During the 8th edition of the Blockchain Africa Conference 2022, Gist Vile’s editor-in-chief Kristina Lucrezia Cornèr moderated a virtual panel titled “Cryptocurrency Institutional Investment: Increasing Returns and Improving Diversification.” Panelists Kalin Metodiev, co-founder and managing partner at Nexo, and Dimitrios Kavvathas, chief strategy officer at Amber Group, focused on the opportunities that institutional investors perceive in the blockchain and crypto space, both in Africa and globally.
Nexo is a crypto borrowing and exchange platform that recently began offering crypto custodial services, products and lending services to institutional investors, in partnership with the crypto wing of Fidelity Investments, which is called Fidelity Digital Assets. Crypto trading firm Amber Group recently secured a $200 million investment, which increased its valuation three-fold to $3 billion after a big investment from Singaporean Temasek Holdings.
Both panelists spoke about the current dynamics of institutional investing within the blockchain and crypto space, acknowledging its “exponential” growth in institutional onboarding. Metodiev stated that institutional investors, however, may claim that the crypto market is “still too volatile,” meaning determining the overall effect of crypto in relation to other assets in a portfolio is too challenging.
Kavvathas expressed that “we can do more” than just adding crypto as one more asset class for large liquidity provision institutions. He added that even though participation is increasing, it is “nowhere close to being meaningful” yet. Metodiev also highlighted the importance of the African market and the “number of potential users that is growing on a daily basis” due to the “extremely” quick adoption of blockchain technology on the continent.
Related: Crypto users in Africa grew by 2,500% in 2021: Report
With mass adoption, however, may come regulation. Metodiev said that even though a free market should not mix with politics, some regulation is to be expected: “It’s a pipe-dream if we believe we live in a rose-colored bubble” and expect millions of dollars to flow in without any policies or procedures. Kavvathas agreed that it’s inevitable that crypto be folded into the standard regulatory structure despite the community’s hesitation towards it.
Cornèr then asked what can be done to accelerate the responsible use of cryptocurrency in accordance with the environmental, social and governance, or ESG, agenda set by the United Nations. Metodiev expressed that the more vocal institutions are about their commitment to ESG goals, the more that service providers may support these initiatives, but that it starts with a larger investment in blockchain technology.
Kavvathas spoke about Amber Group’s partnership with climate tech company Moss Earth and its program to tokenize carbon offsets of Bitcoin transactions. He added that “blockchain companies are extremely well placed to deliver climate change solutions” but that there needs to be a “tailwind” from governments and regulators following their lead.
Another topic of conversation included what institutions may be seeking in terms of returns. Nexo’s Metodiev pointed out that institutions perceive returns and risk differently than do retail investors, emphasizing that institutional interest is based on how opportunities are perceived. He said that for institutional investors, it may be more important to enter a space where they can deploy billions of dollars and receive returns of 7%–12% consistently year-over-year as opposed to chasing 70%–80% returns.
The discussion wrapped with Kavvathas expressing his excitement toward tokenomics and the incentives associated with permissionless blockchains, which can enable the crypto community to bridge and overcome obstacles to sustainability investing.