Former Citi Exec: Crypto Market Cap Still Smaller than Samsung, What’s Preventing Institutions’ Entry?
Hwang Hyeon-cheol, a former Citi and Allianz executive who worked on Wall Street for over two decades, has said that the valuation of the crypto market is still smaller than Samsung, the largest conglomerate in South Korea.
The former Wall Street executive turned crypto investor and the CEO of Atomrigs, a digital asset custodian in the cryptocurrency market of South Korea, told a local publication in an interview that institutional investors are key in increasing the inflow of capital into the new asset class.
In the past, prior to 2018, Hwang emphasized that it was virtually impossible for institutions to invest in the cryptocurrency market due to the lack of custodial solutions.
Due to the exponential progress in the institutionalization of cryptocurrencies in the last six months, Hwang said that he expects the trend to drastically change in 2019.
QuadrigaCX $150 Million Fiasco, Importance of Institutions in Crypto
Similar to banks, Hwang explained that institutional investors must be guaranteed the safety of their funds.
Referring to the recent QuadrigaCX scandal in which its CEO Gerald Cotten allegedly passed away holding the private keys to $150 million in crypto, the Atomrigs CEO stated that institutional investors have been waiting for trusted custodians to emerge.
But, he said trusted and reputable custodial solutions aren’t all that’s required. For a growing number of institutional investors to enter the market, the liquidity and the size of the cryptocurrency market have to stabilize.
Even until now, it is hard for a major institutional investor with hundreds of billions of dollars in assets under management to consider cryptocurrencies as a viable investment due to the small valuation of the asset class.
“For institutional investors to enter the cryptocurrency market, the market’s liquidity and size have to grow to a certain point. Currently, the valuation of all cryptocurrencies combined is smaller than the market cap of Samsung. It is difficult for a major institution to consider investing in such a small market.”
He noted that the most important element for institutional investors is liquidity and market size, which will take time to improve.
While institutional investors are not concerned whether the price of Bitcoin is $3,000 or $30,000, the executive stated that at the current size of $126 billion, it is far-fetching to expect some of the largest institutions to enter the market at this phase.
Counter Argument on OTC Market Growth
In regard to over-the-counter (OTC) trading, Hwang explained that the daily volume of the OTC market is bigger than the volume of the cryptocurrency exchange market.
However, to the eyes of investors, such a trend is not necessarily positive because it could suggest that a small group of whales have relatively large control over the market.
“The fact that OTC volume is bigger than the volume of cryptocurrency exchanges and is increasing shows that the market share of cryptocurrencies is somewhat clustered to a small group of investors. It also suggests that most trading occurs around whales. Most whales engage in speculative investment or have an advantage on data over and as such, it is not ideal,” Hwang added.
Just read an estimate from the TABB Group (in a $5000 report) that OTC crypto markets exceed exchange volumes by 2-3x. That would mean 1-1.5MM BTC is traded OTC *daily*. Strange it's not visible on the blockchain, which shows a meager 100k/day.
— Eric Wall (@ercwl) July 29, 2018
For the long-term growth of the cryptocurrency sector, whether it is in the institutional or retail market, the executive stated that regulation is key.
Major markets such as Japan, South Korea, and the U.S. have taken a proactive approach in regulation and refrain strict policies from restricting technological innovation.
To ensure that regulatory frameworks do not prevent blockchain development from moving forward, flexibility is crucial.
Blockchain technology and cryptocurrencies as an asset class are new to both investors and regulators. Hence, it is important to acknowledge the necessity of a learning curve and adapt as the market grows.