Institutional Investors

Are Institutional Investors the panacea that the cryptocurrency industry thinks?

While reading the news the other day about market fluctuations in the crypto space, it reminded me of a very important point. Regular Mom and Pop investors, called retail investors in the TradFi world, do not cause market fluctuations. For all the decades that I have been in the TradFi world, everyone tells you it is the knee jerk reaction of the retail investor that causes the sharp market swings. This is told to us by the companies we represent in the financial industry and certainly by all major news outlets. I do not see the statistics bear this out.

Institutional investors control about 80% of capital markets globally leaving only 20% for retail investors. If we understand how retail investors interact with the market, it is always through a broker. This means retail investors do not have immediate access to trades. Institutional investors do their trades directly with the market through software. It has always been true, that by the time the market (meaning the rest of us retail investors) hears about anything, the financial moves have already been made because it is old news for the institutional market. This implies to me, that it is not retail investors but institutional investors with the knee jerk reactions, that drives the swings in the market. It is not driven by retail investors as we are told by industry and media. We, retail investors cannot act as quickly because we receive the news late and must deal with our broker. It is time for the “smart money” people (institutional investors) to quit blaming us, the retail investors, for causing the seemingly knee jerk reactive moves in the market and take ownership of their actions. It is also time for news outlets to stop lying to us about who is causing the market swings, it is not us, it is them.

Also, we hear from the TradFi world that crypto is not a viable asset class for a number of reasons, one of which is the limited number of top tokens to invest in. Funny that, since the Magnificent Seven (Apple, Microsoft, Alphabet [Google], Amazon, Nvidia, Meta and Tesla) control around 29.4%[1] of the total market with their share of the market increasing to the highest level in 50 years. With the maturity of the TradFi market compared to the crypto market, you would expect more diversity than just seven companies controlling the market, this concentration of control is exactly what the crypto space is being accused of not having yet it is the same in the TradFi world.

[1] https://www.jpmorgan.com/insights/global-research/markets/market-concentration

TradFi markets are very inefficient and only trade 5 days a week and not on holidays. This means you end up with about 252 trading days a year in the TradFi market. Blackrock is the largest asset manager in the world and trades approximately $59.5 billion a day in trades, approximately 60,000 trades a day.[1] This is only slightly less than the total trading volume of the entire crypto markets on a daily basis at approximately $65 billion at present. The top 3 fund families, which is really only two fund families since number three, State Street is owned by number one Blackrock, control 74% of the ETF equities market. So, when TradFi tries to tell you the crypto market is not viable because of a concentration in available investments, don’t waste your time listening because their market is no different. What I look forward to seeing is less pegging in the crypto market, meaning when not every token rises and falls with the Bitcoin price. This diversity will come with maturity. There are still opportunities in the crypto market and that day will be interesting.

[1] https://www.marketsmedia.com/data-is-watchword-for-blackrocks-co-head-of-global-trading/

Many people in the crypto market believe the addition of more institutional investors will drive the market higher. That is likely true. What will also be true, is it will drive more market volatility as well as an effort to move the crypto market to look more like the TradFi market, with a few players controlling it. This is not what we want, however, it is what will happen if we are not careful. Institutional investors will bring trade volume and likely higher prices to the crypto markets. It is my opinion that these institutional investors should be taken with a big grain of salt. Be careful what you wish for, you may get it, but it will not come with only the results that you think or want.

Obviously, this article is simply my personal opinion and I do not speak for anyone else or any company by expressing my opinion. It is an opinion formed over many years in the financial services industry and it is my opinion and mine alone. Take from this article what you will. If nothing else, you should always check any ‘facts’ you are presented with regardless of where or who they originate from.

Joey Jones, Co-Founder/Chief Revenue & Compliance Officer

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