Connect with us


What We’re Missing About Institutional Investment in Crypto Winter



Noelle Acheson is a veteran of company analysis and member of CoinDesk’s product team.

The following article originally appeared in Institutional Crypto by CoinDesk, a newsletter for the institutional market, with news and views on crypto infrastructure delivered every Tuesday. Sign up here.

You would be forgiven for thinking that the crypto winter seems to have passed the institutional crypto sector by.

Readers of CoinDesk will have noticed how the list of launches, funding rounds and affiliations is getting longer, and the number of links to news, profiles, papers and analysis of sector fundamentals is growing by the week.

Indeed, recent funding and M&A activity – not to mention the well-backed crypto platforms waiting in the wings – indicate a robust interest in laying the groundwork for broader attention from traditional institutions.

And last year we heard a lot about the “institutional wall of money” that was poised to flood the market as soon as custody got fixed, certain ETFs got listed, regulators got specific and I-forget-what-else was satisfied.

Yet, assuming that institutional investment is not driven by the same sentiment that is keeping this crypto winter cold would be a mistake.

Made of people

Underlying most institutional investors is an individual – a pensioner, fund holder, saver or insurance policy owner. In other words, institutional investors are largely driven by retail sentiment.

If their clients are not interested in crypto investment, it’s unlikely that they will be.

True, institutions march to a different set of rules than retail investors. And assurance from regulators that they will not be subject to punitive fines will perhaps encourage them to channel some discretionary funds into this new asset class.

It is also true that most retail investors look to the supposedly better-informed institutions for advice on where to get higher returns than the average. Professional investors have access to more detailed information plus the wisdom of experience, which in theory gives them an edge over individuals when it comes to recommending risky bets.

However, this overlooks social incentives. The public nature of their fund performance means that the risk is not just financial – notable or consistent underperformance will cause their clients to take their money elsewhere. Losses are painful for all, but retail investors can disguise them when chatting with friends, or even brag about them as a commiseration ploy. Institutional investors don’t have that luxury.

This tends to make most institutions even more risk-averse than their clients, which makes them even more sensitive to market moods.

So, expecting institutional investment to defy the prevailing chill and pour investment into the market as soon as the infrastructure is ready is unrealistic.

Laying the groundwork

On the other hand, fundamentals are improving.

Scalability is progressing, use cases are evolving, collective brain power is growing exponentially and regulators around the world are getting their heads around how to protect investors without killing innovation.

The crypto winter has been harsh for many, but it has given startups and incumbents a welcome respite from the market spotlight. Less pressure means more time to build.

While a more complete infrastructure may not be sufficient to get institutions involved, it is necessary, and its growth and increasing maturity will help many institutions to see crypto as less risky. Greater comfort and familiarity with the sector will encourage firms to listen when enough of their clients indicate a change in market mood by asking about crypto opportunities.

What’s more, overall market conditions – not just in crypto – could augur a shift in sentiment. Professional investors know the well-established theory called “Dogs of the Dow”: the worst-performing stocks of the previous period stand a good chance of shining in the next one.

While almost all asset classes performed badly in 2018, crypto’s rout was particularly spectacular. Does that qualify it for consideration under the “Dogs of the Dow” theory? Or does it mean that funds have an even wider range than usual of traditional dogs from which to choose?

Herd mentality

Speaking of dogs, another factor to consider is that institutional investors, more so than retail users, tend to move as a pack (obviously with notable exceptions). While each thinks of itself as an outlier and (hopefully) smarter than the rest, the truth is that few are brave enough to go against market sentiment.

This means that the “wall of institutional money” that we hear about may actually be a thing, however elusive.

Nevertheless, the growing interest in crypto investment on the part of both traditional institutions and focused market participants – even in a bear market – is a sign that sentiment will turn at some stage.

What the trigger will be, nobody really knows – it could be new regulation, a liquid product or some comforting names adding their market heft to the trend. Or something else that we cannot yet foresee.

It could end up being something as simple as a change in the season. The cold cleanses the surface and hardens the strong, and as any gardening enthusiast knows, plants use the winter for cellular housekeeping. Many need a cold snap to activate the process that will bring spectacular flowers in the spring.

Which will come, eventually. As Hal Borland wrote: “No winter lasts forever; no spring skips its turn.”


