Influx Of Institutional Investors Causes Bitcoin To Perform More Like A Traditional Asset (#GotBitcoin?)
Bitcoin Trading At Strong Correlation With Gold As Traditional Investors Step In. Influx Of Institutional Investors Causes Bitcoin To Perform More Like A Traditional Asset (#GotBitcoin?)
One example of institutional money coming into the sector is the growth of the Bitcoin Investment Trust, an over-the-counter exchange-traded fund sold by Grayscale Investments. In 2013, its first year of existence, the trust had $51 million in assets under management. By the end of 2017, assets had swelled to about $3.5 billion. With the selloff this year, that had fallen to about $900 million recently. Influx Of Institutional Investors Causes Bitcoin To Perform More Like A Traditional Asset
Not too long ago, bitcoin and its universe of cryptocurrency peers seemed light years away from traditional markets, a distant point where assets traded under their own laws of physics.
But capital and investors from traditional markets have flowed into cryptocurrencies, making some of them behave like traditional assets—just far, far riskier.
Bitcoin has had a terrible year. It dropped by more than half in the first several weeks of 2018, wobbled up and down for several months and then tumbled sharply again in the fourth quarter alongside wilting stock markets. For an asset branded as an alternative to the traditional financial system, it has offered little haven. Bitcoin stood at $3,630.94 Thursday evening. Its high for the year came near $17,000 in January.
Bitcoin’s correlations to other assets aren’t strong, but they are measurable. On a scale of -1 to +1, ranging from completely inverted to perfectly correlated, bitcoin traded at about a 0.84 correlation to gold over the past five days, according to data from research firm Excalibur Pro Inc. That isn’t unexpected for an asset its backers bill as a new version of the yellow metal. Bitcoin also traded at a 0.77 correlation to the Chicago Board of Options Exchange’s VIX index, which measures market volatility.
Reviewing the Year in Cryptocurrency
It makes sense that bitcoin would trade in step with the market’s “fear gauge.” With central banks over the past decade flooding global markets with liquidity and with extremely cheap borrowing costs, money found its way into riskier assets. And there is no riskier asset than a rebel currency.
Another pathway has been venture capital. In 2013, venture-capital investment in the bitcoin and blockchain sector totaled only $96 million, according to data from CoinDesk. In 2016, it was about $500 million. By the end of 2017, all-time VC funding climbed over $2 billion.
Whatever the actual dollar flows are in the future, traditional capital appears set to continue coming into crypto markets. Bitcoin’s backers are making efforts to attract institutional money to their asset class. They are building services like exchanges that can pass regulatory muster, futures trading and even exchange-traded funds.
If any of those efforts is successful, then more professional money will likely come into the sector.
CME Bitcoin Trading Product Records Show Institutional Participation Uptick
The Chicago Mercantile Exchange, or CME, recently saw record Bitcoin trading numbers in multiple categories.
Mainstream market exchange, the Chicago Mercantile Exchange, or CME, recently posted record numbers for its Bitcoin (BTC) trading products.
May 14 yielded open interest of 10,792 Bitcoin futures trading contracts at CME, totalling 53,960 BTC — an all-time high for the product, according to information a CME representative provided to Cointelegraph.
On May 4, CME also tallied 66 large open interest holders, or LOIHs — another record. These LOIH figures in particular indicate added involvement from institutions, the CME representative noted.
CME Bitcoin Options Have Performed Well Since Launch
CME largely opened the door for mainstream Bitcoin participation in December 2017, with the launch of its Bitcoin futures trading product. CME released another crypto trading product in 2020 with its Bitcoin options launch.
Since its BTC options inauguration, CME has seen approximately 5,000 of these contracts trade, equal to about 25,000 BTC in total volume, the CME representative included.
Bitcoin Options Had A Great Week
May 13 and May 14 also hosted two other CME crypto trading records. The outfit’s Bitcoin options product hosted 4,389 BTC worth of contracts — an all-time volume high for the product, as well as record open interest valued at 14,535 BTC worth of contracts, the representative noted.
Contrasting CME’s growing success, the Chicago Board Options exchange, or CBOE, pulled out of the Bitcoin trading race roughly a year and a half after launching BTC futures in December 2017. The CBOE removed its product from the shelves in March 2019, right before Bitcoin began its rally to $13,900.
Institutional Investors Buying Up BTC Like Crazy After Halving
Institutional interest in Bitcoin is experiencing an unprecedented surge, with GBTC alone swallowing up 17% of newly mined Bitcoins.
Both data and first-hand accounts from industry insiders indicates that an interest in Bitcoin (BTC) from institutional investors is accelerating at a rapid pace. This has led some to conclude that the “perfect storm” is about to hit the market.
Price Is Not A Factor
Grayscale Bitcoin Trust, or GBTC, an exchange traded vehicle backed with Bitcoins, has been growing steadily in size over the past several years. However, in the last couple of months, its growth has begun to accelerate. Interestingly, the fluctuation in the price of the underlying asset does not seem to affect this growth pattern. This makes sense, considering that investors have a minimum lockup period of six months.
Grayscale May Swallow Up 550k BTC By 2021
What makes GBTC an important driver of the market dynamics is not only the fact that, according to its spokesperson, over 90% of the inflows come from the institutional players:
“Since inception, 90% of inflows into our family of products comes from institutional investors”.
But also, its holdings diminish the circulating supply of Bitcoin, as its assets are locked away in Coinbase vaults. As of today, GBTC has taken 350,000 BTC out of the circulating supply. This represents 2% of Bitcoin’s circulating supply, not taking into account the number of lost coins.
Since 2019, GBTC has consumed 100,375.93 BTC, which is 17% of all the Bitcoins mined during this time period.
In the last three months, the pace at which institutional investors have been investing into GBTC has tripled. If this trend continues, then in another three months, it will be holding 400, 000 BTC, and in another 6 ½ months after that — March 2021, it will accumulate around 550,000 BTC or 3% of the total supply.
Furthermore, if this forecast comes to fruition, it will imply that GBTC will be gauging up 75% of all newly mined Bitcoins during this timeframe.
Lending Platforms Can’t Satisfy Institutional Glut
It is not clear whether this trend was spurred by the halving, but the metric itself is confirmed by other sources. Alex Mashinsky, CEO of Celsius, the crypto lending platforms that currently holds 55,000 BTC, told Cointelegraph:
“We now have over 260 of them [institutional borrowers] and we did close $10B in loans since launch. The price of BTC does not matter, what matters is volatility of prices going up and down.”
He also added that he could easily lend out another 100,000 BTC if he had it; this is despite the fact that Celsius charges 5 to 12 percent annual interest rate.
Zac Prince, CEO of BlockFi, another crypto lending platform, although the company does not disclose its data publicly, told Cointelegraph that he expects the surge in institutional interest to continue:
“The volatility that characterizes it as a risky investment by some in normal market conditions, has now empowered it to recover faster than any other asset following the initial markets-wide downswing in March – it’s now up 94% since March 16th and continues to climb. We expect to continue to see institutional interest in this asset rise steeply in the next few years accompanied by wider mainstream consumer adoption.”
