Gold protected tokens like GoldFinX appears to be the best investment source for institutional and retail investors since they can be easily traced back to find its custodial asset backing its worth.
The current market perception for cryptocurrencies has been shifting recently, in a seemingly ever more positive direction, even with the global economy suffering massive blows from the prevailing pandemic. Facebook‘s Libra and JPMorgan‘s JPM coin are anticipated to launch in 2021; Bitcoin and other digital assets have emerged as top choices for investors due to their low correlation with other traditional asset classes. Since 45% of the UK companies have opted out not to pay dividends this year, as per the report of Investors Chronicle, traditional markets and institutions have shifted towards cryptocurrencies for refuge. At the time of this writing, the asset class has witnessed a 6% increase compared to 2013, with the adoption of non-cash assets reaching a whopping US$13.4 trillion net value.
It is becoming apparent institutional money is quickly finding more trust in this new market. Perhaps this could be linked to the spike in BTC computational power, establishing verifiable and systematic trust in the network’s underlying security. But there is also reason to believe a lot of the renewed interest in Bitcoin and other alternative digital currencies stems from the competition in a race to get ahead. Statista has revealed in its report that blockchain and the market for cryptocurrencies will rise exponentially on their way to becoming a US$23.3 billion economy by 2023. The trend will be primarily driven by the adoption of blockchain in the insurance and supply chain sector. Institutional investors, including asset management companies like Fidelity Investments, have launched Fidelity Digital Assets, and the New York Stock Exchange has launched a Bitcoin futures-exchange known as Bakkt. Ivy League University Endowment has also maintained a crypto-class investment portfolio lately driving the euphoria.
Recovery for Cryptos in 2020 after Enchanting Institutional Investors
Oil and other commodity prices have been slashed significantly in value during the pandemic causing notable moments of widespread panic among investors. As a result, equity investment firms are delegating their portfolio management to venture capitals, alternative investments (preferably cryptos), and private equity after the Fed decided to cut down on the interest rate and bring it down to almost zero.
This trend has primarily picked up pace since investors are looking for risk diversification and exploring non-correlated assets. Thus, Bitcoin trends as a better opportunity cost for investments at the moment. The returns on Bitcoin in a year-on-year assessment show a 0.11 correlation related to Gold, which is at a lower trajectory. When we talk about other assets like the US and international shares, it is 0.15 & 0.14, respectively.
Real Vision Group CEO, Raoula Pal, said “possibly in the future, BTC could replace Gold as a store of value. BTC has gained 30.36% against the US$.” Investments from institutional investors like Square, Micro Strategy, and Stone Ridge have raised fresh optimism among investors to choose this as a preferred investment.
This trend has primarily picked up pace since investors are looking for risk diversification and exploring non-correlated assets. Thus, Bitcoin shows better opportunity cost for investments at the moment. The returns on Bitcoin in a year-on-year assessment show a 0.11 correlation concerning gold, which is at a lower trajectory. When we talk about other assets like the US and international shares, it is 0.15 & 0.14, respectively.
This shows that Bitcoin has a close correlation with its ecosystem impact, instead of a near parallel investment portfolio, causing more investors to choose BTC over other portfolios. Thereby, pushing the market attention to cryptos at the moment, CAIA(Chartered Alternative Investment Analysts) has predicted a growth rate of 18% to 24% for alternative investment portfolios by 2025. A 5% hypothetical investment diversification by retail and institutional investors would push the growth to US$670 billion. Whereas, seeing the present adoption during the pandemic, where BTC prices shot for the moon, a 10% alternative investment asset portfolio will push the market size to US$1.3 trillion.
Suppose institutional investors like ARK Invest, Coinshares, Fidelity Investments, Octonomics, and Arca jointly invest in BTC in the future collaboratively. In that case, it could unleash an unparalleled bull-run, and could easily dwarf the previous run of 2017, which was mainly led by retail and smaller venture capitalists, as opposed to this time around, which sees the entrance of big banks, hedge funds, and other wealthy, global institutions also joining the field.
With just Fidelity investing US$3.3 trillion AUM (Asset Under Management) taking a 5% hypothetical investment diversification state, the BTC market would see an influx of approximately US$165 billion. You can do the rest of the math for a joint AUM diversification to cryptos by whales and the likes of other big institutional investors that are getting a better taste for alternative investment strategies in Bitcoin, Blockchain, and related markets en-masse. Besides, the launch of crypto exchanges and Dapps has simplified investment in cryptocurrencies pushing institutional money investments at exchanges such as CoinBase, American Exchange CEO Brian Strong claimed.
