A study conducted by DataTrek hones in on what piques the interest of institutional investors about the crypto space.
Many institutional investors see cryptocurrencies as eventually becoming global reserve assets, but to get there, key solutions must be put in place.
The crypto space has been excited lately about crypto prices moving higher if a crypto-related ETF is approved. However, many institutional players are eyeing custodial solutions as being key to them moving into the space.
These findings are the result of a study of the cryptocurrency space conducted by DataTrek. This study breaks down, by percentage, many of the issues that are of concern to institutional investors as they relate to the crypto space.
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Let’s take a look at some of the standout issues that institutional players are grappling with when it comes to cryptos as detailed by DataTrek.
A growing concern relates to custody issues. It’s long been thought that the crypto space is in need of the so-called big money that institutional investors can plow into it.
While the market widely hopes that the U.S. Securities and Exchange Commission will give its blessings to a Bitcoin ETF this year, that may not really be a concern to institutional investors. Instead, the survey found this group of investors was more concerned about the lack of a regulated custody solution for storing such assets.
When asked what may cause cryptos to stabilize in the second half of 2018, 52% of respondents said that U.S. regulatory approval of an institutional-grade custody solution was key.
From this, DataTrek stated:
The importance of institutional-quality custody solutions is the most important theme of this survey, and it makes a strong early appearance here. Professional money managers may want the option to invest in the crypto space, but without secure and regulated custody akin to what they have in other assets it is difficult/impossible for them to proceed.
The importance of institutional-quality custody solutions is the most important theme of this survey, and it makes a strong early appearance here, DataTrek officials noted. Professional money managers may want the option to invest in the crypto space, but without secure and regulated custody akin to what they have in other assets it is difficult/impossible for them to proceed, officials added in discussing the report.
Cryptos will rule?
When asked if a cryptocurrency would ever become a global reserve asset, roughly a third of respondents said they believe one would eventually become such an asset. They responded, however, that it may not necessarily be industry darling Bitcoin.
Here’s a breakdown of the responses to the question about whether cryptos would become global reserve assets.
33%: Yes, but not necessarily Bitcoin
18%: Yes, a “Fed coin” or other central bank-sponsored virtual currency
11%: Yes, Bitcoin
These responses surprised DataTrek, which stated their take on this as:
Another outcome we would not have predicted: 62% of respondents believe a crypto currency will one day take its place with the dollar and euro as a global reserve asset.
The mentality of the crowd
More than half of the institutional respondents to DataTrek’s survey said they believe crowd psychology currently sets the price of cryptocurrencies.
This is interesting, and mirrors findings in Canada about retail investors. The country’s Bank of Canada conducted a study that found that this group of investors in Bitcoin were interested in the space based on their friends’ advice.
When asked about this so-called crowd psychology, 52% of respondents to DataTrek’s survey said that Bitcoin’s valuation was purely a function of crowd psychology. The same notion applied to other large cryptos.
Also, almost half of the respondents, 45% to be exact, said they believe Bitcoin’s price will end the year either about where it is today or higher. Less than a 30% responded that they believe it will end the year below $5,000.
This flies in the face of Bitcoin gurus who have said that the crypto could easily be above its record high of nearly $20,000 before year’s end.
Get on board
DataTrek found that the growth in the popularity of cryptos as investment vehicles “leaves open the possibility of new players in the financial services industry.” However, only 26% of respondents expressed the view that existing investment banks and exchanges will eventually dominate the crypto currency landscape, according to the survey.
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