Shark Tank star Kevin O’Leary, AKA “Mr. Wonderful”, said on CNBC’s Fast Money that he firmly believes not a dime from institutional investors will come into the crypto market, at least in the short-term.
Custodianship Isn’t Enough, Regulators Have to be On Board
Over the past 12 months, especially in early 2018, the narrative of institutional investors entering the crypto market has intensified, without a concrete basis for the claim.
In a purely logical sense, for institutional investors to enter the crypto market, which includes large-scale pensions, hedge funds, and academic institutions, a trusted custodianship and a suite of institutional crypto products are necessary.
Most recently, Coinbase, the world’s largest crypto exchange, and wallet platform launched Coinbase Custody in cooperation with crypto hedge funds. As CryptoSlate reported, Coinbase stated that it will operate its custodianship with a primary focus on fund security. Coinbase Custody product lead Sam McIngvale said,
“Coinbase Custody is a combination of Coinbase’s battle-tested cold storage for crypto assets, an institutional-grade broker-dealer and its reporting services, and a comprehensive client coverage program,”
also adding that the company has integrated a multi-layer security system, cold storage, offline private keys that require geographically distributed agents, and fully on-chain transactions.
However, in an interview with CNBC, O’Leary stated that trusted custodianship may not be sufficient to drive institutional investors into the crypto sector just yet. While the first custodian solution from the crypto market has been released, not all regulators are properly on board with digital assets.
On June 15, the Securities and Exchange Commission (SEC) clarified for the first time in history that bitcoin and ether, the native cryptocurrency of the Ethereum blockchain network, are not securities. Other than that, the US government has not provided any proper categorization of cryptocurrencies, and investors will remain uncertain whether they can be considered as assets, money, alternative currencies, or commodities.
Expressing concern regarding the regulatory state of the crypto market, O’Leary said:
“My take on this is, institutional money is not going to go there yet [to crypto] for one basic reason: compliance and the regularly environment. Until you know with certainty, if you’re an asset allocator and you’re running a sovereign fund, you’re not gonna put a dime in this stuff. Because the regulators are not on board yet.”
ETFs Will be Good
While it may require institutional investors additional clarification on the regulatory nature of bitcoin, ether, and other major digital assets to invest in the new asset class, O’Leary stated that bitcoin exchange-traded funds (ETFs) could fuel the decision of institutional investors to potentially consider cryptocurrencies as a long-term investment choice.
ETF is a unique asset in that it targets accredited retail investors or individual traders in the regulated US stock market. The launch of a Bitcoin ETF will demonstrate the proper interest and demand for crypto from a large group of millions of retail investors, who for compliance and regulatory issues, may not have been able to purchase and sell digital assets on crypto exchanges.
Hence, while some investors are expecting bitcoin ETFs and more custodian solutions to arrive by the end of 2018, major investors still believe that institutional investors are far away from committing billions of dollars to the crypto market, and specifically, major digital assets bitcoin and ether.
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