Companies that 10 years ago did not want to know about Bitcoin, today ask how to invest

As of 2013, institutional investment in bitcoin began to take its first steps, and despite the multiple initiatives to include bitcoin in traditional asset portfolios, there is still a lot of room to cover in this market.

This is one of the panel’s conclusions on Bitcoin as an institutional assetheld at the Bitcoin 2022 Conference and made up of four companies that serve clients in the institutional market, whose representatives examined the achievements and challenges of this niche.

Participating in this panel were Michael Moro, CEO of Genesis; Chris Kuiper, director of research at Fidelility Digital Assets; Nathan McCauley, Co-Founder and CEO of Anchorage; and LMAX Digital Executive Manager Jenna Wright. Gem founder and CEO Micah Winkelspecht acted as moderator.

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The most prominent institutional investors, which include mutual funds, ETFs, countries and public and private companies, accumulate less than 1.6 million BTC. This represents just 8% of the circulating bitcoin. While these figures from bitcointreasuries.org do not include information on all private companies that invest in bitcoin, they do provide an indication of the relatively low weight of institutional investment in the total bitcoin market.

Bitcoin treasures.
Investments in bitcoin of funds, countries and public and private companies. Source: bitcointreasures.org.

Venture investors, the first to go

Michael Moro provided an overview of the beginnings of Genesis in 2013, when companies interested in institutional investment were not abundant. «The institutions that were entering this space, interested in trading not as individuals, but from the figure of an entity, were few. Virtually all of our invitations to present bitcoin investment prospects went unanswered,” Moro said.

The first really interested in bitcoin, from an institutional point of view, were the Silicon Valley venture investment companies. and its family offices, at a time when the price of bitcoin was close to $100, the Genesis CEO noted. “In 2013, it was possible to think that bitcoin could go to zero, and that fear kept away all the institutions that were content with the appreciation of 6% or 7% offered by investments in the S&P 500,” says Moro.

On the West Coast of the US, the risk profile of investment firms was in line with investments in a risky asset like bitcoin, Moro says, adding that even today there are large companies that are using equity capital. risk to invest in bitcoin. The specialist emphasizes that institutions prefer indirect investments in bitcoin, for example, in options that are settled in cash. This is a behavior that reflects caution, especially due to the regulatory implications, according to the laws in force in each country.

Volatility remains a barrier to investing in bitcoin

Fidelity’s Chris Kuiper jumps in to point out that in the poll annual report that this investment firm carries out, the most attractive features of bitcoin for most institutions are common to what investors see in the shares of technology companies.

Kuiper says he is surprised that institutions, on average, are less attracted to more unique features of bitcoin, such as resistance to censorship and the possibility of the asset being viewed as an inflation hedge. Institutions appreciate more the performance of bitcoin as a technology, settlement times and cross-border payments.

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Regarding the barriers for the entry of more institutions to the bitcoin market, Kuiper points out that the most cited by potential clients is volatility. “I understand that concern, but I also see that there are other assets with high volatility and companies are not as aware of the fluctuation in their price as with bitcoin,” says the executive.

Another barrier to entry for investors is that they don’t yet have effective means at hand for valuing bitcoin, says Kuiper. «How to make the valuation of a monetary asset? It is not easy to grasp this concept. I think it takes time, and we are going through a time when more people and institutions are reflecting on this.

Educational advancement in Bitcoin

Five years ago, the sale of bitcoin investment products and services involved an effort to educate customers about Bitcoin, says Nathan McCauley. Along with the arguments around the benefits of the products, the investment thesis of Bitcoin also had to be sold, the executive explains, emphasizing features such as censorship resistance and limited supply.

There is more knowledge about Bitcoin in the last two years and the demand is growing. Bitcoin is more in resonance with people and by extension with institutions, says McCauley. «The idea, why you have to invest in bitcoin is clearer. We have the declaration of bitcoin as legal tender in El Salvador, for example, and other governments may come with similar measures », he stated.

Institutions can drive bitcoin adoption

Responding to a question about what new things are being done with bitcoin other than a recreation of traditional finance, Jenna Wright notes that there is a great opportunity to use the best of both worlds. London-based LMAX Digital is making it easy for 35 banks to offer bitcoin products to their customers, without them having to interact directly with the cryptocurrency. This is achieved through a bitcoin derivative that is settled in cash.

“On the one hand, banks have to begin to think that it is a business scheme that goes beyond the banking convention of working only five days a week, during business hours. But it is also useful for those of us who work with cryptocurrencies to put ourselves in the shoes of clients and think that we can learn from traditional environments of finance, “says Wright. The executive points out that there are credit intermediation models in conventional finance that do not exist with cryptocurrenciesbecause an institution would have to provide funds to all exchanges to be able to offer loans to its clients.

The participants agreed that the progress that has been made in expanding institutional investment, although incomplete, has occurred in shorter periods of time than was envisioned five or ten years ago. The fact that institutional investment advances, necessarily implies that individual adoption also increasesFor if a greater number of medium and small banks can offer bitcoin products and services to their clients, the base of small investors will grow proportionally.

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