2020 was a very difficult year for the global economy and became a kind of watershed for many industries. The cryptocurrency market also brought a lot of surprises, apart from an impressive jump in the rate of the main cryptocurrency. One of the characteristic features of 2020 for the cryptocurrency market was a noticeable increase in the number of institutional investors. Edgar Jansons, a leading specialist at Trust in BTC (www.trust-in-btc.com), explains who it is and how it will turn out for the digital asset market.
– Let’s first provide the definition of an institutional investor in order to clearly understand who we are talking about. What is their specificity and fundamental difference from other players?
– In short, the definition of an institutional investor refers to a legal entity that invests the funds of investors in certain financial instruments in order to obtain profit, which is then distributed in pre-agreed proportions between the organization and the investors. Simply put, in this tandem, investors provide an inflow of funds, and the organization’s specialists – their investment skills. The most famous organizational forms of institutional investors: banks, pension funds, insurance companies and investment funds with varying degrees of risk – from mutual funds to venture capital and hedge funds. They are large, highly professional players, who in some cases can have a certain impact on the market, especially on such a relatively young one like digital.
– What is the reason for the sharp growth on the part of institutions towards the crypto market, which we are observing at the moment?
– It is a mistake to consider the current situation exclusively in the context of the current moment. Initially, large investors ignored cryptocurrencies due to their undefined legal status and high exchange rate volatility. Moreover, there was generally no clear understanding of what crypto assets are as a phenomenon and what are their prospects. The pioneers in the use of bitcoin in 2017 were the CBOE and CME exchanges, and although the cryptocurrency itself could not be purchased, there was an opportunity to play on rate fluctuations due to the appearance of settlement bitcoin futures. It was the authority of these exchanges that broke a kind of wall of mistrust in bitcoin. With volatility, the story is somewhat more paradoxical: the collapse of the bitcoin rate made this currency much less volatile and more predictable for a fairly long time, which attracted institutionalists. And their presence, in turn, accelerates the market and promotes its growth.
– So this is a good sign for ordinary market participants, right?
– By and large, yes. The capitalization of the cryptocurrency market is directly related to the number of participants. It is no coincidence that we are observing a stable growth in BTC after the strongest collapse several years ago. In the long term, players of all sizes are betting on the growth of the crypto market. However, there is another side to the coin. Large players have certain leverage on the market that they can use to provoke the movements in a necessary direction for a short period. Such unpredictable movements can cause a lot of trouble for ordinary crypto traders.
– What advice do you give clients in this situation?
– Clients of Trust in BTC interested in long-term investments receive recommendations for diversifying their investment portfolio. As for active traders, they are regularly provided with comprehensive analytics of the current state of the market with a forecast of the most likely development of the situation. Judging by the clients’ feedback, this analytics has a positive effect on trading results.
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