A Study by Fidelity Suggests 70% of Institutional Investors Want to Buy Crypto; How It All Started, Where We Are Now, and Where We Are Going
At the time of this writing, cryptocurrency prices are on the rise once again as investors anticipate the positive impact of Ethereum’s London upgrade. That upgrade marks another step forward along the path to Ethereum 2.0, a blockchain that will use a proof-of-stake consensus algorithm allowing validators to benefit just by holding ETH.
But as you, the retail Netcoins progressive investor knows, much of the capital flowing into cryptocurrency projects and spiking the prices aren’t coming from investors like you and me. It’s coming from investors with way deeper pockets. That includes hedge fund managers, family offices in the United States, pension funds, and corporations.
They can buy large amounts of Bitcoin, Ethereum, and other cryptocurrencies after all. It’s not just because they have deep pockets, however. It’s also because crypto is becoming more accessible to institutional investors thanks to the creation of financial instruments that act as on-ramps and don’t necessarily require companies to hold actual coins.
You and I know of course that it wasn’t always like that. Today, it’s not surprising to hear that a recent study by Fidelity Digital Assets suggests 70% of institutional investors want to buy crypto. But just two years ago, most corporations were still hesitant, even though some blockchain companies have already been publicly traded for longer than that.
Let’s take a look at the past, present, and future of institutional investment in cryptocurrencies.
The Beginning Of Institutional Investing In Cryptocurrencies
Most of what we’re going to cover in this post involves this year and last year’s institutional investment activity in cryptocurrency, but publicly traded companies in the blockchain space have existed for long before that.
Galaxy Digital Holdings is one of the most popular publicly traded digital asset companies investing primarily in cryptocurrency. It’s run by Canadian entrepreneur Michael Novogratz and was actually founded way back in 2006, two years before the Bitcoin whitepaper was written. Of course, the company pivoted towards crypto well after that.
Still, even a mining-specific company that is now publicly traded called Hut 8 Mining existed back in 2011. That said, most opportunities to invest in cryptocurrencies either directly or indirectly didn’t hit Canada’s stock exchanges until 2016 and 2017.
Today investors have a ton of options in terms of companies they can use as proxies to buy large amounts of crypto using cash. But it’s what we’re going through since the beginning of the coronavirus pandemic that’s taking institutional investing in crypto to the next level.
Institutional Investment In Bitcoin & Other Cryptocurrencies In The Present Moment
The coronavirus pandemic grabbed hold of the world in March 2019. A game featuring our very own Toronto Raptors was halted because of an outbreak. It marked the first big public North American event to be canceled due to the spread of the virus and started North America on a vaccine and money printing journey that to this day hasn’t stopped.
This led both the United States and Canada to lower federal interest rates to all-time lows. Rates in the United States are now at 0%. As an investor, you might already know that when the cost of borrowing money goes down, more people have more disposable income and savings. This means they pour more money into investments, and that means the value of goods and assets can skyrocket.
The thing is if everyone has too much money, that leads to inflation. Thus, worries of hyperinflation began grabbing a hold of Canada and the United States. After all, nobody wants to deal with the hyperinflation that is gripping Venezuela.
As a result of those fears, the popular narrative that Bitcoin and other cryptocurrencies are a good way to hedge against inflation became more than just a fictitious story. Both retail investors like you and I and institutional investors began diversifying into digital assets. The idea of a cryptocurrency with a fixed supply whose public ledger can’t be manipulated or changed is seen as much more valuable today than it was two years ago.
Paul Tudor Jones & MicroStrategy Tip The Scales
Paul Tudor Jones is an infamous hedge fund manager worth billions of dollars. In May of last year, he decided to pour between 1% and 2% of his wealth into Bitcoin. Any time a well-known investor makes this move it garners public attention. But it was the next big move by a company called MicroStrategy that really took things to the next level.
