The cryptocurrency market is known for its volatility and unpredictability. From rapid gains to steep losses, prices of digital assets seem to fluctuate at the drop of a hat. Despite several trends, experts say that traditional market participants are still seeing opportunities in crypto investing.
It is undeniable that the year 2017 was a significant one for the cryptocurrency market. The price of Bitcoin, the most popular cryptocurrency in the world, rose to an all-time high of nearly $20,000 in December 2017. However, the following year brought a ‘Red Wedding’ – a term coined by the Game of Thrones fandom after a particularly bloody episode – for crypto investors. Prices plummeted by more than 80% in some cases, causing many to doubt the future of digital assets.
The burning buildings metaphor seems to have been invoked to describe the situation at the time. Despite this, institutional investors have started to see a new dawn in the cryptocurrency market. They are convinced that digital assets can have a place in traditional investment portfolios.
One of the reasons why traditional market participants find cryptocurrency investing attractive is diversification. Investors are always looking for ways to minimize risk by diversifying their portfolio, and many believe that adding digital assets to the mix can help achieve that end. Cryptocurrencies such as Bitcoin and Ethereum are new, innovative assets that are not tied to any particular asset class, making them an attractive candidate.
Furthermore, institutional investors are no strangers to the volatility of the markets. As such, the wild swings in the cryptocurrency market are an expected element of investing for many. Even though they are aware of the risks associated with cryptocurrency investing, they are more than willing to take a calculated risk in the hopes of making a massive profit.
Finally, regulatory clarity is another factor that makes traditional market participants confident about investing in digital assets. In the last few years, many countries have begun to legislate the space, bringing stability and structure to the once-unregulated space. The presence of stable and clear rules allows institutional investors to assess the risks and rewards better.
Cryptocurrency prices have been on the rise since the beginning of 2021. The meteoric rise in prices has been attributed to several factors. One of the most significant is the introduction of institutional investors to the space. Several high-profile investors have been buying up cryptocurrencies in recent months, including Tesla buying $1.5 billion worth of Bitcoin.
Elon Musk, the founder of Tesla chose to invest in Bitcoin rather than keeping the money in cash, which tends to lose value over time due to inflation. With many central banks injecting trillions of dollars into the economy to curb the effects of the pandemic, inflation is becoming increasingly likely. By investing in digital assets, institutional investors such as Musk believe they have a way to protect their wealth from inflation.
Another factor that has contributed to the rise in cryptocurrency prices is the continued acceptance of digital assets by mainstream companies. Large corporations such as Mastercard and Visa have made announcements in the past few months to integrate cryptocurrencies into their payment systems. This mainstream adoption seems to have boosted investor confidence, leading to increased demand and price surges.
Despite their bullish attitude towards cryptocurrency investing, traditional market participants still acknowledge the risks associated with the space. The volatility of the market can lead to sudden price swings, causing losses to investors. Regulatory uncertainty still plagues the industry, with many countries taking different approaches to the matter, leading to confusion on the part of investors and market participants.
Another concern is the prevalence of fraud and scams in the cryptocurrency market. Due to the unregulated nature of the space, it has become a fertile ground for unscrupulous actors looking to take advantage of unsuspecting investors. The risk is heightened as cryptocurrency transactions are irreversible, making it difficult, if not impossible, to recover lost funds.
In conclusion, while the cryptocurrency market may still be a risky place for investment, traditional market participants see opportunities in the space, despite the ‘Red Wedding’ of 2018. The rise in prices due to institutional investors and mainstream adoption is convincing many that digital assets can have a place in traditional investment portfolios. However, regulatory clarity and the prevalence of fraud and scams still present significant concerns that need to be addressed to encourage more investor participation in the space.
Asset managers are showing a keen interest in growth equity and depressed tokens in the wake of the bear market that hit the cryptocurrency industry. The statement was made during the Consensus 2023 event held recently in Austin, Texas. Market participants noted that despite the hit the industry has taken, there is a tone of optimism among investors. Dawn Harflinger, CEO of Lili’uokalani Trust, equated the market destruction to the Red Wedding episode of Game of Thrones. Harflinger said she’s excited to get additional exposure to secondaries and wants to participate directly in the funding rounds of growth-stage blockchain companies despite the industry’s instability.
Matt Halstead, the director of real estate and digital assets for Texas Teachers, agreed with Harflinger, stating that digital assets have the potential to be integral to the future of technology. Halstead observed that digital assets are still volatile but noted the industry’s willingness to accept and adapt to the change. The overriding message from the panelists was that the opportunity in digital assets is multi-faceted, and despite the current decline in valuations, they are still worth investing in.
The digital asset ecosystem has grown broader and deeper and now incorporates assets with lower correlations to bitcoin. Dan Tapiero, CIO at 10T Holdings, noted the existence of uncorrelated digital assets, suggesting that institutions could invest in discounted altcoins and tokens beyond bitcoin. Tapiero noted that valuations had reached excessive levels in the past, with assets being valued at 50x to 100x their revenue, leading to the crypto winter being felt by a wider number of participants.
As valuations have come back in line, Tapiero argued that the timing is ripe for big returns. “If you know what you like and what kind of portfolio you want to build, it’s the best time for crypto investing,” he said.
In summary, while the crypto industry has taken a hit, market participants remain optimistic about the future of digital assets. The industry offers potentially lucrative opportunities for growth equity and depressed tokens, and many investors, like Harflinger, are willing to take risks and get exposure. As Halstead observed, the potential for digital assets to play a role in shaping the future of technology is significant, and thus valuations, despite their decline, are still worth considering. Crypto investing remains a viable option, and the panelists noted that investors need to know what kind of portfolio they want to build and remain practically focused.
