Expert Insight: OKEx' CEO Talks About Behind Story of Institutional Investors Piling into Bitcoin

As bitcoin price soars recently, the topic that institutional investors is piling into bitcoin has attracted great attention. Investors are wondering that why institutional investors steps into this market at the time? what’s influence of this move? etc. Fazzaco invites Jay Hao to share his expert opinions. Jay Hao is the CEO of OKEx, an innovative cryptocurrency exchange with advanced financial services.

Bitcoin's recent record-breaking rally is unrecognizable from three years ago when it was entirely retail-driven and traditional banks like JPMorgan were still calling bitcoin a scam and a fraud. There was a lack of regulation in the space and no derivatives market. While we saw a lot of unsophisticated investors losing money and many saying the bubble had burst, the crypto industry continued to strengthen and build.

Institutional investors were not unaware of the stellar innovation and growth but they simply weren't ready or able to take part back then and the infrastructure wasn't really in place for larger participants with regulatory compliance burdens. So much has changed since then including the massive growth of derivatives, DeFi, improved products and user experience, and favorable regulation allowing institutions to participate – and even orchestrate – this latest run.

BTC reached a new all time high of almost $42K thanks to the continued work that went on during the bear market but more recently due to massive endorsements from the entrance of companies like PayPal, allowing their customers to purchase cryptocurrency, and U.S. banks being allowed to custody digital assets and use stablecoins and blockchains for faster settlement. 

There has been a rising trend for corporate treasurers to add BTC to their balance sheet, kicked off by MicroStrategy and followed by many other large names including Guggenhein and Square. The pandemic has probably also accelerated adoption as the USD supply has inflated massively over the last year and investors are seeking alternative assets to place their money in as a hedge against inevitable inflation. We're also seeing daily analyses from well-respected firms and institutions predicting that bitcoin is undervalued and that, largely due to its hard cap of 21 million and in-built scarcity relative to gold, it could reach highs of between $140K and $400K by the end of 2021.

For institutional investors to remain in this space, they need sophisticated products and tools that allow them to enhance their risk and capital management. They need institutional-grade products and solutions, and a diverse sophisticated derivatives market that allows them to conduct flexible trading and hedging strategies – just as they can in traditional financial markets. 

This is already happening as the space responds to the demand and, at OKEx, we are rolling out our Unified Account feature soon that allows advanced traders to select cross margin and isolated margin allowing them to offset their gains and losses against each other during risk calculation. Having already gained significant traction in the traditional investment management industry, unified account management allows institutional investors to improve their risk management and gives them more flexibility over their trading strategies and capital. One example of this is that it substantially improves margin efficiency by unifying a trader's assets. This means that they can trade with any instrument and all of their purchasing power. 

From an institutional perspective, this makes trading quicker and more efficient. If, say, a trader wants to enter an ETHUSD futures trade, they can do so without having to acquire ETH by simply using any of their crypto collateral. This is much more convenient and also removes the cost of buying ETH or other altcoins with USDT or BTC. This is the type of innovative solution that will attract more institutional players (especially hedge funds, and accredited investors who want to optimize gains for their clients).