The financial industry was something of a curious onlooker during Bitcoin's furious, retail-led rally past $19,000 in 2017. There are signs the sector is playing more of role in the cryptocurrency's latest surge.
Licensed crypto exchanges, Bitcoin funds and a regulated futures market give the likes of trend-following quant funds, asset managers and family offices avenues for investment that didn't exist a few years ago.
Mix in this year's 170% jump in Bitcoin's price amid a once-in-a-generation pandemic, and it becomes clearer why more institutions might size up the volatile asset.
"The multitude of regulated crypto exchanges and custodians has eliminated the 'career risk' for institutional investors," PwC's Hong Kong-based Global Crypto Leader Henri Arslanian said in an interview. "In 2017, there was retail FOMO. The question is whether we will see institutional FOMO in 2021."
Bitcoin began December by hitting a record just shy of $20,000. Proponents argue it's muscling in on gold as a portfolio diversifier, as stimulus injections to counter the economic damage from the pandemic weaken the dollar.
Critics see pure gambling by retail investors and speculative pros in a scandal-prone sector, and anticipate a bust like the one after the peak three years ago.
'Crypto Craze'
JPMorgan Chase & Co. strategists point to the Grayscale Bitcoin Trust — which invests in the digital coin and tracks its price — as a potential window into wider crypto ardor beyond the retail demand from Millennials.
The trust's "exponential" growth suggests longer-term investors like asset managers and family offices may have been playing a bigger role in recent weeks, compared with trend-following commodity trading advisors, a team led by Nikolaos Panigirtzoglou wrote in a Nov. 27 note.
The Grayscale vehicle's assets have swollen to more than $10 billion from $2 billion at the start of December last year, its website and factsheets show.
It drew almost $720 million of inflows in the third quarter, according to an investment report, which said institutions — dominated by hedge funds — accounted for 81% of the money coming into the firm's digital-asset funds.
