FIA 2018 charts the rise of institutional crypto investors

Matt Raebel

Matt Raebel

Associate Editor

Like most people, I tend to pay more attention when someone directly addresses me or people like me. As a millennial, I tend to exercise this principle a lot, as we’ve been inundated by the word “millennials” over the past 10 years or so. We’re a hot topic. At the FIA Expo this year, the talks focusing on Digital Assets mentioned millennials frequently. This ranged from comments explicitly mentioning my demographic’s greater activity in crypto trading and investment compared with other generations, to jokes about using Bakkt to buy pumpkin spice lattes – a stereotypical seasonal favorite for younger consumers – with bitcoin.

The reason for this was probably best explained by Nick Goodrich of TrueDigital Holdings during Thursday’s “Digital Assets: Emerging Derivatives Products.” According to him, the low barrier of entry for investing in crypto appeals to people who couldn’t invest before. It’s probably no coincidence that on average, millennials (people born between 1982 and 1997) are more likely to invest in and trade cryptocurrency than Gen-Xers or Baby Boomers; according to the Washington Post last May, average Americans – especially millennials – have less than $500 saved in case of emergencies. In addition to that, average incomes per capita have been shrinking while the cost of living in the U.S. has been going up.

The bigger topic of discussion was that millennials and bitcoin evangelists are no longer dominating the crypto markets, because institutional investors are moving into the space with unprecedented momentum. A common thought that was reiterated several times by speakers in the panel entitled “Digital Assets: The Big Picture” was that a few years ago, even mentioning the words “bitcoin” or “blockchain” was taboo.

Now, the sentiment has changed – you’re likely to get in trouble if you don’t have a plan to use one or both to keep your business competitive. In years past at FIA Expo in Chicago, there were maybe a couple of panels focused on digital assets. This year, there was one in every time slot on Thursday, and several talks on Wednesday had at least some mention of the subject. At the “Innovator of the Year” competition at Expo, two of the five participants were involved in crypto or blockchain technology.

“Cryptomania” has calmed down considerably since last January, when it was at its height. Since that time, the total crypto market cap has decreased by 75 percent, and the volatility of bitcoin and most altcoins has also significantly smoothed out. At the same time, existing crypto-centric companies and traditional institutional investors are preparing to start making enterprise-level investments in the digital asset space. Chris Hehmeyer of Hehmeyer Trading & Investments told a story during “Digital Assets: The Institutional Investor Perspective” about how a colleague once told him, “I don’t mind if you lose some money…I just don’t want you to lose THE money.” He said the possibility of losing large investments from asset mishandling, hacking attacks, and devaluation – all of which are common pitfalls in the crypto market – was simply too great a risk for most institutional traders and investors. He also reiterated multiple times that the main thing keeping institutional investors out of the digital assets game thus far has been a lack of infrastructure and insurance in the space – a lack of “safety and soundness.”

Later during the same panel Hu Liang, CEO of Omniex, said that retail demand for cryptocurrencies is dying, and existing exchanges are being forced to learn institutional trading practices. He said this is because generally, a market isn’t sustainable without things like liquidity, proper analytics and trading tools, and other aspects that give it real, long-term value. Omniex’s main business is building institutional trading software for the crypto market. They recently partnered with the New York-based crypto exchange Gemini.

It’s strange, but cryptocurrency is almost beginning to seem halfway legitimate. In fact, several times I heard last year’s crypto craze compared to the current demand for marijuana company stocks. Is this a sign that the financial services industry has “moved on” to a new fad? In this millennial’s opinion, pot stocks may be the new “thing,” but comparing the Internet of value to a commodity seems like comparing apples and oranges. 

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