It’s important to note that unlike Grayscale, platforms like Celsius and BlockFi, probably do not drive the price up, as they do not take their Bitcoins out of circulation; on the contrary, they foster market liquidity.
Another improvement to the supply side of the equation is expected to come from the purging of the mining industry. With inefficient miners leaving the network, the remaining ones will become more profitable and will be able to sell less of their Bitcoins to sustain the operations, reducing the supply.
Matt D’Souza, CEO of Blockware Solutions and who also manages a Bitcoin hedge fund, told Cointelegraph:
“Most funds and hodlers, they’re not shorting really. All of them are long. Most funds are long only. My fund is long only. I’m managing a 15 million and I’d say we’re a decent sized fund. <…> I had a call, MultiCoin two days ago. I had a call with BlockTower last week. So I’m in discussion with all the other funds. And it’s everyone for the most part is long-only on Bitcoin.”
He believes that the combination of the central banks injecting trillions of dollars into the economy and the diminishing issuance of new Bitcoins because of the halving is creating a “perfect storm”:
“You inject two trillion. Maybe they’re going to have to inject more based on how the economy is. <…> A lot of money is going to get injected. And it’s creating a perfect storm for Bitcoin.”
Bloomberg analyst, Mike McGlone, believes that the mainstream adoption will lead to the SEC’s approval of a Bitcoin electronically traded fund, or ETF, in the near future:
“Futures open interest, represents increasing mainstream adoption and indicates the likelihood of an ETF futures on U.S.- listed exchange.”
If this trend continues, data seems to suggest that Bitcoin’s price could appreciate in the next 12-18 months. As D’Souza summarized it:
“What moves price is net fiat in a net fiat out every day. Bitcoin is trading a couple billion in volume that doesn’t move price.”
Regulatory Clarity Leads To Surge In Institutional Crypto Investors
Ciara Sun, head of global markets at Huobi Group says more institutional crypto investors are entering the market.
Ciara Sun, head of global markets at Huobi Group, took part in a Cointelegraph China Great Bay Area International Blockchain Week pre-event interview on July 27. She stressed that although security and lack of infrastructure services might be the biggest hurdle for the crypto industry, more clarity in regulation across the globe has led to a great surge in institutional crypto investors.
Systemic Risks In Crypto Market Infrastructure
The biggest risk in the digital asset space, according to Ciara Sun, is hacking. She stressed that while hacking doesn’t typically lead to massive losses in traditional financial markets, the decentralized nature of digital currencies means there is almost no way to recover lost assets once they are stolen. She added that:
“Unlike banks, crypto exchanges simply act as ledgers for transactions. The actual assets are stored in cold wallets, so losses can be permanent if the keys are stolen. Traditional institutions also have very stringent requirements for insurance and escrow to protect users against losses, but the same can’t be said about many of the smaller crypto exchanges that operate in this space.”
According to Sun, Huobi crypto exchange has made security a priority. She notes that there have been no major security breaches at Huobi for 6+ years. She added an example that:
“We’ve launched an on-chain monitoring tool called Star Atlas to identity and detect illicit activities. Our security team will plan to reveal the security report in a regular routine in the fourth season 2020.”
Lacking Of Infrastructure Services In The Crypto Space
In addition to existing security concerns, Sun pointed out that a lack of services like insurance and custody are major hurdles that prevent many of the larger asset managers and institutional traders from entering the space. She explained:
“These larger institutions have higher compliance requirements but regulatory agencies have not provided enough guidance on digital assets in the past. This unclear regulatory landscape has made it riskier for larger institutions. Additionally, the digital asset space is still tiny compared to traditional markets. In the eyes of traditional institutions, crypto is in its infancy as an asset class but exchanges like ours aim to help provide the liquidity and market depth required for crypto to be a viable investment option.”
More Regulation And Clarity Around Crypto On The Rise
Sun believes while still a nascent industry compared to traditional markets, the digital asset landscape has progressed quite a bit in recent years. “There is now much more regulation and clarity around cryptocurrencies. For example, Singapore, London, Hong Kong, and Japan have all begun regulating crypto with defined policies.”
As nations recognize and regulate digital assets as legitimate financial instruments, more institutional adoption starts to show. On Huobi, according to Sun, there is a 3-4X growth in institutional trading on both our spot and derivative markets since early last year. Institutional clients now account for 40% of Huobi’s trading volume, says Sun. She predicts that:
“2020 will be an especially exciting year for the institutional market as compliance and regulation matures. We are already seeing big Wall Street stalwarts like Tower Research, Renaissance Technologies, and some of the world’s top hedge funds publicly announce their entry into the digital asset market. However, these larger institutions will not trust under-regulated digital asset exchanges, and we are still five years away from market maturity.”
Service Providers Vs Institutional Markets
The price volatility and high liquidity of digital assets are especially attractive to institutional investors, says Sun. The crypto market is unique in that it can fulfil both demands in liquidity and volatility. She continues with an example that:
“Traditional investments like real estate have price volatilities but lack of liquidity. Foreign exchange markets have high liquidity but lack price volatility. Institutional investors see arbitrage opportunities in crypto as an emerging market. The early adopters currently in the market are high-frequency trading institutions.”
Additionally, Sun also believes digital assets can offer institutions a way to hedge risk against volatility in traditional investment markets, adding that:
“Traditional assets are directly influenced by monetary policies and economic measures like quantitative easing, but digital assets are decoupled from the acts of any one nation or governing body. At a time when governments around the world are printing currency to stabilize their economies, digital assets can be one way to hedge against inflation.”
Game Recognize Game: Institutions Make It Easier To Invest In Bitcoin
As Bitcoin’s impressive run continues, it would not be surprising to see crypto FOMO reach institutional investors as well.
With the crypto sector currently riding a wave of bullish sentiment, as demonstrated by Bitcoin (BTC) passing its all-time high value of $19,892 at the start of the month, causal as well as institutional investors all over the world are now becoming more interested in the growing sector. For example, on Dec. 3, S&P Dow Jones Indices announced that it’s set to launch several crypto indexes, with a reported 550 coins to appear starting next year.
The aforementioned offerings will be facilitated by S&P Global in conjunction with the CME Group and News Corp. As part of the press release announcing the launch, a spokesperson for S&P DJI alluded to Bitcoin and other prominent altcoins like Ether (ETH) and Bitcoin Cash (BCH) as being part of an attractive “emerging asset class.”
