Here’s why big investment firms won’t touch Bitcoin and other crypto for their customers— but still buy it up for themselves.
As a retail investor or someone who is looking to invest their own time and money into whatever asset they believe to be the most productive, cryptocurrencies can represent an incredibly dynamic investment, that has the performative background to suggest that an investor can also expect some rather comfortable ROI. However, investing in cryptocurrencies is usually either a long-term waiting game or a hyper-dynamic day-trading opportunity. Especially when you choose the right crypto trading platform. Of which there is one to suit nearly all types of investors.
Platforms like Bitvavo are ideal for anyone just starting out in the market, offering users the ability to engage with many of the top crypto, while also learning about investment strategies and market trends. Where larger trading platforms are ideal for those who are already aware of how to best handle speculative assets like cryptocurrencies and may want to dabble in even riskier altcoins. Or peer-to-peer networks, which allow a fully decentralized approach to the crypto market, are tailored to those who are supremely tech-savvy and know the markets and values like the back of their hands. So, while there is a veritable playground for investors, investment firms are still unlikely to touch the stuff. Why? Well, that’s a long story.
Crypto Trading Platform vs. Trading Floor
So, are the reasons these big firms won’t invest in crypto for their clients because they believe there is no market for it? No. Absolutely not. The reality of the situation is that most investment managers would be happy to invest their own money into cryptos, but it’s just not a realistic investment for large firms— yet.
The big difference between being a retail investor in crypto, and managing lots of crypto for many clients is just that. Balancing a ton of highly volatile assets, that are incredibly difficult to include in securities lending or asset financing, is often counterintuitive to the basic functionality of an investment firm to begin with. Many investment firms make a large amount of profit— both for themselves and for their customers— by loaning out existing assets, allowing for more investment trading opportunities. While options trading is now possible within the sphere of crypto currencies, because of their volatile, speculative, and insecure nature, they are less than ideal assets for firms to represent.
Many of the characteristics that are unique to Bitcoin and other cryptocurrencies, the very characteristics that make them so desirable for a retail trader, are exactly the things that make them undesirable for investment firms that represent multiple, highly invested, clients. Instead, most prefer to stick to securities, bonds, and assets that are familiar and have a long legacy of use.
Volatility and Speculation
More than just the years to back them up, traditional securities and assets have some other notable points of reliability that have investment firms engaging with them, as opposed to other, more speculative markets. Crypto being one of them.
Cryptocurrencies, even “stablecoins”, are wildly volatile assets as far as price and value are concerned. There are a number of vague influences on the inherent value of any given crypto— such as how many tokens are available, or can be minted, how transactions are validated, and any associated fees that are required, underlying technology and use cases— as well as a number of influencers that serve to affect their daily trade value— market liquidity, on-ramps available, whales, interested investors, political climate, protocol, and many, many others. Because of the fact that there are so many subtle influencers on the price of cryptocurrencies, it becomes ever more difficult to reliably speculate on what prices may be in the future.
Getting a feel for the market, and understanding what affects the price of certain assets is a huge part of institutional trading. Investment firms base their entire reputation on being able to make sound and reliable choices regarding the actual values and speculative values of a given asset. Because of the extreme volatility present in the price of cryptocurrencies— any cryptocurrency— these assets become extremely difficult, if not impossible, to make reliable predictions about. This means that crypto assets are considered a much higher risk than most investment firms are willing to dabble in.
Intangibility and Assurance
One of the biggest deterrents for investment firms to begin engaging with crypto is that they are intangible assets. While this is true of a number of types of investments, generally when you invest in shares— you gain a piece of an actual company. Bond functions similarly to loans, which come standard with some sort of collateral. But Bitcoin, and all other cryptocurrencies, have no assurances. You’re not gaining a stake in a business, or can be protected by governmental insurance. There are no protections when it comes to cryptocurrencies. No physical properties can be retained or confiscated should things go awry.
While it’s pretty much impossible to have a legitimately “risk-free” investment and more and more companies are bringing to commodify intangible assets, these things are just incredibly difficult to assign a reliable value to. So, while there are a number of investments in the world that are incredibly risky (some even more so than crypto), and there are a number of investments that are put into intangible assets (like fiat), but any of these things have an inherent, stable, and widely agreed-upon value. And it’s also highly likely that they will always have a stable and agreed-upon value. This gives an assurance that cryptos just can’t yet extend, as it’s still considered a nascent market, and global adoption and regulation still have some kinks that need working out.
Engagement and Effort
The other reason firms rarely take the risk of investing in cryptocurrencies, through crypto trading platforms, for their clients is because the market itself is a bit of a beast to navigate. It has decoupled from most traditional markets, legacy speculation financial analysis tools— like candlesticks and oscillators— don’t behave in the same manner, and there is market-specific jargon and technical aspects that any trader must be cognizant of and experienced with. Which essentially requires crypto traders to completely relearn an entire market.
Moreover, because of price volatility, cryptocurrencies also require a keen interaction that few other markets do. This means that in order to stay on top of prices and get the best return for their clients, investment firms would be required to engage in day-trading and arbitrage-style investing. An amount of effort that few institutional investment firms have the time or ability to do. Boutique trading, tailored to individual investors is rarely something that is expended by these types of firms, instead of managing far-reaching portfolios en masse. Further proving how incredible Bitcoin, Ether, and all the other cryptos can be for a personal investor, but how they might not fit the bill when it comes to conglomerate management and large funds.