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Institutional Investment

Most Institutional Investment in Crypto Is Still Late in 2022 (Opinion)

The reality for the crypto industry and cryptocurrency prices in 2022 is institutional investment has only just begun. When it happens for real, the market will suddenly and drastically revise the exchange rate of crypto upward.

Without looking it up, how much money would you know or reckon that institutional investors have exchanged for cryptocurrency so far? Say just bitcoin to make it simple.

A quick look around turns up a wide range of figures.

Whether It’s $6B or $70B, It’s Still a Fraction

But whether you go by this Jan 2022 Binance report referencing CoinShares stats, that says institutional investment in bitcoin amounted to $6.3 billion in 2021, or this Benzinga report from Aug 2021, that includes crypto holding companies like Grayscale, and reckoned the total institutional investment in bitcoin at the time to be $70 billion…

Institutional investment in crypto still lags far behind retail investors and independent whale-sized investors in 2022. Institutional investment in crypto hasn’t arrived until the “pension funds, mutual funds, hedge funds, investment banks, sovereign wealth funds, and insurance companies” begin to allocate to cryptocurrency (hat tip: Pat Rabbitte).

Even if Institutional Investors held $70 billion worth of bitcoin today, with its market cap less than half of what it was at the time of Benzinga’s report in August, it would still comprise only 17% of the market cap of bitcoin. If we guess institutional outflows from bitcoin paced overall outflows since August, then it’s less than ten percent of bitcoin holdings.

What if institutional investors invert this distribution and held 90% of all bitcoin? How much more would each satoshi of the remaining 10% be worth?

Cryptocurrency and Investors Are Nearly Ready

The global equities market cap surpassare $100 trillion to close 2020 and is currently somewhere in the neighborhood of $125 trillion. About this time last year, $61 trillion (59%) of global equities was managed by institutional investors. So the pension funds, sovereign funds, investment banks, and insurance giants have lagged the retail group in adopting crypto.

First, they were cryptocurrencies’ problemsthe problems cryptocurrencies solve and how they solve them. Now, institutional investors are working through inherent constraints in the nature of adopting crypto.

Funds managing money that isn’t theirs for their clients are more averse to risk. (But funds are growing more interested in risk-mitigated ways to add more outstanding yield to their trades.) They also have to meet regulatory requirements. Furthermore, they must find the liquidity of an asset satisfactory. That way, they will have someone to sell it to when they want to exit their positions.

Bridgewater: Crypto Market Is Big Enough Now

The crypto industry has grown and matured by leaps and bounds at this time in its development. Massive global institutional investment in crypto is now feasible. The tantalizing boon it would be to holders now looms over crypto valuations. As for liquidity requirements, a Bridgewater research note published Jan 2022 said:

“We think that Bitcoin is about 1.4% as liquid as US equities; this would entail holding a much smaller capital position in the liquid mix, but its high volatility means that a relatively small allocation in dollar terms would still give meaningful exposure on a risk-adjusted basis.”

Late last month, Kevin O’Leary of Shark Tank fame said this extremely early stage for institutional investment in cryptocurrency is why he’s buying the dip this year.

He pointed out in an interview that the majority of capital investment in the world is from sovereign and pension funds and said their allocation of crypto is still basically “zero” at this point.

Not until they adopt, said O’Leary, has institutional finance really moved into crypto. He said this market capitulation is an opportunity for investors to get ahead of the trend. O’Leary recommends going long crypto before funds really begin to move 1% of their holdings into bitcoin.

O’Leary projects that bitcoin’s price will double overnight when it dawns on markets that this is actually happening. He thinks this will happen by January or February 2023.

That guess may not be too bullish. Fidelity Investments will be allowing retirement accounts to allocate to bitcoin later this year. The $4.5 trillion financial services giant made the announcement in April.

In May, Fidelity went on a 200+ person hiring spree for cryptocurrency devs and customer support staff to manage cryptocurrency products for its clients.

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