S&P DJI also reported that it will join hands with blockchain data provider Lukka to launch the aforementioned indexes. As a result, some in the crypto community are of the opinion that the industry has finally made permanent inroads into the financial mainstream. Stephen Stonberg, chief financial and operating officer at Bittrex Global, told Cointelegraph that while the announcement has definitely been a welcome one, mainstream adoption has been looming:
“This is more of a continuation of an existing trend rather than a watershed moment. By putting crypto asset risk into the form of a traditional index-based-ETF, this should offer additional access points to the crypto market by mainstream investors. This will compete with the BTC-only high-cost products that exist now for this audience.”
However, Douglas Borthwick, chief marketing officer of cryptocurrency exchange INX, provided an alternative view that while crypto is certainly making a mark on the financial mainstream, it still has a long way to go. He added that “crypto” is not just about “Bitcoin” but offers so much more: “There are so many categories these days that fit under the ‘crypto’ umbrella. For sure a permanent impression has been made. But that impression remains one of skepticism as opposed to one related to the future.”
That being said, S&P DJI’s above-stated move showcases a clear commitment from mainstream players to embrace Bitcoin and other digital currencies. For example, earlier this month, Grayscale Bitcoin Trust increased in tandem with its premium, which surpassed the 30% mark on Dec. 3, serving as a clear indicator of increasing institutional demand for crypto.
Institutions Stand To Benefit
According to Stonberg, S&P DJI’s latest move essentially entails the trading of digital/tokenized assets in the format of a traditional equity product that trades during standard trading hours. To put it simply, it’s a way to get institutional equity money indirectly into the crypto space — a process of convergence between traditional and crypto financial markets, which will most likely take a few years to play out.
On the subject, Anton Churyumov, founder of Obyte — a distributed ledger based on directed acyclic graph technology — told Cointelegraph that institutions will always chase everything that makes money for them and their clients, adding:
“With crypto indexes, the asset class becomes better recognized and easier to sell to clients. Maybe even more importantly, with DeFi, crypto now has a much wider choice of instruments that appeal to different investors, for example, there are now ‘stable+’ coins for more conservative investors.”
Jack Tao, CEO of Phemex — a cryptocurrency exchange headed by former Morgan Stanley executives — believes that soon, it will not be surprising to see an explosion of new services and products, making this domain even more appealing to members of the traditional finance sector: “I’m quite confident that these giants will not want to miss the crypto train. This is just the beginning, I expect to see a lot more funds and investment flow in soon.”
Will FOMO Prevail?
As crypto continues its long-term price ascent, it’s worth investigating if institutional investors will catch crypto FOMO — the fear of missing out. In this regard, Sarah Austin, head of content for Kava Labs — a decentralized finance firm — told Cointelegraph that according to her sources, over-the-counter desks have seen large inflows from financial institutions.
Not only that, as regulation becomes more favorable for the crypto market and as more large players like PayPal, Square and MicroStrategy broadcast their adoption of the asset class, it lends to the argument that the increase in interest has a sound basis. Chris Norris, head of corporate relations for Electroneum, told Cointelegraph:
“I believe that we will see the same FOMO from institutional investors moving forward, as we did from retail investors back in 2017 when Bitcoin and the crypto market reached all-time highs. However, the key difference here is that a new asset class is emerging and the recognition by institutional investors is a sign that we will see new ATHs.”
Lastly, as the use of Ethereum and its associated smart contracts continue to gain traction, it will most likely spur the value of most premier cryptocurrencies in an upward direction, with Austin stating: “With more institutional players in crypto other digital assets could fare better as the crypto space and traditional finance become more aligned.”
What Does The Future Hold For The Market?
Tao believes that in the long term, the value of most crypto assets will continue to soar higher, likely reaching new all-time highs. However, in his view, the price of a digital currency alone cannot be used as an indicator of things to come, adding:
“Ultimately what drives things forward is the technology and innovation behind each project. That is what attracts new users and moves the market.”
Churyumov believes that while prices may rise significantly in the near term, he isn’t entirely sure of whether or not this trend will continue after the “money printing slows down on the other side of the pandemic.”
Lastly, Norris pointed out that there have been clear indications that most major institutional investors are currently buying BTC and ETH every time the prices dip, which serves as another indicator that they have decided to invest in the crypto market as a long-term strategy.
Morgan Creek And Exos File Bitcoin Fund With SEC
The new risk managed Bitcoin fund was filed with the SEC on Thursday.
Morgan Creek and Exos filed a new Bitcoin (BTC) fund with the U.S. Securities and Exchange Commission, or SEC, on Thursday. If approved, the fund will offer institutional investors another way to long the flagship cryptocurrency without the volatility of owning it outright.
Kevin Rooke reported Friday that the Morgan Creek-Exos Risk Management Bitcoin Fund has been filed with U.S. regulators. The fund intends to provide direct exposure to Bitcoin with inbuilt mechanisms to reduce allocation when quantitative signals turn negative.
As Rooke reports, the fund “handles technical details around trade, transfer, and custody of Bitcoin.”
In its initial marketing materials, Exos says there’s a need to smooth out market volatility for institutional investors who are unaccustomed to Bitcoin’s turbulence and highly technical properties.
According To Exos:
“The Fund will fully allocate capital to bitcoin when its indicators are positive and reduce or exit its position when its indicators turn negative.”
Founded by Mark Yusko, Morgan Creek Capital Management provides alternative investment products to institutional investors. The firm operates a digital asset division that specializes in blockchain technology and Bitcoin investments.
As a business-to-business market platform, Exos Financial is involved in securities, commercial finance and asset management services.
Institutional onramps into Bitcoin and other cryptocurrencies have ushered a new wave of adoption in 2020. Crypto funds, derivatives and exchange-traded products have spurred a new parabolic trend in Bitcoin’s price.
Growing mainstream adoption has been aided by massively bullish calls from legendary investors such as Paul Tudor Jones and Stanley Druckenmiller, both of whom own Bitcoin.
Beyond investor adoption, corporations have also laid stake in Bitcoin this year. It’s estimated that corporate treasuries hold roughly 842,229 BTC, which is equivalent to $15.7 billion in today’s value.
Institutions Will Protect Bitcoin From Government Overreach: Erik Voorhees
Bitcoiners should embrace institutional adoption as it keeps everyone honest, says Erik Voorhees.
Institutional investors will play an important role in securing the future of cryptocurrencies like Bitcoin (BTC), according to Erik Voorhees, CEO and founder of ShapeShift.io.
In a panel discussion at this year’s LaBitConf, Voorhees said Bitcoin’s adoption curve will grow substantially over the next five to ten years. In that time, Voorhees estimated that half the world could have exposure to BTC. He believes that mass adoption will occur much later, however, once Bitcoin becomes the global monetary standard.
The panel was virtually unanimous in the view that Bitcoin is better served with entities of different persuasions buying and holding BTC. In this vein, institutional adoption is a net positive for the ecosystem because it ensures that the rules of the game never change and that governments don’t try to interfere.
Voorhees said governments have a greater incentive to censor Bitcoin if it’s used primarily by retail investors. With large institutions in play, there may be a natural “bulwark” against government overreach.
