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Bitcoin 2022 Conference in Miami.
Marco Bello/Getty Images
If “Waiting for Godot” were set in the cryptoverse, its titular character would be an institutional investor. Crypto enthusiasts expect banks, pension funds and other money managers to pour huge amounts of money into crypto tokens and industries, but so far such firms have only really gone for it.
Some crypto supporters have argued that their absence speaks to a fear that Bitcoin and other cryptos will one day disintermediate the traditional financial system, rendering them irrelevant. But representatives from major institutions speaking at a crypto conference this week had a different message: Crypto needs more regulation, infrastructure and scale before institutions will be willing to dive in.
Companies included
Coinbase Global
(ticker: COIN) has been working in recent years to lure more money managers into crypto. In August, the company announced a collaboration with
Black stone
(
BLK
) that allows institutions to manage their Bitcoin investments through the firm’s popular investment management platform. Coinbase has also added “staking” products for institutions that allow them to earn returns on crypto investments.
But so far, the crypto market is still dominated by retail traders. To the extent that institutional investors have become involved, they have often been crypto market makers seeking to profit quickly from small price deviations rather than long-term buy-and-hold investors.
One problem is the size. With a total market capitalization of less than a trillion dollars – less than half of
apple
(APPL)—the crypto market lacks the liquidity that many institutions want to see before investing. “The market cap is too thin for most large Wall Street firms,” Crypto.com head of execution services Shawn Egger said on a panel Wednesday at the Messari Mainnet conference in New York.
But another problem is that crypto lacks the clear railings that many institutions would like to see.
Potential crypto legislation in Congress will “prove to be an important marker for the path of institutional funds into the digital asset and crypto space,” S&P Global Chief DeFi Officer Charles Mounts said on a separate panel Thursday.
Lawmakers this year have written a whirlwind of bills intended to determine how regulators — and by extension, institutional investors — should treat crypto. A bill from Sens. Debbie Stabenow (D., Mich.) and John Boozman (R., Ark.) would put Bitcoin and Ether, which represent the bulk of the crypto market, under the purview of the Commodity Futures Trading Commission. Another draft proposal by Reps. Maxine Waters (D., Calif.) and Patrick McHenry (R., NC) calls for so-called stablecoins, which attempt to tie their value to a dollar.
Some crypto-natives have viewed such efforts with caution, fearing that more regulation will stifle innovation, but institutional investors have been waiting for those kinds of decisions before diving in, Mounts said.
Mounts, whose current position was created just a few months ago, says part of his task is to analyze whether S&P can start doing risk assessments or even setting ratings on different crypto products like stablecoins or DeFi protocols – another hurdle that he says that some institutions want. to see overcome before you invest.
“There’s not a single bank on Wall Street that isn’t looking at this,” said Edward Han, who heads digital asset investment banking for Bank of America. “Every bank wants to help encourage adoption in the sector.”
Write to Joe Light at [email protected]
