Hedge funds, registered investment advisers and some companies step up their stakes in cryptocurrencies as the market becomes more mainstream
Institutional clients traded $1.14 trillion worth of cryptocurrencies on exchange Coinbase Global Inc. COIN -1.52% in 2021, up from just $120 billion the year before, and more than twice the $535 billion for retail.
Retail traders comprised bitcoin’s market in the early years and traded on exchanges that offered a single bet: buy or sell bitcoin, 24 hours a day, seven days a week. That resulted in a small, erratic market that could be easily moved by modestly sized trades.
“It’s a completely different game now than it was,” said Leah Wald, the chief executive of Valkyrie Funds, which sells crypto-focused exchange-traded funds.
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Those retail investors are still there, but they have been joined by hedge funds, registered investment advisers and some companies, said Gil Luria, a strategist at D.A. Davidson who has been studying bitcoin since its early days. Even El Salvador has become a buyer. “They’re all new,” he said.
The growth in professional investors underscores the rapid mainstreaming of cryptocurrencies in recent years. Venture funds invested billions in cryptocurrencies in 2021—and crypto exchanges have amped up their marketing dollars to try to become household names.
A survey of 300 institutional investors conducted by State Street in October found that more than 80% were now allowed to have exposure to cryptocurrencies. Large funds with assets of $500 billion or more under management were the most bullish, and nearly two thirds of them had dedicated staff for the crypto market.
The only major institutional group that wasn’t in the market, State Street found, were sovereign-wealth funds, though it predicted they would be within two years.
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The growth of institutional investment has changed the way cryptocurrency markets behave. Now, digital markets have started to mirror traditional markets.
According to Wall Street journal, Professional traders see it as one asset inside a diversified portfolio, Mr. Luria said. They hold it because it promises outsized returns compared with other assets, and they trade like any other risk asset.