A professional investor, who has worked at BlackRock, explained the main reasons why institutional investors are watching the crypto market but not yet getting involved. Speaking in London Tech Week he said that regulatory uncertainty, volatility and lack of education are the main obstacles.
Where is the Smart Money?
Adam Grimsley, co founder of Prime Factor Capital, said that although some high net worth individuals are building up portfolios, the majority of institutional investors are waiting for regulatory certainty. Speaking at the ‘Zeroing In On Europe’ conference on June 16, he highlighted the lack of regulation in London and the unwillingness of watchdogs to get involved.
He said: “Banks, institutions and professional investors have been left at the ‘start line.’ The usual advantages of size, infrastructure, connections and reputation have shown to be obstacles to move quickly into this space. Concerns around volatility, lack of liquidity, and regulatory uncertainty were more than enough to prevent the so-called traditional smart money from entering the arena.”
On the other hand, Grimsley said: “High net worth individuals and principal investors, through family office or private banks, have been quietly building up positions in crypto assets for the last few years.”
In a panel discussion at the same event, James Radecki, Global Head of Business Development at Cumberland, the cryptocurrency arm of DRW, said that institutional money is starting to move into the market and that the decrease in volatility is proof of this.
Prime Factor Capital are a cryptocurrency and cryptoasset asset management company. They were founded by investors at global investment managers BlackRock and Nic Niedermowwe, who used to be a derivatives trader and had previously set up a cryptocurrency market making business.
Crypto: ‘Huge Potential to Distrupt’
On this move away from BlackRock, Grimsley said that the founders were personally invested in the new technology and felt there was a lack of professional management services.
Grimsley said: “We’ve been involved in the blockchain industry for some time and observed its huge potential to disrupt. It has the capacity to capture billions or trillions of dollars-worth of value fragmented across many different protocols.”
Grimsley said that regulatory uncertainty is the biggest obstacle to larger investors. He pointed out that cryptocurrencies are unregulated in the UK and that the FCA may have little desire to get into the market. He acknowledged that the UK Treasure Committee has created a taskforce to try to gain some understanding of the new technology.
On crypto exchanges he said that recent hacks and thefts had left to questions over how safe funds are on their systems. Professional managers have been wary of using these exchanges because they have a legal requirement to act in the best interest of their clients.