Institutional investors, which include large professional investors like pension funds, banks, and hedge funds, have played a significant role in driving the crypto markets during previous bull runs. However, their impact could be even greater by 2024. Unlike retail investors who invest smaller amounts on their own behalf, institutional investors invest large amounts of capital on behalf of others.
During the last major bull run in 2017, institutional investors were still unfamiliar with the crypto markets and did not show much interest in digital assets. The situation started to change in 2020 when Bitcoin’s response to the financial market crash and the third BTC halving attracted institutional attention. However, their presence was not massive at that time.
The 2021 bull run was characterized by minor increases in Bitcoin’s price and higher percentage increases in memecoins and smaller altcoins. Institutional investors are not typically interested in these smaller assets with limited trading volumes, so their success was largely driven by retail investors.
However, it is expected that the landscape will change in 2024 with the launch of Bitcoin spot ETFs in the USA. These derivative products will allow institutions to invest directly in a derivative that represents 100% BTC. Unlike existing Bitcoin ETFs collateralized in futures contracts, these new ETFs will be collateralized in BTC itself.
The introduction of Bitcoin on traditional exchanges like Nasdaq through a derivative product will provide institutional investors with an opportunity to invest in BTC without custody issues and on platforms they are already familiar with.
Crypto analysts forecast that institutional investors will show more interest and become more actively involved in the crypto market by 2024. This expectation is based not only on the arrival of Bitcoin spot ETFs but also on potential interest rate cuts by the Fed and increased regulatory clarity. Data from Deribit’s platform for crypto derivatives trading already shows an increase in institutional investor activity starting from October.
The anticipation of news about ETFs expected in January and strategic positioning by clients for this event are driving the trend. The possibility of interest rate cuts by the Fed, starting as early as March, is also contributing to institutional investors’ repositioning. If interest rates drop and uncertainty decreases, institutional investors may increase their risk appetite, marking a significant shift compared to the cautious approach seen in the past two years.
Overall, 2024 could be an interesting year for the crypto markets with greater involvement from institutional investors and potential changes in market dynamics.
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