Decoding Bitcoin’s Rollercoaster Ride: Gemini’s Patrick Liou Discusses Institutional Appetites and Long-Term Vision

by
Victoria d’Este

Published: September 18, 2024 at 8:10 am Updated: September 18, 2024 at 8:16 am

by Ana

Edited and fact-checked:
September 18, 2024 at 8:10 am

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In this insightful conversation, Patrick Liou, Principal at Gemini, shares his expert perspectives on the developing cryptocurrency landscape. From institutional investment trends to regulatory challenges, Liou offers a comprehensive look at the current state and future potential of the crypto market. His insights, backed by Gemini’s latest research and industry experience, provide valuable context for those who want to know more about digital assets.

Given the recent all-time high of Bitcoin in March, how do you foresee this impacting institutional investors’ appetite for cryptocurrency exposure?

Investing in crypto is inherently risky, and market volatility is part of it. Most investors who enter the market will have done some due diligence to understand that volatility comes with this asset class. While we’re currently sitting about 25% below those all-time highs, if you zoom out a little bit, Bitcoin is still up 27% year-to-date and up 124% from a year ago. 

If you recall, around this time last summer, it was stuck in a range, consolidating between $25,000 to $30,000. So, if we pull back a bit, Bitcoin and crypto as a whole have done quite well. With institutional investors specifically, some have actually welcomed this as a dip-buying opportunity as it consolidates around this area.

How do you plan to differentiate your offerings to attract institutional clients who might be considering these new investment tools?

Our founders, Cameron and Tyler, were the first people to apply for a spot Bitcoin ETF back in 2013. Rather than having our own fund, our value adds and differentiation as a company is to act as a service provider by helping keep the underlying assets of these funds safe and secure in cold storage. 

The industry is still in its growth stages, so the whole crypto pie could grow bigger for everyone. Aside from providing cold storage solutions, Gemini aims to be a one-stop shop for all institutional and individual trading needs when it comes to crypto, including custody, exchange, trading options, derivatives, staking, and more.

Given the success of spot Bitcoin ETFs, do you expect a similar trend to emerge for other cryptocurrencies?

We’ve already seen some movement in this direction. An Ethereum ETF was introduced this past summer, though it hasn’t been nearly as successful as Bitcoin. That might take a little bit of time. There are a few firms, like our clients and partners, Advanic and 21Shares, that have filed for a Solana ETF that’s active with the SEC. 

In Europe, there are already products like Crypto Basket ETFs or Solana ETFs. We think, given the success of the spot Bitcoin ETF in the U.S. this year and previously in other markets, there will be more appetite for it to grow. One of the barriers to entry that people think about is having a CME-listed product for liquidity purposes so that the CFTC and the SEC can monitor underlying liquidity. If that happens, the likelihood of a Solana ETF, for example, rises. 

In our conversations with many fund managers, they actually think they have enough liquidity in the market through market makers and liquidity providers to bring a Solana ETF to market right now and do it in a safe, responsible way that meets all the standards of care that a lot of these traditional asset managers have. But, of course, that requires regulatory sign-off.

With 65 percent of crypto owners focusing on long-term investments, how do you approach institutional clients who are traditionally focused on shorter-term gains?

Our trading desk has over a century of combined experience from Wall Street, traditional finance, and crypto. We deal with institutional clients who evaluate trading decisions within a short-term horizon every day. We aim to offer value by providing solutions in real-time trading color to provide these clients with the information that helps them achieve whatever their investment objectives are.

How do you think the increase in participation of institutional investors is influencing the crypto market dynamics?

The more entrants, the better. There’s a lot of unallocated capital. Even with ETFs right now, many institutional investors are still doing their due diligence. They have investment committees internally that they have to clear, and they’re still at zero exposure. But there are probably people at certain firms that want to be at 2 percent or 5 percent of their portfolio. 

