Since the incarnation of Bitcoin, there has been anticipation for institutional investors to become cryptocurrency traders.
Adopting institutional investors has benefits and potential drawbacks. These types of investors have the resources to make high volume trades, with the ability to pour more capital into digital currency. Trading at higher volumes gives institutional investors influence over the manipulation of market prices.
With inclusion being a cornerstone principle in cryptocurrency, individual investors, also known as whales, continue to dominate the ecosystem. These whales, among many other reasons, have been blamed for volatile price swings.
In May 2018, there was a 20 percent drop within a seven day period, one-week market cap was $381 billion, and the very next week it decreased to $308 billion.
Despite market dips over the past year, digital currency grew exponentially.
In just one year, there has been a 4,500 percent growth, from $17.7 billion at the beginning of 2017 to $800 billion in January 2018. This jump in the market cap is impressive, yet the cryptocurrency ecosystem is in its infancy stage.
What is an “Institutional Investor?”
Institutional investors are organizations who invest on behalf of institutional members such as endowment funds, commercial banks, mutual funds, hedge funds, pension funds, and insurance companies.
An institutional investor is a nonbank person or organization that trades securities in large enough share quantities…www.investopedia.com
Traditionally, these backers have a substantial influence on the demand and supply of securities, effectively having the most impact on the prices in traditional financial markets.
Initiatives to Attract Institutional Investors
Coinbase announced in late spring of 2018 they will debut products that are intended to attract institutional investors. This initiative is called Coinbase Institutional. These new “suites” or products will provide a network for cryptocurrency and broker-dealers. There are three subsections within Coinbase Institutional: Custody, Markets, and Prime.
Coinbase Custody is a secure digital currency storage vault.
This vault is available to investors with $20 million or more in crypto assets. The tool safeguards high-volume investors’ cryptocurrency.
Coinbase Markets offers a more efficient experience to high volume traders.
Innovated by an engineering office specializing in the digital exchange, Coinbase Markets upgrades the performance of the exchange to create “a centralized pool of liquidity for all Coinbase products.”
Coinbase Prime integrates AI to create “OTC trading and algorithmic orders, using new market data and research products.”
Coinbase prime includes an Institutional Coverage Group. The coverage group is based out of NYC and is comprised of individuals who have experience with traditional firms including New York Stock Exchange, Morgan Stanley, and the SEC and CFTC. This team provides services to institutional clients such as research, operations, and other forms of client support.
Coinbase’s suite of institutional products may generate interest and motivate more traditional investors to add crypto to their portfolio.
These suite products may increase institutional adoption and create a more stable market balanced with individual and institutional investors, creating a market less susceptible to price swings.