Among experienced investors, buying the dip is a common strategy, with some of the strongest adherents being institutions. They have an almost universally long-term outlook and view dips as an opportunity to accumulate a significant amount of what could prove to be an exceedingly valuable asset at a bargain price.
This ties somewhat interestingly into Bitcoin’s status among fellow assets. Known for bouts of immense volatility, the cryptocurrency market is rife with individual investors looking for a massive climb overnight. While cryptocurrencies are capable of such feats and have rewarded plenty of individual investors in the past, institutions view this as just one of a myriad of reasons to move into an asset.
A recent study conducted by crypto insurance firm Evertas investigated other factors that compel money managers to add cryptocurrencies to the portfolios they oversee. Liquidity, investment vehicles, insurance options, custody and the general state of the industry are all factors that have thus far limited institutional investment into cryptocurrencies. In fairness, it would be difficult to call it “limited” as it has been largely driving the crypto market over the past two years.
While institutions still have some reservations, they are nonetheless optimistic, and with good reason. With how quickly the crypto market established itself as a part of mainstream finance, there simply hasn’t been enough time to polish all the angles and bring tokens shoulder-to-shoulder with a decades-old asset class. But this is changing rapidly, and the changes are difficult to ignore.
Just three years ago, cryptocurrencies were not a part of any institutional investment model and were essentially a decentralized method of digitally transferring funds. Now, established institutions like the Cboe and CME are offering cryptocurrency derivatives. The New York Stock Exchange is sponsoring a crypto-custody exchange, while others are clamoring to become cryptocurrency custodians themselves. There are Bitcoin ATMs and talks of physical cryptocurrency cards.
Perhaps most importantly, two native brick-and-mortar cryptocurrency banks, Kraken and Avanti, are just shy of operational, with several others looking to open their doors in the near future. As a whole, the industry has been expanding in virtually every sector, from privately-funded efforts to make crypto transfers more efficient to state-backed research into blockchain.
With this in mind, it’s no surprise that out of the 50 participants in the survey who oversee a combined $78 billion in assets, 26% voiced expectations of a drastic increase in broad crypto institutional investment, 32% percent expect hedge funds to jump in full-force, while 64% are bracing for a general increase in institutional interest. The view of institutions when it comes to cryptocurrencies is perhaps best exemplified by the aftermath of the recent Bitcoin forking. As some lamented that the fork fell short of making an impact on Bitcoin’s price, the aforementioned NYSE-backed crypto exchange Bakkt reached a new record of more than $200 million worth in contracts passing hands.