*https://blockworks.co/the-investors-guide-to-institutional-crypto-investing/*
Pat Rabbittee & Cryptex, May 2022
The cryptocurrency sector has been very much a retail phenomenon up until this point. Institutions are no doubt making moves, but full adoption is still underway. Once it is clear that the industry is at a tipping point, we will likely see the institutional floodgates fully opened.
In 2017, professional investors such as niche crypto funds cracked the institutional valve by following retail investors into the sector. The industry is still waiting on the entry of pension funds, mutual funds, hedge funds, investment banks, sovereign wealth funds and insurance companies. When you consider that institutions account for over 85% of the trading volume of US stocks, these opened floodgates will take cryptocurrency market capitalization to the next level.
There are several points of differentiation between retail and institutional investing.
Investment size is the primary and obvious differentiator. Institutional investment managers allocate sums that have a real impact on crypto spot prices and liquidity. Comparatively, the institutions are in a different class entirely, with billions under management.
Whereas the average retail investor employs simple trading strategies, the institutional equivalent uses advanced analytics-driven trading and investment strategies. They have access to a higher quality of financial data, utilize automated trading tools, and can tap into the best trading research to make better-informed trading and investing decisions.
The institutions pay a lot more attention to risk and are far more cautious in their approach relative to retail. Most likely, this is because they’re managing someone else’s money rather than their own.
Both retail and institutional investors take on some level of risk, but on average, institutional risk appetites are much lower.
Institutions have rigid corporate rules to follow that retail investors don’t have to consider. They’re under far more scrutiny to adhere to governance and compliance rules, with oversight being applied by various state agencies.
When it comes to custody and ownership where digital assets are concerned, things are likely to be more straightforward for the individual investor, who owns the asset directly. Institutional investors may not hold the asset — ultimately, their clients are the owners of the assets.