2019 is expected to bring in many institutional investors into crypto space, but the most unlikely ones are pension funds. Unlike other institutional investors, pension funds slow to try out any new forms of investments as they are more comfortable with traditional options. This fear is not unfounded as many people depend on this decision for their retirement. But as 2018 ends, there are rumors floating around that pension funds are looking into investing in crypto. Basically, both state and private pension funds are in search of additional classes of investments, and crypto is starting to make more sense now. Today, the returns on pension funds and inflation rate don’t correspond with each other very well, which is why we could be looking at a future where many pension funds simply cannot provide a sensible pension. Yet, Bitcoin has continually kept the top spot when it comes to returns, outperforming every other asset over the last 10 years.
Pension funds in trouble
Pension funds are in trouble all around the world and it’s a big issue. In fact, in the USA, Bloomberg reported that public pension funds in over 42 states are in trouble. Many modern realities are to blame for such a big mess, the most profound is the fact that in most western countries the number of people entering the workforce is far lower than the number of people retiring. This means that the number of people paying money to a pension fund is decreasing while the number of people withdrawing from the fund is increasing. The second is the fact that people are living longer which means that pensions funds will have to pay pension longer for a single person. The third fact is that in older days, the interest rates were higher in the more conservative investment assets like government bonds, but now pension funds will have to go into risky investments to cover their commitments which increases the chance of them falling.
In the past, pensions were hesitant to deal with cryptocurrencies and the reasons are many. It’s hard to put money of other people into something like Bitcoin especially when there is no legal backing. Something that cryptocurrencies have been lacking from its inception is the lack of government backing. Anonymity is one of the strong points of cryptocurrencies but this also means a huge lack of transparency, without which returns cannot be calculated.
The markets have seen many pump and dump schemes along with many other scams. One of the reasons is that the lack of regulations also means that most of these cases will not be prosecuted. This increases the risk and decreases the trust, also there are no venues to recover the losses to such schemes making investment highly unpredictable. The market is fairly new and in general, lacks a clear path. There is no clarity as to what paths the whole industry is to take next. Investors generally like clarity and stability, both of which crypto cannot provide hence pension funds were hesitant.
Will pension funds really invest in crypto?
2019 is expected to bring in many new institutional investors to the crypto market. Many believe that the market has developed enough for safe entry of these big firms. Even a small investment from many of the big firms can create a huge change in the market cap of many coins. Many countries are opening up to crypto and many more are expected to follow suit in 2019 which gives investors huge confidence. Regulations are in drafting and awaiting approval in both India and Korea. These moves will further reduce the risk associated with crypto. Industry leaders are making bold decisions trying to make a clear path for crypto. Slowly the market is maturing with each passing day. The infrastructure is there, regulations and legal framework are coming up, investors are ready, and developers are trying hard to fix the shortcomings with the technology. It’s only a matter of time before crypto goes mainstream. This enthusiasm is what drives institutional investors to the market, especially pension funds.
2019 is surely going to be an exciting year for the industry as a whole. With the looming economic collapse will crypto be seen as a safe haven? How will the entry of institutional investors change the dynamics of the market? What will the new regulations that the governments are already planning be? 2019 will a significant year, something that will be defining the course of this industry and with the entry of pension funds, things will be more exciting.
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