Regarding Bitcoin, Voorhees noted his belief that “The greater the mix and diversity of holders, the better,” before continuing “Democratization of control over money is the essence of Bitcoin.”
Although Voorhees says we are still in the very early stages of institutional adoption, 2020 has been a watershed year for the digital asset in terms of orthodox acceptance. Major investors like Paul Tudor Jones and Stanley Druckenmiller have confirmed their stake in Bitcoin, while Paypal and Cash App are buying up most newly mined BTC.
Meanwhile, digital asset manager Grayscale continues to amass Bitcoin and Ethereum (ETH) amid record inflows into its funds.
Bitcoin is experiencing a supply shortage that’s occurring almost in lockstep with the latest deflationary halving event. With supplies capped at around 900 BTC per day, institutional adoption appears to be having a positive impact on price discovery.
In Voorhees’ view, the real surge in institutional interest will occur near the peak of the next bull market when not owning Bitcoin will inflict reputational damage.
Higher prices are no issue for major institutions, many of which are waiting for Bitcoin to “catch up to their liquidity,” according to Voorhees.
Mike Novogratz Has 50% Of Net Worth In Crypto, Advocates Up To 5% For Investors
“I think a new investor could put 5% into Bitcoin. Bitcoin’s not going back to zero.”
Galaxy Digital founder and CEO Mike Novogratz is encouraging investors to devote a larger percentage of their portfolios to crypto.
In an interview with CNN’s Julia Chatterley today, Novogratz said he had “changed his tune” on previous advice that investors should allocate roughly 1% of their net worth to Bitcoin (BTC) and other cryptocurrencies. The CEO has said as recently as November that people should invest up to 3% into BTC and HODL for five years.
“I think a new investor could put 5% into Bitcoin,” said Novogratz. “Bitcoin’s not going back to zero […] It could certainly trade back to $14,000 — you could lose 30-40%, but you’re not losing 80-90% of your money.”
“You’re going to see every single financial institution forced into this space.”
“We’re at the beginning innings of rebuilding the infrastructure that American & global business will be done on in the future.” pic.twitter.com/b0hdiQwrrG
— Julia Chatterley (@jchatterleyCNN) December 8, 2020
Novogratz said these numbers were based on the “stability surrounding Bitcoin,” adding that the coin was “fulfilling its role as digital gold” with a store of value. The CEO also said he believes Bitcoin volatility will “come lower.”
The Galaxy Digital CEO has an estimated net worth of $700 million. When Chatterley pressed him to put a number on his investments, Novogratz said his “overall crypto exposure is probably 50%.”
Novogratz has also advocated investing at least some of one’s net worth in Ether (ETH), while stating the token had “a venture flare to it.” He hedged his bets on other altcoins, saying that some would have “a lot of value” in the future, while others wouldn’t.
Novogratz is well known for his prominent Bitcoin plugs. In November, he predicted the price of Bitcoin would go “to 20K and then To 65K.”
Tyler Winklevoss: ‘Smartest People In The Room Buying The Bitcoin Quietly’
Big name financial players continue buying into Bitcoin.
Throughout 2020, more than a handful of traditional financial giants have picked up stacks of Bitcoin (BTC), including the likes of billionaire Paul Tudor Jones and business intelligence firm MicroStrategy. These investments are part of a flow of big money entrances into BTC, Gemini crypto exchange co-founders Tyler and Cameron Winklevoss recently said.
“This is the most sophisticated investors, the smartest people in the room, buying the Bitcoin quietly, so it’s not a FOMO [fear of missing out] thing,” Tyler said in a CNBC interview, published on Friday. Major institutions are here for this go-round, as opposed to Bitcoin’s retail-led bull run in 2017, Tyler explained.
Over the course of this year, in addition to Tudor Jones and Microstrategy, Stanley Druckenmiller, Jack Dorsey’s Square, MassMutual, and Guggenheim Partners have all gained exposure to Bitcoin. Their crypto plays come in line with an unstable global economic atmosphere rife with money printing efforts.
Bitcoin is often compared to gold as a store of value and inflation hedge. Druckenmiller and Tudor Jones align themselves with such a narrative.
Tyler Winklevoss Added:
“Also, you have publicly-traded companies like Square and MicroStrategy putting their treasury cash into Bitcoin because they’re worried about the oncoming inflation and the scourge of inflation with all the money printing and the stimulus from the COVID pandemic lockdowns.”
When asked about Bitcoin’s volatility as an asset for transactions, the brothers called Bitcoin a “buy and hold” strategy comparative to gold. “We see Bitcoin right now as an emergent store of value that will disrupt gold, and that gets us to a $9 trillion market cap for Bitcoin,” Tyler said.
“So it actually doesn’t have to be used as a currency, and the volatility doesn’t matter if it’s actually a store of value,” he added. The billionaire also expects some level of dwindling volatility for the asset over time.
At time of publication, Bitcoin’s market cap sits at about $335 billion — a far cry from $9 trillion, although the asset recently broke its all-time price high, set in 2017.
Institutions Are Thrilled That You’re Selling, Suggests OKCoin COO
What’s going on with Ether’s and Bitcoin’s recent price moves?
A number of mainstream companies have picked up massive piles of Bitcoin (BTC) since summer 2020.
Meanwhile, the asset surged past its 2017 record high near $20,000, recently cracking $34,000 before pulling back toward $27,700. The dip, however, has created some serious buying pressure, according to OKCoin’s chief operating officer, Jason Lau.
“Over the weekend, as Bitcoin prices hit fresh all time highs near $34k, markets touched new levels of resistance,” Lau told Cointelegraph. “Both total crypto market cap and bitcoin dominance reached 2017 highs, at around $800B and 73% respectively,” he noted, adding:
“Profit taking occurred around these levels, resulting in some sideways trading, and causing many to be over leveraged long on futures. We saw $1.4B in BTC and $500M in ETH futures liquidated in the last 24hrs, resulting in a sharp dip to the $29,500 level for Bitcoin. However, these dips are being bought up pretty quickly, reinforcing the narrative that there are underlying bids by institutions keen to access bitcoin.”
Last year kicked off a trend of large mainstream players — including MicroStrategy, MassMutual and Paul Tudor Jones — allocating massive sums of capital toward Bitcoin. The public can thank this institutional uptake for Bitcoin’s recent rally, according to comments from crypto bull and Galaxy Digital CEO Mike Novogratz.
“In addition, we saw rotation out of BTC during this period, as traders rotated assets from BTC into alts to gain higher returns,” Lau explained of Bitcoin’s recent price action. “This is evident as Ethereum gained 13% over bitcoin in the last 24hrs, while bitcoin dominance fell to 69%.”
Ether (ETH) recently flew up past $1,000 as part of a sizable move that outpaced Bitcoin in the short term.
Profit Taking? Institutional Crypto Fund Inflows Drop 97% In Three Weeks
CoinShares has reported “evidence of potential profit taking” among institutional investors, as weekly crypto fund inflows drop 97% in less than one month.
