Cryptocurrency trust is a stumbling block for institutions.
After all, holding virtual currencies in an exchange on the other side of the world can often be risky. That’s especially true with constant reports of hacked exchanges.
There’s some hope that can be overcome, especially if Goldman Sachs pushes forward with crypto custody plans. That means Goldman would hold the securities on behalf of the funds, which then cuts the risk for clients worried about potential loss. Should that happen, the bank could provide quite a boost to the number of funds betting on virtual currency.
Until that happens, there are quite a few reasons why thousands of institutions won’t invest.
Lack of Institutional Grade Cryptocurrency Trading Platforms
According to Reza Jafery, a partner at Blockchain Warehouse, “There are no all-in-one enterprise-level institutional tools available, and no mechanisms for sophisticated investors to trade in the same way as they do in traditional securities and currencies. The market is open 24/7/365, making it difficult to monitor in the traditional sense.”
The cryptocurrency regulatory environment is full of gray areas.
A lack of legal clarity on this issue makes it impossible to manage for institutions.
Volatility has made many uneasy.
For Bitcoin to function as a means of payment, it needs stability. At the moment, that doesn’t exist. It can price at $6,00o one day, and $6,500 the next. Such volatility outstrips all other currencies. We also have to consider that Bitcoin is a form of money with fixed supply on its own blockchain, with no central bank to cut off supply if needed. That makes bitcoin inherently prone to volatile price swings.
Lack of Liquidity
Even if an exchange has enough volume, the size of buy/sell orders hedge funds and family offices typically place would drastically sway the market. Imagine watching a 100 million dollar buy or sell wall appear, on top of the already volatile and manipulated market, says Jafery. “At this point in time, there aren’t any exchanges, companies, or platforms that solve the issue of liquidity for institutional investors.”
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