Over the course of the year, institutional investment has increased at a fast pace following the rapid development in the industry and exponential growth in Bitcoin over the last 12 months. CEO of digital asset manager Vision Hill Group, Scott Army, released the ten most important things that institutional investors should be looking for come 2020. How big can the blockchain and cryptocurrency market grow?
Here are some key concepts derived from the report, “An Institutional Take on the 2019/2020 Digital Asset Market.”
Bitcoin remains the supreme cryptocurrency
During the bear run in 2018, During the 2018 Bear run, BTC price dropped far less than the 90%+ of the top altcoins and has shown no signs of slowing in its dominance as 2019 saw the coin shoot up over 100% as altcoins remained relatively flat. The dominance by Bitcoin shows a clear disparity in the market – There’s bitcoin, and then there’s everything else.
Furthermore, the coin acts as the market beta, at least for now, given its huge market dominance – currently at 68.4%, as at the time of writing. The op-ed reads,
“Bitcoin’s size and its institutionalization has enabled it to be an attractive first step for allocators looking to get exposure (both long and short) to the digital asset market, suggesting that bitcoin is perhaps positioned to be digital asset market beta, for now.”
Institutional investment interest is on a gradual rise
The conversion numbers remained low during 2019 given the sustained bearish momentum through the previous year. Despite this, the field has witnessed a massive growth in institutional investor interest as educational progress took massive steps.
Big institutional funds, hedge funds, banking, and fund managers are taking a keen interest in the field with the processes for forming a digital asset strategy that is either getting started or already in motion in these firms.
Simplicity wins the day
It is getting clearer that active management in the space is dying a slow death with crypto fund managers opting to have singe asset index funds or exclusively trade in Bitcoin.
“Since the start of 2019, active managers were collectively up 30 percent on an absolute return basis according to our [Vision Hill] tracking of approximately 50 institutional-quality funds, compared to bitcoin being up 122 percent over the same time period.”
The slow process in approval of the Bitcoin ETF is yet another key moment through 2019 in institutional investing. Due to this, funds have resulted in privatized single asset vehicles such as Galaxy Digital’s, Grayscale Bitcoin Trust and other institutional investment products such as Bakkt futures and Fidelity’s latest London branch to serve European investors.
DeFi economies stamped authority in 2019
Smart contract powered collateral economies, one of the many cases DeFi, have seen a spike in interest as the world starts to embrace finance in a way, traditional finance cannot compete with. A platform such as Maker (MKR) allows users to earn value from their tokens by either lending or borrowing, giving the token a form of economic utility. The benefit of digital collateral is that it can be liquid and economically productive while at the same time serving its primary purpose.
However, the increasing value in DeFi and the economies built on smart contracts is not being reflected on the value of Ethereum, the platform hosting the ecosystem. Since the start of the year, ETH is trading over 30% lower despite hosting a multitude of Dapps and users.
Product market fit finally taking shape
With such a huge interest in the field, the development of fitting products to the market is only just a matter of time. The huge investments already poured into the field with Big Tech companies such as Twitter and Facebook announcing their Bluesky and Libra projects respectively signaling an opening market for blockchain.
“We are at the tip of the iceberg as it relates to the products and applications blockchain technology enables, and mainstream users will come with growing manifestations of product-market fit. As more time and attention gets spent on diagnosing problems and working on solutions, the industry will begin to achieve its full potential.”