Beyond Cryptocurrency: Asset Digitization for Institutional Investors

Dealmaking value and volume trended in only one direction last year, expanding in all four quarters of 2021. With Trustology our crypto and DeFi custody solution does more than just protect your digital assets and the funds private keys. It gives fund administrators the tools to monitor transactions for AML compliance, track and audit all of your assets and transactions and ensure that there are authorisation rules in place to protect your investment as well as maintain the funds trading strategy. Nickel Digital Asset Management published the results of a survey Thursday showing how high institutional investors expect the price of bitcoin to reach. Goldman Sachs relaunched its trading desk for digital assets, and aims to offer a “full spectrum” of investments across the emerging asset class to its wealth management clients. The institutional DeFi world is at an incredibly exciting moment in its adoption cycle.

It is difficult to accurately distinguish between retail and institutional holdings in the cryptocurrency market due to the challenges of identifying the owner of a particular crypto wallet. Despite this, the increasing interest and investment from institutional investors in the crypto space demonstrates the mainstream adoption of cryptocurrencies. Traditional hedge funds have started to tiptoe into the space as opportunities have grown.

Congress has heightened its interest in the matter, with the House Financial Services Committee, Senate Agriculture Committee and Senate Banking Committee all holding hearings on the collapse of FTX in December. But what is causing “mayhem” for the industry is a lack of regulatory clarity, Mr. de Martino said. By downloading this Whitepaper, you acknowledge that we may share your information with our white paper partners/sponsors who may contact you directly with information on their products and services.

BNP Paribas revamps its French retail banking arm to remain profitable

The new study provides additional evidence that debunks the diversification benefit of crypto assets. A lot of these new funds don’t have the expected three years of performance track records that investors in traditional markets like to see. This is why due diligence on the part of the investor is so important in the crypto markets. To recap here, there was a huge emphasis on Know-Your-Customer and Anti-Money-Laundering procedures as well as a focus on the importance of custody for digital asset management.

The cryptocurrency institutional investors Crypto Adoption Index is a metric put forward by Chainalysis and is made up of five criteria, which are based on the countries’ usage of cryptocurrencies. Mr. Murray said achieving regulation could lead to mass institutional adoption of crypto. According to several players in the crypto industry, the collapse of FTX was the case of a single bad actor, and shouldn’t be attributed to the broader blockchain technology. In these uncertain times, supply chain finance and digital networks are providing clients with much-needed support.

Investor attention and Bitcoin liquidity: Evidence from Bitcoin tweets

The entire financial system is being rebuilt from first principles with more security, transparency and interoperability—in weeks and months rather than years and decades. With radical financial innovation and growth comes radical investment returns and opportunity, leading to more and more institutional capital flooding into this space. Through DeFi, the entire financial system is being rebuilt from first principles with more security, transparency and interoperability—in weeks and months rather than years and decades. While the crash of cryptocurrency exchange FTX caused widespread alarm, institutional interest in crypto will remain strong in the long term, and the path to regulation will continue, industry players said. Despite the growing interest in the crypto sector, there are still several factors holding back institutional investment.

Prominent hedge fund manager, Carl Icahn, expressed interest in entering crypto in a “big way”, potentially allocating more than $1B to invest in the space. To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market. In a recent article from Global Custodian, Michael Demissie, Head of Digital Assets and Advanced Solutions, discusses BNY Mellon’s growing role in supporting institutional clients looking to enter the digital asset arena. This is much higher than the proportion of respondents with holdings of less than $15,000 in both equities (56%) and bonds (52%).

Barriers to Institutional Investment

The empirical studies https://www.beaxy.com/ limited to explore the relationship between investor attention and idiosyncratic volatility as well as liquidity. The findings of this study provide consequential results for a more comprehensive understanding of the cryptocurrency market risk and liquidity. Moreover, institutional investor attention aspect has not been elaborated in any of the studies before.

