Institutional investment occurs when large corporations and institutions invest in a product like a stock or a share. Indeed, cryptocurrency is open to investment from anybody, therefore the money holders at large institutions do have the ability to purchase cryptocurrency and invest in it at the moment, however, as it stands, they simply won’t.
Not on a scale that will make a difference at least. Institutions are afraid of Bitcoin and cryptocurrency investment for a few reasons, firstly, investment isn’t regulated, secondly, investment isn’t necessarily that safe and lastly, this is something that not many institutions really know about.
Why is institutional investment important?
There’s already a lot of money in crypto. The markets hold an incredible value and overall, investors are spending a lot of their own cash on cryptocurrency. When money comes in, the markets tend to fly upwards. The only way we will see significantly more money flow into the markets (than is already flowing) is when institutions come in with huge amounts of cash that they are free to invest in cryptocurrencies. You should see institutional investment as the next level of investment, essentially.
Moreover, institutions are famed and tend to be built upon a brand that is trusted by the mainstream and the general public. When large institutions start to buy into cryptocurrency, the news will hit the headlines and as a result, normal people will start to hear about it, people who might not have thought about investing before. Once they see their favourite drinks manufacturer or supermarket is buying into Bitcoin, they might have a dabble themselves too, bringing more (less significant albeit) money into the markets and, most importantly, creating a situation where Bitcoin is adopted by the masses.
So, why hasn’t it happened yet?
The problem is that the markets aren’t mature enough for high-level investors yet. Institutions won’t touch this industry until they can be sure their investments are legal, safe and that they are likely to see a significant return on their purchase. If they can’t guarantee they will make some sort of profit, why would they invest?
This is when things like Bitcoin ETF’s come into play. The ETF, or Exchange Traded Fund is a new product that is currently under review within the United States Securities and Exchange Commission. In this instance, a number of crypto companies have designed an ETF and put in an application with the SEC to see it go live. The ultimate goal of the ETF is to make institutional investment safer and easier for the big institutions. Whilst it does sound like an all in one solution, we should be exploring other avenues too.
Many believe that actually, the key to securing institutional investment is not the approval of a Bitcoin ETF, the key lies within insurance.
Bitcoin and crypto insurance is essential
According to Coindesk:
“As Wall Street raises the stakes around cryptocurrency, large institutional players are circling this new asset class and bringing with them their own set of requirements. a less-discussed yet critical condition for making institutions feel at home is providing adequate insurance against theft for all those custodied assets. The problem is that there’s not enough of this insurance to go around. Insurance is critical for getting institutions to invest because unlike stocks and bonds, crypto is for all intents and purposes a bearer asset. Once a thief obtains the private keys to a wallet, the money is gone, like cash or jewelry pilfered from a safe.”
Via traditional means of Bitcoin investment, institutions will have their cryptocurrencies stored or held somewhere, putting the tokens at risk of being stolen or manipulated. Many people believe that as a result of this, insurance packages need to be put in place to protect assets purchased on an institutional level. Of course, a wider insurance programme to cover the backs of all investors would be welcomed, but it does seem that on a personal level, investors are less bothered about this and already understand that they alone are accountable for the security of their assets.
Will we see the perfect insurance package surface?
We must note that this is not a novel idea, insurance packages do exist, although this is still on quite a small scale. Yes, investors can protect themselves with insurance, but generally as ,we have stated, people believe that this is non-essential, providing that you are able to look after your own assets carefully. What we need to see is a perfect all in one insurance package surface, one that is of a low cost to the investor, but promises to protect them against all eventualities. A package like this is far more likely to inspire institutional investment, unless of course the, package costs more than the protected assets are worth.
When a perfect insurance package comes out, that protects institutions from hacks, faults and the law, then maybe we will start to see the big dogs throw some money at Bitcoin. For now, we must sit and wait for further news about the pending Bitcoin ETFs and other similar projects in the hope that one day, something does appear that can unlock the door that currently stands between Bitcoin and the mainstream institutional investment world.