Why are Institutional Investors Avoiding the Crypto Space?

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Why are Institutional Investors Avoiding the Crypto Space?

Although the crypto market has gained a lot of popularity in recent time, it remains small when compared to established financial markets. Even as members of Wall Street cashed in on Bitcoin bonuses in 2018, a fundamental reason why major institutional investors are still sidelined due to its unregulated nature.

Identifying Existing Players

Primary movers and shakers are early adopters of crypto who saw potential in the technology and the digital currency application. In the crypto space, these whales manage a virtual purse heavy with millions of dollars. When this much money trades it produces a huge wave in the market due to the sheer volume of the transaction.

At current, they hold a massive amount of power for the reasons mentioned above. But, if institutional money ever got adequately settled in the space, it could be the end of market manipulation.

According to Coinmarketcap the total market cap of cryptocurrencies is $397 billion. As such, it is still of very little interest to traditional investors. To put things in perspective, gold’s market cap is about $7.8 trillion, while the Global Stock Market is about to cross $100 trillion.

Another big reason why many investors evade the cryptocurrency market is due to the lack of laws and regulations. Institutional investors invest on behalf of their clients, and an investment in cryptos could be far too risky for individual clients as there is no regulatory body. All of this hinges on the fact that the advisor is familiar with the space in the first place, let alone explain bitcoin to them.

But What Would Happen if They Did Join?

Some of these firms are capable of throwing in $100 billion into the space without batting an eye. Further, if they exactly that, we would be looking at much different metrics of measurement. Following a dump of this scale, FOMO would quickly kick in and create a short fuse snowball effect, seeing the prices even higher.

However, these investors can make use of dark pools, or trading behind closed doors, to avoid such fluctuations in the crypto market. There are already several upcoming projects that are working on introducing these dark pools to the crypto space.

One such project is the Republic Protocol, a decentralized dark pool for trustless cross-chain atomic trading of Ether, ERC20 tokens, and Bitcoin pairs. The project aims to allow major investors to trade digital currencies without inducing a major pump or dump in the market. For now, however, it’s still in the white paper phase, along with the rest of Wall Street.

Will institutional investors dive into the crypto ocean anytime soon? Let us know in the comments section below. 

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Aisshwarya Tiwari

Aisshwarya is currently working as the Chief Editor at crypto.news and holds more than 4 years of experience in the digital assets industry. He holds an undergraduate degree in Commerce with Honours and a post-graduate diploma in Liberal Studies. Before entering the crypto industry, Aisshwarya worked as an SAP Consultant for a global IT firm. He also cleared the CFA Level 1 exam before pivoting to the crypto industry due to its novel and exciting propositions.