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After the boom in 2017 and the bankruptcy in 2018, the cryptocurrency market is making headway with institutional investors, establishing 2019 as the year when an investment in Bitcoin could join securities, bonds, currencies and commodities as a main activity.
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The maturation of the cryptocurrency market could accelerate if a Bitcoin ETF exceeds the regulatory requirement. And the launch later this year of physical settlements of encrypted futures contracts could further open the doors for Bitcoin investment seekers.
The institutionalization of the cryptocurrency market is a big problem for ordinary investors. Large fund managers may soon bundle cryptographic resources into mutual funds and ETFs, paving the way for Bitcoin to enter 401 (k) s and IRA as regulated and traditional investments.
This means that anyone with an intermediary or retirement account could possibly make an investment in Bitcoin. The institutions will also pass the benefit of buying, selling, storing and spending digital assets in a transparent and secure way to their customers.
"We are on the rise in 2019 because finally the institutional rails are coming to the spot," said Matt Hougan, global head of research at Bitwise Asset Management, a Bitcoin investment provider.
Meanwhile, the stock market operators Nasdaq (NDAQ) and NYSE parent Intercontinental exchange (ICE) announced plans to trade futures on Bitcoin, adhering CME Group (CME) e CBOE global markets (CBOE) in the nascent space.
Cryptocurrency Market Shakeout
After a fleeing escape to vertiginous peaks in 2017, the subsequent collapse was one of the worst in the history of Bitcoin.
It was marked by fraud allegations to the main investment platforms and by reports of false volumes and price manipulation. Indeed, cryptographic assets he lost $ 731 million for hacks, frauds and thefts in the first half of 2018.
The cryptocurrency market has shrunk to $ 120.4 billion, after reaching a peak near $ 795.8 billion just over a year ago, according to CoinMarketCap. Bitcoin started the 2019 with a rally but is now back under $ 4000.
The crash smoked the crypto speculators and other investors who got caught up in the hype. But some wealthy investors have perceived an opportunity in terms of downed prices.
Crypto investment company Grayscale attracted $ 329.5 million in the first nine months of 2018, compared to $ 25.4 million a year ago. Institutional investors mainly led the new capital, he said. Two thirds went to Bitcoin and the rest to Bitcoin Cash, Ethereum, Litecoin, XRP and Zcash.
"Investors appreciate the idea that more digital assets can survive, thrive and complement each other in the new digital economy," Grayscale wrote in a report. It is called 2018 the strongest flows in its five-year history.
The company's flagship product, Bitcoin Investment Trust, held $ 768.2 million in assets in December. Requires a minimum investment of $ 50,000. The fund offers investors exposure to Bitcoin price movements without the hassle of buying, storing and conserving coins.
Fidelity Lifts Cryptocurrency Market
October saw tremendous growth for Bitcoin's institutional investment seekers. Fidelity eliminated Fidelity Digital Assets, becoming the first Wall Street company to offer cryptocurrency and investor trading.
The loyalty move is a big deal, in more ways than one. The company manages 7.2 trillion dollars in assets, has 27 million customers and collaborates with over 13,000 financial institutions. Crypto believers have entered as the clearest sign of broader adoption of cryptographic resources.
"One thing that has slowed the growth of cryptographic resources is their reputation for being extraordinarily risky," said Hougan. "Fidelity is a privately owned family company that has been able to take an unbiased look at the market for encrypted assets and believes it is worth developing this platform."
For many institutional investors, the arrival of a trusted caretaker removes one of the biggest obstacles to investment encryption. The institutions want custody solutions for robust cryptocurrencies like those for traditional stocks and bonds.
Bitcoin Investment: a new asset class
In addition to custody, Fidelity Digital Assets will perform operations on multiple platforms. So instead of opening accounts in different locations, institutions can exchange cryptocurrencies through a single interface, said Tom Jessop, head of Fidelity Digital Assets.
Furthermore, Fidelity has not just launched a cryptographic platform. He declared Bitcoin and cryptocurrencies a new asset class.
The new independent cryptographic company of Fidelity has been working for years, said Jessop. The first raids included the extraction of Bitcoin and a partnership with Coinbase on digital portfolios. He also experimented with blockchain, the shared sharing technology behind cryptocurrencies, and accepted Bitcoin for charitable donations.
For now, Fidelity offers cryptographic services to speculative funds, endowments and family offices, but not to retail investors. He says that institutional clients see digital currencies as a reserve of value, relatively unrelated to securities and bonds. They also have the potential to lower the costs of global payments and to feed entire industrial sectors.
"The promise of blockchain-based technologies is giving momentum and support to this new asset class," Jessop told IBD.
Bitcoin Investment Tipping Point Ahead
For Hougan, an event could eclipse Fidelity's entry as a milestone in the cryptocurrency market.