The company itself functions as a technology consulting firm and doesn’t actually run blockchain-based businesses. The organization simply decided to invest its cash into Bitcoin. Why was that a big deal? CEO Michael Saylor not only showed the world that it’s possible to take on a large positions in cryptocurrency strategically without pumping and dumping prices, he also became one of the biggest evangelists for Bitcoin.
When somebody decides their company should own more than $300 million Canadian in Bitcoin, the evangelism part speaks volumes. MicroStrategy’s big purchase in August came right before payments company Square made a $50 million USD purchase a month later.
What’s the significance of that?
Twitter CEO Jack Dorsey is also the CEO of Square. Both Saylor and Dorsey began extolling the virtues of cryptocurrency across social media, and they were no longer doing so just to explain the concept or educate people. They were putting the capital of their own companies into the actual assets themselves.
Other Institutional Investing Highlights Over The Last 12 Months
By the end of 2020, Stone Ridge Holdings and MassMutual, two major American investment companies had poured over $215 million USD into crypto. Then came the big kahunas, Tesla Motors and Visa. Tesla purchased $1.5 billion USD in Bitcoin this year, and Visa announced it would use the U.S. Dollar Coin to settle payments. That’s a different approach to investing but it’s still advancing things on an institutional level.
Couple each of these purchases and events together and you have a present-day bitcoin price of more than $59,000 Canadian at the time of this writing with Ethereum sitting at over $4,000 Canadian.
Institutional Investing In The Future
As mentioned in the study by Fidelity Digital Assets, the majority of institutional investment firms in America (and by extension those in Canada) are planning to invest in cryptocurrencies on a large scale. Respondents to the study mentioned that they expect their clients to want digital assets to be part of portfolios within the next five years.
Who would’ve thought five years ago that any of this would be a reality?
What The Next Five Years Of Institutional Investing Will Be Like
Nobody has a crystal ball, but history certainly repeats itself. If you parse through the milestones on the data that have come out about institutional investing in cryptocurrencies over the last number of years, several educated guesses might become reality.
Think about Visa using a stablecoin. Then imagine that a cryptocurrency like AMP Coin is in discussions to work with MasterCard so that they too can accept cryptocurrency for payment and help small, medium, and large size businesses do the same on a large scale.
Consider that Grayscale Investments is one of the largest institutional holders of both Bitcoin and Ethereum and that the organization already has plans of making similar investments in projects like Tezos and Chainlink.
Lastly, consider that in this edition of the Netcoins Progressive Investor, you haven’t heard anything about the expansion of NFTs, or DeFi, or how institutional investments might penetrate those spaces as well. You also haven’t been reading about ETFs that are already available on the open market and attracting large investments as well.
There are more of each of those financial instruments to come and as the blockchain industry as a whole matures, there will likely come a day when institutional investors don’t even need to use publicly traded funds as a way to invest in cryptocurrency. The Defi space might just be able to offer the same thing Only time will tell.
A Cool Resource For Tracking Institutional Investing In Crypto
BitcoinTreasuries.org lets you see a list of publicly traded companies that own cryptocurrency. You can click links to filings and news and see exactly how much each company owns. You can see which countries those companies are located in and how much of the total 21 million Bitcoin supply that company owns. If you want to go beyond that, you can also see how much cryptocurrency is owned by governments, ETFs that include crypto, and even review some information about private companies holding digital assets.
Netcoins Allows You To Do What Institutions Are Doing
Netcoins allows you to buy and sell cryptocurrencies. A lot of times institutions need custodians, regulators, accountants, and bankers to help them facilitate and confirm transactions. You don’t need to worry about any of that.
Simply sign up for a Netcoins account. It’s free to do so and it gets you doing what the big boys are doing. Naturally, you shouldn’t take whatever you read about institutional investing in crypto as advice that you should take for yourself, but if you want to learn about why digital assets are becoming so popular among large investment firms, dipping your toe in the water is a great way to gain an understanding.
Now you know a little bit about where institutional investing has been, is now, and will be in the future. Stay tuned to the movement and stay tuned to the next edition of Netcoins Progressive Investor.
Writer, content marketing at Netcoins.