Institutional Investors Enter the Crypto Market

George Soros has previously stated that the rise of Bitcoin is based only on speculation. The words of the richest hedge fund manager, and one of the wealthiest people, in the world carry a lot of weight. But now the Rockefeller family – another giant of the American financial establishment – is joining the crypto-party. The venture capital arm of the Rockefeller Foundation, Venrock, has signed a partnership with Coinfund, a Brooklyn-based cryptocurrency investment fund.

Venrock Enters the Crypto-Game

Venrock (a compound of “venture” and “Rockefeller”), is turning its sights to cryptocurrency projects and markets. The famous investment vehicle’s focus straightforward long been on technology and science since its inception nearly half a century ago. Among their laundry list of investments are tech giants such as Intel, Apple, AppNexus and StrataCom.

Cryptocurrency seems like a logical progression. David Pakman of Venrock explained to Fortune:

There are a lot of crypto traders in the market. There are a lot of cryptocurrency hedge funds. This is different. In fact, to us, it looks a little bit more like venture capital.

Mr Pakman was speaking about Venrock’s announced partnership with Coinfund, an investor group exclusively geared toward cryptocurrency startups. He continued:

We wanted to partner with this team that has been making investments and actually helping to architect a number of different crypto economies and crypto token-based projects.

Founded three years ago, CoinFund has backed some prominent blockchain projects. It has recently added CoinList, an AngelList spinoff that aims to help companies undertake regulation-compliant ICOs, to its portfolio. One of CoinFund’s most prominent clients is Kik, the chat app maker, which last year became the first well-established startup to pull a crypto-pivot.

The Coming of the Institutional Investors

In the past few weeks people like Bill Barhydt, CEO of Abra, have been openly speaking about western institutional money finally seeping into the crypto domain, and with this latest move, the world is witnessing glimpses of just that. Though the digital currency sector seems to be going through a bit of a rough patch at the moment, such news goes to show that big financial players across the world are realising the futility in resisting this ongoing digital revolution and are finally getting with the program.

Soros doesn’t have to be bullish on bitcoin to trade the digital asset. The billionaire investor is widely known as the man who “broke the Bank of England” by successfully shorting the British pound in 1992. With Soros set to trade cryptocurrency, the debate over institutional demand continues to be an important one. Despite his negative view of the market, his fund has a significant stake in – the first publicly-traded company to not only accept bitcoin but launch its own virtual currency through a subsidiary project called tZERO.

A Growing Reputation

Can two famous names such as these succeed in improving the reputation of the market? Bitcoin hedge funds are counting their profits in thousands of percentage points, and institutional investors can’t stay away forever. As digital currencies continue to gain publicity they are proving remarkably resilient to investors’ worst fears. Technology is rapidly improving, and many of the same features and safeguards currently maintaining traditional investment markets are increasingly present in crypto-markets as well.

Although the total crypto market cap is tremendous, it is still far from reaching its full potential. Cryptocurrencies are now becoming household names, and they are still shedding some of the preconceptions that stigmatised investment. Institutional investors will become the real growth drivers of the cryptomarket, once they get involved. Private backers who want to use platforms to manage their investments, as well as the possibility of considerable profits, will drive these institutions to allow trading in cryptocurrencies. However, institutional investors are not buying the underlying product of all these instruments, which is the cryptocurrency itself.

The underlying reason is straightforward: there is a lack of infrastructure around the sphere. To be more precise, the current market structure of the cryptocurrency universe doesn’t allow institutional investors to buy BTC and other cryptos directly for four main reasons:

  • There is no transparent price formation.
  • Current crypto-exchanges show a counterparty risk that is too high.
  • The fiat and crypto-custody of crypto-exchanges does not meet the level of service required.
  • Know-your-customer and anti-money-laundering processes are not properly done.

Cryptocurrency Investors in the Future

The interest from big-time names will help to take the heat off the market from global financial watchdogs. Up until now, financial regulators across the world have taken a tough stance toward cryptocurrencies. News of the involvement of big investors has triggered a jump in crypto prices, sending bitcoin back above $7,000, before falling again as backers cashed out before the US tax filing date. With the addition of new large investors to the market, cryptocurrencies look set to buck the 2018’s downward trend.

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Kate McCartymedia, economics