Capital inflows into crypto funds and investment products plummeted during the first week of January after posting new all-time highs in late-December.
According to crypto fund manager CoinShares’ Jan. 11 Digital Asset Fund Flows report, the first week of trading in the new year saw just $29 million flow into institutional crypto products. That’s a greater than 97% decline from the $1.09 billion invested during the week before Christmas. Volumes are likely to have been dampened by traders taking holidays over the new year.
However the firm also notes that December’s surging inflows have been followed by recent “evidence of potential profit taking,” with multiple crypto investment products recording weekly outflows in early January.
As of Jan. 8, CoinShares estimated that $34.4 billion in capital was held in crypto investment products — of which $27.5 billion, or 80%, was in locked BTC funds, while $4.7 billion, or roughly 13.5%, was invested in ETH products.
The report notes that Bitcoin funds have also produced stronger volumes recentl than during the December 2017 bull run, stating: “We have seen much greater investor participation this time round with net new assets at US$8.2bn compared to only US$534m in December 2017.”
With sector-wide inflows consistently remaining positive since May 2019, the report asserts that crypto is seeing “increasing use as a store of value.” CoinShares’ CEO, Jean-Marie Mognetti, recently stated:
“The narrative shift around Bitcoin over the last six months has been profound. Investors used to consider it a risk to allocate to Bitcoin. Now it’s a risk not to allocate to Bitcoin.”
Bitcoin Will Break Wall Street’s Heart
Mainstream institutional investors are coming to the party late, and conservative mandates mean outsize risk relative to potential returns.
The gyrating price of bitcoin has made headlines again this year, as has growing interest from institutional investors. But most vanilla financiers have more to lose than win by diving into digital assets.
Open interest in CME’s bitcoin futures has surged by more than 250% since the beginning of October. Large trade sizes and the fact that bitcoin doesn’t have to be held directly mean CME’s system is considered a benchmark of activity by institutional investors.
Crypto-focused hedge funds and individual buyers are free to invest as they like, of course. Buying a volatile asset without cash flow in a euphoric market is a risk they are willing to take. It has certainly paid off for those with iron stomachs.
The calculation for mainstream institutions should be very different. Many will take a small allocation that will make little difference to their bottom line if prices surge, but they will still be left to explain to clients why they invested in an entirely speculative asset if things go sour. By investing in such small amounts, they are crossing the Rubicon without getting to enter Rome.
ighty-one percent of investment into the funds run by Grayscale Investments in the third quarter came from institutional investors, according to the company. Grayscale’s flagship Bitcoin Trust had assets under management of $1.9 billion at the start of 2020, $4.7 billion by the end of September and $21.1 billion as of Tuesday.
Grayscale Chief Executive Michael Sonnenshein told Bloomberg last week that pension funds were helping to drive the growth. Insurers are getting involved, too. Massachusetts Mutual Life Insurance is one high-profile recent example, having purchased $100 million of bitcoin. The company says it is comfortable with the exposure, which makes up around 0.04% of the $235 billion it recorded in assets at the end of September.
Estimates by Digiconomist suggest that the bitcoin network consumes around as much electricity as Chile, 77.78 trillion watt hours on an annualized basis. Bitcoin mining is often concentrated in places with abundant renewable energy such as China’s Sichuan province and Iceland, but increasingly climate-conscious governments will nonetheless likely take a dim view of bitcoin mining’s social utility as a priority for energy use.
The prospect of more onerous regulation may take the shine off digital assets, too. The Treasury Department’s plan to make trading platforms keep more stringent identity and transaction records is just one example of how the attractive anonymity of the system could be undermined.
Freewheeling individual investors willing to take the risk may still enjoy the ride. But with the regulatory framework for cryptocurrencies still unfurling and the bitcoin rally already long in the tooth, the upside for big institutions looks far less clear.
Strap In: New Institutions Wait For Bitcoin Price Rollercoaster To End
Bitcoin market volatility is scaring off new institutional investors, but meanwhile, old ones continue to buy up the BTC dips.
As a result of the ongoing uptrend, many prominent institutions from the realm of traditional finance have sought to join the crypto bandwagon so as to not miss out on the ongoing action. For starters, a jump in open interest and trading volume for Bitcoin futures has been witnessed across the board over the course of the last couple of months.
While that may have been expected, what may come as a surprise is that the Chicago Mercantile Exchange, a global derivatives exchange, recently became the world’s largest Bitcoin futures trading platform.
In this regard, data released by crypto analytics platform Bybt indicates that CME accounts for $2.4 billion of the $13 billion overall open interest in Bitcoin futures, closely followed by crypto exchange OKEx’s total of $2.17 billion and ahead of other prominent players such as Binance, Huobi and Bybit.
It should come as no secret that Bitcoin’s (BTC) meteoric ascent since December 2020 has increasingly been grabbing the eyeballs of investors all over the world. To put things into perspective, despite BTC’s recent dip that saw it drop to just under the $32,000 mark, the currency is once again trading well above the $38,000 threshold — thereby showcasing a net 30-day profit of around 95%.
Is Institutional Interest Increasing, Or Is Stagnation Setting In?
The recent volatility has sparked concerns over the sustainability of the current bull season and has raised questions regarding if institutional interest in Bitcoin is starting to reach a plateau.
Konstantin Anissimov, executive director of United Kingdom-based cryptocurrency exchange CEX.IO, told Cointelegraph that it is important for new entrants to realize that the game is not simply about institutions making their way into the market but rather that they see a drop in the risks:
“Unless something truly drastic were to happen that could turn this entire market on its head — and I can hardly imagine anything so bad — I believe more large companies will continue to invest into Bitcoin and other cryptocurrencies in the future.”
Quinten Francois, host of the YouTube channel Young and Investing, believes that most institutions that wanted a piece of the action have likely already made their way in, adding that during parabolic phases like these, it’s hard to imagine more big-name moneyed players making their entry into this space, at least until the end of the year when things become more stable.
That being said, he did add that most institutions that have boarded the crypto gravy train are now likely to accumulate during dips, and when they do stop, retail money will slowly pour back into the market, pumping the value of BTC even further: “They are smart money and know what they are doing, they are not going to buy into parabolic moves.”
Jonathan Leong, CEO of cryptocurrency exchange BTSE, told Cointelegraph that “Institutional inflow into cryptocurrency has just started.” He further added: “The fast price appreciation of Bitcoin and other cryptocurrencies during Q4 has a direct correlation with this institutional inflow or the expectation of such inflow.”
Will Institutions Decrease Market Volatility?
There’s no denying that Bitcoin is a much more mature asset than during the bearish phase of 2018, especially with regulations having progressed significantly in certain jurisdictions. Furthermore, the crypto market now has a substantial number of professional trading houses and non-crypto businesses participating in it.
