Cash flows to crypto-assets and blockchain startups have been increasing since 2014, surging to a peak of $8 billion in 2018. Participation of institutional investors in the crypto-markets is of utmost importance as it could determine whether crypto-assets prices increase significantly.
PE and VC firms
Every day, it is more evident that the PE/VC business can never be the same again. Whether it be through ICO, STO, private offerings or other mechanism, the tokenization of shares in small companies is forever changing the coupling of the action to help companies to achieve a capital reward for investors.
One of the impacts is that an owner (or major shareholder) of business will dedicate themselves to the success of the venture, while those that are “free riders” will hopefully be there to enjoy the right results.
PE firms and VCs are reported to be continuously investing heavily in DLT-related businesses, and many of them are of course acquiring the real stuff: shares, as opposed to utility tokens (and as a result, they go below the ICO radars).
Some observers have estimated there will be over 1 billion euros in PE/VC investments in DLT start-ups in 2019. This is below the 2018 high (of 5 billion euros), but still more than the level of venture capital investment in 2017.
Private bankers and hedge funds
There is an ongoing race among banking conglomerates to offer crypto-related services to their customers, in terms of custody and access to crypto-markets. This has been triggered by their high-net-worth clients who want to diversify into crypto-assets, and in the process, forcing their bankers to offer the new asset class to them.
As can be expected, it takes some time for the banks to adapt their operations, and for the management to ensure adherence to regulatory requirements, and so the first banks have recently started to advertise this service officially.
Time will tell whether the introduction of custody services by traditional financial institutions will be the entry door for them. If they are open to that, it can result in them having first-mover status, that triggers the rest, and normalizes crypto-assets involvement by traditional financial institutions. Indeed, whether institutional investors participate in the crypto market sooner or later is of uttermost importance, and will determine whether crypto prices increase significantly.
There are still no convincing signs that active trading by the traditional big banks and investment funds has started. One article reported: “Traditional asset managers – the likes of BlackRock, Vanguard, and Pimco – remain on the sidelines due to a lack of regulatory clarity across the world’s major markets. This is not to say their interest has not been piqued, but volatility, liquidity concerns, and an unfamiliar market infrastructure render the new asset class relatively untouchable, while regulatory uncertainty also persists.”
Crypto-assets investment funds
The news from crypto-focused funds is not too bad, overall. Despite posting disastrous performances in 2018, funds were still able to attract capital in February and March (before April 2nd).
For example, Pantera Capital raised over 150M euros in the first three months of the year. According to the fund, this was a difficult period, but clearly, it could have been worse.
Check the full version of Blockchain Quarterly (Q1 2019) report for more Insights.