Accredited investors and crypto: 5 things to know
Smart investors are looking to crypto.
Smart investors are looking to crypto.
It’s not that surprising. Each week it seems there’s a story about another well-known institution embracing crypto, or big companies announcing they’ll now accept Bitcoin or other alternatives. With the recent news around Bitcoin’s soaring prices, Mastercard’s embrace of digital assets in its network, and Tesla’s staggering purchase of $1.5 billion worth of Bitcoin, it seems like there’s an energy and excitement around the industry today that we haven’t seen before.
And it’s a good thing. A few years ago, people didn’t know about crypto. If they did, it was in association with a tech fad or the dark web. Yet today, it’s become not just a popular alternative to fiat currency, but an attractive investment opportunity.
Many people can see that crypto long ago started down the path towards becoming an institutionalized asset, but how do investors feel about its outlook? Are they excited about the opportunities crypto investments provide? Or are they skeptical about the future? A new report entitled “Crypto Investing: Insights from Accredited Investors” attempts to answer those questions and more by surveying high-income individuals who are allowed to trade unregistered securities about their experience in cryptocurrency investments.
A few things are clear from the report: Accredited investors aren’t waiting. They’re bullish on Bitcoin and are already investing. Here are five things to know about accredited investors and crypto.
1. They’re already invested in Bitcoin.
Investing in cryptocurrency isn’t an unheard-of prospect for accredited investors, or a new fad on the horizon. They’ve already jumped into crypto. According to the report, 87% of accredited investors we surveyed have heard of Bitcoin, and 70% already invested in Bitcoin at some point in the past.
This is encouraging news when it comes to the crypto industry outlook. Some investors from the report who were hesitant to invest in Bitcoin cited needing the prices of crypto to become less volatile before they would do so. That will happen as crypto assets become more institutionalized with more investors and trading volume, more transparency into crypto projects, and more widespread usage and awareness. The fact that accredited investors are already knowledgeable about and investing in Bitcoin means the industry will get there faster.
2. They want to invest more in Bitcoin.
While 70% have already invested in Bitcoin, another 74% think they’re likely to invest in Bitcoin in the next year. There are a number of reasons why they want to invest in cryptocurrency, which could be as simple as a fear of missing out on what they see is the next big thing, or a result of deep market analysis. It looks like the majority of investors are buying and holding for future returns. This reflects investor bullishness about cryptocurrency and the confidence that it’ll keep steadily rising. This long-term strategy could be due in part to investors seeing crypto as a good store of value, like gold, that could hedge against fiat currency fluctuations — especially in light of the unstable market conditions that have formed thanks to the COVID-19 pandemic.
Investors are buying crypto for short-term investments as well, looking at sudden jumps in prices as a chance to make a quick return.
A few others are investing in crypto for the reasons it was originally created: They don’t want to be beholden to governmental regulations and see decentralized currency as aligning more with their beliefs over privacy and decentralization.
3. They know about DeFi and other crypto applications.
In addition to their investments in Bitcoin, the accredited investors we surveyed speculate on other cryptocurrencies as well. They’re well versed in what DeFi is, and 90% want to invest in DeFi products in the future. This signals that accredited investors who are interested in crypto are already well-educated, knowing not only about the heavyweight in the space — Bitcoin — but about other coin offerings, too.
They also know about the financial products rising up around crypto in the DeFi space, like smart contracts, decentralized exchanges, stable coins, and other crypto applications. This shows that investors aren’t just one-directional when it comes to investing, but are spreading their investments around the entire ecosystem.
4. They’re diversified and would choose Bitcoin.
According to the report, accredited investors are diversified, with crypto taking up at least a small portion of their investment portfolios — though it didn’t take the largest percentage. Yet, when asked what would be a better four-year investment, many replied that they’d invest in Bitcoin rather than blue-chip stocks like Apple or IBM.
Bear in mind that accredited investors tend to be more risk-tolerant, but this should signal something: Smart investors see Bitcoin as a better return on investment than established company stock. Part of it could be that high volatility will give higher returns than the more steady investment offerings. But this also means that they see Bitcoin, and probably other cryptocurrencies, as comfortable to hold as blue-chip stocks. This is quite a vote of confidence in an industry that is only a decade old.
5. They believe a few things need to change to attract other investors.
Increasing investments in crypto will be critical in earning it institutional asset status. Investors who are already playing in the space have the most insight into what needs to be fixed in order to invite more investors in. The biggest obstacle to widening the investor pool are crypto scams, which have defrauded investors of over $16 billion since 2012.
Related to that is the belief that a lack of transparency around crypto projects and regulations are keeping investors away, as well as a lack of education and awareness about the whole industry. In other words, we must figure out better ways to protect investors, give them the tools they need to do their due diligence and evaluate their investments, and educate them more about crypto.
Accredited Investors are Here to Stay
Crypto is quickly moving into the future, and new investors are going to be the ones to push it there. While many are excited and eager about the space, there’s still work to do to make crypto investing accessible and safe for those who are interested.