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How will institutional investment impact this bull run?

Photo of: Joseph Stone
by Joseph Stone

Bitcoin’s volatility continues to be a hindrance for many investors. An executive at Goldman Sachs believes there is a solution to this volatility: institutional investors. The more they invest in Bitcoin, the more the volatility of the asset will decrease.

Bitcoin’s high volatility is causing reactions all the way to the top of the European Central Bank. Its president Christine Lagarde thus reduces cryptocurrencies to a mere extremely volatile asset. This week’s movements also raised fears of a speculative bubble.

But how can the volatility of Bitcoin and other cryptocurrencies be mitigated? For Goldman Sachs’ Director of Commodities Research, the solution lies in increasing the participation of institutional investors.

During CNBC’s The Coin Rush, Jeff Currie considers this participation of institutional investors to be “key”. It will thus contribute to stabilizing the emerging markets for crypto-assets. Indeed, they are still in their infancy for this Goldman Sachs executive.

The next phase of maturity in the cryptocurrencies market is therefore conditional on their adoption by institutional investors,” says Jeff Currie. But there is still a long way to go. “They [institutional investors] are currently small … about $700 billion in Bitcoin, about one percent of which is institutional money,” he estimates.

So what funds could be allocated by these investors? According to the investment bank spokesman, it could include the money spent on gold today. Currie draws a parallel between Bitcoin and gold.

For him, both assets are so-called “defensive” assets. The gold market currently weighs 3000 billion dollars, according to the financier. Part of these investments in gold could therefore find an alternative with Bitcoin.

JPMorgan also defends such a scenario. In competition with gold, Bitcoin has assets to attract institutional investors, the bank estimates. In the long term, the value of crypto could reach 146,000 dollars.

But JPMorgan puts a condition to this valorization of Bitcoin beyond 100.000 dollars. The volatility of the cryptocurrencies must be significantly reduced to encourage investors to allocate larger sums.

In comparison, gold offers less fluctuation and therefore greater security. Volatility is a risk factor, but it is not an obstacle for all institutional investors. Grayscale is now observing a participation of pension and endowment funds.

And the size of the allocations they make is increasing rapidly. Lower volatility could therefore further accelerate this movement. However, the willingness of States to regulate, for example in the name of the fight against money laundering, could thwart this prospect.