These factors can help greatly with dampening Bitcoin’s volatility and increasing its liquidity as an investment asset, according to Anissimov: “Institutional investors are not so much the key to driving Bitcoin’s bull run as they are a path through which this market as a whole can be tempered, becoming more stable and efficient.”
That being said, if established institutions come into the crypto industry, they will have an effect on the price movement of most cryptocurrencies. In the end, this may help the industry as a whole, especially when considering that most traditional finance players will aim for long-term deals that can potentially help protect Bitcoin from crashing in a manner similar to what was seen in 2018.
Recent Moves Are Worth Noting
Earlier this month, CoinShares, a European firm that deals with crypto-finance and exchange-traded products, announced that it had successfully facilitated the trade of more than $202 million in XBT (Bitcoin) certificates on the market’s first day of 2021.
It is worth noting that the Bitcoin exchange-traded-note provider is approved by Sweden’s Financial Supervisory Authority and that the company’s aforementioned offerings are currently available for purchase via Nasdaq.
Also, according to CoinShares’ “Digital Asset Fund Flows Weekly” report from Jan. 11, $34.5 billion worth of capital is held in crypto investment products as of Jan. 8. Of this total, $27.5 billion, or 80%, is in Bitcoin funds, while $4.7 billion, or roughly 13%, is invested in Ether (ETH) products.
Comparing the performance of Bitcoin funds during this ongoing bull run with that of the one witnessed in 2017, the report states: “We have seen much greater investor participation this time round with net new assets at US$8.2bn compared to only US$534m in December 2017.”
Also, last year, the United States Office of the Comptroller of the Currency said in a landmark decision that national banks can custody crypto assets. This announcement was followed by another major development wherein the OCC also stated that American banks can even provide services to stablecoin issuers, such as holding reserves.
While some traditional institutions were already indulging in this practice prior to the above-stated decision, there was an air of uncertainty around this space due to a lack of legal clarity. Now that an official clarification has been given, stablecoins that are backed one-to-one by fiat currencies that are held in a bank’s reserves are not deemed a risk in the United States.
Crypto Startup Amber Group Raises $530 Million AUM As Institutions, Retail Arrive
The crypto-finance company reported a 275% annual increase in assets under management in 2020.
The crypto-finance service provider tells Cointelegraph that its assets under management, or AUM, reached $530 million in 2020, representing a 275% increase from the previous year. Over 500 institutions have contributed to Amber’s suite of investment products, which includes fixed-income, yield enhancement and margin trading.
Although institutions were the main driving force behind Amber’s initial growth, especially among financial managers, family offices and other high net-worth clients, its retail-facing business has also seen significant uptake. The Amber App, which launched in September, has attracted over 35,000 sign-ups at the time of writing.
Michael Wu, Amber’s CEO, tells Cointelegraph that his firm has “already proven we can provide institutional-grade integrated crypto financial services.”
“So when we brought the same institutional-grade crypto finance to global individual users through our product offerings, we quickly found the product-market fit and received trust and adoption from our global userbase.”
Wu and five other finance professionals founded Amber Group in 2018 because they recognized that “technology will completely disrupt and revolutionize the finance industry.” The founding team includes professionals formerly of Morgan Stanley, Goldman Sachs and Bloomberg.
Amber’s success in attracting both institutional and retail investors seems to indicate that digital assets have been thrust into mainstream consciousness. As Cointelegraph previously reported, a growing proportion of financial advisers are betting on Bitcoin (BTC) as a hedge against inflation.
Goldman Sachs has also commented on the rise of Bitcoin, with analyst Jeff Currie arguing that the digital asset is on the path to maturity.
Crypto markets are collectively valued at over $1 trillion, having reached that key milestone earlier this month for the first time.
Capital flows into Amber Group’s investment products continued to surge in 2020, highlighting rapid institutional adoption of digital assets.
Crypto ETP Capitalization Up 90% This Month As Institutional Volume Triples
Institutional investors have rallied around crypto this past month, with the AUM of crypto ETPs surging more than 90% as volumes tripled.
Capital has flooded into crypto investment products in recent weeks, with the value of assets invested into crypto exchange-traded products, or ETPs, increasing by more than 90% in the last 30 days.
The spike in the assets under management, or AUM, locked in crypto ETPs was noted in the latest report by Crypto Compare, which estimates that almost $36 billion is now invested in crypto ETPs — a 93.7% increase in one month.
Grayscale’s various trusts represent more than 83% of the sector’s total AUM, with the firm’s Bitcoin Trust housing $22.6 billion or 63% of all capital invested in crypto ETPs.
Crypto Compare estimates that ETP volumes tripled during January,with aggregate daily volume pushing above $1.5 billion. Grayscale’s products were found to represent 64% of the sector’s volume, driving $972 million in daily trade.
Despite Grayscale’s dominant share of trade volume, its products were found to have underperformed the spot markets as the historic premium on Grayscale’s shares fell by 8% during January.
Trade volume for crypto Exchange-traded notes, or ETNs, nearly tripled over the month. ETC Group’s BTCE product dominated ETN volumes with nearly $50 million in daily trade — representing more than two-thirds of total ETN volume.
WisdomTree’s BTCW/USD was the second-most traded ETN with $7 million in daily volume after its trade activity increased more than 210%, followed by VanEck’s Bitcoin Vectors with $5 million — owing to a nearly 500% jump in volume .
Trading in exchange-traded certificates, or ETCs, more than doubled, with XBT Provider’s Bitcoin Tracker Euro and Bitcoin Tracker One products representing more than half of combined ETC volume — driving $45.6 million and $34.9 million in respective daily trade.
XBT provider’s Ether-derived products are the next-most popular ETCs, with Ether Tracker One and Ether Tracker Euro pushing $18.2 million and $17.8 million respectively.
Morgan Stanley’s $150 Billion Arm Considering Buying BTC
The price of Bitcoin is beginning to recover after news broke that Morgan Stanley’s investment arm is considering buying BTC.
Morgan Stanley, one of the biggest investment banks in the U.S., is reportedly considering investing in Bitcoin (BTC), according to reports.
Bloomberg reported that Morgan Stanley’s $150 billion investing arm called Counterpoint Global could place Bitcoin to “its list of possible bets.”
Bitcoin Begins Recovery After The News
Hours before the news was released, the price of Bitcoin dropped by nearly 4% from $48,000 to as low as $46,252 on Binance.
The price of Bitcoin began to recover when the news broke, rising from around $46,300 to above $47,300, by nearly 3%.
Morgan Stanley’s Counterpoint Global considering Bitcoin as an investment is noteworthy because of two main reasons.
First, Morgan Stanley is a top financial institution in the U.S., and its influence in the banking sector is immense. Second, it comes after the bank boosted its holdings in MicroStrategy, which has accumulated over a billion dollars in Bitcoin to date.
Bloomberg reported that Counterpoint Global is “is exploring whether the cryptocurrency would be a suitable option for its investors, according to people with knowledge of the matter.”
