For the past couple of years, cryptocurrency advocates have anticipated a major catalyst that would surely drive prices higher – the moment when large institutional investors start investing in Bitcoin.
We’ve seen some hedge funds dabbling in cryptocurrencies already, but one of the largest pools of institutional money in the world – pension funds — has stayed almost completely on the sidelines.
And pensions in the world’s 22 top pension markets make up a massive, price-moving pool of $41.4 trillion, according to Willis Towers Watson.
Should even a small portion of this money trickle into primary cryptocurrencies like Bitcoin, it could cause the prices of those cryptos to double or even triple.
While this traditionally conservative corner of investing isn’t likely to jump into the crypto universe with both feet, the sector’s unusually high returns have started to catch the attention of pension fund managers.
“We’re looking into it,” TerriJo Saarela, director of corporate governance for the State of Wisconsin Investment Board, admitted to Forbes in March.
One major obstacle is holding them back.
What Pension Fund Managers Are Waiting For
When you manage a fund worth billions of dollars, security is a major concern. So imagine being a pension fund manager who’s considering investing in Bitcoinreading news story after news story about how yet another crypto exchange was hacked and millions of dollars’ worth of crypto stolen.
You wouldn’t feel too confident about exposing your pension fund to that kind of risk.
But in the world of institutional investing, there is an answer to this – professional custodians.
Custodians offer protection for investments that require some level of security, such as physical gold. And Wall Street has no shortage of them. Some of the major names include State Street Corp. (NYSE: STT), Bank of New York Mellon Corp. (NYSE: BK), and JPMorgan Chase & Co. (NYSE: JPM).
But none of these most trusted custodians have moved into cryptocurrencies yet. And especially with an investment as tricky to properly secure as crypto, institutional investors like pension funds won’t settle for anything less than a top-notch custodian.
A few crypto companies, most notably Coinbase and the Winklevoss twins’ Gemini Trust Co., do offer custodial services for institutional investors. But for pension fund managers, the trust factor isn’t there yet.
Part of that is due to the lack of a track record.
Gemini’s service launched in 2016; the Coinbase service is brand-new, having launched July 2.
Pension fund managers are also wary of cryptocurrency as an asset. The volatility, in addition to the frequent stories of crypto exchanges getting hacked, has made fund managers especially cautious about investing in cryptocurrencies.
But the lack of custodial services is by far the biggest roadblock right now.
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