Mature Crypto Market to Attract More Institutional Players

A mature cryptocurrency market is expected to attract more interest from institutional participants, says a Hong Kong-based crypto trader.

Regulations are necessary to stabilize the digital currency space, and a more mature market will encourage institutional investors to step up their participation, according to a Hong Kong-based cryptocurrency trader.

Adrian Lai, a founding partner at digital currency investment firm Orichal Partners, believes that global rules would greatly diminish fears of market manipulation as well as volatility.

Lai told the South China Morning Post:

“Regulators are not banning the development of cryptocurrencies, but are trying to better regulate the market, which should help the industry mature.”

He explained that the “irrational” digital currency market of 2017 was due to the lack of regulatory oversight and participation of institutional allocators. Fortunately, governments across the globe have realized the need for regulation and have started to issue guidelines on cryptocurrency trading and initial coin offerings (ICOs).

Lai, who regularly conducts educational seminars on cryptocurrency investment in Hong Kong and Macau, has noticed a significant rise in interest this year from institutions such as fund managers and private banks.

He added:

“If the regulatory stance gets clearer, large funds will be more assured and willing to commit significant capital.”

Global push for regulation

The US is leading the global push for cryptocurrency regulations to prevent fraud and protect consumers from criminal activities related to digital currency trading. In March, the SEC issued a public statement laying the ground rules for digital currency exchange registration in the country and for enterprise that want to start a cryptocurrency trading business.

Last week, the Financial Conduct Authority (FCA) of the UK told companies engaged in cryptocurrency derivatives trading that they must comply with all applicable laws and possibly seek a license to operate.

South Korea, Japan, the Philippines and other Asian countries have set their own rules about cryptocurrency trading, exchanges and ICOs.

Majority of institutional investors not interested in crypto

Lai’s assessment clashes with a recent survey Context Summits conducted among more than 400 institutional investors such as family offices, pension funds, and sovereign wealth fund. It showed that 71% of the respondents had no plans to allocate to crypto-related funds while some 18% had not yet decided.

The survey also established that almost half of the respondents had no idea what to make of digital currencies.

Context Capital Partners CEO Ron Biscardi said:

"This survey was conducted immediately prior to a 10% drop in equities prices and a spike in market volatility, so it's prescient that many institutional allocators were already planning significant allocations to alternative investment strategies, which offer investors the potential for downside protection as well as asymmetric returns that are uncorrelated to traditional market risks. We believe this strong demand for alternatives will continue as market participants adjust to the uncertainty ahead."