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Why Crypto Funds Are Growing Despite the Bear Market

Traders Magazine Online News, October 2, 2018

David Wills

The last few months have seen huge numbers of unhappy speculators and media outlets proclaiming the death of cryptocurrencies for the umpteenth time. To many, the volatility of Bitcoin and similar offerings are little more than a gamble, a good investment while prices are skyrocketing. Itís easy to claim that the entire industry is falling into disarray as a result, but such a statement would be false.

While the current market may be incredibly volatile insofar as price is concerned, on the infrastructure side, things are looking very bullish indeed: if anything, it seems like the aforementioned volatility has only served to highlight the need for efficient hedging instruments. The data certainly seems to support the idea of a renaissance of sorts for legacy finance Ė despite a turbulent start at the beginning of 2018, the number of new crypto funds have steadily risen to approximately 60 at time of writing, and look ready to surpass the figures from 2017 by yearís end.

Polychain Capital garnered widespread attention in June with the news that they held over $1 billion in crypto-assets (although the markets have changed significantly since then). The fundís partners are composed of major VC players, including those from firms such as Andreessen Horowitz, Founders Fund and Union Square Ventures, amongst others. This can only be a sign of the institutional money soon to flow into the space.

Indeed, thereís a development few seem to comprehend when theyíre fixated on price Ė at last, weíre beginning to make sense of the regulatory landscape surrounding the buying, holding and selling of cryptocurrencies. Until relatively recently, guidance was sparse, somewhat cryptic, and varied from jurisdiction to jurisdiction. This uncertainty has been a major obstacle in the institutionalisation of crypto, but itís an uncertainty that is rapidly dissipating: a number of professional firms have emerged that specialise in advising clients on best practices and policies for establishing funds across jurisdictions.

The focal point of the cryptocurrency industry in 2018 has undoubtedly been a transition into the institutional space: following the meteoric rise of Bitcoin to $20k in December, there has been a buzz around ETFs and crypto-custodianship. Coinbase, the largest exchange, announced in July that it was launching its own custodial service, aiming to add an additional $5 billion to its $20 billion worth of held assets by the end of the year, serving 100 large institutional clients.

Coinbase is just the tip of the iceberg. Itís far from the only major player in the burgeoning crypto industry seeking to break into the custodial game: Gemini, BitGo and Xapo are just a few of the many others fine-tuning secure solutions for holding usersí funds.

Dollar price is a terrible metric by which to evaluate the state of the crypto industry. Bear and bull cycles are a natural part of any market, and downtrends are a time for assessing and building. We need to zoom out, and realise that some of the major barriers to the institutionalisation of cryptocurrency are being torn down. With legislators and financial heavyweights finally beginning to understand the importance of crypto, this small dip will be forgotten in the long run.

David Wills is COO and Co Founder of Caspian

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