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What is institutional investment?

Institutional investments are those made by organizations on behalf of their clients. An institutional investor accumulates funds from investors — such as high net worth individuals and other legal entities — to invest in various financial instruments on the client’s behalf. Examples of institutional investors include hedge funds and investment banks.

Institutional investments play an important role in the cryptocurrency market boom in 2020. Given the volatility of traditional financial instruments, institutions invest in cryptocurrencies as a hedge and some even consider BTC as a “safe-haven” asset. As of 2020, the estimated asset under management from cryptocurrency hedge funds rose from $2 billion to $3.8 billion.

Apart from client-oriented investments, publicly listed financial institutions started to purchase cryptocurrencies as part of their portfolios. For instance, business intelligence company MicroStrategy made multiple rounds of BTC purchases, and it is the largest BTC holder among listed companies — holding over 105,000 BTC as of late June 2021.

The surging institutional demand in cryptocurrencies is also notable in cryptocurrency derivatives. Products such as CME Group’s Bitcoin Futures catered to institutional demand as their open interests surged to $1.2 billion. Apart from BTC, institutions also seek ETH exposure by investing in CME’s Ether Futures.

Institutional investments also led to the rise of BTC whales — which typically refers to those who have a minimum balance of 10,000 BTC. As of June 2021, Grayscale Investment Holdings is the largest BTC whale as its Grayscale BTC Trust holds over 651,000 BTC.