David Drake, Founder and Chairman of LDJ Capital, shares his personal insights explaining what encourages investors enter today’s crypto markets.
The cryptocurrency market has gained popularity over the past few years to the extent that those who viewed it as a speculative bubble are already having second thoughts. As cryptocurrency adoption continues to grow, institutional investors now have their eyes set on this revolutionary market.
In fact, several institutional investors, like Venrock and the Soros Fund Management, have recently taken concrete steps to invest in the cryptocurrency space despite the unprecedented drop in price and market cap experienced during the first quarter of 2018.
Moving from Regulatory Avoidance to Collaborative Cooperation
Although the cryptocurrency market remained unregulated for years, countries have started to address the illegal activities and schemes that defraud individual investors. The steps some governments have taken to streamline the crypto market seem to have increased the confidence of institutional investors as reflected by their recent actions. As is the nature of institutional investors, they prefer investing in markets that have proper regulatory frameworks.
Even though no laws specific to cryptocurrencies exist, there is an increased demand for accountability and governance. Regulatory bodies in different countries, including the U.S. Securities and Exchange Commission (SEC), have started implementing securities laws to regulate the cryptomarket and protect investors. This has created an environment where institutional investors are able to develop and implement their investment plans safely and efficiently.
Growing Acceptance and Confidence
The more people understand how the cryptomarket works, including the underlying blockchain technology that supports it, the more mature it becomes and the more cryptocurrency adoption continues to increase.
Recently, many businesses have indicated a preference for the decentralized nature of cryptocurrencies over the centralized financial systems because of the security it provides. We have even seen some corporations publicly declare plans to integrate cryptocurrencies in their business models.
What’s more, efforts and commitments by governments to establish a robust regulatory framework shows the cryptocurrency market is not just a bubble waiting to pop. While suspension or banning of cryptocurrency projects has been witnessed in the past few months, this was necessary to clean out the market of subpar offerings.
As a result, only Initial Coin Offerings (ICOs) that are above board will make it to market in the future. This will help to eliminate fear, doubt and uncertainty among both individual and institutional investors.
Increasing Market Influence
Following the myriad of conversations around the future of cryptocurrencies at the G20 Summit, it is likely institutional investors have realized governments are keen on tapping into blockchain technology and cryptocurrency market.
Even though the market cap for cryptos remains low compared to that of many institutional investors, these investors are becoming aware that significant investments can play an important role in sustaining both the price and value of the market, and they want a piece of the pie.
Participation of institutional investors will certainly affect crypto prices positively in the future. It could even prevent a plunge similar to the one experienced earlier this year. Ultimately, the market will continue to grow and crypto values will continue to rise as confidence grows. By the end of 2018, we could even see them go beyond what we saw in December 2017.
David Drake is the Founder and Chairman of LDJ Capital, a multi-family office which deals in worldwide funds worth trillions in assets and maintains more than 50 global directors and family office partners. Drake is also the Chairman and CEO of The Soho Loft, a global financial-media company offering corporate communications, media relations and fundraising support.