During the 8th edition of the Blockchain Africa Conference 2022, the editor-in-chief of Cointelegraph, Kristina Lucrezia Corner, virtually moderated a panel titled “Institutional Cryptocurrency Investing: Increasing Returns and Improving Diversification.” panelists Kalin Methodiev, co-founder and managing partner of Nexo, and Dimitrios Kavvathas, Chief Strategy Officer at Amber Group, focused on the opportunities institutional investors perceive in the blockchain and cryptocurrency space, both in Africa and globally.
Nexo is a cryptocurrency exchange and lending platform that recently started offering cryptocurrency custody services, lending products and services for institutional investors, in association with the cryptocurrency wing of Fidelity Investments called Fidelity Digital Assets. The cryptocurrency trading company Amber Group recently secured an investment of USD 200 million, which tripled its valuation to USD 3,000 million after the great investment of the Singaporean company, Temasek Holdings.
Both panelists provided their views on the current dynamics of institutional investment in the blockchain and cryptocurrency space and acknowledged its “exponential” growth in institutional onboarding. Metodiev stated that institutional investors, however, may argue that the cryptocurrency market is “still too volatile”, making it difficult for them to determine the overall effect of crypto relative to other assets in a portfolio.
Kavvathas expressed that “we can do more” than add cryptocurrencies as one more asset class for large liquidity-providing institutions. He added that while turnout is increasing, it’s still “not close to being significant.” Metodiev also highlighted the importance of the African market and the “number of potential users that is growing daily” due to the “extremely” rapid adoption of Blockchain technology on the continent.
However, with mass adoption may come regulation. Metodiev asserts that while the free market should not be mixed with politics, some regulation is to be expected: “It’s a pipe dream if we think we live in a rosy bubble” and expect millions of dollars to flow without any policy or procedure. Kavvathas agrees that it is inevitable that cryptocurrencies will be integrated into the standard regulatory structure, despite the community’s misgivings about it.
Cornèr then asked what can be done to accelerate the responsible use of cryptocurrency in accordance with the environmental, social and governance agenda, or ESG, established by the United Nations. Metodiev said that the more institutions come out about their commitment to ESG goals, the more service providers will be able to support these initiatives as well, but that this starts with greater investment in Blockchain technology.
Kavvathas discussed Amber Group’s partnership with climate tech company Moss Earth and their program to tokenize carbon offsets from Bitcoin transactions. He added that “blockchain companies are very well placed to offer solutions to climate change”, but that governments and regulators need to follow suit.
Another topic of conversation was what institutions can look for in terms of profitability. Metodiev pointed out that institutions perceive return and risk differently from retail investors, noting that institutional interest is based on the perception of opportunities. He said it may be more important for institutional investors to get into a space where they can allocate billions of dollars and consistently receive 7% to 12% annual returns, rather than chasing 70% to 80% returns.
The discussion ended with Kavvathas expressing his enthusiasm for tokenomics and the incentives associated with permissionless blockchains that can enable the cryptocurrency community to bridge and overcome obstacles to sustainable investment.
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