Game recognize game: Institutions make it easier to invest in Bitcoin

Published at: Dec. 9, 2020

With the crypto sector currently riding a wave of bullish sentiment, as demonstrated by Bitcoin (BTC) passing its all-time high value of $19,892 at the start of the month, causal as well as institutional investors all over the world are now becoming more interested in the growing sector. For example, on Dec. 3, S&P Dow Jones Indices announced that it’s set to launch several crypto indexes, with a reported 550 coins to appear starting next year.

The aforementioned offerings will be facilitated by S&P Global in conjunction with the CME Group and News Corp. As part of the press release announcing the launch, a spokesperson for S&P DJI alluded to Bitcoin and other prominent altcoins like Ether (ETH) and Bitcoin Cash (BCH) as being part of an attractive “emerging asset class.”

S&P DJI also reported that it will join hands with blockchain data provider Lukka to launch the aforementioned indexes. As a result, some in the crypto community are of the opinion that the industry has finally made permanent inroads into the financial mainstream. Stephen Stonberg, chief financial and operating officer at Bittrex Global, told Cointelegraph that while the announcement has definitely been a welcome one, mainstream adoption has been looming:

“This is more of a continuation of an existing trend rather than a watershed moment. By putting crypto asset risk into the form of a traditional index-based-ETF, this should offer additional access points to the crypto market by mainstream investors. This will compete with the BTC-only high-cost products that exist now for this audience.”

However, Douglas Borthwick, chief marketing officer of cryptocurrency exchange INX, provided an alternative view that while crypto is certainly making a mark on the financial mainstream, it still has a long way to go. He added that “crypto” is not just about “Bitcoin” but offers so much more: “There are so many categories these days that fit under the ‘crypto’ umbrella. For sure a permanent impression has been made. But that impression remains one of skepticism as opposed to one related to the future.”

That being said, S&P DJI’s above-stated move showcases a clear commitment from mainstream players to embrace Bitcoin and other digital currencies. For example, earlier this month, Grayscale Bitcoin Trust increased in tandem with its premium, which surpassed the 30% mark on Dec. 3, serving as a clear indicator of increasing institutional demand for crypto.

Institutions stand to benefit

According to Stonberg, S&P DJI’s latest move essentially entails the trading of digital/tokenized assets in the format of a traditional equity product that trades during standard trading hours. To put it simply, it’s a way to get institutional equity money indirectly into the crypto space — a process of convergence between traditional and crypto financial markets, which will most likely take a few years to play out.

On the subject, Anton Churyumov, founder of Obyte — a distributed ledger based on directed acyclic graph technology — told Cointelegraph that institutions will always chase everything that makes money for them and their clients, adding:

“With crypto indexes, the asset class becomes better recognized and easier to sell to clients. Maybe even more importantly, with DeFi, crypto now has a much wider choice of instruments that appeal to different investors, for example, there are now ‘stable+’ coins for more conservative investors.”

Jack Tao, CEO of Phemex — a cryptocurrency exchange headed by former Morgan Stanley executives — believes that soon, it will not be surprising to see an explosion of new services and products, making this domain even more appealing to members of the traditional finance sector: “I’m quite confident that these giants will not want to miss the crypto train. This is just the beginning, I expect to see a lot more funds and investment flow in soon.”

Will FOMO prevail?

As crypto continues its long-term price ascent, it’s worth investigating if institutional investors will catch crypto FOMO — the fear of missing out. In this regard, Sarah Austin, head of content for Kava Labs — a decentralized finance firm — told Cointelegraph that according to her sources, over-the-counter desks have seen large inflows from financial institutions.

Not only that, as regulation becomes more favorable for the crypto market and as more large players like PayPal, Square and MicroStrategy broadcast their adoption of the asset class, it lends to the argument that the increase in interest has a sound basis. Chris Norris, head of corporate relations for Electroneum, told Cointelegraph:

“I believe that we will see the same FOMO from institutional investors moving forward, as we did from retail investors back in 2017 when Bitcoin and the crypto market reached all-time highs. However, the key difference here is that a new asset class is emerging and the recognition by institutional investors is a sign that we will see new ATHs.”

Lastly, as the use of Ethereum and its associated smart contracts continue to gain traction, it will most likely spur the value of most premier cryptocurrencies in an upward direction, with Austin stating: “With more institutional players in crypto other digital assets could fare better as the crypto space and traditional finance become more aligned.”

What does the future hold for the market?

Tao believes that in the long term, the value of most crypto assets will continue to soar higher, likely reaching new all-time highs. However, in his view, the price of a digital currency alone cannot be used as an indicator of things to come, adding: “Ultimately what drives things forward is the technology and innovation behind each project. That is what attracts new users and moves the market.”

Churyumov believes that while prices may rise significantly in the near term, he isn’t entirely sure of whether or not this trend will continue after the “money printing slows down on the other side of the pandemic.”

Lastly, Norris pointed out that there have been clear indications that most major institutional investors are currently buying BTC and ETH every time the prices dip, which serves as another indicator that they have decided to invest in the crypto market as a long-term strategy.