Noelle Acheson is a veteran of company analysis and member of CoinDesk’s product team.

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

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You would be forgiven for thinking that the crypto winter seems to have passed the institutional crypto sector by.

Readers of CoinDesk will have noticed how the list of launches, funding rounds and affiliations is getting longer, and the number of links to news, profiles, papers and analysis of sector fundamentals is growing by the week.

Indeed, recent funding and M&A activity – not to mention the well-backed crypto platforms waiting in the wings – indicate a robust interest in laying the groundwork for broader attention from traditional institutions.

And last year we heard a lot about the “institutional wall of money” that was poised to flood the market as soon as custody got fixed, certain ETFs got listed, regulators got specific and I-forget-what-else was satisfied.

Yet, assuming that institutional investment is not driven by the same sentiment that is keeping this crypto winter cold would be a mistake.

Underlying most institutional investors is an individual – a pensioner, fund holder, saver or insurance policy owner. In other words, institutional investors are largely driven by retail sentiment.

If their clients are not interested in crypto investment, it’s unlikely that they will be.

True, institutions march to a different set of rules than retail investors. And assurance from regulators that they will not be subject to punitive fines will perhaps encourage them to channel some discretionary funds into this new asset class.

It is also true that most retail investors look to the supposedly better-informed institutions for advice on where to get higher returns than the average. Professional investors have access to more detailed information plus the wisdom of experience, which in theory gives them an edge over individuals when it comes to recommending risky bets.

However, this overlooks social incentives. The public nature of their fund performance means that the risk is not just financial – notable or consistent underperformance will cause their clients to take their money elsewhere. Losses are painful for all, but retail investors can disguise them when chatting with friends, or even brag about them as a commiseration ploy. Institutional investors don’t have that luxury.

This tends to make most institutions even more risk-averse than their clients, which makes them even more sensitive to market moods.

So, expecting institutional investment to defy the prevailing chill and pour investment into the market as soon as the infrastructure is ready is unrealistic.

On the other hand, fundamentals are improving.

Scalability is progressing, use cases are evolving, collective brain power is growing exponentially and regulators around the world are getting their heads around how to protect investors without killing innovation.

The crypto winter has been harsh for many, but it has given startups and incumbents a welcome respite from the market spotlight. Less pressure means more time to build.

While a more complete infrastructure may not be sufficient to get institutions involved, it is necessary, and its growth and increasing maturity will help many institutions to see crypto as less risky. Greater comfort and familiarity with the sector will encourage firms to listen when enough of their clients indicate a change in market mood by asking about crypto opportunities.

What’s more, overall market conditions – not just in crypto – could augur a shift in sentiment. Professional investors know the well-established theory called “Dogs of the Dow”: the worst-performing stocks of the previous period stand a good chance of shining in the next one.

While almost all asset classes performed badly in 2018, crypto’s rout was particularly spectacular. Does that qualify it for consideration under the “Dogs of the Dow” theory? Or does it mean that funds have an even wider range than usual of traditional dogs from which to choose?

Speaking of dogs, another factor to consider is that institutional investors, more so than retail users, tend to move as a pack (obviously with notable exceptions). While each thinks of itself as an outlier and (hopefully) smarter than the rest, the truth is that few are brave enough to go against market sentiment.

This means that the “wall of institutional money” that we hear about may actually be a thing, however elusive.

Nevertheless, the growing interest in crypto investment on the part of both traditional institutions and focused market participants – even in a bear market – is a sign that sentiment will turn at some stage.

What the trigger will be, nobody really knows – it could be new regulation, a liquid product or some comforting names adding their market heft to the trend. Or something else that we cannot yet foresee.

It could end up being something as simple as a change in the season. The cold cleanses the surface and hardens the strong, and as any gardening enthusiast knows, plants use the winter for cellular housekeeping. Many need a cold snap to activate the process that will bring spectacular flowers in the spring.

Which will come, eventually. As Hal Borland wrote: “No winter lasts forever; no spring skips its turn.”

Winter image via Shutterstock.