Several factors like significant cryptocurrency adoption improvement have contributed to making institutional investors change their minds. The amount to invest depends on the tolerance to risk, the capacity to absorb losses, and the knowledge of cryptocurrencies.
After long-term price appreciation and widespread Bitcoin adoption, institutional investors show more interest in cryptocurrencies. Due to the pandemic, many people see them as an investment to protect themselves against inflation amid economic uncertainty.
Several factors have contributed to making institutional investors change their minds. The industry has significant adoption improvement and widespread cross-border payment, and people use Bitcoin as a store of value and a hedge against inflation.
Although the ecosystem has expanded significantly, there are still existential risks in investing in cryptocurrencies. The main reasons for that are their volatility and vulnerability to speculation.
However, an annual report by PwC and Elwood Asset Management found that half of the hedge funds worldwide are in cryptocurrencies.
Institutional Investors Show More Interest in Cryptocurrencies
For the first time this year, most institutional investors are participating carefully in the cryptocurrency market.
A growing number of leading entities have adopted cryptocurrencies and are providing services with those assets. Companies like Tesla and MicroStrategy hold Bitcoin in their treasury, while Microsoft, Overstock, and Starbucks accept cryptocurrencies as a method of payment.
Digital payment services like PayPal and Square also allow users to purchase cryptocurrencies through their platforms. Additionally, the US Office of the Comptroller of the Currency (OCC) has permitted banks to offer cryptocurrency custody services.
While Elon Musk, Michael Saylor, and Jack Dorsey openly declare their support for Bitcoin, several critics have changed their minds.
The Exposure to Cryptocurrencies Increases
MicroStrategy, Grayscale, Tesla, and Galaxy Digital Holdings have expanded their wallets to include cryptocurrencies. Besides, a considerable number of institutional investors plan to increase their exposure to those assets.
Between July 1st and August 23rd, MicroStrategy bought more Bitcoin (BTC), adding 3,907 BTC to its holdings. The latest purchase allowed Michael Saylor’s firm to have 108,992 BTC.
Christine Sandler, head of sales and marketing at Fidelity Digital Assets, said institutional interest in cryptocurrencies is growing.
Investment management Nickel Digital Asset Management talked about an international survey of 100 institutions. They noted that 82% of the respondents said they would increase their cryptocurrency holdings by 2023.
Furthermore, 58% of those surveyed cited long-term capital growth prospects as the main reason to increase their allocation. Thirty-eight percent said they would be more comfortable with cryptocurrencies, while thirty-four percent attributed it to the improved regulatory environment.
The Amount of Money People Should Invest in Cryptocurrencies
Experts say that newcomers thinking of entering this market must do it with caution, mainly through education.
The amount people should invest will depend on their tolerance to risk, their financial capacity to absorb losses, and their knowledge of cryptocurrencies.
Most asset managers using crypto for some customers recommend sticking to a small allocation, like 0.5-1% of the total wallet.
While the cryptocurrency industry moves very fast, no one can accurately predict what would occur in space. Many will agree that Bitcoin adoption will continue to increase.
By Alexander Salazar
