Global capital markets consulting firm GreySpark Partners released a report which shows how key characteristics of the global cryptocurrencies trading landscape are now maturing to a level at which real-money institutional investors are becoming incentivised to actively place end-investor capital into the marketplace.
Despite growth in the number of crypto-coins available for investment, institutional investors are observed to be struggling to access secondary markets liquidity, in part because the number of crypto-hedge funds is small, with more than half of the firms employing fewer than 5 people. GreySpark estimates that there will be 160-180 active funds before the end of 2018, representing less than 2% of the 5,500 hedge funds trading in standard asset classes globally.
Meanwhile, in primary cryptocurrency markets, real-money companies often struggle to know where wisely to position end-investor capital. According to GreySpark’s research, nearly 50% of the 890 initial coin offerings launched since 2014 failed to raise any money. However, data from Binance and Bitfinex shows that the number of ICOs with positive returns over a six-week period is decreasing from 45% to 25%, but – within that same period of time – the level of returns within successful ICOs typically increases, on average, to close to 40%.
From a crypto-coin mining business model perspective, the report also shows that while the majority of the mining industry is focused on targeting retail investors – for example, offerings from companies like Bitmain – there are also now companies that focus specifically on garnering high-net worth individuals and corporates as clients. Businesses such as BitFury offer customers the opportunity to operate their own mining activities either in the form of managed services agreements, or through the purchase of hardware stored in containers, making it easy to move and set up operations based on energy costs and regulation.
“Cryptocurrencies have become a new asset class and the red carpet is being rolled out for large institutions to join in.”
Eitan Galam, Mayan Capital CEO and report co-author, added:
“Financial institutions have started to engage, although carefully, with their first cryptocurrency-related projects and the whole industry is evolving rapidly with the clear objective to attract the big money. In parallel to that, the blockchain industry still offers a lot of opportunities for people who manage to understand the current market stakes and trends”
Cryptocurrency liquidity is currently highly fragmented, and the need for digital
asset investors to be able to access multiple pools of liquidity makes it difficult for
institutional investors to assess prices and trade in a consolidated fashion. However, Institutional investors are seeking to access cryptocurrency and digital asset
liquidity on a more-familiar OTC basis in an effort to offset the risks associated
with trade execution and transaction settlement via bilateral relationships with
trusted liquidity providers or counterparties.
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