Institutional Investment in Crypto: Top 10 Takeaways of 2019

The following is a summary of the report: "An Institutional Take on the 2019/2020 Digital Asset Market".

The difficulty in defining "Market beta" in a space like digital assets is that there is no consensus for a market proxy like the S&P 500 or Dow Jones.

Since the space is still very early in its development, and bitcoin has dominant market share, bitcoin is often viewed as the obvious choice for beta, despite the drawbacks of defining "Market beta" as a single asset with idiosyncratic tendencies.

While handfuls of institutions have already started to invest in the space, a very small amount of institutional capital has actually made it in, gauged by the size of the asset class and the public market trading volumes.

Despite a few other challenges imposed on larger institutional allocators with respect to investing in digital assets, true believers inside these large organizations are emerging, and the processes for forming a digital asset strategy are either getting started or already underway.

With the lowest-friction investor adoption focused on the largest liquid asset in the space - bitcoin - the proliferation of single asset vehicles has increased.

For the last several years, many fundamental-focused crypto-native hedge funds operated hybrid structures with the use of side-pockets that enabled a barbell strategy approach to investing in both the public and private digital asset markets.

A new fundamental metric was introduced earlier this year by Chris Burniske - the Network Value to Token Value ratio - to ascertain whether the value of all assets anchored into a platform can be greater than the value of the base platform's asset.

Smart contracts enable us to program the characteristics of any asset, thus it is not irrational to assume that it's only a matter of time until traditional collateral assets get digitized and put to economic use on blockchain networks.

Digital assets are still an emerging asset class with many quickly evolving narratives, trends, and investment strategies.