Institutional cryptocurrency trading participation in the crypto space has been a curious but unexplored activity within the crypto space.
We all know that institutional are involved in cryptocurrencies. The big questions for many people though are how they are involved, what they do, and more importantly if these institutions will rule over the crypto space.
E-Crypto News caught up with Ulrik Lykke, co-founder of ARK36 on this issue. ARK36 is one of Europe’s first regulated cryptocurrency hedge funds.
ARK36 recently partnered with Coinify. Coinify is one of the world’s largest digital asset service providers.
Here is what he had to say.
Ulrik Lykke, co-founder of ARK36
- Congratulations on your new partnership! What are the benefits for the members of the crypto space?
ARK36 offers active management of funds focused 100% on crypto assets. In other words, we do our best to provide access to the tremendous upside potential that can be found in this market while striving to protect the investors from the inherent risks of investing in the space.
Our fund is targeted towards professional investors that see the potential benefits of having exposure to this new asset class without necessarily having the expertise, time, and knowledge to undertake such an investment on their own.
Our established partnership with Coinify is an add-on to our existing list of service providers we use that will provide more security for our clients as well as reliable and good venues at hand for executing trades.
- What roles do institutional service providers play in the crypto space?
Historically, there have been few institutional service providers in the space, if any at all.
However, with the heavy investments made during the bear market of 2018 and afterward, we are now seeing a whole new fleet of service providers that offer state-of-the-art trading and custody solutions.
This is an important building block for the space as it helps traditional players, who have strict standards about trade execution, custody of funds, and compliance, to enter the space.
The timing of such entities entering the world of crypto is not incidental. It has simply not been possible with the infrastructure that was available earlier.
3. Do you think institutions are the new whales in the crypto space? Please tell us the reasons for your answer.
Yes and no. The tales of ‘whales in the cryptoworld’ is a concept that has been known to traders in the space for many years.
During the early days, a large supply of bitcoin has been sitting with a relatively low number of people. But as more participants have been entering the economy, the supply has slowly but surely shifted hands and become evenly distributed.
Nowadays, corporate entities such as Grayscale, Galaxy Digital or MicroStrategy are among those who would be defined as whales whereas the whales of the early days were private individuals.
Back in those days, individual investors with many bitcoin in their hands had it in their power to move the markets at their will.
With the trading volume these days, it has become much harder for whales to move the needle – and it will become more difficult still in the future.
4. What are your thoughts on the rise of decentralized finance (DeFi)?
DeFi is a collection of all-digital, innovative financial systems and instruments. It is the next natural step of the ‘decentralized vision’ where middle-men can be removed in favour of peer-to-peer based systems.
In its current form, the DeFi projects available are very experimental and may carry considerable risk even by the standards of the crypto space.
For that reason, we urge any participant or investor to exercise enhanced due diligence when assessing the risk and deciding whether or not to take part in such a project.
That said, it is difficult not to be excited about the fact that services and systems previously reserved for a few centralized authorities can now be distributed and used by anyone in a more open and competitive environment.
We are firm believers that this trend is only just starting and the space will see many promising solutions popping up in the years to come.
- What are your plans to expand internationally?
We believe that being in the center of the crypto-storm puts us in an opportune position where we will have many potential options to expand our domain in the future.
We will be happy to unveil our plans for expansion when the time is right. At the moment, however, we have our energy laser-focused on the current situation and expanding our services mainly across Europe.
- Do you think Governments are ready for the crypto space? Please tell us the reasons for your answer.
Some countries or states are further ahead than others in that regard.
In Switzerland, it is now possible to pay your taxes with bitcoin or get a passport. In Wyoming, Kraken, an American-based cryptocurrency exchange, has just received a license to operate as a bank.
Conversely, in many other EU countries, National Banks and financial authorities have not taken a firm stand on the issue as of now.
We ourselves investigated the possibility of getting regulatory approval to offer investment services from Denmark a few years ago. Eventually, however, we found ourselves sitting in the “waiting room” expecting a decision for too long. That’s why we decided to move and set up our business in Cyprus instead.
Serious companies cannot work in the gray area and risk their legal status should the legislation be changed without prior warning.
One ramification of the lack of a more unified response from governments to the development of the crypto space is that it may cause a brain drain from the countries that are not adapting to the new technology fast enough.
- Is ARK36 focusing on institutional clients or are the funds’ services also going to focus on retail clients as well?
In our current form, we are focusing 100% on professional and institutional clients. We do, however, believe that our services will be offered to well-informed retail clients in the future.
- What are your thoughts on Bitcoin’s recent price rise?
There actually is an incredibly simple explanation of the recent price development.
There is an ongoing tendency that larger and well-known investors are entering the market, buying up huge amounts of bitcoin.
At the same time, we are witnessing investors move bitcoins out of the exchanges to more secure locations such as cold storage.
This creates a lack of liquidity on the one hand and greater demand on the other.
After the initial sharp price-surge from 12,000 to 14,000 USD, the media provided extensive coverage and ended up creating a lot of hype for new investors.
Amidst this hype, we were seeing a shortage of supply where especially large scale enterprises reported buying many bitcoins.
An example of this is Grayscale Investment Trust which bought 80% of all Bitcoin mined in Q3.
- Why do you think the Altcoins haven’t followed Bitcoin in surging?
Contrary to the popular perception, Altcoins have largely followed suit. Back in July and August, we already witnessed a mini altcoins upturn and we have seen the same trend develop over the last few days.
In addition, it is important to note that many altcoins have actually outperformed Bitcoin on the year-to-date metric by 100 percentage points. Of course, this must be seen in relation to the risk which is generally higher for Altcoins than it is for Bitcoin.
10. Where do you see ARK36 going in the next decade?
With the pace of the cryptocurrency markets and industry, it is difficult to predict where exactly ARK36 will be in 10 years.
However, we are confident that over the next few years, we will consolidate our position in the space and further strengthen our value proposition for the clients.
When it comes to more long-term plans, we intend to set up multiple investment baskets with different risk profiles, which will allow us to offer more services and products rather than just one actively managed basket of crypto assets.
In the future, we might consider integrating with other verticals such as banking or insurance in order to enrich the core product in our offer of funds management services.