Click to comment


What QuadrigaCX Says About Institutional Crypto Investment



Noelle Acheson is a veteran of company analysis and member of CoinDesk’s product team.

The following article originally appeared in Institutional Crypto by CoinDesk, a newsletter for the institutional market, with news and views on crypto infrastructure delivered every Tuesday. Sign up here.


Open pretty much any mainstream financial media source and it’s hard to feel cheerful. Economic growth is slowing. The yield curve is flattening. Trade tensions are tensing. There’s plenty for an institutional investor to fret about.

Yet none of those worries are top-of-mind for institutional investors these days when it comes to their crypto investments. Along with most of the blockchain sector, they’re more engrossed in the drama unfolding around the death of the CEO of a Canadian crypto exchange.

In case you missed the story on CoinDesk, the CEO of beleaguered Canadian crypto exchange QuadrigaCX, which was already in trouble because of frozen accounts, passed away unexpectedly in India in December. Leaving aside the suspense over the encrypted laptop, the debated existence of cold wallets and the exact role of the chihuahuas in all this, the attention-grabbing detail is that he apparently was the sole keeper of the password that could access client funds. When he died, he took the password with him.

On the surface, it doesn’t look like this has much to do with institutional investment. The exchange was not exactly geared up for rigorous checks and oversight. But its fate, and that of its clients, points to a fundamental truth about crypto investing for institutions, one that both colors allocation decisions and shapes emerging infrastructure.

It’s this: The crypto market is the only market out there at the moment where operational risk is greater than market risk. And this highlights both crypto investing’s weakness and its opportunity.

Building blocks

Readers of this newsletter know that every week there’s positive news about infrastructure development for institutional transactions. Sometimes it’s a listing or a launch, occasionally a partnership or merger, and the array of items usually comes together to create an impression of constructive evolution.

Often the news is security related. Licenses are sought after and awarded, which implies greater oversight; compliance processes are boosted, which reassures regulators; and new products and services stress tighter security, which addresses market concerns. The general tone is one of raising overall standards to meet institutional expectations.

Obviously, these moves (and plenty more like them) are necessary. The nascent crypto market is still largely unregulated, as official institutions around the world wrestle with the choice between fitting the new asset class into existing obligations, or creating new ones.

Meanwhile, institutional investors do not like ambiguity when it comes to processes. Few can afford the risk of fines or public embarrassment as a result of not having retroactively complied with rules when they eventually emerge.

What’s more, businesses built on new technologies are generally feeling their way along the development curve. As anyone involved in cybersecurity knows, it’s almost impossible to foresee and protect against all possible attacks. With traditional securities, there is generally some recourse or walk-back. But most cryptoassets are still bearer securities, which implies a whole different level of custody risk.

Silver lining

This unique condition of the crypto market is not a disadvantage. On the contrary.

First, the “progress principle” and its impact on motivation is well documented. The tangible and identifiable steps forward in sector development engender a constructive atmosphere, which brings in even more brain power and keeps the momentum going, regardless of price movements.

Second, the focus on security highlights the market’s youth as well as its potential. While improving the security of crypto holdings may seem like a basic beginner step, the chance to participate in the creation of a new asset class is rare.

What’s more, the risk-return profile of cryptoassets as a whole becomes even more asymmetric as the operational base of transactions – the technology, regulation and quality of market participants – continues to evolve. And the bear market is giving a much-needed breathing space for the construction to advance, the security to improve and investors to become even more familiar with the fundamentals.

This entry-level progress sets the stage for more sophisticated risks as the market matures.

To many this may rhyme with the well-known song of parenting: We focus on making our young feel secure, so that as they grow they have a solid emotional base from which to deal with what life later throws at them.

Growing up

While extremely painful to many, the lessons learned from QuadrigaCX’s lax security and almost non-existent governance are an important part of this evolution. Beyond the unwelcome education, serious mistakes serve to highlight vulnerabilities, focus attention and hone priorities. This makes the sector stronger.

Meanwhile, crypto infrastructure continues to evolve, and any interest that has been scared away will return as the sector’s increasing professionalization calms concerns over operational vulnerabilities.

Eventually, institutional investors in crypto assets will be able to get back to doing what they do best: fret about market risk, and take positions accordingly.


