Some thoughts on institutions and crypto

  1. There hasn’t been widespread demand from client to gain exposure into cryptocurrencies. First and foremost, large investments management firms are often held at the mercy of their clients’ asset allocation decisions. They do not have the ability to willy-nilly allocate into cryptocurrencies just to chase returns. While some funds may have discretion to invest in various alternative products, they likely still need to discuss with their clients and gain their approval prior to entering into this market.
  2. Lack of expertise investing in cryptocurrencies. This is a completely new asset class with its own characteristics, and no one has experience investing in these protocols. There aren’t agreeable metrics like P/E, DCFs, Free Cash Flow, etc. to properly assess cryptocurrencies. New products/strategies often need to be incubated for a couple years to allow the investment team to build a track record that they can lean on later when they start raising funds. This means that an investment management firm will likely need to gain expertise from internal hires (which they probably don’t have) or hire externally, which is expensive — this ultimately leads to problem #3.
  3. With crypto still being a relatively small asset class, the risk/reward is not there yet for larger firms. Investment management firms are like all other profit-seeking entities. They are looking to sell products that bring in the most revenue. Given the small size of the entire cryptocurrency ecosystem and the fact that most cryptos probably don’t even have the necessary liquidity to handle what would be massive flows, you’re likely looking at a much narrower selection of investable cryptocurrencies. This ultimately limits the size of the fund and revenue. Internally, these investment management firms often have limited opportunity to present various ideas and approaches in front of their prospective clients, so…would you have better luck selling a multi-billion dollar growth equity fund with a strong track record, in an asset class that people already understand, or…would you spend that opportunity pushing a $150 million dollar crypto-fund that you don’t really have expertise managing, in an asset class that most people don’t even believe in yet?




Love podcasts or audiobooks? Learn on the go with our new app.

Recommended from Medium

HYCON — new generation crypto currency

Grazing Range Pool #48 — Welcoming BSW to the herd!

CrescoFin Achievements of 2020

How to spot breakouts in cryptocurrency trading

3 Twitter Cryptocoin Influencers To Lead The Smart Investment Race

How Vitalik Buterin burned 40% of Shiba Inu coin

There’s a Rocket in My Pocket!

Can Web 3.0 Help Me Learn, Speak and Play?

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
David Hsu

David Hsu

More from Medium

Convenient Story Telling


“Mirror, mirror, on the wall — which’s the fairest token of them all?”

Covario is now connected to Terra DeFi ecosystem