Prior to the 2018 crypto market crash, the Internet was abuzz with articles similar to this Forbes piece that suggested: “2019 could see institutional investors taking the plunge into crypto”. It appears now that these were only hopes which are now decreasing.
Private investments made in blockchain and crypto companies have shrunk by a significant 63% during Q1 2019, compared to the previous quarter, to a grand total of $500 million, according to InWara’s report.
This falling trend observed, appears to go against the notion that “private investors are taking the plunge”, so what about the news? Why hasn’t the crypto market been flooded with institutional money yet?
Are crypto institutional investors still wary?
A likely reason why we haven’t witnessed increased investor interest is because of the apprehensions surrounding blockchain and crypto projects in the wake of SEC actions and regulatory uncertainty in other parts of the globe.
Furthermore, management expertise in crypto-related startups is sorely missing given that over 40% are under the age of 30 and most project founders have had no experience building a business prior to the ICO plunge. In terms of failure rate, the average rate of failure of ICOs observed in the space across various sectors is around 15%.
Albeit these facts, some institutional investors are taking the market crash in stride by considering it as an opportunity to increase their exposure to the space.
Interestingly, while conversing in an exclusive interview to InWara, the CIO of a leading private investment firm said:
“We are looking to double-down as opposed to exit right now. There are diamonds in the rough and they are now ridiculously cheap.”
Does the crypto space need institutional investors?
Startups in the space will not just raise funds to get their project off the ground but also be able to onboard capable board members who offer direction to the business, especially given the low experience of the founders. During Q1 of 2019, the number of ICOs launched were just 40% of what they were in the previous quarter. Cash-starved entrepreneurs would need an alternative that institutional investors can seek to fill.
Secondly, institutional investors could be key to the mass adoption of cryptocurrencies.
How? By augmenting public trust!
Currently, cryptocurrencies and ICOs are largely attributed with scams and high price volatility, which makes the average Joe apprehensive about getting involved in the space. If household names such as Goldman Sachs or JP Morgan operate in crypto, it lends an element of credibility and will bring positive public sentiment.