Early Adopters Bail while the Smart Money Cleans Up?
The Growing Gap Between Institutional & Individual Investors
Cryptocurrency was originally considered to be the money of the people. It represented an uprising against today’s flawed financial system and a once in a lifetime opportunity to get ahead financially in a short amount of time. But, the recent decline in prices has led a large majority of the early adopters to dip out of the crypto market. However, the sharp drop in crypto prices does not appear to be synonymous with the death of cryptocurrency or the blockchain technology that enables it. While a lot of individual investors have pulled out in panic mode or have simply lost interest in the world of crypto, institutional investors, on the other hand, are jumping in and buying up digital assets at discounted prices.
According to a report by Bloomberg, while trading volumes on major cryptocurrency exchanges have fallen 80% since its peak, hedge funds and other investment vehicles have been quietly buying millions of dollars’ worth of crypto via private transactions. Other financial institutions such as JPMorgan went even further by creating their own cryptocurrency, the JPM Coin. In addition, these institutional investors are joining efforts in order to create better regulation, transparency, security and legitimacy in the crypto space, which means that holding cryptocurrencies is going to be a lot safer than before, especially for individual investors.
The gap between institutional and individual investors is even greater when it comes to holding stakes in blockchain startups. According to Crunchbase, institutional investors injected $3.8 billion in blockchain and cryptocurrency-focused startups during the first three quarters of 2018, which is 2.8 times higher compared to 2017. Meanwhile, individual investors’ stakes in these startups were far below that of the institutions and pale in significance. It is important to mention that at the time of this writing, 828 blockchain startups have seen the light but only about 10 are publicly traded.
Even mining operations which used to constitute an important source of income for individual investors have become less and less profitable over time. Individual mining operations have slowly been replaced by large scale, corporate mining operations that have better technical knowledge and more powerful mining equipment at their disposal.
It is possible that in a few years from now, the cryptocurrency and blockchain landscape will be largely dominated by institutional investors, while individual investors who spurred the original crypto movement get left in the dust. While the hype reached fever pitch in 2017, individual interest has waned heavily and there is the potential that the early adopters may miss out on future gains because they have taken the position that the industry is no longer worthy of their attention.
More and more institutions are quietly (and not so quietly) exploring crypto as a viable technology. Morgan Stanley has suggested that Bitcoin is “a new institutional investment class” indicating that the future of crypto may be solid and eventually settle into the mainstream. HSBC, Westpac, CBA, ANZ, Credit Suisse, JPMorgan, Barclays and a number of other significant financial institutions have all either backed crypto related projects or are in the process of exploring digital currency technology applications.
With further regulation and improvement of infrastructure, institutional investment is certainly on the rise. Which poses the question – Have a large portion of the early crypto adopters dipped out to early? https://www.bloomberg.com/news/articles/2018-10-01/institutional-investors-are-using-back-door-for-crypto-purchases https://www.crunchbase.com/hub/blockchain-startups#section-recent-activities