Cryptocurrency started as a space for enthusiasts and tech-savvy people, but over time, it started to draw the interest of corporations. The surge of BTC and ETH in 2021 created a great interest in crypto from institutional investors. In 2021 alone, the total assets under management (AUM) of cryptocurrency investment funds nearly doubled, reaching $59.6 billion. Even now, after a drastic drop in the crypto market in 2022, most crypto institutions remain in the market, anticipating the next surge.
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How do Crypto Institutional Investors Participate in the Market?
Here are the popular ways for companies to engage with the crypto sector:
- Direct investments – either by purchasing and holding digital assets or by participating in initial coin offerings (ICOs) and token sales.
- Institutional crypto trading – some exchanges serve specifically to institutional clients, offering advanced trading features, high liquidity, and secure custodial services. An example may be the Binance, Coinbase, or any other institutional trading platform.
- Crypto investment funds – hedge funds, venture capital funds, and private equity funds. These funds are managed by professionals with expertise in the crypto market and provide diversification across a range of digital assets.
- Providing liquidity to trading platforms. A person who provides market maker services is an institutional investor who pours significant capital into the market by placing buy and sell orders.
Other opportunities include participation in DeFi protocols, yield farming, mining, trading derivatives, participation in tokenized securities, etc.
The Impact of Crypto Institutional Investors
With the recent fluctuations in the crypto market, ongoing developments suggest a move towards a more streamlined market structure with improved regulatory oversight for digital asset markets.
Institutional participation in crypto accelerates the development of a robust regulatory framework. The presence of institutional investors prompts regulators to establish clearer guidelines, oversight mechanisms, and compliance standards to address the specific needs and concerns of these larger players.
In addition to regulatory clarity, institutional crypto involvement will lead to market maturation. What contributes to the market maturity is reduced liquidity by the increasing number of long-term assets held among companies. The situation when the crypto market is dominated by retail traders without long-term goals causes huge price jumps. And with the active involvement of large investors who hold assets long, this volatility can be restrained.
Conclusion
No doubt, it is good for the overall crypto market that more big institutions are getting into it. This brings in new chances and investments, making the crypto market more grown-up and secure, thanks to clearer rules from regulators.
