In the last ten years, more people have considered investing in cryptocurrencies because they’ve shown great potential and have performed really well. The impressive Bitcoin growth in 2021 has made big organizations think about investing in crypto too. However, big institutions are still not fully jumping in. In this article, we will discuss the main obstacles to crypto institutional trading.
Institutional Crypto Investors – Who Are They?
Institutions are entities that manage funds for their clients, customers, or shareholders. They use crypto in the following ways:
- Buying and holding crypto on their balance sheets.
- Investing in ETFs without directly managing assets.
- Trading and providing crypto market-making services for crypto platforms.
- Integrating crypto into payment systems.
Two Main Obstacles Showing Down Institutional Crypto Trading
Indeed, crypto used to be a popular asset class for retail traders and tech-savvy individuals. This defined it as a product for non-professional investors with a market structure suitable for retail players. However, since digital assets have caught the world’s attention, we have observed a surge in the need for institutional services like robust custody solutions, risk management tools, algorithmic tools for trading, liquidity provision, regulatory compliance, etc. All these services are available on an institutional cryptocurrency platform, be it Binance, Coinbase, or other large and regulated exchanges.
What still holds many companies back is the issue of store of value and gaps in regulations.
Store of Value
The argument “store of value” means that Bitcoin has no physical form like gold or fiat money, for example. Bitcoin used to be an asset where major holders were young retail traders with limited financial resources. Retail traders are subject to emotional trading – they get rid of assets during the market downturn, triggering sharp price shifts.
On the other hand, companies, funds, and asset managers have a visionary approach to buying Bitcoin. They do it for diversification purposes, much like they do with gold or real estate, and hold it long-term, regardless of the market swings. As more institutional crypto investors join the crypto sector, it will improve the store of value.
Regulations
Regulations still remain weak for the crypto sector, and many financial criminals take advantage of this. However, it is pretty normal for a new industry to face challenges as it develops. These difficulties spur governments and law enforcement agencies to work on devising clear regulations and laws that will touch on different aspects of using crypto assets.
Final Word
We should not forget that crypto is still in the stage of evolution, while fiat currencies are pretty old and established, with bank systems worldwide still facing their share of illegal activities. As institutional adoption expands, the industry will strengthen its foundation in all aspects.
