Noelle Acheson is a veteran of company analysis and a member of CoinDesk’s product team. The opinions expressed in this article are the author’s own.

The following article originally appeared in Institutional Crypto by CoinDesk, a free newsletter for institutional investors interested in cryptoassets, with news and views on crypto infrastructure delivered every Tuesday. Sign up here.

There’s a scene in Pixar’s “A Bug’s Life” (a very underrated movie) where Hopper (the evil grasshopper) clocks his whiny brother with a seed. And then another. Neither really hurt, obviously. He then opens the valve to the large seed granary, and ouch.

The point Hopper was successfully making was that size and might do not necessarily equal power. That lies with the seeds, I mean the masses. Volume trumps influence.

We hear so much about “institutional influence” in the crypto markets that it’s easy to fall into the trap of thinking that institutions alone will decide when the next bull run will start. The “wall of institutional money” that most of us were breathlessly expecting in early 2018 was supposed to push the price of bitcoin and other assets “to the moon,” and savvy retail investors would tag along for the joyous ride (in a lambo).

A year later, we no longer talk about the “wall,” instead we are focusing on the infrastructure building and waiting for large incumbents to loudly declare their allegiance. Now we’re repeatedly told that “when Goldman/State Street/BNY start offering crypto services,” institutions will pile in.

A year later, we’re still missing the point.

Bridging the gap

Here’s the thing: “institutions” are not stand-alone entities that operate in a separate microcosm from the rest of the economy. Most hold retail money: the vast majority of institutional assets under management are held by pension funds, mutual funds and insurance companies. They are not going to make investment decisions without some assurance that their clients will be ok with this.

There are exceptions, true. Hedge funds, family offices and endowments cater to different constituencies. They can take more risk, often have a more innovative base and aren’t subject to the same rules and restrictions. But – sizeable as they may be – they are a small percentage of global wealth.

And they are, to varying degrees, already investing in cryptoassets. A survey earlier this month by Fidelity Investments and Greenwich Associates showed that over 20% of institutional investors already have some exposure. Another survey published last month by Global Custodian and BitGo revealed that 94% of endowments had already invested in the asset class. Grayscale Investment’s Q1 report released a couple of weeks ago showed a strong increase in family office participation.

The vast bulk of institutional money, however, is still waiting, and it’s not for an announcement from Goldman Sachs or its peers (although that wouldn’t hurt sector confidence). It’s not for a more comprehensive build-out of market infrastructure (although that is helping). It’s not even for regulatory clarity (although that would also be very good news).

It’s for mainstream retail interest to kick into gear.

In position

When the clients of pension funds, investment advisors, mutual funds and the like ask about crypto assets, then a broader base of institutional investors will scramble to get informed. When the chatter about the concept in the respective investor communities grows to a volume that can’t be ignored, then even more large intermediaries will roll out new services.

Many smart institutions are getting ahead of the curve and positioning themselves with services that can satisfy the inbound interest. These early leaders are earning valuable experience and mindshare (not to mention revenue), as well as adding layers of professionalism and reassurance to the new markets.

Nevertheless, crypto is still far away from “mainstream.” To us in the sector it may seem like a flood of new infrastructure entrants over the past year has lifted awareness, interest from all sectors is growing strongly, and the regulators have not been sitting idle.

Yet crypto is, looking in from the outside, still very niche – total crypto market cap is miniscule compared to other investable assets, and for many, buying crypto is too complicated to bother with.

Crypto is also still seen as risky. Scams and hacks still weaken its reputation, it is still tough for crypto businesses to get solid banking relationships, and the tax situation in most jurisdictions is just plain confusing.

Taking notice

A glance at some recent headlines shows that is starting to change.

TD Ameritrade, one of the largest retail brokers in the world, is planning on offering crypto trading to its almost 12 million clients via institutional-grade exchange ErisX, in which it has taken a stake. On stage at Consensus earlier this month, executive vice president Steve Quirk recounted the “off the chart” interest in their crypto education series. According to reports, online retail broker eTrade is also planning to offer crypto trading to its almost 5 million clients.

Just last week, stock trading app Robinhood – which claims 6 million retail user accounts – announced the launch of crypto trading, with approval from the New York Financial Services Department.

