Extending Crypto to Institutional Investors With Diversifi
Once perceived as a high-risk investment asset, cryptocurrency is nowadays being actively adopted by more institutional investors, becoming a highly recognized part of the financial world.
Thanks to crypto’s successful implementation of multiple use cases (like trading, peer-to-peer lending, betting, yield farming, etc.), this year, institutions have invested $17 billion in the crypto industry. Besides, according to the current 3rd Annual Global Crypto Hedge Fund Report, more than 85% of hedge funds are planning to provide capital to crypto by the end of 2021.
Why Are Institutional Investors Switching To Crypto?
Institutional investors are intrigued by the opportunities that the crypto world creates.
Traditional finance players, like banks and funds, are adding crypto for multiple reasons. Macroeconomic trends, regulatory (slow but steady) clarification, and surging prices encourage more and more investors to explore their options to include crypto assets in their portfolios.
Crypto funds, VCs, and companies are the early adopters. The increased crypto holdings generate tremendous upside for their investors. The traditional investors must embed risk management and diversification as their tolerance to volatility is limited. They need ways to hedge, limit downside, and… diversify (no pun intended). Similarly, corporate treasurers who consider adding crypto into their treasuries as an inflation hedge and store-of-value, have similar needs.
What Holds Institutions Back?
Despite the mentioned advantages, cryptocurrencies still impose obstacles that make some of the institutional players hesitate about making the leap and add crypto to their portfolios.
39% of European and US institutions say that the absence of regulatory clarity is one of the top reasons why they are still not there.
Another common reason is the reputation risk Institutional investors cannot afford to risk large drawdowns caused by the crypto price volatility. And corporate CFOs can’t tolerate a board meeting in which they will need to explain how their new and bald investment thesis caused their shareholders a 40-50% loss.
Given the risks, mitigation becomes a pressing need for banks and companies interested in holding crypto. They need products that will embed such measures. On top of that, more and more institutions are becoming aware of the environmental and social impact that crypto investing produces, as well as ESG compliance requirements raising the need for eco-friendly crypto investment.
What’s The Solution?
Diversifi addresses the main obstacles. IT offers a suite of tools and investment strategies that handle the volatility and regulation, minimize investment risks, optimize profit opportunities, and mitigate environmental impact.
Our solution is divided into 5 buckets:
• Controlled Exposure – a set of strategies for controlling the exposure to cryptocurrency while protecting from downside scenarios;
• Smart Hedge – a set of intelligent hedging strategies for protecting against the systematic risk);
• Green Crypto – a carbon footprint offset of crypto holdings;
• Balanced Portfolios – Analysis and auto diversification of portfolios;
• and Programmable Indices – Index products that leverage AI models to dynamically manage the index attributes in ways that minimize risk.
All strategies operate within a regulation-compliant framework which makes institutional investing a sophisticated and highly secure practice.