Institutional Investing Fueling Cryptocurrency Revolution
September 13. 2021
The concept of money has undergone a drastic transformation amid the digital revolution. The need for electronic payments as well as systems that can guarantee fast and secure payments is the catalyst behind an emerging asset class. Cryptocurrency revolution threatens to transform the global financial system even further.
In the early years of the cryptocurrency revolution, most institutions were skeptical about the emerging asset class. However, in recent years Bitcoin, and other smart currencies, have risen to such great heights of relevance that they are presenting unique investment opportunities.
PitchBook recording those venture capitals have invested over $17 billion in the industry this year affirms how popular such investment classes have become. The amount raised in 2021 is by far much more than the total amount raised in all the other years put together, affirming the cryptocurrency revolution.
Figure: Venture Capital Investments into Crypto Industry
Research conducted by Coalition Greenwich on behalf of Fidelity Digital Assets states how institutional investors are increasingly taking a keen interest in the emerging asset class. The survey found that 7 in 10 institutional investors expect to invest in or buy digital assets within the next five years as the cryptocurrency revolution continues to take shape.
Venture Capital firm Seek Capital is the latest to show strong interest in cryptocurrencies. Simon Nixon has confirmed that the firm plans to allocate substantial capital in crypto, impressed by its long-term prospects. As part of the crypto investment drive, the firm also plans to hire an analyst dedicated to the crypto market.
Investing in cryptocurrency can either be direct or indirect. In direct investments, people and funds simply buy the actual coin, i.e., Bitcoin, and hold in anticipation of its price appreciating. A firm like Tesla has deployed this strategy opting to own BTC coins outright.
In addition to direct investments, people can also invest by buying stocks in any crypto-backed Exchange Traded Products. Coinbase, a crypto company, made an estimated $1.8 billion in Q1, following its direct listing on NASDAQ last spring.
This year alone, Coinbase has multiplied its profit at least 25 times more than what it did a year ago, a clear indication it is also benefiting from the cryptocurrency revolution.
Even as cryptocurrencies become increasingly popular, volatility remains a key challenge keeping many people and investors at bay. Given their digital nature, low-level regulations, cryptocurrencies have higher volatility than other asset classes, therefore, presenting significant risks.
While the volatility is expected to reduce in the long term, many investors have been riding the storm and generating significant returns in the process. Bitcoin and Ethereum rallying to record highs in April and May came at the backdrop of increased investments from institutions and high net worth investors. In addition, many of them ended up ripping big returns.
The influx of institutional money into the crypto market space is good for an industry still in the early stages of growth. Their investments are increasingly validating the industry, alleviating the fears of yesteryears that cryptocurrencies were simply fads and would go to zero.