The growth in the retail crypto audience goes beyond trading opportunities. Crypto assets and their virtues are being dangled in front of millions of retail investors with a series of media pushes. Last week, CBS’s news broadcast “60 Minutes” ran a segment on bitcoin. Earlier this month, asset manager Grayscale Investments revealed a stirring TV spot urging investors to “drop gold.” And since early this year, striking ads by institutional exchange Gemini, plastered on buses, taxis, billboards, bus stops and train stations in major cities across the US, announced that “crypto” is not the Wild West it once was.

Retail interest momentum seems to be building, but the “tipping point,” in which it is loud enough to get a broader swathe of the institutional sector to start investing in crypto (which in turn will encourage other institutional investors to join in), may be a way off yet. Or it may be just around the corner. The tipping point may be something as obvious as a bitcoin ETF launch, or it may simply be a cumulation of subliminal indications.

Meanwhile, rather than treat the two pools of demand as separate, those of us focusing on institutional interest need to keep an eye on retail developments.

Up we go

But just as the institutional sector needs retail interest to trigger a deeper commitment, so does the retail sector need the institutional channels. Without the support and oversight of institutional partners such as trusted advisors, familiar brokers, mutual fund managers and pension fund allocators, most retail investors will probably not feel comfortable enough to take the plunge on their own.

Retail investors may be increasingly noticing and digging into cryptocurrencies – but for this interest to hit scale, they need institutional support.

At the end of A Bug’s Life, Heimlich the plump caterpillar undergoes a cheerful metamorphosis and emerges with colourful wings that are unfortunately too small to carry his considerable heft. He can’t use these new tools effectively by himself. Not to worry – his airborne teammates have a lot of experience with the new infrastructure. They help him to soar over the landscape.

Chess image via Shutterstock

Startups that conducted initial coin offerings (ICO) years ago may be eligible for relief from potential enforcement actions by the U.S. Securities and Exchange Commission, an agency official said Friday.

For the last year and a half, the regulator has been filing cases against projects that raised money by selling tokens without registering them as securities. But in his opening remarks at the agency’s FinTech Forum in Washington, D.C., SEC Director of Corporation Finance William Hinman said that cryptocurrencies are capable of shifting from being a potential security to very clearly not being one.

“Digital assets may evolve into an instrument that no longer needs to be regulated as such,” he said.

Hinman has made a similar point before. In a 2018 speech, he implied that ethereum may have resembled a security during an ICO at its launch, but said that by last year, it was sufficiently decentralized that it had evolved away from being a security.

Though he did not reference ethereum on Friday, Hinman did use other examples to illustrate his point.

As one such example, he cited TurnKey Jets, which secured a no-action letter earlier this year, reassuring the firm that the SEC staff would not recommend taking enforcement action against it.

Hinman explained that the company’s token, network and use case were all fairly mature when the letter was issued, meaning the token had a functional use case and the network was fully developed.

Notably, though, Hinman said that even if some aspect of the project was not fully developed, the SEC may have still been willing to provide no-action relief.

“If they needed more relief on the secondary market for that token, that would not be outside the realm of a possible no-action letter,” he said.

Taking this example one step further, Hinman posed a hypothetical: What if a startup with TurnKey’s eventual model existed three years earlier, without a mature network or functional token?

If this hypothetical startup sold its token “in amounts that did not correlate to its use case but resembled funding,” that token would look like a security.

However, if three years later, that startup went to the SEC and showed that its token demonstrated utility aspects, the SEC may be willing to work with the company, Hinman said, adding:

“We’d likely be able to work our way through a no-action letter.”

Stephen Palley, an attorney with Anderson Kill who attended the forum, told CoinDesk that, in his view, Hinman was indicating that a token which resembled an investment contract could turn into something akin to a utility token.

Moreover, Palley said, it was interesting that the SEC has indicated it is using its framework to make this sort of determination.

In his remarks, Hinman noted that the SEC’s actions to date have been conducted in accordance with its existing statutes and rules.

“I mention this to show the flexibility of the regulatory framework we are working under,” he said.

William Hinman image via Nikhilesh De for CoinDesk

Craig Wright’s copyright registration of the original bitcoin white paper is starting to create ripple effects.

On May 28 Scribd, a service for posting downloadable documents on the Internet, notified CoinDesk that it had pulled down our copy of the Satoshi Nakamoto white paper.

“This is a notification that Scribd’s BookID copyright protection system has disabled access to Bitcoin White Paper (id: 411710754). This does not necessarily mean that an infringement has occurred, or that you have done anything wrong,” the company wrote in a terse email.

