The gyrating price of bitcoin has made headlines again this year, as has growing interest from institutional investors. But most vanilla financiers have more to lose than win by diving into digital assets.
Open interest in CME ’s bitcoin futures has surged by more than 250% since the beginning of October. Large trade sizes and the fact that bitcoin doesn’t have to be held directly mean CME’s system is considered a benchmark of activity by institutional investors.
Crypto-focused hedge funds and individual buyers are free to invest as they like, of course. Buying a volatile asset without cash flow in a euphoric market is a risk they are willing to take. It has certainly paid off for those with iron stomachs.
The calculation for mainstream institutions should be very different. Many will take a small allocation that will make little difference to their bottom line if prices surge, but they will still be left to explain to clients why they invested in an entirely speculative asset if things go sour. By investing in such small amounts, they are crossing the Rubicon without getting to enter Rome.
Eighty-one percent of investment into the funds run by Grayscale Investments in the third quarter came from institutional investors, according to the company. Grayscale’s flagship Bitcoin Trust had assets under management of $1.9 billion at the start of 2020, $4.7 billion by the end of September and $21.1 billion as of Tuesday.