Large institutions such as sovereign wealth funds, hedge funds, and family offices have been eager to invest in cryptocurrency this year. Their only concern: a lack of a trusted custodian to store their client's funds. To help support this demand, Coinbase announced yesterday the creation of Coinbase Custody– the first institutional coin storage service.
According to Brian Armstrong, CEO of Coinbase, more than $10B are waiting on the sidelines to invest in various cryptocurrencies. The creation of Coinbase Custody will help these investors attain their objectives by offering a variety of services, adapted for institutional needs. These services include strict financial controls, audit trails, insurance, SLAs on transfers, high levels of cyber-security and much more. But how can this service play out on the outcome of cryptocurrency?
Amplifying the Prices
An increase in popular demand, large buy orders and the legitimation of the industry are three factors that would be affected by the creation of Coinbase Custody. Besides, a substantial upward movement in the price levels could be expected considering that a $10B equity injection would be equivalent to approximately 5% of the total market valuation.
However, note that the concept of market capitalization is not indicative of the total amount of money invested in trading assets. For example, selling an apple for $10, with a total supply of 1000 apples would give the apple market a valuation of $10 000– but this does not mean that the same amount in cash has been invested into the apple market.
Consequently, a financial inflow of $10B into the market could easily extend the overall valuation of cryptocurrency to $1T, and more. Following the first mover advantage logic, Bitcoin should initially be the currency to benefit from the largest capital inflows, but should not be the one to experience the biggest overall gains due to its higher valuation.
Cryptocurrency has experienced substantial growth this year, and institutional investors should lead us to higher proportions in the years to come. While the exact future outcomes remain hard to predict, one thing is sure: cryptocurrency is here to stay.
If you are curious about what next year holds for cryptocurrency, you can read our previous article: Next Year Will Be The Year of The Bull For Cryptocurrency.