Institutional vs Retail Investors in Crypto: What Is the Difference?
Key Questions Answered
Retail investors are individual investors who invest for their own personal gain, and institutional investors are large players such as crypto investment funds and crypto exchanges. This guide will discuss the particulars of each of these investor types in crypto, as well as how they differ from their counterparts in traditional investing.
What Are Institutional Investors in Crypto?
The term “institutional investor” refers to a group of investors and entities that manage other people’s money. Unlike institutional investors who invest in assets such as stocks and bonds, institutional investors in crypto deal with crypto assets, such as Bitcoin (BTC) and altcoins.
Institutional investors are the largest investors in the crypto industry, and only purchase large supplies of crypto, giving them vast control over the markets. Institutional investors in crypto have invested billions in crypto and are considered market makers. These investors have early access to coin funding rounds, billions of dollars in crypto assets under management, and high liquidity.
Many early Bitcoin investors who used to be retail traders became crypto whales and started their own institutional investment companies. Institutional investors are powerful because they manage crypto portfolios for millions of retail investors. For example, Phemex is an institutional investor because we manage crypto assets for over one million users.
Types Of Institutional Investors
Different types of institutional investors in crypto include the following:
The biggest institutional investors in crypto are crypto exchanges. They hold the highest reserves of crypto, including 13% of the total Bitcoin supply, and provide liquidity such as stablecoins that enable millions of retail investors to invest in crypto. The top 10 crypto exchanges collectively process over $100 billion in trade volume per day on average.
Most cryptos launch without an exchange listing, and having a crypto listed on an exchange is considered bullish, because crypto exchanges have thousands of users with assets to invest in new listings. This is why many early-stage crypto start-ups aim to get listed on an exchange.
Phemex is a crypto exchange that processes over $3 billion in trade volume per day and receives nearly two million daily visitors.
Crypto funds are institutional investors that accumulate crypto in the early stage by raising venture rounds for new projects, and also provide crypto management services. These funds invest exclusively in crypto assets.
Funds help launch new projects by financing them through private sales at a lower price than the launch price on an exchange or even an ICO. Some of these institutional investors have hundreds of thousands of Bitcoin, Ether (ETH), and other cryptos under management.
Some major crypto funds are as follows.
Digital Currency Group (DGC)
Digital Currency Group is the largest private institutional investor in crypto. It was founded in 2015 by Barry Silbert, an early Bitcoin investor who funded large projects like Ripple (XRP) and Coinbase. Grayscale Trust is DGC’s main subsidiary.
Grayscale Bitcoin Trust in particular is the largest Bitcoin and crypto trust fund in the world. It currently holds 650,000 BTC, or over 3% of the total BTC supply. This surpasses the US government’s holdings of 70,000 BTC and the Chinese government’s holdings of 200,000 BTC.
Grayscale’s holdings are in the tens of billions of US dollars, and they also hold assets such as Ethereum (ETH), Litecoin (LTC), Chainlink (LINK), and Decentraland (MANA). Grayscale works with classic institutional investors such as banks and Wall Street funds who want to diversify their portfolios and increase their exposure to crypto.
|#||Bitcoin Holder||Entity Type||BTC Holdings||Current Value (USD)||% of BTC Supply|
|1||Grayscale BTC Trust||Fund||653,632||$26,257,274,478||3.113%|
|4||Wrapped BTC||Private Company||156,944||$6,304,674||0.747%|
|7||Celsius Network||Private Company||82,243||$3,303,808||0.392%|
Nearly 90% of DGC’s client base is institutional investors. Grayscale and DGC are currently privately-held companies and they have not held an initial public offering (IPO) on the New York Stock Exchange, despite being New York–based. Grayscale has also acquired CoinDesk, the biggest blockchain media company.
Polychain Capital was the largest crypto fund in the world until it was surpassed by DGC. It currently has over $2 billion in crypto assets under management, and is based in San Francisco, California.
Founded by Bitcoin veteran Olaf Carlson-Wee in 2016, the fund specializes in investing in early-stage crypto start-ups. It is one of the most prominent crypto venture capital (VC) investors, attracting capital from large Silicon Valley VC companies, such as Union Square Ventures and Sequoia Capital.
Alameda Research is one of the largest up-and-coming crypto funds in the world. It successfully raised over $20 million to finance its project Solana (SOL), a crypto with a market cap of over $70 billion.
Alameda controls a large 20% stake in Solana, and its partners and early investors retain a large share. Alameda also invests in new crypto start-ups and provides VC funding.
Pantera Capital is an established Silicon Valley tech investor that recently started investing in crypto. It holds over $400 million in crypto assets and is continually increasing its exposure.
Established in 2003, Pantera is one of the largest tech investment VCs, with over $6 billion in total assets under management. It provides exclusive investment opportunities, but new clients have to invest at least $100,000 to be eligible.
Andreesen Horowitz (a16z)
Andreessen Horowitz is a tech investment company based in Menlo Park, California, with over $18 billion in assets under management. Having recently entered the crypto industry, a16z has nearly $400 million invested in a total of 27 crypto projects.
Institutional Investors on Wall Street
New developments are made to lure classic institutional investors such as banks to invest in crypto. In 2013, the Winklevoss twins tried to launch a Bitcoin ETF on Wall Street, but were rejected by the US Securities and Exchange Commission (SEC).
There is only one Bitcoin ETF trading on Wall Street at the moment, and that is the ProShares ETF. VanEck, a New York–based asset management company, also filed for a Bitcoin ETF.
The biggest obstacle to Wall Street institutional investments in crypto are SEC regulations. SEC chair Gary Gensler says he would “rather see funds holding Bitcoin futures than the currency itself.” Most Wall Street institutional investors do not hold BTC itself but trade futures.
What Are Retail Investors?
Retail investors are private individuals who invest their own capital on their own behalf. A retail investor could be anyone from a carpenter who sets aside $500/month for Bitcoin to multi-billionaire Elon Musk who invests in Dogecoin (DOGE) for fun. Retail investors always invest their own money instead of investing on behalf of other people.
Retail investing has changed a lot during the past 10 years. In the past, a retail investor would have to hire a financial advisor who could place trades on their behalf on the stock market. Today, the stock market and crypto markets are easily accessible to the average person via trading apps and crypto exchanges. Retail investors can download a crypto app or create an account at Phemex and start trading crypto.
Retail investors largely have access to the same technologies as institutional investors. For example, a retail investor can use margin trading to leverage their position and turn a higher profit — the same as a hedge fund.
Retail investors in crypto enjoy certain privileges that retail investors in the stock market don’t. For one, crypto retail investors can invest 24/7 because the markets are always open, whereas the stock markets are only open Monday to Friday.
Stock retail investors can only buy into IPOs if they’re considered an “accredited investor” (that is, their net worth exceeds $1 million), while crypto retail investors can easily invest in new ICOs (initial coin offerings) without any restrictions.
There is a thin line between institutional and retail investors in crypto. If the CEO of an institutional crypto firm decided to invest his personal funds, he would become a retail trader. Likewise, a successful retail trader could become an institutional investor if she started her own crypto company.
The risk that retail and institutional investors take on is similar due to the volatility of the crypto markets. However, institutional investors are often more hedged because they invest in dozens of cryptos simultaneously and have higher liquidity.
The bottom line is that institutional investors are large entities such as crypto exchanges that employ thousands of people and hold large crypto reserves, and retail investors are individuals who trade for their own benefit.