Crypto for Institutions 4: Ari Paul – Exploiting Inefficiencies in Crypto Trading (Capital Allocators, EP.183)

Operational Hurdles

Ari Paul highlights the operational challenges faced by institutions entering the crypto market. He describes the lack of infrastructure, such as trading software and risk management tools, which made institutional trading difficult. "In the cryptocurrency world, the best you could do as a back office was a spreadsheet," Ari explains, emphasizing the primitive state of tools available in 2017 1. Despite these hurdles, Ari saw opportunities in the inefficiencies, like arbitrage between exchanges, which allowed BlockTower Capital to capitalize on the nascent market 2.

   

Bureaucratic Barriers

Institutional investment in crypto is often hindered by bureaucratic barriers. Ari notes that while investment professionals might personally see crypto as a valuable asset, institutional adoption is slowed by the need for board approvals. "The first crypto investments by the endowment world were in VC startups investing in the crypto space, because that didn't require board approval," he explains 3. This bureaucratic inertia is compounded by structural issues within institutions, where incentives and governance can dictate market activity, often leading to missed opportunities 4.

   

Institutional Evolution

The institutional landscape for crypto is evolving, with more endowments now investing in crypto funds. Ari observes that while direct ownership of bitcoin by institutions is still rare, the comfort level with crypto funds is increasing. "I think the cat's out of the bag in the sense that they all now feel comfortable in crypto funds," he remarks 5. His journey with bitcoin began as a personal investment in 2014, which grew into a conviction of its potential as an asset class by 2016, leading him to educate others in the institutional space 6.