Since crypto has emerged as a new asset class, institutional investors are eyeing the movement. Albeit small in comparison to other established markets, the crypto market is significant with $287 billion (CoinMarketCap data) and the potential for growth is even bigger, if you believe in the technology. Why are we still seeing so little investment from the elephants in the industry? There are five main considerations on their side.
Being keen to invest in crypto and being allowed to do so are two different stories. The definition of the right asset class is tied to the individual investment criteria.
The motivation might differ from traditional investment strategies. While pure considerations to squeeze out a few more percent gain than market average might motivate for traditional investment strategy, buying into crypto projects is different. Long-term strategic investment in getting access to different technologies and to the tech talent behind are a reason to invest in blockchain technology start-ups or ICOs. Future gains can follow trusting the entrepreneurs now, despite there is not much de-risking to be seen yet.
Is the incentive big enough? Imagine the employee working in a big investment fund seeing the opportunity to expand the asset strategy into crypto. While there are huge monetary yields to see if it goes well, the downside currently overweighs. The stress to convince your team to shift and take the reputational risk of being the one who tried and failed, might be too high for the classical security oriented banker.
Last but not least: regulations. Dealing with the insecurity of not having all regulations in place is not for everyone. While countries like Switzerland are proactive and transparent about regulatory requirements to expect, not all countries are this fast.
Finally, this is the new world. What does this mean? Until we see genuine, real world adoption of blockchain solutions and implementation of technology with use cases, the elephant`s money might stay away. Which is fine, because the change belongs to the young and innovative disruptors for now – who took the early risks and deserve the rewards.