Institutional investors are playing an increasingly prominent role in the Bitcoin market and that role is likely to continue growing. For smaller investors, there are tangible benefits to this scenario.
Cryptocurrencies remain largely unregulated, which has deterred many potential investors. The Securities and Exchange Commission has so far rejected exemptive relief for any attempt to roll out a Bitcoin ETF, arguing that there is not enough protection against fraud and market manipulation in the cryptocurrency market. However, institutional investors are moving past those concerns and embracing Bitcoin in a big way.
“As our analysis suggests, it could scale from roughly $500 billion to $1-5 trillion in network capitalization during the next five to ten years,” according to ARK Invest research. “In our view, capital allocators should consider the opportunity cost of ignoring bitcoin as part of a new asset class.”
Is Bitcoin Becoming Institutionalized?
The hesitance once seen around cryptocurrencies is slowly starting to dissipate as more institutional investors start taking the assets more seriously. Today, many market observers believe the time is right for institutional investors to get more involved with Bitcoin.
Asia, in particular, is seeing the most interest in rising institutional investment. China is currently in the works of introducing its own state-backed cryptocurrency offering with the help of major private industry players.
“Untethered from traditional rules and regulations and generally uncorrelated to the behavior of other asset classes, bitcoin seems to have earned a strategic allocation in well-diversified portfolios. During the past decade, bitcoin is the only major asset with consistently low correlations to traditional asset classes,” according to ARK.
Supply of fiat currencies is seemingly endless. After all, central banks like the Federal Reserve can print at will. Bitcoin’s limited supply enhances the allure of the digital asset.
Supply of Bitcoin is dwindling because institutional investors are piling into the market and many retail investors are holding onto the cryptocurrency for longer periods of time.
ARK estimates that with more high-level investors entering the Bitcoin market, the crypto’s daily trading volume could exceed that of domestic stocks in four years and top the forex market in six years.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.