Jumping In: Institutional investment in crypto is ramping up

Institutional money flowing into crypto assets has been a theme for over two years now. Since the start of 2017, a few private banks have offering crypto asset-related products, a handful of mutual funds have added small bitcoin holdings, blockchain ETFs have launched and over 200 crypto hedge funds have been created.

Today, though, it seems like Wall Street is poised to dip more than just its toes in the crypto pond as several leading financial institutions edge closer to launching crypto asset trading and custodial solutions that are regulatorily compliant

The Bakkt effect?

Perhaps the biggest news about the institutionalization of crypto assets in 2018 was the announcement of plans by the Intercontinental Exchange (owners of the New York Stock Exchange) to launch a new cryptocurrency subsidiary called Bakkt.

As reported in August, Bakkt was launched to build a regulated ecosystem for the trading and warehousing of digital assets as well as consumer and merchant applications.

Bakkt’s start date has been delayed a number of times and at this stage no firm launch date is available. However, Bakkt CEO Kelly Loeffler announced its acquisition of some assets of independent futures commission merchant Rosenthal Collins Group on January 15th, saying the purchase "will enhance our risk management and treasury operations with systems and expertise. Other aspects of the transaction will contribute to our regulatory, AML/KYC and customer service operations as we help enable digital asset acceptance by bringing more choice and control to buyers and sellers."

By providing a regulated ecosystem for institutional investors to invest in and securely store crypto assets, Bakkt has the potential to play a significant role in the introduction of institutional money into the crypto asset markets. A Q1 launch looks unlikely at this time, however, as Loeffler says the company is still waiting on regulatory approval by the CFTC.

Fidelity and Nasdaq

ICE is not the only Wall Street giant looking to enter the digital asset markets. In the first half of 2019, Fidelity plans to launch institutional-grade crypto trade execution and custodianship while Nasdaq reportedly plans to roll out a crypto asset futures offering to clients.

Fidelity’s ground work continues at pace, with the company announcing on Medium that it has on-boarded a "select set of eligible clients" for what appears to be beta testing of its trading and custody solution. "Our initial clients are an important part of our final testing and process refinement periods," the company says, "which will eventually enable us to provide these services to a broader set of eligible institutions."

On Monday, New York-based Nasdaq included Brave New Coin’s Bitcoin and Ethereum Liquidity Indexes (BLX and ELX) into its data suite of 4,000 indices, which suggests that the exchange’s planned crypto futures may be just around the corner. Additionally, it shows that Nasdaq wants to provide reliable crypto asset pricing to its customer base.

The fact that Wall Street giants like Fidelity and Nasdaq are investing in crypto asset infrastructure bodes well for the evolution of the ecosystem.

The pension funds are here

The first pension funds have taken a step towards digital asset investing by backing a newly launched digital asset fund by investment management company Morgan Creek Digital Assets.

Morgan Creek‘s new $40 million digital asset venture capital fund has received investments from two pension funds from Fairfax County, Virginia that collectively oversee over $5.1 billion.

Binance founder ‘CZ’ the first to congratulate Morgan Creek Digital’s Anthony Pompliano

"Blockchain technology is being applied in unique and compelling ways across multiple industries. We feel it is important to be opportunistic and are excited to participate in this emerging opportunity," said Katherine Molnar, CIO of Fairfax County’s police officer’s retirement system, which invested in the new crypto fund.

Pension funds are among the most conservative but also most well-heeled institutional investors in the world. Seeing the first pension funds entering crypto shows a willingness by even the most conservative of fund managers to diversify into crypto assets, which suggests that more pension fund money could follow suit.

Grayscale’s institutional Investor Inflows

Digital Currency Group investment subsidiary, Grayscale Investments, stated in its Q4/2018 Digital Asset Investment Report that out of the $360 million that the company managed to raise for its crypto asset funds in 2018, 66 percent of funds came from institutional investors.

Interestingly, in Q4/2018, the majority of new money went into Grayscale’s Bitcoin Investment Trust, which suggests that institutional investors are moving their money into bitcoin first before diversifying into riskier digital assets.

"In the fourth quarter, 88% of inflows were into Grayscale Bitcoin Trust, while 12% were into products tied to other digital assets," the report states.

2019 could suprise

As recent developments have shown, institutional investors are no longer too cautious to invest in bitcoin. The institutionalization of crypto started in 2017 and continued in full force in 2018 despite the bear market. Now, in 2019, it seems like Wall Street is developing the necessary infrastructure for the street to take part in the evolution of cryptocurrencies and blockchain — even if only as investors.

The planned launches of Bakkt, Fidelity Digital Assets and a potential regulated crypto offering from Nasdaq may deliver enough infrastructure for the wider institutional investor community to feel confident enough to diversify their portfolios into crypto assets.

Should that be the case, then it’s possible the next bitcoin bull market will happen this year and not after the next bitcoin halving in May 2020 as many experts are prophesying.