Institutional Investors Are Flooding Into Crypto, But Is That Best For The Industry’s Future?

Crypto investments from institutional players including PayPal, JP Morgan, MassMutual, Square and Microstrategy have gotten enthusiasts excited about the possibility of blockchain and crypto moving into the mainstream, however bigger players in the industry may not be something to cheer about just yet.

Bitcoin supporters hail the cryptocurrency as a store-of-value and hedge against inflation, while others argue the digital asset's price is driven upwards by speculative trading destined to crash. CEO and Chief Investment Officer at Alpha Sigma Capital, Enzo Villani, noted that crypto is starting to gain more attention from institutions in an interview with BitpushNews.

"We started seeing about three or four months ago, maybe six months ago, the naysayers who were always talking Bitcoin down or saying it was a scam or something now turning their tune around," Villani said.

While trusts like Grayscale are currently a popular option for purchasing Bitcoin, Villani says bigger players will start turning to accounts they already hold for crypto exposure.

"The institutions have analysts, so they're going to go and say what's the most effective way to buy Bitcoin and they're going to find a way to do it," Villani said. "Most of it is going to be through Fidelity custody, a large custodian they already have an account with."

Crypto enthusiasts may be excited to see institutional players with more capital coming into the space, but Villani highlighted that these types of Bitcoin holders could be the reason Bitcoin has remained correlated with the S&P 500.

"You don't really want these guys in Bitcoin because they're going to play their own game and they have a lot of capital and you don't have as much capital even if you combine all of the people and be careful what you wish for," Villani said.

Large entities — both foreign and native to the blockchain space — could also pose a threat to decentralization as bigger players buy-out smaller projects, Villani says.

"As some start to take market share and this becomes more established you'll just see acquisitions, so people will acquire them, the larger player will acquire them," Villani said. "The weird thing about blockchain is that some of them are foundations, you can't just acquire the company. So you have a little bit of a challenge there, but I do believe that will happen."

While Villani predicts a handful of blockchain projects will emerge as key components of the blockchain economy, he also believes interoperability will be an important aspect of the new system.

"Some blockchains are more useful for speed and they give up a little bit on privacy or a little bit on the security side. Some blockchains are slow like Bitcoin on the transactional side," Villani said. "So I think you're going to have different blockchains applied for different industries."

Villani believes that once Coinbase goes public the industry will see a host of blockchain companies following suit, however they will all have to be aware that traditional finance will still be competition.

"If you're a large crypto exchange all NASDAQ already has a crypto trading platform built with their software and they're all nationalized exchanges, so all they have to do when it's more established is just turn on the software," Villani said. "Then you might have 125 exchanges that are nationalized, government-tied regulated exchanges. The crypto exchanges are going to get boxed out of the real money."

Institutional entities are adding crypto to their portfolios regardless of what's best for the industry and while Villani doesn't think the space needs institutional money to grow, he knows Bitcoin's price rising will leave some people excited.

"I think you're running into a place where I don't think they need traditional finance, but if big money starts buying Bitcoin the price goes up. That's the bottom line and anyone who owns bitcoin now of course wants the price to go up."

By Emily Mason

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