6 Facts Institutional Investors Should Know About Crypto

Last evening I had the honor to give a keynote speech about blockchain to Wilshire Consulting’s 36th Annual Client Conference, in front of an audience of a couple hundred trustees and executives of pension funds. I spent a lot of time preparing for a speech to such an important audience, and decided to publish the remarks as a blog post or two or three. Here’s the first part.

This is not investment advice. All views are my own and not those of anyone else. Caveat emptor. This post is written for an institutional investor audience, not a general audience.

As backdrop, I shared 6 facts institutional investors need to know:

  1. Q1 2018 ICO volume was $6.3 billion. That size equates to 40% of the IPO market and 30% of the venture capital market during Q1 2018 (at $15.4 billion and $21.1 billion, respectively). Translation: the ICO market is becoming too big for institutions to ignore. In Q1 2018 alone, despite regulatory uncertainty, ICO volume topped volume for full-year 2017.
  2. The number of institutions making their first investments in the sector continues to grow. Bain and Lightspeed joined the club last week by investing in their first ICO, and they did it alongside Stanley Druckenmiller (funny…I didn’t need to explain who Druckenmiller is to the audience of investors last night, but how many crypto folks recognize his name??).
  3. $1.7 billion was raised for a single company’s ICO in March. This highlights an important question — if companies can raise this much money in the ICO market, why would they ever bother with the hassle of an IPO??
  4. Q1 crypto hedge fund performance revealed something interesting – trading strategies that haven’t worked well in traditional markets in recent years worked well in crypto markets during Q1. In traditional markets, the large number of hedge funds pursuing the same trading strategies “arbed away all the vig” (to use trading parlance) – but that’s not true in crypto markets, where spreads remain wide and market-neutral crypto hedge funds did well despite the big correction in crypto prices during Q1.
  5. Traditional hedge funds are becoming big players in crypto markets, albeit usually in segregated proprietary funds. DRW’s crypto unit disclosed in November 2017 it had traded $20 billion of crypto assets during the prior year. Soros has since joined the party, and many others have also done so quietly.
  6. $400bn = the crypto sector’s market cap as of this writing, after peaking at just under $1 trillion before the correction. Again, too big to ignore.
  7. And here’s a 7th fact:  Goldman Sachs hired a cryptocurrency trader today. (Of course when I spoke last night, this story hadn’t hit the press yet—but I added it to this blog post because we discussed Goldman during the Q&A last night, and I shared my opinion that Goldman is the only major bank that’s remotely well-positioned to capitalize on what’s coming in crypto.)

In separate posts I’ll share more of the speech, including why this technology is so important to the buy-side and what big institutional investors can do to capitalize on the opportunity.

Thanks again to Wilshire…you guys are ahead of the curve!

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Founder/CEO Custodia Bank. #bitcoin since 2012. 22-yr Wall St veteran. Not advice; not views of Custodia Bank!


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