(Bloomberg) -- Cryptocurrency news this year has been littered with stories about institutional investors increasingly embracing digital assets. So if more big players are entering the space, why do the prices of Bitcoin, Ether and other tokens remain so depressed compared with last year’s peaks?
Leah Wald, chief executive officer of digital-asset investment firm Valkyrie Investments Inc., joined the “What Goes Up” podcast to share her thoughts on that topic. She also discussed the outlook for blockchain miners, use cases for crypto in developing markets, and prospects for a spot Bitcoin exchange-traded fund.
Here are some highlights of the conversation, which have been condensed and lightly edited for clarity. Click below to listen to the full podcast, or subscribe on Apple Podcasts or wherever you listen.
Institutions’ Slow-Motion Crypto Embrace (Podcast)
Q: What do you think is holding crypto back in terms of new use cases in developing economies?
A: It has evolved in certain ways given the trend toward believing Bitcoin to be a store of value. The recent advances in countries like El Salvador that we’ve been following, utilizing Bitcoin as legal tender alongside the United States dollar has shown that there’s definitely promise to sovereign nations for using cryptocurrencies. But is it solving issues with the remittances corner? Other issues with the unbanked? I’m not sure why it hasn’t taken off quite yet. Structurally we haven’t been focused as much on those types of use cases. The speculative elements of cryptocurrencies have definitely had the limelight, which is maybe why we’re on this podcast today.
But as more development banks around the world start getting more comfortable with crypto assets, which they have not been, we’ll start to hopefully see a little bit more progress on that front. With that said, there have been fantastic technological developments that can ease this, such as the amount of nodes on the Lightning network being over 77,000, and a lot of other advances that I think could facilitate what is needed in developing countries for remittances or for microfinance, microloan systems, and whatever platform needs to be used to make those successful. And hopefully we’ll see it on the sooner end.
Q: A Fidelity survey shows adoption among institutional investors increased to 42% in the US, 67% in Europe. Globally 81% of all institutional investors believe digital assets should be part of a portfolio. Did institutional involvement cushion the blow from this year’s selloff?
A: Those statistics are definitely exciting. As we very well know in finance, it absolutely depends on your time horizon. And institutions have a longer time horizon. They also, as a fiduciary, cannot just jump in with a strategy. My former partner used to tell me, ‘Hope is not a good investment strategy.’ So as much as we may like Bitcoin and we’re interested in Bitcoin, if it’s a bear market, it’s a bear market we’re not buying.
So I do think I’m very excited about institutions’ interest, family offices as well, across the spectrum a desire to have a crypto strategy for when the timing is right to actually buy in. We also know that there are a lot of different committees that need to sign off, and there’s a lot of other hurdles that institutions have, whether it’s risk parameters, among others, and also just generally the vehicle that they need in order to buy it.
Those statistics from Fidelity -- and also a recent KPMG survey -- and many others have been absolutely showing very exciting bullish metrics, but it’s not showing up in the market right now. And I think that’s also because we have a coupling in correlation to the traditional market, and all of us are very concerned, for the most part, about what the macro outlook is. So I don’t see any institutions investing in such a risk asset at the moment. I do see a lot, and we hear a lot, of institutions that we’re speaking to on the sidelines and preparing. So I do think if we consider a longer time horizon, that’s exciting.
Q: What’s going on that’s keeping crypto prices so muted recently? Not even the BlackRock-Coinbase partnership announcement was able to spur a big rally.
Q: The survey that you just mentioned, [indicates] the main obstacle to adoption -- over 51% said -- was volatility. And that’s always been for the most part what registered investment advisers that we speak to -- and other money managers -- have had as their highest concern: volatility and an inability to accurately allocate given that volatility. So now we have Bitcoin being the boring asset in the market, and I think that there’s some humor to that as well, but also some important elements to consider as this asset develops.
To your second point, the BlackRock-Coinbase news was extremely important. You’re right that it didn’t move the markets yet, but the integration with Aladdin can’t be overstated. And I think anyone in traditional finance understands the power of Aladdin and obviously the power of BlackRock.
What we’ve been hearing is that allocators still want to work with sophisticated crypto active managers to manage that product rather than allocate themselves due to those concerns around volatility, lack of understanding around fundamentals, lack of regulatory clarity, and just general discomfort in their own understanding of how to allocate to this asset class. So I believe that, number one, as institutions get more comfortable with the asset class, they will likely feel more comfortable allocating themselves through that integration.
Click here to listen to the rest of the conversation.
--With assistance from Stacey Wong.
©2022 Bloomberg L.P.