Acquiring Digital Assets: A Primer for Institutional Investors

Acquiring Digital Assets: A Primer for Institutional Investors

The crypto finance markets offer institutional investors an excellent opportunity to diversify their portfolios and stake an early position in a burgeoning industry. However, many institutional investors express that they are hesitant to enter the crypto finance markets because they are unfamiliar with the industry and its technical jargon. This is why Strategic Coin has set out to provide institutional firms with the educational resources and in-depth research reports they need to take advantage of opportunities within this growing ecosystem.

Below, this article explains how institutional investors can acquire digital assets:

Cryptocurrency Trading & Options Exchanges

To actively participate in the crypto finance ecosystem, firms will need to open accounts on cryptocurrency trading and options exchanges. Early exchanges often failed to comply with regulatory requirements for order-book exchanges, but firms now have access to several compliant exchanges that cater to institutional investors.

Gemini offers a robust institutional exchange that supports bitcoin (BTC) and ether (ETH) trading, as well as daily two-sided auctions. Gemini is also a regulated custodian, so they can offer legally-compliant segregated custodial services.

LedgerX, which aims to launch by the end of Q3 2017, is a combined exchange and clearinghouse that will provide institutional investors with access to put and call options and day-ahead swaps.

GDAX, though less full-featured than Gemini and LedgerX, offers margin trading and access to litecoin (LTC) markets.

Initial Coin Offerings

Investors should also consider the multitudinous opportunities presented by initial coin offerings (ICOs). An ICO is a fundraising model whereby a startup raises capital by selling or auctioning crypto tokens.

These tokens–which are usually traded on the Ethereum blockchain–may fall into one of three categories. Equity tokens allow investors to trade company stock on the blockchain. Securities tokens represent tradable assets that derive their value from outside the blockchain, such as a token backed by real estate or precious metals. Utility tokens provide holders with access to a product or service and may increase in value along with consumer demand for that good or service.

Startups often provide institutional investors with access to discounted token presales in exchange for longer vesting periods. The SEC has not yet issued clear regulatory guidance on this nascent fundraising model, aside from suggesting that many tokens are subject to securities regulations. Consequently, firms should only invest in ICOs that restrict participation to accredited investors.

Bitcoin Trusts & ETFs

Many institutional firms desire exposure to the price movements of bitcoin and other cryptocurrencies, but they would rather not handle the technical responsibilities of buying, storing, and selling the coins. These firms should consider taking a position in a bitcoin trust or ETF. Grayscale Investments, for instance, offers two publicly-quoted securities that derive their value from the price of cryptocurrency: the Bitcoin Investment Trust and the Ethereum Classic Investment Trust.

Several investment groups have applied for cryptocurrency ETFs, but thus far the SEC has rejected these applications. Nevertheless, the SEC has stated it will reconsider cryptocurrency ETF applications, increasing the likelihood that institutional firms could have access to this attractive investment vehicle in the near future.

Strategic Coin is your go-to source for cryptocurrency investment research and education. Whether you need help understanding the basics of blockchain technology or desire to read an in-depth analysis of the latest initial coin offering, Strategic Coin will provide you with the information you need to take advantage of market opportunities within the crypto finance industry.