Institutional Investment. Big, institutional investment. It’s the future of crypto right? Many of us believe that the investment encouraged by large institutions is the key thing that will inspire the next bull run and the next market surge. Big companies investing in cryptocurrency would open the markets up to a new competition, fuelled by money on a scale never seen before.
As these companies invest, the demand for the limited supply of crypto goes up, and thus, so does the price of said crypto. Of course, this will then conclude with a mass sell off, but, isn’t it just likely to happen all over again? One big cycle of ridiculous funds, flowing through the markets at an alarming rate?
It’s what we hope for, and indeed, it’s what we expect to happen one day. For now though, we have to ask ourselves, what exactly is stopping it?
Reza Jafery has recently uploaded a post on Hackernoon, the post discusses a number of ‘roadblocks’ that seem to be preventing this large scale institutional investment. We want to touch upon these roadblocks as we believe that Jafery makes some very interesting and valid points.
You can see the full post for yourself, here. Please do read it, as it’s very insightful.
So, what’s been said?
First of all, one major roadblock for big institutions is the lack of industry standard trading platforms. Compared to traditional stock exchanges, crypto exchanges are often immature and lack the sophistication of traditional exchanges, the exchanges that large institutions have always used and always will use. According to Jafery:
“There are no all-in-one enterprise-level institutional tools available, and no mechanisms for sophisticated investors to trade in the same way as they do in traditional securities and currencies.”
Next up, regulation. Until there are regulatory procedures that protect institutions and customers from the volatility of cryptocurrencies then big investment is unlikely. Simply put, the risk is too high. Moreover though, some current regulations are putting too much pressure on current exchanges, it is this pressure that makes investing and trading crypto very time consuming, something that big institutions are no doubt finding to be very off putting. According to Jafery:
Know Your Customer (KYC)
“KYC is a regulatory requirement that forces exchanges to identify whom they do business with, whether they be retail or institutional investor. The KYC process for popular exchanges can often take weeks to complete, and the data required to facilitate this process differs from exchange to exchange. These requirements are cumbersome to satisfy, and plainly, inefficient.”
Anti-Money Laundering (AML)
“AML aims to stop people who have earned funds illegally, from using those funds to generate additional revenue.
If you’re accustomed to trading in cryptocurrency markets, you’ve probably gone through several of these processes. Yet, having to go through these processes for each exchange is tedious and inefficient for sophisticated investors.”
Finally (Jafery makes many more points, but we want to keep it swift) the lack of one universal location for the storage and supply of all cryptocurrencies is also something that makes the entire industry far more time consuming. What we need to see here is a universal wallet, on a universal exchange that is quick and easy to use, with the sophistication of a traditional stock exchange. According to Jafery:
“There are over 1,600 cryptoassets currently in circulation. While there are a few companies in the space providing multi-coin wallets, there is no truly universal wallet. Creating a wallet compatible with all available coins is a large undertaking. I’d even go as far to say it’s borderline impossible.”
What needs to change is the arduous and cumbersome side effects that come with cryptocurrency investment. Regulation needs to be clean and concise. Exchanges need to be better. Wallets need to be universal and the coins themselves need to be more accessible. If investment becomes quick and easy, yet remains secure and personal then institutional investment will jump on board. Until then, the environment will remain messy and uncertain so therefore, we can only expect that institutional investment might be further off than initially thought.