He tweeted, “Whether institutions were going to adopt crypto or not was an open question about 12 months ago. I think it’s safe to say we now know the answer. We’re seeing $200-400M a week in new crypto deposits come in from institutional customers.” Therefore, it wouldn’t be an understatement to mention that institutional investors are warming up after Alluva, ARK, Coinshare, Fidelity Investments, Octonomics, Arca, and Fidelity continue to paint the investment market in crypto colours in 2020.
How Stable Coins and BTC Have Been Included in Institutional Investors’ Portfolio?
There has been a splurge in the crypto adoption in the institutional investor’s portfolio after economies known for stringent regulations like the UK, Germany, and Switzerland have advocated for crypto exchanges. Their claims have been fortified post institutional investors like JP Morgan and Goldman Sachs have been seriously getting indulged in the crypto business. Nevertheless, they have their share of careful forewarnings concerning the growth of their portfolio.
Bitcoin has been highly volatile, and it may have too much of a risk involved to buy BTC for a pension fund portfolio. Still, investors have been interested in investing in crypto-funds because their volatility has also attracted opportunities when asset classes like stocks and bonds increasingly lie idle or depressed during the pandemic. Cryptos have a lower correlation with other existing investment portfolios incentivizing investments for institutional investors.
Their unhackable traits, which get strengthened by the network effect, increase the value share of crypto-based assets and drive institutional investors’ adoption. GrayScale has apportioned 1.7% of the total BTC supply in its GrayScale Bitcoin Trust. Their share has increased by 0.1% during the pandemic. It is expected that GrayScale will have roughly 500,000 BTC by the end of 2020, as reported by CoinTelegraph.
The rise in BTC has affected other cryptos as well, following stable coins where Tether ended up as the third-best performing cryptocurrency in 2020. But the unchecked minting of Tether has unsurprisingly acted otherwise. Instead of acting as a hedge against inflation, it has pushed the demand for BTC to an all-time high. 50 Institutional investors plan to aggressively take action on the BTC price dip where they will divert pension funds, insurers, family offices, and sovereign wealth funds to BTC after every dip. They anticipate regulations would become more evident and could fuel investments, thus driving purchase at the OTC. More than a third of institutional investors, or roughly 27%, affirmed purchasing BTC and other altcoins, up from the previous investment season of 22%. Even in Europe, 45% of institutional investors have diversified their portfolio and included BTC and other stable tokens in their wallets.
But with the current Bitcoin and gold boom compared to other assets, the question is how the market, especially the institutional investors, will react to the launch of Libra and Bitcoin adoption by PayPal.
How Will the Gold Supply-chain and Bitcoin shape Institutional Investors Perception Towards Cryptos?
Countries like Iran, Venezuela, and Turkey have responded positively to cryptocurrency adoption as their currencies have significantly devalued recently. As central banks and the Fed work on stimulus packages for the coronavirus pandemic, which actually means dollars will be printed out of thin air, we could well see a further downward spiral of fiat. At this time, assets like Gold and Bitcoin see bright days ahead since they are mined rather than being pegged or staked to existing tangible assets for minting.
Stalwarts in finance, like Visa and PayPal, have already given the go-ahead to allow staking and trading in BTC, which means that it will be relatively simpler to convert the earnings to acceptable currencies. Bitcoin has turned bullish during the post-US election. As the market players and individuals still trust Gold as a store of value, it’s realistic to expect some will inevitably move towards gold-linked tokens that mimic critical aspects of real Gold without many of the drawbacks.
What Will Be the Contribution of GoldFinX in Stabilizing Portfolio Management during This Time?
GoldFinX is a smart solution that aims to transform the Artisanal mining industry completely. The GoldFinX token allows mines and remote communities in hard-to-service regions to rely on other forms of funding while accessing better education. They enable a revival whereby untapped gold mines can be vastly improved to operate without the devastating effects on the local and global environment through the present use of mercury and cyanide. In this model, the artisanal and small gold miners are funded to undertake the mining. Utilising the GoldFinX token over gold dust for payment, artisanal miners would benefit from the utility the token advocates for better working conditions and cleaner environment methods, safeguarding the miners. As the tokens are linked to gold accumulating in trustworthy custodial vaults worldwide, it improves the trust in these tokens.
“Everything that glitters is not gold” can be applied to many things, especially while seeing the unprecedented volatility that Bitcoin has shown ever since its worst bearish run of 2017. BTC’s volatility has been at an all-time high of 3% to 8% at the time of this writing. At this point, Gold’s average volatility stands at 1.2%. Gold protected tokens like GoldFinX appears to be the best investment source for institutional and retail investors since they can be easily traced back to find its custodial asset backing its worth.
James is an early Bitcoin investor and a long-time trader in the crypto market. He's fascinated by the complex possibilities of blockchain and tries to make this topic accessible to everyone.