Continue Reading


“We Will See Another Bull Run Come”, Says Co-Founder Raven Protocol



The bull run of 2017 proved to be extremely beneficial for many in the crypto game. People who cashed out on the right time gained extreme profits. But since coming back from the “almost $20,000 mark”, bitcoin has not been able to rise up again. At the time of writing, bitcoin is floating around at the price of $3,601. People who are holding, or ‘HODLing’, bitcoin are looking for the next bull run to happen. But will see another bull run like 2017 happen again?

Sherman Lee, who is a Forber author, a partner at Zeroth.AI and the co-founder of Raven Protocol, recently got in touch with BlockPublisher as she gave her insight regarding this issue. Answering the question regarding whether we will see another 2017 like bull run in the future or those days are over for bitcoin, she said:

We will see another bull run come. Maybe not this year and maybe not the next. We have a lot of catching up to do in terms of the tech matching the network valuations of these tokens that are being released.

She further said:

2017 was the year of outlandish raises for crazy ideas. 2018 was the year these things were getting built. 2019 will be the year that tests true adoption of blockchain technologies. Dapps like cryptokitties has only a couple hundred users per day. And that’s supposed to be the most popular game. Tron released its blockchain on Mainnet and the transactions are near instant and cheap. Many developers are switching over to them.

Another bull run of bitcoin is expected as per Sherman but the timeframe for that seems unclear as of now. Moving forward into 2019, she also pointed out that the true adoption of blockchain technologies will take place. A lot of capital is already flowing into this space. People are starting to look for the use-cases of this technology in areas other than finance.

It also seems that the world is still waiting for a killer dApp to come in. Up until now, we have not seen a dApp getting mainstream adoption in the general public. With platforms getting more and more faster and scalable, it is expected that we will see a dApp go mainstream in the near future somewhere. If that ever happens, it will likely help get blockchain more adoption across various industries.

SEE ALSO: Bitcoin (BTC) Price Remains Crucial To Mainstream Adoption As Shown By 2017 Volumes



Continue Reading


JPMorgan Has Its Own Crypto and It’s Starting Real-World Trials: Report



While its CEO, Jamie Dimon, is notorious for his critical comments on bitcoin, investment bank JPMorgan is preparing for a future where blockchain is a key part of financial infrastructure with its own cryptocurrency.

Called JPM Coin, the token has been developed by engineers at the bank, according to a report from CNBC on Thursday, and is moving to real world trials in “a few months”

For the effort, JPM Coin will be used to settle a small portion of its transactions between clients of its wholesale payments business in real time, CNBC says. The bank moves over $6 trillion daily as part of that business, it adds.

Speaking to the news source, Umar Farooq, JPMorgan’s blockchain lead, posited three main use cases for the bank token, including replacing wire transfers for international payments by large corporate clients and cutting settlement times from days to just moments.

It could also be used to provide instant settlement for securities issuances, as well as to replace U.S. dollars at held internatinally by subsidiaries of major corporations using JPMorgan’s treasury services.

“Money sloshes back and forth all over the world in a large enterprise,” Farooq said. “Is there a way to ensure that a subsidiary can represent cash on the balance sheet without having to actually wire it to the unit? That way, they can consolidate their money and probably get better rates for it.”

Eventually, JPM coin could be used for mobile payments he added.

“Pretty much every big corporation is our client, and most of the major banks in the world are, too,” Farooq concluded. So, even just using the token among to JPMorgan clients “shouldn’t hold us back.”

The bank is also running a blockchain payments trial launched in conjunction with Australia’s ANZ and the Royal Bank of Canada. As reported, the three banks set up the project in October 2017, aiming to slash both the time and costs required for interbank payments using traditional methods.

Called the the Interbank Information Network (IIN), the platform is built on Quorum – the ethereum-based blockchain network developed by JPMorgan and possibly to be spun off into its own enterprise.

Last April, JPMorgan also partnered with National Bank of Canada and other major firms to trial Quorum with a debt issuance worth $150 million.

The trial mirrored a $150 million offering the same day by the National Bank of Canada of a one-year floating-rate Yankee certificate of deposit.

While working on its own token, JPMorgan recently said that cryptocurrencies would only have value in a dystopian economy.

CEO Jamie Dimon notably also declared bitcoin a “fraud” in 2017, adding, “It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.”


Continue Reading