Exposure is small relative to their large balance sheets but easy to do, as they often already have buckets carved out for VC, and a few large IPOs in the last year or so created public equities that can provide exposure. As shown below, venture funding for cryptocurrency and blockchain companies more than quadrupled to over $25 billion in 2021, and a number of high-profile IPOs in the space monetized large gains for early investors and created public equity exposure opportunities. Crypto exchanges are a particularly popular growth investment for institutions, and we’ve seen several large investors take stakes in FTX, Gemini, and of course the publicly listed Coinbase. Given these types of institutions comprise over 85% of the trading volume in US stocks, the entry of these entities is expected to escalate cryptocurrency market capitalization significantly. However, this influx of institutional capital brings the necessity of new infrastructure. In other words – products built to bridge the gap between traditional finance products and digital assets.

These include a lack of market liquidity, concerns about market manipulation, and a lack of regulatory clarity. GlobalData’s 2022 Financial Services Consumer Survey revealed that consumers around the world are showing interest in the cryptocurrency WAVES sector. This interest is primarily driven by the motivation to use cryptocurrency as an investment instrument. 77.4% of global respondents who reported having cryptocurrency said that they were motivated to earn profits from it, while only 18.5% of respondents reported using it as a payment tool. Bitcoin and Ether have moved even more closely in line with the market when markets are rough — exactly the time when investors need assets to behave differently. When the coronavirus shut down global economies in March 2020, Bitcoin and Ether recorded a correlation with the S&P 500 of 0.47 and 0.5, respectively.

We have normalized each market relative to US equities, the single most liquid and accessible market in the world. Cryptocurrencies are still far from being huge markets, but Bitcoin and Ether are now large and liquid enough that institutional investors could access them in relevant size. As a result, our rough estimate would be that an institutional investor could build a liquid cryptocurrency allocation that is comparable in risk exposure to gold or inflation-linked bonds. The CoinShares fund flows report specifically tracks activity in exchange-traded products or instruments for gaining exposure to crypto products.

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We find empirical evidence on the notable effect of retail investor attention on idiosyncratic risk in case of higher capitalized cryptocurrencies with lower liquidity as well as in relatively low and unstable economic conditions. Contrarily, the impact of institutional investor attention is more pronounced for small-cap and liquid coins in states of good market conditions and stable environment. Efficient market hypothesis emphasizes that asset prices instantaneously reflect all relevant information available, as mentioned. Today, the rapidly developing technology enables investors to access information easily and quickly. However, behavioral finance theory underlines the fact that attention is a limited resource since investors are only capable of paying attention to those assets that grab their attention . Besides, Barber and Odean show that retail investor attention induces substantial price reactions due to increased buying pressure.

Institutional investor, private equity and venture capital investments in cryptocurrency and decentralized finance have faded significantly over the course of 2022, a tumultuous year for both digital currencies and the digital financial system emerging alongside them. A new survey shows that institutional investors expect “a strong year ahead for bitcoin” and are confident about the cryptocurrency’s long-term valuation. In addition, 65% of institutional investors surveyed agree that bitcoin could reach $100,000. BlackRock, the world’s largest asset manager with $9 trillion in assets under management, disclosed they have been trading digital asset related products for months.

• In their minimum standards section for custodians, they asked that custodians be qualified with a ‘state’ licence and also be insured, including for insider theft.
• In addition, 65% of institutional investors surveyed agree that bitcoin could reach $100,000.
• When policy rates go negative, high-deposit banks decrease loan extension relative to low-deposit ones, but only in countries where deposit rates were already close to the zero lower bound before the introduction of negative policy rates.
• The cryptocurrency lender secured $572.1 million in a March 2021 round of venture capital funding, but its financial entanglement with FTX prompted BlockFi to file for voluntary Chapter 11 bankruptcy protection in late November.

The most notable difference is investment size, as institutional investment managers allocate much larger sums compared to retail investors. Additionally, institutional investors employ more advanced analytics-driven strategies and pay more attention to risk. Institutions also have to adhere to strict governance and compliance rules, which can impact the way they handle digital assets. Despite preferring direct investments in crypto to investment funds and structured products, most institutional investors gain exposure to digital assets via passive funds, such as Grayscale’s Bitcoin Trust. Overall, yearly inflows into cryptocurrency trusts reached $9.3 billion in 2021, but a plunge in crypto prices in 2022 put strong pressure on the share prices of these funds, with passively managed ones taking the most beating.

