Traditional Players Finding Their Way into Crypto World
Two notable trends have begun to emerge in the last few months that tell a promising story about the future of cryptocurrencies. First, we have several big pension funds testing the crypto waters by making investments into the space. We are also seeing the initial moves in the security token industry as bankers start to move into the space.
A New Stage in Crypto Investing
As two pension funds out of Fairfax, Virginia gear up to become the $40 million anchor investors in Morgan Creek Digital’s fund, a new stage of crypto awareness begins. Although still not even close to being a mainstream investment, the acceptance from the pension funds does say very positive things about its potential future.
This investment raise represents the first time where pension funds have placed money in the space. Morgan Creek Digital runs a venture capital fund and will be focusing on the emerging trends within blockchain technology. This means more than just blue chip coins and altcoins, since there are many more unique projects and companies coming up. It may seem like they have “missed the boat”, but as Anthony Pompliano, the fund’s founder said:
“The smart money is not distracted by price but looks at the long-term trends, and believes they’re betting on innovation as a great way to deliver risk-mitigated returns.”
Previously, many institutional investors have shown a reluctance to invest in crypto because of the market manipulation and lack of regulation. It was viewed as “the Wild West” and became difficult to justify to board members. However, we are hitting a point where those two factors are being mitigated, and the high degree of volatility in the space is drawing in investors who need more “alpha”.
This trend is a continuation from what started when Yale University (which has the second-largest endowment in education) announced their crypto investment in 2018. More players are realizing there are significant returns to be made in the space, and want to get their piece of the pie.
Investment Banks Looking for a Way In
In the beginning, security tokens were meant to have a retail focus and were seen as the next evolution of crowdfunding. But then investment bankers realized they could use the same technology to tokenize assets. It is much more efficient to run Security Token Offerings (STO’s).
The main difference here is that STO’s, are more regulated and legal than the ICO’s we first heard about. Bankers will continue to jump in here as they find a more efficient way to manage ownership. And their main advantage over traditional crypto assets is the distribution and verification they are able to provide.
Both sets of players are “middlemen” that the cryptocurrency industry was technically founded to disintermediate. However, it could be that middlemen offer varying levels of value-add, and the cryptocurrency industry has the potential to block out the less valuable ones. This turns it into a more efficient market where parties can’t necessarily perform rent-seeking without making a strong contribution to the network.
Accessibility is the goal here, and technically, both these trends are moving the industry forward rather than backward. However, they can also be seen as very centralized and controlling (similar to the criticisms often levied at Coinbase and other major exchanges). And the big question is: what should stop investors from putting their own money directly into Bitcoin, Ethereum, or altcoins? Technically those are all “VC” type funds that are directly accessible on a retail level, and it would help them save the fees.