The cryptocurrency market is transforming to institutional adoption, with large companies, funds, financial institutions, and tech giants entering the crypto sector. Do retail and institutional crypto investors act similarly? How do they differ, and what is typical? This article aims to answer these questions.
Table of Contents
Retail and Institutional Investors
Let’s begin with institutional investors in cryptocurrency. These are financial entities, such as banks, insurance companies, hedge funds, and family firms, that allocate a portion of their investment portfolio to crypto assets.
Here are the main features of large market players:
- They operate with substantial capital.
- They often act on behalf of other people (their clients or investors) and must act in the best interests of their clients.
- They use institutional crypto exchanges that comply with regulations (such as WhiteBIT crypto institutional exchange) to buy and sell crypto assets.
- They usually have teams dedicated to analyzing trends and using sophisticated tools.
- They may incorporate crypto assets into their payment systems or add trading desks for their clients.
- They may create new crypto products, tokenize their assets, and list tokens on exchanges (list token on WhiteBIT).
Retail traders are individuals who use their own money to trade or invest in crypto. The key features of retail traders:
- They are not professional investors.
- Use the same complex strategies as institutions – futures, margin trading, etc. due to the accessibility of the crypto market.
- They can easily participate in ICOs and be early investors in crypto projects. Unlike the traditional stock market, where to receive access to IPOs, investors need to be accredited.
Retail vs Institutional Investors
Institutions have a significant advantage over retail investors regarding access to capital. This advantage sets them apart, as their investment decisions can significantly impact the market’s prices and liquidity on an institutional exchange. With billions of dollars under management, institutions are in a league of their own.
Individual investors often make trades based on emotions, impacting their investment decisions and ability to make sound trades. Generally, they lack a long-term investment strategy and view cryptocurrency more as a speculative opportunity rather than a valuable asset for their portfolio in the long run.
Institutions have access to an institutional crypto trading platform that allows for implementing advanced strategies and offers tools for analytics and research. Thus, institutions are better informed than individual traders.
Lastly, when managing their clients’ funds, institutions are more risk-averse than retail traders who use their own money.
Wrapping up, institutions usually have a longer-term strategy for investing in crypto compared to retail traders who typically choose short-term strategies to capitalize on.
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