The firm would still need approval from relevant parties and regulators. As such, even if the bank’s investment arm decides to invest in Bitcoin, it could still take a while for it to materialize.
The news comes just a month after Morgan Stanley increased its stake in MicroStrategy to nearly 650,000 shares, equivalent to over 10% of the firm.
MicroStrategy, a publicly-listed business intelligence firm in the U.S., has moved the cryptocurrency market by storm after its aggressive accumulation of BTC as its treasury asset. Its stock price has also seen incredible growth over the past few months, which has even outperformed BTC.
Since late 2020, MicroStrategy, led by its CEO Michael Saylor, have been continuously investing in Bitcoin and leading seminars to assist other corporations to follow suit.
On Feb. 4, for example, MicroStrategy conducted a seminar with 1,400 companies to discuss the “Bitcoin Corporate Strategy” and ways to gain exposure to BTC as a corporation.
The Public Perception Of Bitcoin Is Improving
The combination of large institutional capital inflows into the Bitcoin market and the vocal support for cryptocurrencies from financial institutions is improving the public’s perception of Bitcoin.
As a result, banks and public corporations are facing pressure to either explain why they aren’t investing in BTC or get on board.
Speaking to CNBC, JPMorgan co-president and COO Daniel Pinto said that the bank could support Bitcoin trading if it sees sufficient demand. He said:
“If over time an asset class develops that is going to be used by different asset managers and investors, we will have to be involved. The demand isn’t there yet, but I’m sure it will be at some point.”
Generally, more financial institutions have begun to support Bitcoin and the cryptocurrency sector, which benefits the overall infrastructure of the market.
As Cointelegraph reported, BNY Mellon is also planning to custody Bitcoin in the foreseeable future.
Bitcoin Goes Mainstream As Institutions Hold 3% Of BTC’s Circulating Supply
The growing appetite of institutional investors means companies now hold more than 460,000 BTC, which is 3% of the total supply in circulation.
Institutional investors are rapidly gobbling up Bitcoin, and at the time of writing, nearly 3% of the Bitcoin (BTC) in circulation are locked up in long-term holdings by these investors.
Data shows that 24 entities have amassed more than 460,500 BTC, which is equivalent to $22 billion at Bitcoin’s current price.
According to Michael Novogratz, this figure excludes the 3 million BTC forever lost, who estimates that a supply shortage could occur shortly if institutions keep up their current buying spree.
The current list of holders includes MtGox K K, which has close to 141,690 BTC ($6.6 billion). Next is Block.one with an estimated 140,000 BTC $6.5 billion). MicroStrategy also has about 71,000 BTC ( $3.3 billion) and this week Tesla bought 38,500 BTC (about $1.8 billion).
Analysts now expect that holding Bitcoin in treasury will soon become a corporate standard as there are multiple technical reasons for viewing Bitcoin as an inflation hedge.
First, BTC has a finite supply in circulation, mimicking gold’s store of value use. Furthermore, there is no way to accelerate Bitcoin’s new supply through additional mining.
Large holders further reduce the circulating supply by buying significant quantities from the market and placing them in cold storage. This long-term holding culture among most crypto participants reduces the already small supply, creating a vicious circle.
For savvy chief financial officers, having a portion of Bitcoin’s treasury provides some regulatory hedge and arbitrage as governments cannot freeze funds.
What is surprising about Tesla’s decision to buy Bitcoin is the timing, as the decision happened after the BTC price hiked 250% in four months.
This week’s move caused BTC’s market capitalization to surpass Tesla’s, reaching the ninth position among all tradable assets.
In the past, buying Bitcoin may have been viewed as an incredibly bold move, but now it’s becoming common sense for institutional investors.
With about a rough estimate of $10 trillion of corporate treasury worldwide, even a 3% allocation into BTC represents $300 billion, which is about a third of Bitcoin’s aggregate value in liquid cash.
Considering that over 60% of the Bitcoin supply hasn’t moved in more than a year, a $300 billion inflow is nearly unimaginable for an asset with a $355 billion free float.
Moreover, newly minted BTC by miners adds up to 341,640 annually, a mere $16.3 billion. Therefore it is safe to conclude that the steady allocation of BTC to corporate treasuries could more than double the current price of Bitcoin.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Galaxy Digital Co-President Explains Two Things Deterring Institutional Crypto Buying
With a number of mainstream entities buying into Bitcoin, what’s holding some back?
In recent months, companies such as MicroStrategy and Tesla have picked up sizable positions in Bitcoin. This trend has not yet become the norm for most companies, however. Damien Vanderwilt, co-president of Galaxy Digital, believes security and taxes may be acting as deterrents for crypto investing.
“When we think about the conversations we have with corporates, and institutional clients, and any part of those constituencies considering investing in the sector, the first order problem is safety and are the assets that they’re buying going to be safe and available and secure,” Vanderwilt told Bloomberg in an interview on Thursday.
“The second order problem, particularly for the corporates, is tax treatment and the way that particularly under gaap accounting in the U.S., Bitcoin is viewed as an intangible asset,” he added.
The Bloomberg interviewer noted that “5% of finance executives” are considering Bitcoin purchases. This 5% figure came from a report recently published by research firm Gartner, detailing February survey results from 77 finance executives. “Just 5% of Finance Executives Polled in February 2021 Said They Planned to Hold Bitcoin as a Corporate Asset in 2021,” said a Feb. 16 public statement from Gartner on the report.
MicroStrategy, MassMutual, Tesla and Square have all allocated millions of dollars to Bitcoin. MicroStrategy spent more than $1 billion on the asset, and put an additional billion into BTC recently. Square also recently announced adding $170 million worth of Bitcoin to its stack. The firm spent $50 million on the coin last fall.
“They’re not unsolvable problems or things that companies can’t get comfortable with, but it does take a little bit of time,” Vanderwilt said of the two issues he mentioned.
Southeast Asia’s First Bitcoin Fund Launches To Meet Local Institutional Demand
The BCMG Genesis Bitcoin Fund-I will be available to accredited Asian investors.
The Malaysia-based BCMG Genesis Bitcoin Fund-I, or BGBF-I, has officially launched, claiming to have become the first insured institutional crypto product available in the Southeast Asian region.
An announcement states the fund launched in response to a growing demand for institutional crypto products in Southeast Asia. The fund leverages an Artificial Intelligence (AI) powered blockchain-based platform provided by Calfin Global Crypto Exchang, which purports to offer increased security for customer holdings.
BGBF-I is regulated in Labuan, Malaysia, where IBH Investment Bank serves as the fund’s main advisor. Professional financial services provider, Hong Kong-based Alpha Calibration, will provide regulatory compliance services, and be audited by HLB Hodgson.
The investment vehicle also offers insurance coverage and underwriting for Public Offering Security Insurance. Fund Manager, Subbu Vempati explained:
“BGBF-I is a secure, insured and regulated platform where investors can get exposure to the Digital Assets industry. Investors get to benefit from our expertise in the financial, technical, and security aspects of Bitcoin investments, as well as enter this class with a peace of mind without any challenges or risk in directly handling the Digital Asset.”
