Both institutional and retail investments are indispensable if crypto is to grow, but it's likely that in 2020 we'll see different kinds of investment from different demographics. As experts tell Cryptonews.com, institutional investors might become more important next year and are likely to focus mostly on bitcoin, while retail investors will be more open to other digital assets but won't be as active in driving market activity.
2019: investments in infrastructure
Looking back at 2019, it seems that Cryptonews.com was generally accurate in its predictions of institutional investment for the outgoing year, with at least one minor exception.
Most notably, experts we talked a year ago predicted that banks, investment funds and other 'institutions' would concentrate most of their investment activities on 'blockchain over bitcoin,' focusing on crypto-related platforms and services, rather than cryptocurrencies themselves. In particular, they suggested that institutions would be especially interested in crypto-powered platforms that enable cross-border transactions and payments.
This is mostly true: if you type ""bank invests" AND "cryptocurrency" OR "blockchain"" into Google (or perhaps a less privacy-invasive search engine), the vast majority of stories you'll find will relate to banks investing in crypto-exchanges, bitcoin wallets, enterprise or industrial blockchains, crypto-payment service providers, and other crypto-related or blockchain-focused enterprises.
Still, while most banks and institutional investors were focused specifically on actual businesses, 2019 did witness a slight increase in pension funds and other funds investing directly in cryptocurrencies themselves.
2020: different strategies
What about next year? Firstly, it's likely that institutional investors – banks, hedge funds, pension funds, endowments, etc. – will show more interest in cryptocurrencies themselves, or at least in bitcoin.
"I do see more family offices looking to buy bitcoin for the longer term," says crypto analyst and former Wall Street trader Tone Vays.
Crypto trader and author Nik Patel largely agrees. However, he tells Cryptonews.com that, aside from the usual equity investments, much of the focus from institutions will be on bitcoin-related derivatives, such as futures and options.
“I expect we will see greater allocation of capital towards cash-flowing cryptocurrency projects by private equity firms, as well as growing volume in bitcoin derivatives markets, as more traditional brokers and exchanges begin to offer an array of regulated products.”
While there’s an expectation that institutions will become more interested in bitcoin, Tone Vays, who expects the bull market to take off around 2022-2023, tells Cryptonews.com that he doesn't expect institutions to invest in altcoins, while he also thinks that even buying of bitcoin will be limited, given the under-regulated nature of the space.
"Institutional investors should and mostly will only be attracted to bitcoin, I do not see too many institutional investors or traders dealing with penny stocks as they are smart enough to avoid them," he adds. "The same will apply to bitcoin vs shitcoins (aka anything not bitcoin)."
That institutions will be investing more in bitcoin is suggested by current trading activity. While Bakkt got off to a slow start when it launched its bitcoin futures exchange in September, it has since witnessed steady increases in more recent months, trading a record 2,469 futures contracts on November 22.
Leaving institutional investors, Tone Vays predicts that retail investors will be open to altcoins as well as bitcoin. "As for the retail investor, there will always be those trading altcoins the way many still trade penny stocks, while complaining about whales. Over time this will be less and less relevant."
Vays expects retail investors to be less prevalent and less important than their institutional counterparts next year. "I think there will be a bigger interest from institutional investors, but only by default as I do not see any retail entering the space in 2019, to me it felt like the year lost more traders than it gained and I just don't see that turning in 2020," he says.
While not repeating Vays's claim that retail investors will remain mostly insignificant in 2020, Nik Patel agrees that they'll be more open to altcoins that institutional investors, who will be focusing mostly on established cryptocurrencies.
"I think institutional investors will primarily be invested in cryptocurrencies that have a proven track record,” he says, “and if they can find them, cryptocurrencies that generate revenues. I think retail investors, as is their wont, will flock to whatever is making headlines and whatever is experiencing the 'euphoric' stage of its market cycle."
Beyond 2020: trading is ‘not important at all’
And what will happen in the coming decade? Well, as with long-term weather predictions, forecasts of investment in cryptocurrencies vary widely according to the person making the prognostication and how much skin they have in the game.
At the most optimistic end of the spectrum, the likes of Snapchat investor Jeremy Liew and Blockchain founder Peter Smith believe that BTC will reach USD 500,000 by the end of the next decade. According to a report the pair wrote in collaboration, this growth will be driven by a combination of retail and institutional investment, as consumers turn to bitcoin-based remittances, and as funds (and consumers) might turn to bitcoin during times of global political and economic uncertainty.
The Outlook for Bitcoin in Light of Global Tensions
Tone Vays suspects that we might not see much of this growth until ETFs (exchange-traded funds) are licensed by the U.S. Securities and Exchange Commission and other national regulators. “I think an ETF is needed before institutions really get involved in trading," he predicts, with certain other cautious commentators suspecting that an ETF won't be accepted until SEC Chairman Jay Clayton leaves office in 2021.
Nonetheless, even if we still have some time to wait until institutional investors get really stuck into bitcoin and crypto, Tone Vays doesn't think their reluctance will hinder adoption more generally.
"I do not think trading is important at all," he says. "What's important is more people recognizing that they can now start a business without a bank.”
“You can hire people from anywhere in the world and pay them in bitcoin, you can sell your product or service anywhere in the world by accepting bitcoin. Creating a well sustained economy by ignoring the banking system will create human freedom the likes of which the world has never seen," he concludes.
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How Adoption Will Look Next Year and Beyond