All of that adds more breadth and depth to the market as more people come in and participate. These massive drawdowns in price action for Bitcoin and other crypto that we’ve seen historically start to get eroded away. What used to be a 30 percent drawdown becomes a 15 percent drawdown, then a 10 percent drawdown, then a 5 percent drawdown, which all helps support the maturity of the asset class.

With crypto becoming one of the key issues in the U.S. presidential election, how do you foresee political developments influencing institutional investment strategies in crypto?

Our report showed that 73 percent of crypto owners would consider a presidential candidate’s stance when making a decision on who to cast their ballot for. Even more so, 37 percent of crypto owners say the issue will have a significant impact on their voter decision-making. This indicates that the crypto voting bloc can make a significant impact in November. 

This will impact not only the presidential race but even local races down the ballot. Some of the Senate races, like Elizabeth Warren versus John Deaton in Massachusetts, Sherrod Brown versus Bernie Moreno in Ohio, and then the House of Representatives and local elections. It’s becoming an increasingly popular election issue that people care about and talk about. 

The candidates and politicians are starting to realize that and are considering it as part of their stance. We’re all very eager to see the impacts that will make in the presidential race, of course, but also in a bunch of other races and how that shapes the regulatory and legislative landscape going forward.

Beyond legislation, what do you see as the other major barriers to widespread crypto adoption, and how can the industry address these issues?

Regulatory certainty is one of the main concerns of investors concerning crypto. That concern has grown in 2024 versus two years ago in 2022. Aside from that, other barriers include ease of use, transaction fees on-chain, and general education about different decentralized applications and blockchains. 

How do you see the differences in legislation and regulations approach to crypto across different regions? Which country’s approach do you think is the most effective?

The State of Crypto survey showed that the concern was across jurisdictions. In the U.S. and U.K., nearly two in five crypto owners cited regulatory uncertainties as barriers to entry. That was slightly lower in France and slightly higher in Singapore, but we saw a consistent number across the board. In terms of which country’s approach is best, I think it’s too early to say. 

There’s still a lot of regulatory fragmentation, sometimes even within the same jurisdiction. For example, in the U.S., there’s a constant debate over what the SEC has oversight over versus the CFTC. We’re seeing good things in certain areas and bad things in others. It’s kind of give and take and ebbs and flows. 

We’re constantly monitoring regulatory updates across the global crypto landscape. In the E.U., for example, we hope that MiCA’s rollout will help bring clarity and consistency to regulations across all of the countries in the eurozone, which is something that would be encouraging and give crypto consumers the confidence to operate.

Given that price volatility led to a significant number of investors exiting the market, what strategies do you think are necessary to rebuild investors’ confidence?

A clear regulatory framework that’s fairly enforced and allows for innovation in the industry will boost consumer confidence a lot. Again, citing those numbers of what people are concerned about before investing in crypto that kind of clears a lot of that out if it’s provided. 

But as an example of some of this regulatory uncertainty, going back to the ETFs, the introduction of crypto in mainstream vehicles like an exchange-traded fund with the public backing of the largest asset managers in the world has lowered that barrier to entry and essentially given the stamp of approval or the green light for some of these institutional investors and capital allocators to enter the space.

How do you think the increasing acceptance of cryptocurrencies as a payment method by companies over the next decade will impact the way we view and use them?

If companies start accepting Bitcoin and Ether as payment, we start going down the path where crypto is viewed more and more as a legitimate store of value. This opens up the possibility of sovereign governments and corporate treasuries allocating a portion of holdings into these assets. 

While that may seem far-fetched, this year, the Bitcoin strategic reserve is an idea that’s becoming gradually more popular with this election cycle in the U.S. MicroStrategy has long been buying Bitcoin on its balance sheet and in its treasury, actually taking out loans to buy more Bitcoin as a way to secure cheap funding. 

Countries like El Salvador have already paved the way and have actually accepted Bitcoin as an official legal tender. These ideas are all happening as the industry continues to evolve, and any development and push towards that will just help the legitimacy of the industry.

About The Author

Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.

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Victoria d’Este

Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.