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Institutional investors form the backbone of the markets. Whether it is pension funds, mutual funds or hedge funds, they allow investors to participate in the market by trading on their behalf. Of late there has been a growing interest in trading cryptocurrencies, which are a new type of asset class. The growth in valuation of Bitcoin and other cryptocurrencies in 2017 was a key driver in the increase in crypto funds. Autonomous Next states that there are currently 225 crypto funds across 7 strategy types, with assets in the region of USD 3.5 bln to USD 5 bln. 167 of these funds were launched in 2017 alone and by January 2018, 20 had been launched.
Banks too are jumping on the action. The German Bank VPE has announced its intention to bring cryptocurrency trading to institutional investors. However, even though there is growing interest in this nascent asset class, there are several hurdles as well.
The missing vehicle
As of now institutional investors hold a little over one percent of Bitcoin. One of the reasons for this lack of appeal could be difficulties in analysis. Trevor Greetham of the Royal London Asset Management (RLAM) told CNBC that while cryptocurrencies were there to stay they are difficult to analyse. Others are awaiting the right platform to enter the crypto space. Cedric Jeanson of BitSpread was quoted in the same article as saying that Institutional investors haven’t invested in the crypto ecosystem because they haven’t yet found the right vehicle. There has to be some preparation for the coming of institutional investors to the crypto universe.
Facilitating Compliance, Removing Barriers, Building Bridges
Compliance is a big issue for hedge funds and other institutional investors. Hugo Renaudin, Chief Product Officer at Leoglas Exchange thinks that the hurdles that institutional investors face are a lack of transparent price information, high counterparty risk in the current crypto-exchanges, level of service required not met at fiat and crypto-custody of crypto exchanges and problems with KYC and AML processes. This requires the presence of an ecosystem and tools specifically tailored to the needs of the wealth management industry. Not only would such a tool allow the entry of institutions to the cryptocurrency space but also allow these players to safeguard the interests of their clients.
Blockchain Terminal (BCT) is a bridge between institutional investors and cryptocurrency market. With the launch due in 2018, their scalable solution aims to meet the needs of hedge funds and others. The proprietary ComplianceGuard Technology ensures that these investors can come to the cryptocurrency markets with confidence and in a strictly monitored environment. ComplianceGuard secures the books of the Chief Compliance Officer using immutable blockchain technology. It allows for real-time transaction monitoring and can issue alerts for both regulatory and mandate-specific compliance. In fact, Blockchain Terminal’s safeguards, alerts and audit system allow Chief Compliance Offers to manage and mediate all interactions on the terminal. All of this is fuelled by the BCT token, which is built to be at the centre of the ecosystem. BCT product designs ensured that the complex global regulations that institutional investors follow are integrated into the system. Traditional hedge fund infrastructure has also been taken care of within the BCT system with order management and execution management systems, portfolio management systems as well as safety and compliance solutions are included.
BCT serves two important areas of growth, one is the demand for technology and the other is by the growth of interest in cryptocurrencies and blockchain. With the embrace of giants like Nasdaq and its collaboration with Gemini, founded by the Winklevoss brothers, there is already a movement of embracing crypto. George Soros’ USD 26 bln wealth management firm too is planning to trade ‘digital assets’. BCT just happens to be at the right time and at the right place.