6 Reasons Why Institutional Investors Can Look At Cryptocurrency In 2019
Over the past six months, the decline in cryptocurrency price has generated a scepticism wave. Actually proceeding "cryptocurrency winter" is a healthy clarification of an ecosystem. In general we believe in approach of "cryptospring". And the institutional capital, in other words, the "smart" money requiring special attention, perhaps, will declare itself in a new season.
Below there are six reasons for which institutional investors could head cryptocurrency rally in 2019.
1. Recently the American regulators take a constructive position on cryptocurrencies
Regulators around the world come to understanding that cryptocurrencies are seriously and for a long time. Nevertheless, there are numerous problems requiring the solution:
- identification of players who deceive investors false ICO;
- determination of difference between asset tokens and securities tokens;
- work with cryptocurrency businesses directed to creation of the standard and legal base designed to protect investors without harming at the same time innovative technologies.
In general, industry and regulators are moving in the right direction, although it may take several years before they can develop and establish common standards.
2. Cryptocurrencies provide a unique and attractive combination of profit and volatility
Cryptocurrency assets are attractive, because they are relatively weakly correlated with other classes of assets, such as bonds (negative correlation) and gold (zero correlation). In other words, cryptocurrency assets are an ideal means for investors to diversify a portfolio.
Researches show that 2% of cryptocurrency assets in a portfolio do the general profitability to equal 200 basis points, or 2%. From 5% of cryptocurrencies profitability exceeds 5%. It is approximately twice more than typical indicators of the portfolio having the mixed character (an stock plus the bond). At the same time the active managers looking for bigger profits with high volatility of bitcoin and other digital currencies.
3. Soon the market can enter the depository services of the institutional level
There is a pressing need in the qualified depositaries which are able to ensure safety of the growing volume of cryptocurrency assets. Very few cryptocurrency depositaries meet the strict requirements to security measures imposed by regulators and institutional investors.
Recently, one of the most popular cryptocurrency exchanges, Coinbase, launched the depository in cooperation with the regulated broker-dealer Electronic Transaction Clearing (ETC). ItBit and Xapo also began offering similar services, and we expect that others will follow.
4. Distribution of cryptocurrency futures, derivatives and forward contracts
Volatility of the cryptocurrency prices at the beginning of a year has drama urged on demand for cryptocurrency derivatives. In case of derivatives investors don't need to store the cryptocurrency assets, they can take all benefits from these assets, minimizing, as far as possible, losses, in many respects how they hedge usual currencies.
Although many exchanges do not allow direct bitcoin sales, investors can speculate at cryptocurrency prices, trading in futures. Institutional investors even used futures contracts to influence the prices of cryptocurrency, primarily bitcoin. The fact that the Chicago Mercantile Exchange and the Chicago Stock Exchange launched futures trading in US cryptocurrency sector.
5. Approval by regulators of cryptocurrency ETF, most likely, inevitably
There is an obvious need for exchange funds that will help investors diversify risk. Some cryptocurrency companies, such as Gemini and Bitwise, have applied for cryptocurrency ETFs, but so far the regulators have not approved any of them. However, the US Securities and Exchange Commission can change its position. Now the agency is more concerned with stopping fraud on platforms that offer ETF than ETF itself. We believe that the SEC will soon approve cryptocurrency ETFs.
6. Major financial institutions turn to cryptocurrency
Cryptocurrency assets attract the attention of institutional investors. Major companies as Goldman Sachs, Fidelity and Blackrock - turned to cryptocurrency products and the blockchain technology.
For example, Goldman is close to launching the platform for trading bitcoins. Last year, Fidelity launched a cryptocurrency fund and actively formed teams for the cryptocurrency depository and other services.