Institutional Investors in Cryptocurrency: The Roles and Advantages


Just a few years ago, the world saw how institutions started to adopt cryptocurrencies and add them to their investment portfolios. In this article, we will discuss institutional crypto trading – its participants, and the way they participate in this sector.

Who Are Institutional Crypto Traders?

Unlike retail traders, who use their money and take risks engaging in the crypto market, institutions often act on behalf of their clients or shareholders. These are hedge funds, trading firms, family offices, and even banks. Pension funds also invest in crypto, but rarely. They are largely focused on conventional stocks and bonds.

Crypto funds include:

  • crypto index funds (e.g. Bitwise 10 Index Fund); 
  • exchange-traded funds (ETFs) (Grayscale Digital Large Cap Fund, CI Galaxy Ethereum ETF);
  • crypto hedge funds (Pantera Capital);
  • venture capital (VC) funds (Blockchain Capital, Gemini Frontier Fund).

Other categories of institutional crypto investors include technology companies (Tesla, MicroStrategy), financial institutions and banks (JPMorgan Chase), and insurance companies (MassMutual).

Ways Cryptocurrency Institutional Investors Tap Into the Crypto Sector

Here are the ways institutions participate in the crypto sector:

  • Market making. A financial institution can become a crypto exchange liquidity provider by cooperating with crypto exchanges and injecting large trading volumes into their platforms.
  • Investors may just buy popular digital assets like Bitcoin and hold them on their balance sheets for years.
  • Investing through ETFs (exchange-traded funds). Unlike direct buying crypto on an institutional trading platform, this option implies investing through a fund that holds the collection of assets, including crypto. 
  • Crypto institutional trading to hedge against inflation. Many institutions find Bitcoin as a valuable asset during turbulent periods in traditional economies, so they buy it to protect their capital against inflation.
  • Some companies use digital assets as an option for payment in their business processes.

Benefits of Crypto Institutional Trading

Here are some advantages for investors:

  1. Diversification – including cryptocurrencies in a portfolio can help reduce overall risk, especially if they have a low correlation with traditional assets like stocks and bonds.
  2. Potential high returns – the crypto market has many times demonstrated the potential for high returns. Especially it refers to Bitcoin.
  3. 24/7 access – unlike traditional markets, the cryptocurrency market operates 24/7, allowing institutional investors to trade on an institutional trading platform round the clock.
  4. Innovation – the blockchain technology underlying cryptocurrencies is innovation, so investors strive to implement it and stay ahead of competitors.
  5. Reduced intermediaries – blockchain technology can streamline processes and reduce the need for intermediaries in financial transactions.

There are many ways how companies can enter the crypto sector, either through direct investments, funds, etc. The rise of institutional adoption of digital assets is a signal of further industry maturation and growth.

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