By using Amihud il measure, we test the relationship between investor attention and liquidity. In line with the findings of Cheng et al. , Choi and Yao et al. , two-way fixed effect regressions report negative and statistically significant coefficients for both retail and institutional investor attention to explain subsequent illiquidity in the short-term. For both types of investors, the coefficients of attention are relatively very high, signaling that the significant impact on liquidity in the short-run might persist in the long-run. The analyses conducted for the next six months indicate that the impact of retail investor attention on the cryptocurrency liquidity lasts within the next four months and remain insignificant thereafter.

The quality of information disclosure is crucial for a standardized, stable and transparent financial market. Despite the difficulty of rendering a perfect degree of investor attention , empirical studies on idiosyncratic risk in the cryptocurrency market might help investors to construct diversified portfolio investment strategies. Although there exists an extensive literature on the volatility of the cryptocurrency market (Katsiampa, 2017, Urquhart, 2017, Baur and Dimpfl, 2018, Yi et al., 2018, Katsiampa, 2019, Sabah, 2020), research regarding the role of idiosyncratic volatility is quite scarce. In that respect, Zhang and Li focus on the pricing impact of idiosyncratic risk in the cross-section of cryptocurrency returns and report a positive relation between the idiosyncratic volatility and expected returns.

Researchers and scholars see new tendencies in the natural resources price volatility, media economy and productivity growth nexus. Natural resource volatility might negatively influence a country’s or region’s economic growth and media economy is positively correlated with development of green economic recovery. As a result, the present research tries to determine the link between natural resources, media economy while evaluating the importance of green innovation in European Union economies between 1990 and 2021. CS-ARDL findings showed that natural resource volatility, oil rents, gas rents, media economy and green innovation had a favorable impact on economic efficiency in both the short and long term. According to the long-run estimator enhanced mean group, these findings are well supported . In addition, the Granger panel causality heterogeneity test conducted by Dumitrescu and Hurlin reveals a bidirectional causal relationship between the variables under consideration and economic growth.

• Naturally, this is a rough estimate as there may be more Bitcoins in certain wallets belonging to institutional holders.
• The CoinShares fund flows report specifically tracks activity in exchange-traded products or instruments for gaining exposure to crypto products.
• “Only 3% questioned whether bitcoin will ever reach previous all-time high again,” the asset management firm noted.
• And finally, regarding the third contribution, this study enriches the empirical research on the impact of investor attention on cryptocurrency returns, idiosyncratic risk and liquidity.

Stationarity of the real exchange rates is a necessary condition for long-term convergence of price levels. The results of pairwise tests show that the real exchange rates, resulting from these price levels are typically random walks and their components are generally not cointegrated. A systematic difference in the results for tradable and non-tradable goods cannot be detected. As Matt Ridley famously noted, innovation is the child of freedom and the parent of prosperity.

However, the effect of institutional investor attention on subsequent illiquidity continues to remain highly significant for the next six months. The results show that the investor attention impact is robust and significantly improves the liquidity of cryptocurrency market, which signals that both type of investors are considerable market participants. Furthermore, we conduct conditional analyses to control the cross-sectional variations of investor attention regarding coin-level characteristics and market conditions. All reported coefficients except small-cap coins for retail investor attention, are negative and statistically significant. Looking at the absolute value of coefficients, the impact of retail investor attention on the enhancement of liquidity is higher for coins with higher market capitalization and idiosyncratic volatility. Conversely, small coins with lower idiosyncratic risk show higher liquidity improvement by means of institutional investor attention.

As we showed LINK in our 2022 guide to institutional crypto, search volume has historically correlated heavily with price, and can be used as a proxy for retail investor interest. The number of Google searches for the word “crypto” increased dramatically over 2021. Although search volume did fall from its 2021 peak, in 2022 it remained elevated above 2020 levels. However, Mr. Malekan contended that “what determines the success of the technology is whether it actually solves the core problems,” and crypto’s appeal, to him and several others, is its ability to solve problems in the modern world. In a follow-up email, Mr. Malekan said that crypto creates digital scarcity, offers universal access to financial services, increases efficiency in the financial system, and provides property rights to more of the population.