There is so much discussion in the news nowadays citing regulators around the world arguing that it is very difficult for them to approve or allow certain requests from market participants under the excuse that they need to provide protection to retail investors from exploitation.
To a certain point it is understandable because retail investors are the so-called mom and dad investors that have been working really hard as employees or small business owners and their not very large but precious balance in their savings or 401k account must provide for their retirement.
On the other side of the spectrum, we find the Institutional investors which are types of accredited investors that based on an Income or wealth test, are classified as such and basically are exposed to a wider range of solicitation methods and investment options suitable for them.
They do not however, enjoy certain protections under the law that retail investors do. This is because in the name of having a balance where companies in need of funding require a certain laneway framework to get access to capital in order to survive in a capitalist system.
Institutional investors enjoy certain characteristics that enable them to make informed and measured but nevertheless riskier investment moves because they possess the following:
- Professional advisory staff (in large numbers),
- Access to robust information and risk management system,
- Access to onerous paid subscription services and (among others),
- Enough equity to be able to absorb a negative movement in the market without jeopardizing the solvency of their wealth.
For all the above-mentioned reasons, when we read in the media that X institutional investor (or Hedge Fund) made Y move by investing in Z opportunity, the rest of the market pay attention and to a large extent mirror that move if the vesting and liquidity conditions of the opportunity allows.
They represent in the financial markets what the influencer represents in social media.
Now specialization plays a critical role here as well. You don’t want to follow the investments moves in the Airlines industry of an Institutional Investor specialized in the Fast-moving Goods industry.
The same point I made when I mentioned Influencers in Social Media. You just don’t follow the advice from Kim Kardashian where you are researching about the next fishing and hunting gear you want to buy.
Having said all of that, let’s go back to our world. Crypto.
When we are experiencing the turbulence of a 4 – 5 months bear market, you are always on the hunt for positive news in tweeter. Hoping to see things like “The largest Hedge Fund in the world in Bullish about Bitcoin” because you know that if that scoop is true, you also know that others will follow and (with a decent chance) the Bull Market will make an appearance.
On the specialization point again, you won’t give too much weight to a recommendation in crypto made but a very traditional institution (no matter how successful it has been for the last 100 years) that is focused on Real Estate to mention something.
What you really want is to hear or read is a piece of news but from a large Institutional Investor that have been working in crypto for quite a while demonstrating a deep understanding of the dynamics of On-chain data, halving cycles, hash rates, migrations from Proof of Work to Proof of Stake and other strange things we say frequently.
In other words, from someone who knows what he or she is doing!
There are a handful of premium and very specialized hedge funds in the crypto industry but in this opportunity, I want to talk to you about a new kind of Institutional Investor in the crypto space.
One that is fully native, knows what is best for the ecosystem and acts based on sophisticated hypotheses. I am talking about the DAOs. Yes, the Decentralized Autonomous Organizations. New creatures of the crypto space integrated by early adopters and experts in the industry.
DAOs have been in the spotlight recently because of their active approach in the management of their Treasuries and Foundations. In a similar way that prestigious Universities’ endowment funds invest large amounts of capital using savvy strategies designed by experts, DAOs are currently making strong investment moves in other cryptocurrencies and crypto assets.
And as expected, the crypto community not only welcomes that type of moves but also copies them.
I guess that time will tell but I invite you to follow very closely the market and price impact of a bullish comment made by … say Rai Dalio versus a similar comment or move made by the Treasury of the Terra Protocol.