on cryptocurrencies. While the crypto market continues to anticipate a free flow of institutional funding, these large-scale investors are treading carefully on the path.
The cryptocurrency market is gradually getting steadier and like with every other financial market, a flurry of factors are stabilizing the prices as well as the industry.
Efforts are being made to shed the ‘Wild West’ stigma associated with cryptocurrencies that indicated that crypto was a means to fund unlawful activities. There are several internal groups that have taken the initiative to regulate the market. The Virtual Commodities Association, initiated by the Winklevoss twins, brings together numerous noted crypto exchanges. It indicates the possibility of a stricter internal supervision that may play a big role in attracting potential investors.
Another key development is the fact that crypto companies are now creating and offering a sound crypto asset management platform for traders to manage their funds. These platforms link the important crypto exchanges and ensure access to trading algorithms.
Such internal initiatives to regulate the market in other prominent areas are paving the way for more institutions to join the crypto world.
But lack of regulation isn’t the only roadblock for institutional investors. There are also several logistical problems that they and even individual traders face. For instance, where can a large number of cryptocurrencies be safely stored? While most banks and institutions do not have answers to this at present, there are several private players that are working towards finding solutions in this regard. Soon, custody of cryptocurrencies would not be a blocker.
For investments, liquidity is also a key area of concern as the crypto market is very fragmented. As a result, trade execution issues are common. Typically, when institutional money comes into the picture, it helps in generating more liquidity and stabilizing the assets. But since the cryptocurrency market is not regulated and the technology structure is also not uniform, getting liquidity is not easy which often results in market volatility.
The cryptocurrency market and the internal players continue to work towards solving these issues by moving toward offering full-stack solutions. This would make sure that institutional investors have easy access to various exchanges through a common portal while increasing liquidity and bringing cryptos and traditional assets at par.
These attempts are gradually showing results as the crypto market matures. This can be seen in how there’s a steady decline in price volatility.
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Institutional vs retail traders
Securities can be literally traded at the tap of the buy and sell buttons on the online trading accounts. Advanced traders would go on for a more sophisticated trade by limiting prices on a block trade. The major differentiator here is the type of trader you are: retail/individual or institutional.
| Retail | Institutional |
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These are individual investors who purchase or sell securities through their personal accounts. For them, meeting private financial targets is the main reason for trading. |
Institutional traders trade on behalf of the groups and companies that have their trading accounts with them. Some typical institutional traders are pension funds, mutual fund families, insurance companies, and exchange-traded funds (ETFs) |
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To create a diverse portfolio, retail traders invest in multiple small-cap stocks. This is also because they work with lower price points. |
Institutional traders have larger funds and can thus trade in greater volumes and have better products. |
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Trading costs can be higher for individual traders due to the per trade fee that is levied along with marketing as well as distribution costs. Unlike institutional traders, their trades generally are too small in volume to affect share prices. |
Given that the volume of their trades tends to be much larger, institutional traders can influence the price of a security’s share. |
How does all this impact the market?
If institutional money is regularly pumped into the cryptocurrency market, it would go a long way in stabilizing the market. Though it may not be able to rule out volatility entirely, it could create more opportunities for smart institutional funds, thereby toning down the industry’s aggressive character.
Cryptocurrencies such as Bitcoin, Ethereum, USDT, etc are no longer at their teething stages. As new technology and innovations continue in the field, it won’t be long for cryptocurrency to be a driving force in the financial sector.