This was the link in question – a plain, unmodified copy of the Satoshi white paper. I also uploaded a copy calling it a musical production of the white paper. Scribd did not pull mine down although it should, theoretically, be covered by Wright’s copyright.

As we noted before, while Wright did register copyright for the white paper this means absolutely nothing unless someone contests the copyright in court. However, because systems like BookID most likely ping the US copyright database, copies of the paper will be dinged on public services.

The chilling effects of this are very real. While in our specific case there is little concern the white paper will ever disappear – it will be here forever or until CoinDesk’s servers melt down – the loss of access could have far-reaching and unintended consequences.

What’s more, anyone can register a copyright for almost anything. Copyright – and patent-trolling – are already rampant in other parts of tech and it’s clear blockchain is next.

As for CoinDesk’s particular problem, everything seems back to normal… for now.

Jason Bentley, Legal Operations Manager at Scribd, wrote:

Our team has reviewed your response and has determined that Scribd’s BookID copyright protection system likely misidentified your content as infringing. We have restored your content and accompanying metrics. It may take several minutes for restored documents to re-appear on Scribd. BookID is part of Scribd’s diverse efforts to reinforce the rights of intellectual property rights holders. The volume of content in our copyright database prohibits us from proactively reaching out to uploaders before content is disabled.

We apologize for any inconvenience this has caused and thank you for using Scribd.

Craig Wright image via CoinDesk Archives

Coinbase president and chief operating officer Asiff Hirji is leaving the cryptocurrency exchange, the company confirmed Friday.

Hirji joined the crypto unicorn in December 2017, joining after a stint at venture capital firm Andreessen Horowitz.

“We’re incredibly grateful for Asiff’s contributions over the past 18 months,” Brian Armstrong, co-founder and CEO of Coinbase, said in a statement. “His experience and mentorship helped guide Coinbase through an important chapter in its history. He joined at a critical time when both the company and crypto space were going through rapid growth, bringing his extensive experience to bear when it was most necessary.”

Hirji previously served as president and COO of TD Ameritrade.

Coinbase also announced Friday that Emilie Choi, the company’s vice president of business, data and international, would be taking over as chief operating officer. Choi presided over Coinbase’s $300 million Series E funding round last October, which valued the company at $8 billion.

The move comes following the recent departures of other C-suite executives at Coinbase. Chief technology officer Balaji Srinivasan left the firm earlier this month. Dan Romero, who worked as vice president of Coinbase’s international business, left in April.

According to a report by The Information, Tina Bhatnagar, Coinbase’s current vice president of operations and technology, is also expected to leave the company.

News of Hirji’s departure was first reported by Bloomberg’s Julie VerHage.

Emilie Choi speaks at Consensus 2019, image via Coinbase

Bitcoin decoupled from traditional markets in May, rising more than $3,000.

The cryptocurrency, currently at $8,300 on Bitstamp, is set to end higher for the fourth straight month with 60 percent gains. That is the longest monthly winning streak and the biggest monthly gain since August 2017.

Notably, the leading cryptocurrency by market value has put on a good show despite the losses on Wall Street. The S&P 500 index – a benchmark for global equity markets – is on track to end May with a 6 percent loss.

Other riskier assets – the ones which are sensitive to economic growth prospects – are also flashing monthly losses, as seen below.

Both copper and brent oil, the barometers of global economic activity, have dropped 9 percent and 11 percent, respectively this month. The Chinese Yuan has also shed 2 percent.

Investors have clearly sold risk in May, possibly due to the re-escalation of the US-China trade war and the resulting fears of a global economic recession.

The flight to safety has boded well for traditional safe haven assets. For instance, gold is reporting a 1 percent monthly gain and the US 10-year treasury yield is down 13 percent or 43 basis points (bond prices and yields move in opposite directions).

The gains in the traditional safe havens, however, appear lackluster when compared to bitcoin’s 60 percent rise. That said, it is still too early to conclude that BTC is the new safe haven.

This is due to the fact that up until now, BTC has moved mostly in line with the risk assets, as seen in the above chart. For instance, BTC is up 127 percent on a year-to-date basis. The S&P 500 and other major risk assets are also reporting year-to-date gains.

Also, BTC largely mimicked the price action in the equity markets in 2018.

BTC’s reputation as digital gold will be solidified if it continues to post solid gains during bouts of risk aversion, if any, in the coming months.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin & bull image via Shutterstock; Graph data via Trading View