The Biggest Insurer Opens The Cryptomarket For Institutional Investors

For a long time, institutional investors avoided the crypto industry, claiming that there was a lack of a clear regulatory system. However, more and more daredevils are ready to join the crypto insanity. According to a survey by Thompson Reuters, 20% of the 400 finance companies surveyed plan to start crypto trading within the next 12 months. In March, the CEO of American Express-backed cryptocurrency startup Abra Bill BARHYDT confirmed the interest of hedge funds and high net worth individuals in the crypto market due to its volatility. Cryptocurrency assets have a negative correlation with bonds and a zero correlation with gold, which allows investors to diversify their portfolio. In his opinion, as soon as the mass of these investors enter the industry, there will be a rapid growth.  

Insurers come into play

The emergence of organizations similar to the ones in the traditional financial sector inspires more confidence among institutional investors who are concerned about the security of the storage of crypto assets. On the 29th of August the oldest British insurance company Lloyd's of London announced a cooperation with the American custodial service Kingdom Trust. More than 100 000 clients hold crypto assets in 30 popular currencies for a total amount of more than 12 $ bln on the cold storage service. Lloyd’s will provide insurance for the cryptocurrency of both individual and institutional clients of Kingdom Trust.

Insurance of crypto-currency risks in the conditions of constant cyber attacks on exchanges and wallets may not appear as the best idea. However, a spokesman of the largest German insurance company Allianz, which has been offering individual coverage for crypto-assets theft since last year, said: "Insurance of cryptocurrency storage will be a big opportunity. Digital assets are becoming more and more relevant, important and prevalent on the real economy and we are exploring product and coverage options in this area."

High industry risks associated with cybercrime and possible lawsuits against top management of crypto companies make insurance expensive and allows insurers to charge crypto-related companies upwards of five times or more than an average traditional business for coverage against loss or theft, which cannot but attract underwriters. Moreover, the market entrance by such giants as Lloyd's and Allianz will result in other insurance companies joining, which will guarantee refunding to institutional investors and large-capital holders in case of hacker attacks on crypto storage.

Qualified custodians are not just a storage service, but also an investment

More and more qualified depository services, which are able to cope with the growing volumes of crypto assets and can provide their security, are developed to encourage institutional investors coming.

Coinbase as the market leader aims to create a secure infrastructure similar to the traditional financial system. On the 2nd of July the exchange shared on Twitter the news about the first deposits in the amount of more than $20 billion on the service Coinbase Custody.

In order to become a client of this custodial service investors have to pay the initial commission in the amount of $100 000 and maintain a minimum of 10 $ mln on a deposit account. Based on their needs, Custody users can choose either cold storage with multiple layers of security or hot wallets convenient for prompt withdrawal of funds.

It is worth noting that while Coinbase itself is receiving a license to provide brokerage and dealer services, the exchange launched this project in cooperation with a SEC-registered broker-dealer, Electronic Transaction Clearing (ETC). The company not only connects sellers and buyers of crypto assets and provides clearing services necessary for mutual settlement between two parties, but also conducts market analysis and gives expert recommendations on crypto-assets purchase on its basis, which can be useful for investors who do not have their own team of the crypto-market experts.

Why are the cryptocurrency futures interesting to big investors?

While the Japanese Bank Nomura together with the manufacturer of hardware wallets Ledger and investment manager Global Advisors have already started to develop the cryptocurrency depositary, the investment bank Goldman Sanchs is just considering such a possibility, but acknowledges the growing interest in digital assets among their customers. Moreover, in May the investment institute expressed the orientation on providing services related to the cryptocurrency, announcing plans to set up the Bitcoin futures trading. The Bank will use its capital and act on behalf of its clients and later will offer them its own, more flexible version of a future, non-deliverable forward.

It seems that the bank comes up with the Bitcoin trading operation just in the right time. Goldman Sanchs customers and the bank itself are clearly expecting the onset of the so-called "cryptocurrency spring". Futures contracts imply the purchase-sale of an asset at a predetermined price at a specified time in the future. Pricing in Bitcoin futures contracts is based on spot prices on cryptocurrency exchanges that trade in real time.

Now a purification of the industry takes place as the rate correction removes most of the hunters for short-term profit from the market and keeps the creators of long-term value. A possible "crypto spring" can bring significant income to Goldman Sanchs clients who will obtain the digital currency in the future at the price set now.

Bitcoin ETF: to be or not to be?

The popularity of Bitcoin futures contracts, trading of which began in December last year on the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE), prompted a number of companies to apply for the launch of the Bitcoin ETF. Transactions should be executed not with the coins but with the shares of the investment fund, which eliminates the need for investors to hold Bitcoins and protects against the risks of storing coins and searching for them. Investors will not have to contact a broker to buy Bitcoin as the fund will guarantee that the shares are secured.

Despite the fact that on the 23rd of August the United States Securities and Exchange Commission (SEC) rejected all nine applications for Bitcoin ETFs from Proshares, Direxion, GranitShares, the day after the regulator announced a possible revision of its decision. On the 30th of September SEC is expected to make a decision on a joint application for Bitcoin Trust filed by VanEck, Solid X and CBOE. There is a chance that it will be approved and here are the reasons why.

First of all, the applicants are three major market players. Secondly, in June SEC announced that they were working on an outline for newer (and less-restrictive) legislation regarding open-ended and low-risk ETFs to increase innovation in the financial space, which can boost the Trust’s chances. Thirdly, the entry level will be high as only accredited investors will be able to trade and influence on the ETF rate, which again proves the point the cryptomarket is creating special conditions for large investors.

Summing up, in order to experience a new significant boost the digital currency market is waiting for huge funds of institutional investors to come. Therefore, professional participants of the crypto market offer new products and services aimed at the development of the infrastructure with familiar to holders of large capital institutions.