What A Prominent Crypto Investor Sees Driving The Market
Crypto Fund Manager Tips His Hand
2018 was undoubtedly a bearish year for the crypto market. Bitcoin lost 80% of its value, while altcoins fell even further. However, Kyle Samani of Multicoin Capital recently argued that by many measures, yesteryear was solid in terms of development.
In an op-ed published on Business Insider, the cryptocurrency investor argued that much of the work done by institutions in 2017 will come to fruition over 2019, meaning that the market could eventually get propelled higher by such money. But what work has been done, and what facets of this embryonic industry will be integral in driving demand from both institutions and consumers, like you or I, alike.
Samani first drew attention to custody. While he didn’t explain it, custodial services are integral for institutional players (and high net-worth individuals) for a simple reason: why invest millions if it is going to get lost in a hack, misplacement of keys, or something of the sort. As seen with QuadrigaCX, without the proper protections, millions of dollars of cryptocurrencies, whether it be Bitcoin, Ethereum, or what have you, can easily be misplaced or lost to the ether without a moment’s notice.
This is why firms like BitGo, a Goldman Sachs-backed company, have ramped up their services, bringing institutional-grade custody to the market. Fidelity Investments, too, has an early-stage custodial venture, which was launched to a selected group of clients earlier this year. But, once the fully-fledged product goes live, there could be a large influx of institutional money, as that’s when the Wall Street firm’s clients would be enticed to enter.
While custody is evidently important, prime brokerage services will be integral too. Sure, Coinbase Prime exists, but there need to be more fully-fleshed out options, like Tagomi. For those who missed the memo, Tagomi intends to produce a liquidity pool, easing slippage for gargantuan block orders, while ensuring that transparency and proper trade reporting is upheld. In an interview, Greg Tusar, formerly of Goldman explained that there hasn’t been a single platform that has shepherded clients from depositing fiat, deciding on an investment thesis, allocating capital to cryptocurrencies, securing holdings, and all the way to managing these investments for the long haul. This lack of ‘hand holding’ led to the creation of Tagomi, which should help entice institutions to at least dip their toes into this market.
According to the Multicoin Capital partner, regulated exchange venues, too, will be of much importance. While platforms like Coinbase, Kraken, and Gemini have the proper licenses to operate with hotshot clients, firms straight out of Wall Street and that have explicit approval from, let’s say, the U.S. CFTC could be important, Samani argues. He looks to Bakkt, CME, ErisX, LedgerX, among others, to fill that gap for this market.
And with all that, he concluded that as such infrastructure goes live, “more capital will move into crypto, spreads will tighten, and volumes will grow. The pace of market development is compounding rapidly.