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Dominos of Institutional Capital in the Crypto Market

Traders Magazine Online News, December 5, 2018

Liechtenstein Cryptoassets Exchange

News that Yale University invested in cryptocurrencies came out in early October. This created a buzz among financial observers talking about a potential “Dominos Effect”, believing that the vote of confidence in crypto from Yale’s CIO will convince other investment officers to take a look at the emerging asset class.

Within a week, the news seems to have already attracted five other major educational institutions into investing in cryptocurrencies?—?including Harvard University, which controls the world’s largest endowment with $35.6 billion in assets.

These institutions are among the first entrants from mainstream finance to invest in cryptocurrency hedge funds?—?the first institutional dominos to be placed in the crypto asset market.

After the university endowments, who exactly would be “the second domino” from mainstream finance to invest in crypto assets? And who will facilitate the herd with the right infrastructure?

No one can really tell. But perhaps we can learn from how the dominos fell in place for other markets.

The Wall Street of Crypto

Although unarguably of a different time and era, parallels can be drawn to the way other asset types have developed. The equity market has always been an enterprise-level venture with institutional players from the very beginning. Vast wealth in new lands are being discovered by the Old World, but putting up expeditions to claim them proved to be cost-prohibitive for any single non-state group. Thus, a then unique cost- and profit-sharing, limited liability organization was put up in the form of the first corporation. Partial ownership of the corporation can then be traded as shares.

Stock trading has not always enjoyed the same regulatory acceptance it sees today. The establishment of formal exchanges can be traced back to the 1500s, but during its early days, the stock market can be described like how the crypto market is oftentimes described now?—?a financial Wild West. It experienced a bubble and a crash, and authorities became wary of the market as a whole to the point where England actually severely restricted the issuance of shares until 1825.

Despite the restrictions, forward-thinking private enterprises still found ways to do business on (the precursors of) the London Stock Exchange, and, despite trading and investment practices still being in relative disarray, the Subscription Room was created in 1801 to become one of the first regulated exchanges. This development soon paved the way for codified rule sets meant to move the market from being Wild West to being more regulatory-compliant. Press and public opinion, however, still continued to be generally against what was then still a very young stock market. This may very well be the period of development the crypto asset market is in right now.

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