Want Bitcoin to Succeed? F&ck the Institutions
Protect yourself
I still hear people talk about the “wall of institutional money” about to rush into crypto. As if the $70-110 billion already reported isn’t enough.
Yes, institutional investors continue to buy, HODL, and accumulate, just not with the same pace and urgency of 2020. We see this in lots of data. Most pensions have no crypto. Those that have crypto hold trivial amounts.
Sure, $25 million here, $25 million there, it adds up. One or two years ago, that would’ve been a lot of money.
Today, it’s insignificant. The market’s gotten so big that institutional money doesn’t make as much of a difference.
One year ago, it was a $360 billion market. Two years ago, it was almost half that size.
Today, it’s a $2.6 trillion market and growing. I’d hate for institutions to come in and screw it up for the rest of us.
Institutions don’t work the way you think they do
It’s likely institutions will keep putting money into the market at an even slower pace as prices go up. Some will sell, as they did from February to April of this year and again last month.
Many institutions don’t need—or even want—to hold crypto for years. Maybe the fund managers will do this with their personal funds, but not their clients’ money. Most institutions just want to sell bitcoin for more than they bought it for. They’re not generally dollar-cost averaging and usually rotate out of profitable investments once the returns meet whatever internal target they set.
In any event, they have different motivations. When you’re a professional money manager, you don’t need to get amazing returns. You don’t even have to be better than the other guys. You just need to make your clients happy.
For the most part, investors will stick with an underperforming asset manager they like, but they’ll cut bait with a money-loser the moment they see a negative sign on their account statement. Same with institutional investors.
In the traditional investment world, a 20% annualized return makes you a superstar.
In crypto, a 20% annualized return makes you a failure. God knows what people will say about you on Reddit.
Clients come first
Also, when you manage somebody else’s money, you usually have a responsibility to protect and grow their investments. Your reputation and career ambitions depend on this. Often, you risk getting sued for investing in risky assets or holding them when they fail.
You may even have strict investment guidelines from your clients or the fund’s allocation strategy. Some pensions, for example, can’t buy certain assets that fall outside of established risk parameters. Some family offices and endowments take a very conservative approach, too.
As a result, you tend to err on the side of caution, even at the risk of missing out on gains. You’ll take those risks with your own money, not other people’s.
At the end of the day, institutional investors want to generate cash for business operations, stakeholder rewards, or beneficiaries that want to grow their wealth. Crypto is just a way to get that result. The moment bitcoin does 2x, they may sell half or maybe all their initial investment and let the rest ride.
They may not even wait for that 2x. A 50% gain in one month is probably good enough for most.
It’s tough for this market to grow too much for too long when so many entities are always looking to sell.
For more perspective on how a crypto fund manager looks at the market, listen to my interview with Ace Quants CEO Hanna Hajjar from way back.
Look out for yourself
Anyway, do you really want institutions to dominate this market?
That happened in 2020—remember “institutions will never let the market crash?”
Guess what? They let the market crash.
We know many corporations and funds sold some or all of their bitcoin from February to April. In the Q4 financial reports, we’ll learn others did this in November, too.
As you bought, they sold.
Do you really want these guys back in the market? They’re not in it to grow your wealth or build the industry. They’re certainly not looking out for you, bitcoin, or whatever altcoin your Telegram group’s hyping today.
Telsa made more money selling bitcoin in one quarter than it made in its first 17 years as a company. When the price goes to $100,000 or $200,000, do you think Elon won’t take a little more off the table? Imagine 1,000 Elon Musks, all taking $100 million out of the market all at the same time, just as you’re stacking a celebratory sat for that next new all-time high.
Fuck the institutions. Protect yourself.
Nobody else will.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio.
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"They’re not in it to grow your wealth or build the industry."
And pray tell, what industries are being financed by crypto? That is, apart from more crypto industries, none of which actually make anything.
Sure, you can drop it into your corporate treasury and hope like Musk or Saylor have done. But let's see what happens if that "money" can be used to buy anything but USD, EUR, etc.
It will never happen that a value store with extraordinary volatility will ever be anything but one or two steps away from gambling. Artificial scarcity is what is the value basis. It may still take some time, but eventually there will be a failure (even with quantum computing advances aside) and then any of the economies operating on this one tenuous construct will collapse.
Trust no one. Be safe. You're right