Crypto’s institutional investment problem

Trading landscape has evolved, but the bear is currently the dominant species while we wait for our next move

If you consider yourself a true blockchain evangelist, then you have been a crypto cheerleader for quite some time – since 2008 to be exact. And if you’re thinking what many outsiders are thinking, it’s taking a hell of a long time for it to be part of our everyday lives.

In fact, it took nearly a decade for the boom of Bitcoin in early 2017, and blockchain technology continues to evolve immensely.

While the retail community contributed to its immense growth, many institutions are still waiting on the sidelines to invest. Why is that? We are experiencing a bear market for cryptocurrency and among the reasons is the massive volatility due to market fragmentation.

Like the stock market, we need institutions to create real liquidity and a tradable marketplace. For institutional adoption of decentralised currency like Bitcoin, Ether, Ripple and many others, investors need a fool-proof level of support so that their investments have room to grow and are protected, which can be addressed by more trustworthy trading facilities and safer digital assets.

Addressing liquidity issues

At present, according to, cryptocurrency exchanges like Coinbase, Binance, Huobi, OKEx, and UPbit can process hundreds of millions of dollars worth of trades every day. However, the liquidity on these platforms is not able to process multi-billion dollar buy and sell orders. This is a clear barrier to entry for high profile investors. While some turn to the OTC market to make these large trades – many investors need more support to navigate the process – and it has begun.

This week, Fidelity Investments launched Fidelity Digital Asset Services for institutional clients that will trade and store cryptocurrency assets such as Bitcoin and Ethereum. According to Fortune, the company intends to set up an exchange to trade cryptocurrency assets, connect crypto exchanges to help clients quickly find the best price as well as store the private keys that control cryptocurrencies with a combination of enterprise software and vaulted cold storage.

Also, endowments from some of the most prestigious universities in the country – Harvard, Stanford, Yale and MIT, are investing into at least one crypto fund, and giving institutional players a seat at the crypto trading table.

The market is adjusting to suit the needs of these very necessary hedge funds, family offices and other intermediaries, and involvement of the likes of Fidelity, is a testament to its staying power.

Digital assets and the future of crypto

With the advent of security tokens, investors can benefit from their “increased liquidity and lowered administrative costs while feeling reassured by the presence of investor protections and real-world assets”. Some say they are the future of tokens, given their acceptance of security and greater regulation. But the market is also considering that this doesn’t solve things for the volatility issue – which brings us to stablecoins.

What is a stablecoin?

Stablecoins are cryptocurrencies with stable value; unlike most other crypto assets, they have low volatility against the world’s most important sovereign-backed currencies (fiat). According to a report from crypto wallet provider Blockchain, “the number of active stablecoin projects has dramatically increased over the past 12-18 months and more than a dozen project teams have stated they plan to launch in the coming weeks/months”.

There are a total of 57 identified stablecoins – 23 of which (40%) are live.

According to Business Insider, issuers of coins like USDC or Tether tokenize dollars by exchanging them for a stablecoin and depositing the dollars in a bank. Those dollars are then left untouched until somebody redeems the stablecoin for the dollars. It’s this confidence that the stablecoin can be redeemed that maintains the price peg.

A stablecoin could help create a tipping point for much broader crypto asset adoption by successfully addressing concerns around volatility, but that remains to be seen as the technology is still early stage despite the recent market excitement.

As you can see, the trading landscape for cryptocurrency has evolved in a big way. We’re seeing a variety of innovative mechanisms emerge to get institutions involved.

Now the rest of the world is waiting impatiently to see them come to bat… and we’re holding our breath.

Stewie Zhu, Founder and CEO of Distributed Credit Chain

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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