For good reason, cryptocurrency volatility has long been one of the most talked-about topics in the business. Bitcoin—and the market it spawned—has been marked by wild swings and price booms that led to significant breakdowns since its debut and subsequent growth in popularity. Despite this, the big price drop that began 2018 has resulted in the crypto sector’s relative steadiness, and with it, the possibility for actual development and acceptance.
Serious investment by institutional players in finance is one of the most important things that might take crypto over the top in terms of widespread adoption and legitimacy, albeit it has yet to happen. Despite the fact that money is already flowing in from these sources, the general mood in the industry appears to be cautious at best. The risk aspect that comes with volatility accounts for a large part of this.
The possibility of losing millions of dollars in minutes has been a big sticking point for corporations obligated to generate returns to investors. Nonetheless, with bitcoin trading in a pretty stable range for several months amid genuine efforts to control the market both internally and internationally, the floodgates for institutional money to flow in appear to be finally opening.
Are the Cracks in the Walls Starting to Open Up?
For a variety of reasons, institutional investors have stayed mostly absent from the crypto revolution. Most businesses cannot justify a substantial investment to their stakeholders due to a lack of regulation, danger, and a bad reputation. While the industry has been waiting for a deluge of institutional money that has yet to arrive, these same investors have begun to demonstrate interest by dipping their toes into the water.
The market’s current price patterns, on the other hand, may be a sign that the tide is finally moving in the right direction, allowing actual investors to enter. Over the course of the year, the sector has gradually stabilized, and a number of variables are now having a soothing effect on prices and the industry as a whole.
The first is a concerted effort to distance the business from the “Wild West” image that has hung over it since the days of the Silk Road and stories of bitcoin being used for evil ends. Internally, market-regulatory committees have been formed. The self-regulatory Virtual Commodities Association, founded by the Winklevoss twins, represents the partnership of multiple major crypto exchanges, as well as an indication of more internal monitoring that could attract new investors.
More crucially, governments have begun to provide clearer norms for the business, which has helped to allay investor concerns. The issue of regulation, according to David Wills, COO of Caspian, an institutional grade crypto trading platform, is critical because “investors require clarity and consistency, which regulators around the world have luckily been steadily giving.”
Caspian, for example, is clearly anticipating the influx of institutional and retail investors by developing a comprehensive crypto asset management platform for both funds and traders, interconnecting all major crypto exchanges and providing real-time access to trading algorithms. Perhaps most notably, Coinbase developed a platform for institutional products.
“This kind of collaborative approach is motivating suitable regulatory efforts in a number of other jurisdictions,” said to Wills, “which has opened some routes to assist additional institutions into crypto.” Despite the difficulty of negotiating a patchwork of agencies, the US environment is gradually becoming clearer.”
Investors have had their hands bound due to logistical issues within the business, in addition to regulation. The business has struggled with the issue of custody—how to safely hold massive amounts of money, or in this case, cryptocurrency. The vast majority of large banks and financial services firms have been reluctant or unable to assist. As a result, institutional investors have had to rely on entirely unproven third parties who are not always fully transparent or secure enough until now. As more companies attempt to provide dependable custody solutions for institutional funds, these investors are gradually demonstrating a greater willingness to increase their allocations.
Due to the extremely fragmented market’s frequent trade execution challenges, liquidity has also been a problem for investment funds. Institutional money has historically served as a foundation for asset classes, generating liquidity and ensuring greater stability. However, because to crypto’s deregulated and heterogeneous technology architecture, liquidity is difficult to come by, resulting market volatility.
Despite this, the market has been constantly attempting to develop solutions that avoid the unstructured nature of the crypto market by focusing on supplying full-stack solutions. This allows institutional investors to access numerous exchanges from a single location, eliminating liquidity issues while also guaranteeing that cryptos are handled more like traditional asset classes.
Overall, this renewed quest for legitimacy and stability is an indication that the crypto market is maturing, as evidenced by lower price volatility. While lower trade volume may account for some of the lessened volatility, Wills claims that much of it is due to “the tempering effect of this institutionalization of crypto via mechanisms such as futures trading.”
What Does This Indicate for the Market?
Cryptocurrencies will most likely be stabilized by institutional money. While this infusion of cash and attention is unlikely to fully eliminate market volatility—which is a good thing because it creates fantastic opportunities for savvy institutional funds—it will help to moderate the sector’s chaotic nature.
As it goes beyond its infancy, Bitcoin is attempting to establish itself as a genuine financial power, and new technology and innovations are assisting in this effort. Cryptocurrency’s evolutionary momentum will accelerate as the asset class matures and more investors join, assisting the asset class in achieving greater mainstream visibility and adoption.
“The word needs to get out that custody, liquidity, and technological solutions are available and operating, and that the regulatory environment is becoming more transparent.” There was a sense that bitcoin, as a young asset class, lacked competent solutions. Institutions, on the other hand, simply need to be educated so that they understand that crypto may be treated similarly to any other asset class. Crypto has historically been a market where many people have profited while institutions have remained mostly uninvolved, but that is no longer the case. Institutions are increasingly seeing themselves as a part of crypto’s future,” Wills says.