"A Bitcoin ETF would be a turning point if it were to happen," he said. "This would be the one most important thing: it would make it much easier for financial advisers and retail investors to enter the space."
Bitwise has filed with the US Securities and Exchange Commission for cryptocurrency and Bitcoin ETFs.
ETFs or exchange traded funds reduce the barrier to entry into new markets and niche asset classes. One noteworthy example is SPDR Gold Shares (GLD), which pushed raw material investments into the mainstream.
A Bitcoin ETF is not a safe bet, even if its more vocalic supporters arrive at an imminent arrival. Last year, the SEC snubbed a series of offers from the Bitcoin ETF, citing the lack of liquidity and risks of price manipulation in markets that are mostly unregulated.
Hougan, a veteran of the ETF industry, does not do anything wrong. The regulators posed "significant" questions about the reliability of cryptographic prices, arbitrage and custody, he said.
"A Bitcoin ETF will not be launched until the SEC is comfortable with the market ready for it," he added. "So (the approval of one) will give investors the comfort that the market has matured enough".
New Bitcoin investment products
Meanwhile, even two new cryptographic companies look out for 2019 for expected products. Exchanges of derivatives Bakkt and ErisX will both offer futures on Bitcoin. Both have strong support from Wall Street and some of the leading American companies.
Bakkt and ErisX will offer physically established Bitcoin futures contracts, while CME and CBOE will pay cash. This difference is crucial because cash-settled futures are considered vulnerable to manipulation.
Although the underlying assets are virtual, a futures contract will result in the delivery of actual Bitcoins into customer accounts, Bakkt says.
Bakkt comes from Intercontinental Exchange, owner of the New York Stock Exchange, in collaboration with Microsoft (MSFT) e Starbucks (SBUX). Investors in ErisX include Nasdaq Ventures and Fidelity Investments, TD Ameritrade (AMTD) and Monex Group owner of TradeStation. (TradeStation itself is ready to launch a brokerage encryption service immediately after April).
With less vulnerability to manipulation, futures with physical settlements could attract more investors into the cryptocurrency market. And the support of Bakkt and ErisX by the best intermediaries also alludes to the cryptocurrencies that one day will end in the IRA and 401 (k) s.
CoinFLEX, based in Hong Kong, recently beat its US rivals in competition to offer physically resolved Bitcoin futures. Bakkt rejected plans to start trading on futures from December until January 24 and now plans further delays. ErisX is watching a launch in the second half of 2019. Both must first pass together with the Commodity Futures Trading Commission.
The "Average Joe" market and The Cryptovalute
In the crypt, the reaction to large financial institutions is divided into three large fields, said Michael Casey, senior consultant for blockchain research at MIT's Digital Currency Initiative.
Speculative investors expect the influx of large sums to drive up Bitcoin prices. A second crowd sees the great institutions as anachronisms that revel in something they do not understand.
The third field, in which Casey's opinions fall, sees the institutions as a necessary or inevitable step towards a more decentralized financial system.
"You need custody services for the average Joe," Casey said. "If the future of digital goods has to be more mainstream, then we need ordinary people to participate and they will not do it without trustworthy institutions along the way."
He also thinks that institutions will help with things like price discovery, ultimately for the benefit of everyone.
Clash of cultures to hit the cryptocurrency market?
But in the short term, Casey predicts a clash of cultures between Wall Street and the renegade ethos of Bitcoin. Indeed, Bitcoins have gained prominence during the financial crisis and reflect the desire for a free currency from a central bank or a state.
Moreover, Casey argues that institutions can not apply their usual methods of evaluating resources to coin and token projects. Rather than focusing on market capitalization or price, they should consider how many developers have a project, or how deep is the community's commitment, or the number of exchanges on which the project will take place.
Even the idea of cryptocurrencies as an emerging asset class is questionable, he finds.
"A cryptographic token is a bet on an idea, on a resource whose value is a direct result of the vagaries of the community behind it," said Casey, who is also chairman of Coindesk's board of directors. "Institutions must be aware of this."
In turn, crypto investors should not naively believe that institutional money can raise prices, at least in the short term. "Institutions are trying to capitalize on volatility," he warned.
Tips for Bitcoin investment seekers
For now, some large institutions synonymous with Wall Street – and the financial collapse – are keeping a safe distance.
Uncertainties that regulators will treat digital tokens as commodities or securities-cooled plans such as large banks Goldman Sachs (GS) Morgan Stanley (MS) e Citigroup (C) to develop encryption desk and other projects, Bloomberg reported in December.
Jessop of Fidelity has a key investor tip: the long-term value of the core technology deserves the full attention of the cryptocurrency and Bitcoin prices.
Jessop has defined digital resources as one of the most transformative technologies on the Internet.
"At the end of the 90s, the entire web space had a significant decline," he said. "But the technology is strong enough and, 20 years later, we can not imagine a world without the Internet."
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