The reality for the crypto industry and cryptocurrency prices in 2022 is that institutional investing is just getting started. When this happens for real, the market will suddenly and drastically revise the crypto exchange rate upwards.
Without searching, how much money would you know or estimate that institutional investors have traded for cryptocurrency so far? Just say bitcoin for simplicity.
A quick look around you reveals a wide range of numbers.
Whether it’s $6 billion or $70 billion, it’s still a fraction
But whether you believe this Binance report from January 2022 referencing stats from CoinShares, which shows that institutional investment in bitcoin was $6.3 billion in 2021, or this Benzinga report from August 2021, which includes crypto holding companies like Grayscale, and calculated total institutional investment in bitcoin at the time at $70 billion…
Institutional investment in crypto is still far behind retail investors and whale-sized independent investors in 2022. Institutional investment in crypto did not arrive before “pension funds, mutual funds funds, hedge funds, investment banks, sovereign wealth funds and insurance companies”. start allocating to cryptocurrency (hint: Pat Rabbitte).
Even if institutional investors now hold $70 billion worth of bitcoin, with its market cap less than half of what it was at the time of Benzinga’s report in August, it would still only represent 17% of the market cap. bitcoin. If we assume that institutional bitcoin outflows have paced overall outflows since August, then that’s less than 10% of bitcoin holdings.
What if institutional investors reversed this distribution and owned 90% of all bitcoin? How much more would each satoshi of the remaining 10% be worth?
Cryptocurrency and investors are almost ready
The global stock market capitalization exceeds $100 trillion at the end of 2020 and currently stands at around $125 trillion. Around the same time last year, $61 trillion (59%) of global equities were managed by institutional investors. Thus, pension funds, sovereign wealth funds, investment banks, and insurance giants have lagged behind the retail group in crypto adoption.
First, it was about cryptocurrency problems, the problems that cryptocurrencies solve and how they solve them. Now, institutional investors are working through constraints inherent in the nature of crypto adoption.
Funds that manage money that is not theirs for their clients are more risk averse. (But funds are increasingly interested in ways to mitigate risk to add exceptional return to their transactions.) They must also meet regulatory requirements. In addition, they must find the liquidity of an asset satisfactory. This way they will have someone to sell it to when they want to exit their positions.
Bridgewater: The Crypto Market Is Big Enough Now
The crypto industry has grown and matured by leaps and bounds at this stage of its development. Massive global institutional investment in crypto is now feasible. The tantalizing upside it would be for holders is now weighing on crypto valuations. Regarding liquidity needs, a Bridgewater research note published in January 2022 stated:
“We believe Bitcoin is about 1.4% as liquid as US stocks; this would involve holding a much smaller capital position in the liquid mix, but its high volatility means that a relatively low dollar allocation would still yield significant exposure on a risk-adjusted basis.
Late last month, Kevin O’Leary of Shark Tank fame said that this extremely early stage of institutional cryptocurrency investment was the reason he was buying the drop this year.
He pointed out in an interview that the majority of capital investment globally comes from sovereign wealth funds and pension funds and said their crypto allocation is still basically “zero” at this point.
It wasn’t until they were adopted, O’Leary said, that institutional finance really shifted to crypto. He said this market capitulation is an opportunity for investors to get ahead of the trend. O’Leary recommends going crypto long before funds really start moving 1% of their holdings into bitcoin.
O’Leary predicts that the price of bitcoin will double overnight when it appears in the markets that this is actually happening. He thinks that will happen by January or February 2023.
This assumption may not be too bullish. Fidelity Investments will allow retirement accounts to be allocated to bitcoin later this year. The $4.5 trillion financial services giant made the announcement in April.
In May, Fidelity launched a hiring wave of more than 200 people for cryptocurrency developers and customer support staff to manage cryptocurrency products for its customers.
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