Institutional Investors Will Bring Mainstream Money, But At What Price?
Bitcoin allows you to be your own bank. It allows you to control your finances and enter markets previously limited to the few that could afford it. So when people talk about using tools and practices associated with the fiat way of doing things, it makes people uncomfortable. What is the point of Bitcoin if we hand it over to fund managers and the type of people who screwed over our financial system just ten years ago?
Freedom is about choice, and that includes financial freedom. Individuals with no knowledge of how markets work cannot be expected to watch charts all day, hoping to catch some altcoin pump and increase their total bitcoin holdings. They don’t have the tools, the expertise or the time to compete with people who do it as a job.
The obvious solution is to lend their crypto to someone who does have the tools, expertise and time to compete. And so in this year of our lord 2018, we are seeing Wall Street converts and castoffs leave the relative safety of the New York Stock Exchange for the SHA256 plated information highways of the Cryptosphere.
What this will mean for the crypto-economy and decentralization is still to be determined. But two companies in particular, Atlas Quantum and Caspian are working to bring the advantages currently enjoyed by the 1% to the crypto-masses.
Both companies are institutional investors. They have experience in traditional investing. They use algorithms to see gaps in markets and work to profit off of it. That isn’t to say that the two companies are identical. Atlas Quantum is focused on Central and South America and have just recently started to make headway into Europe. Caspian is more focused on giving investors tools, while Atlas Quantum is focused on investing for users.
But they both also represent a larger movement of institutional investors getting serious about cryptocurrencies. The concept isn’t entirely new. Practically every cryptocurrency company with a “Team” page touts someone with Wall Street experience. But the development of tools and teams dedicated solely to trading on exchanges is something significantly rarer.
“All [of the information gathered by the Caspian system] feeds into a portfolio and risk management systems. So, you can see real time Profit and Loss exposure, you can see performance attribution, you can run analytics and stress tests, etc. on the portfolio.” Explained David Wills, COO and Co-Founder of Caspian in an interview with CoinJournal at Consensus
These tools, compared to Excel spreadsheets commonly used or even sites that offer basic options like Moving Average and Fibonacci charts, are light years ahead.
But as important as it is for individual crypto traders to get access to those tools, its the idea that people might let other people use their bitcoins to trade that has implications for the future of the crypto-economy and how people think about it.
The space, if it develops, obviously has a large potential for fraud. But that is the case with fiat investing as well. It is rare that any victim of a traditional Wall Street Ponzi scheme ever gets his or her money back. If they are lucky, they may get a small portion. In the Bernie Madoff case, $11 billion was recovered, but another $9 billion was never returned to investors. And that doesn’t account for the expected gains people were depending on for retirement.
The recoveries in the Madoff case are seen as a success because usually there is nothing left for the investor. It just so happens that the Madoff scheme was so large and successful that there had to be something left. No one could spend all the money he stole. And companies that allegedly profited from the scheme, like his bank JPMorgan, were forced to contribute to the victim fund.
So with that in mind, it doesn’t seem like a good idea to let someone else invest your bitcoins for you.
The fact of the matter is, some people need money managers. Investing and growing money is a part of saving money. With Bitcoin’s high ceiling, it’s not a bad idea to simply hold until your retirement is secure. But people will want to maximize their earnings even beyond that. And eventually, Bitcoin will hit something resembling a ceiling (though with its deflationary nature, that is arguable) and it will be even more difficult for the average person to make money off of ever-shrinking swings in price.
And so that is where the professionals come in. With their tools and expertise and connections. ICO buyers already have some experience in this, with syndicates being used to grab the best prices and pre-sales.
Investing money is difficult for the average user. Cryptocurrencies open up the possibility to everyone, but not everyone is knowledgeable enough to do it. And so these institutional investors are here to stay. Atlas Quantum claims over 150 thousand clients. Even if that is an exaggeration, it is clear that there is a market for their services.
Standing in their way, in the US at least, are the regulators. And that is going to put the United States behind everyone else in regards to financial innovation and freedom. In the United States you need to make $200,000 a year or have over a $1 Million in assets not including your primary residence to become an “accredited investor.” This walls off financial services from the people who need it most and keep it in the hands of those who are already relatively rich.
But for the rest of the world, bitcoin’s global reach, fractionality and near frictionless movement opens it up to those who normally couldn’t afford to invest, even if they were legally able to.
These second wave of investing companies are going to drastically change the way the rest of the world interacts with Bitcoin, even if current investors and holders continue on as normal. Most soccer moms can’t figure out how to secure a private key, much less how to sweep that wallet, put the funds on an exchange and then calculate the Moving Average Price and predict where it is going next.
And so if we want the average soccer mom to get on board, along with the rest of the mainstream, we need these experts. I just hope Bitcoin doesn’t lose its soul in the process.