Cryptocurrencies are becoming a legitimate asset class in the eyes of institutional investors who are adopting digital assets, following the footsteps of giants such as MicroStrategy and Goldman Sachs. With the entry of large companies into the crypto sector, the need for robust infrastructure has risen because institutional investors’ approach to trading differs from retail. This article explains this difference.
Institutional Investors in Cryptocurrency
Institutional investors in crypto are tech and software companies, financial entities, funds, banks, etc., that invest a significant part of their portfolio in the crypto market. They often act on behalf of their clients, which makes them risk-averse. Often, institutions have dedicated departments that analyze markets and give them insights.
Institutions require a robust and safe trading infrastructure that includes advanced trading tools, reliable custody, and compliance. This is why they don’t choose regular crypto exchanges. Instead, they register accounts with reputable and regulated platforms. An example may be crypto trading for institutions on WhiteBIT.
Here are the services investors get working with an institutional exchange:
- Deep liquidity
- Tools for market analysis
- Risk management tools
- Insurance coverage
- AML and KYC compliance (AML check crypto on WhiteBIT)
- Custody solutions.
What’s at Retail Investor Attention?
Retail crypto investors are individuals who use their own funds to trade crypto. Usually, they are not professional investors, and they don’t have access to professional analytics and institutional-level information unless they hire a financial advisor who would trade on their behalf.
Compared with traditional markets, crypto is available for anyone via crypto exchanges and apps, attracting retail traders to crypto. Individual investors can participate in ICOs and become early token holders of new crypto projects. It gives them an advantage compared to the traditional market, where you must acquire a license to participate in IPOs.
Comparing Institutional Cryptocurrency Investment Approach with Retail
Retail vs institutional investor:
- Capital. Institutions operate millions and billions of dollars in crypto, while retail investments are much smaller.
- Impact. Retail investors have minimal impact on market prices. Due to the size of their trades, institutional interest in a cryptocurrency can signal market confidence, leading to price growth.
- Responsibility. Institutions trade on behalf of their clients, while retail traders act on their own.
- Institutional investor attention is typically focused on long-term asset holding, while individual traders tend to use both long and short-term strategies to speculate on asset price movements.
- Compliance. Retail Investors face fewer regulatory constraints than institutional investors. Institutions must adhere to strict regulatory and compliance standards, including KYC and AML regulations.
Institutional investors and retail investors take different approaches to crypto trading. These relate to compliance, trading volume, risk level, and trading approaches.
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