Big money is already in crypto markets, but we’ve only just reached the tip of a slow moving iceberg
Announcements have becoming fast and furious about traditional financial firms investing in digital assets or crypto startups; so often, in fact, that blink and you’ll miss’em.
Hedge funds and retail-focused products are celebrating major fundraises and traditional banks are leading or planning to lead investment rounds in blockchain firms. A publicly traded company has converted a significant chunk of its balance sheet to Bitcoin, and US regulators have agreed to let banks custody crypto assets – all in just the past two months.
Not a day goes by, it seems with the news du jour, that a major legacy institutional firm is building out an army of 100 to dedicate staff in a secret mission the Pentagon would envy. These developments are all massive signals to the rest of the financial world. With Wall Street newfound awareness of digital assets, a sleeping giant has awakened.
My, how things have changed since Satoshi Nakamoto laid out his vision amidst the smoldering embers of the 2008 financial collapse.
Summer frenzy
A normally quiet season has seen a historic flurry of activity in the crypto and blockchain space. It’s been a transformational time that’s put the old guard on notice and forced them to pivot from positions they previously held in the digital asset space.
This about face has led to JP Morgan’s acknowledgement that it will invest $20 million to lead a fundraising round in the blockchain consortium Consensys, a previously unthinkable turn of events when CEO Jamie Dimon was loudly calling Bitcoin “a scam” to anyone who would listen. Also, CommerzVentures, the investment arm of Germany’s CommerzBank, recently announced it invested in the digital asset security startup Curv, which provides the tech used by many crypto asset custodians or exchanges providing custody.
Additionally, it seems each quarter brings Grayscale [which has a number of over the counter (OTC) traded products tied to the price of various crypto assets] to new all-time highs, in terms of assets under management (AUM); and Microstrategy, a billion dollar, publicly traded company, announced last month it had purchased about $250 million in Bitcoin “to hedge inflation.” They are the first known company to make this leap. The Microstrategy news feels like a seminal moment – a publicly major US company stockpiling Bitcoin as an alternative to the US Dollar. Kind of a big deal.
All of this was recently bolstered by the Office of the Comptroller of the Currency (OCC), a little-known office that regulates some aspects of banking activity in the U.S., commented in a letter that it would allow all chartered national banks to custody crypto assets. Many pundits saw this as a huge development that would immediately move markets in a major way – but the smart money knows this change will not happen overnight. It will be a while before we have a Wells Fargo custody Bitcoin, or Northern Trust hold a hedge fund’s ETH. And markets responded accordingly, staying mostly flat.
But wait, there’s more!
Legendary hedge fund investors Paul Tudor Jones and Jim Simons have made passionate defenses of Bitcoin and even invested significant sums into the leading cryptocurrency.
Even Goldman Sachs, which famously said at the start of the summer that Bitcoin “is not a suitable asset for investment or an asset class at all” has since u-turned and named a new head of digital assets earlier this month.
The hedge funds Pantera and NYDIG, also recently announced they have pulled in nearly $175 million and $190 million, respectively. This automatically places them in the top one percent of all crypto hedge funds.
What’s the point?
Sentiment is clearly swinging in favor of digital and crypto assets, and many people formerly opposed to it (looking at you Jamie Dimon) appear to have changed their minds. But make no mistake, this is because sophisticated investors (these firms’ biggest and best clients) are increasingly asking about Bitcoin and Wall Street is scrambling to get up to speed and satiate client demand.
It would also be reasonable to accept that Covid-19 has provided an opportunity for large endowments and foundations to dedicate time to research an asset class that has largely been underserved and underestimated until now.
The clock is ticking, and many firms are still sitting on the bench waiting to come into the game. All it takes is one look at the news – between Pantera, NYDIG and Grayscale – serious investors have shown that if traditional financial firms won’t help them allocate to digital assets, they will find other firms that will.
The great thing about any market is one never knows when a top or bottom is reached, though hindsight does bring sagacity. At the very least, history is being made, and the journey is half the fun.
Alex Mascioli Is the Head of Institutional Services at Bequant, a leading crypto & digital-assets prime broker. Coming from the traditional hedge fund space he has been on the institutional side of crypto full-time since 2017 advising crypto funds and institutional investors globally. He also has a very successful YouTube channel pertaining to crypto and can be found on twitter or https://www.alexmascioli.com/