According to its official website, the BGBF-I Fund projects a minimum return of 12% per year, while noting that BTC itself has gained 266.5% over the past 12 months.
All accredited Asian investors must go through mandatory Anti-Money Laundering (AML) and Know Your Customer (KYC) screenings to access the fund.
The Bitcoin fund is one of many that have been recently launched to address growing institutional appetites BTC and other digital assets. In mid-February, the first physically settled North American Bitcoin ETF was approved in Canada.
Grayscale’s Bitcoin Trust also continues to grow, with its assets under management recently tagging $39.8 billion.
Institutional Managers Hold A Record $57B Worth Of Crypto, According To Coinshares
Inflows into Grayscale products continue to surge, according to CoinShares data. Bitcoin remains the preferred asset for institutional investors.
Inflows into cryptocurrency investment products topped $57 billion last week, marking a new all-time high and underscoring the rapid adoption of digital assets underway among institutions.
In its weekly inflows report, digital asset manager CoinShares, said net inflows into digital asset investment products rose by $99 million for the week ended Mar. 19. Grayscale generated $9.1 million of inflows, bringing its year-to-date total to $2.373 billion. Flows into CoinShares declined by $25.9 million from the previous week. Year-to-date flows have declined by $93 million.
Grayscale is by far the world’s largest digital asset manager, with $44.2 billion in assets under management as of March 22.
03/22/21 UPDATE: Net Assets Under Management, Holdings per Share, and Market Price per Share for our Investment Products.— Grayscale (@Grayscale) March 22, 2021
Total AUM: $44.2 billion$BTC $BCH $ETH $ETC $ZEN $LTC $XLM $ZEC $BAT $LINK $MANA $FIL $LPT pic.twitter.com/q6krycE3zi
With the exception of Ripple, all major assets tracked by CoinShares recorded weekly inflows, with $85.3 million flowing into Bitcoin (BTC). Interestingly, Bitcoin investment product trade volumes moderated to $713 million per day last week, down from the $1.1 billion average so far this year.
Inflows into Ethereum (ETH) products increased by $7.8 million. Multi-asset funds generated $4.2 million.
The CoinShares report highlighted a regional divide in institutional demand, with the United States seeing a decline in appetite while Europe and Canada reporting gains. Canada has become a hotbed for Bitcoin exchange-traded funds, with the Purpose Bitcoin ETF seeing $100 million in volume shortly after launching in February. The fund is expected to surpass all other ETFs in Canada within two months.
Institutions have become a major driving force of the crypto bull market, possibly setting the stage for a more prolonged rally than the retail-driven euphoria of 2017. Bitcoin’s price topped $61,000 last week, with one prominent BTC miner forecasting a top in the range of $150,000 to $300,000.
Institutional Crypto Managers Report Record AUM Despite US Inflows Plummeting
Institutional inflows have declined 59% this past week, but AUM is at an all-time high.
According to digital asset investment manager CoinShares, institutional demand in the United States has declined slightly, while European funds are still buying.
According to Coinshares’ Monday “Fund Flows Weekly” report, combined flows into institutional crypto products totaled $99 million for the week ending March 20.
The data indicates a significant decline in institutional demand, with inflows down 59% from the previous week, which recorded $242 million.
However, the researchers noted that the assets under management figure for the top institutional investment products reached a record high of $57 billion.
The report added that while demand has declined in the U.S., institutions located in Europe and Canada continued buying last week.
Daily volumes for Bitcoin (BTC)-related products have also declined by around 35% to $713 million per day versus $1.1 billion per day on average for 2021. However, trading volumes remain steady at $11.8 billion per day.
Following strong Ether (ETH) inflows in February, institutions appear to have again set their sights on Bitcoin, with $85 million entering BTC funds compared with just $8 million for ETH-based products last week. CoinShares noted that there was very little interest in Binance Coin (BNB)-, XRP- and Bitcoin Cash (BCH)-based products respectively.
Grayscale remains the market leader for institutional investment, with its total assets under management tagging $44.2 billion, according to a Tuesday tweet from the firm. Of that total, 84% has been invested in the firm’s Bitcoin trust.
03/22/21 UPDATE: Net Assets Under Management, Holdings per Share, and Market Price per Share for our Investment Products.— Grayscale (@Grayscale) March 22, 2021
Total AUM: $44.2 billion$BTC $BCH $ETH $ETC $ZEN $LTC $XLM $ZEC $BAT $LINK $MANA $FIL $LPT pic.twitter.com/q6krycE3zi
CoinShares’ own fund, which ranks second in terms of AUM with just under $5 billion, was the only institutional crypto manager to record an outflow for the week, losing $25.9 million. The Canadian 3iQ fund ranked third increased by $1.1 million to a total AUM of $1.7 billion.
At the time of writing, Bitcoin is continuing to correct after dropping 3.6% over the past 24 hours to trade at $54,850. Ethereum has lost 4% over the same period and is currently changing hands for roughly $1,700.
Bitcoin Transfer Worth $806M Might Reveal Big Institutional Purchase
“My speculative guess is that institutions are buying bitcoin’s price dip,” one analyst said.
Digital-asset traders and analysts were scrambling Tuesday to assess a fresh data point extracted from the Bitcoin blockchain: Some $806 million worth of the cryptocurrency apparently transferred earlier in the day off of the Coinbase exchange’s institution-focused unit, Coinbase Pro.
The jury is out on what it means. It could be that a large investor or several just completed a fresh round of buying and now are taking the bounty off the exchange for long-term holding or other purposes. Or it might be something else more innocuous, such as an internal transfer.
According to data provided by the blockchain analytics firm CryptoQuant, some 14,666 BTC were moved off the exchange during the early U.S. hours in a small number of transactions.
The transfer came after bitcoin prices tumbled Monday by the most in a month to about $54,000, a level the market hasn’t seen for almost two weeks. By Tuesday, the largest cryptocurrency had steadied and was changing hands around $55,000.
“The outflow was split into multiple wallets, which could be their hot wallets, representing an internal transfer or custodian wallets for institutions,” Ki Young Ju, CEO of CryptoQuant, told CoinDesk.
Coinbase’s cold wallets for custody are directly integrated with the exchange’s over-the-counter (OTC) desk. Institutions and large traders typically trade via OTC desks to avoid influencing the market price too much. Hence, outflows from Coinbase Pro are often taken to represent institutional demand for bitcoin.
“I think it’s likely to be a custodian wallet, which might indicate institutions are still buying the dip,” Ju said. But he added that was just a speculative guess.
CryptoQuant found itself at the center of a controversy last week, when one of its blockchain-data alerts signaled an apparent transfer of $1.1 billion in bitcoin onto the Winklevoss twins’ Gemini exchange, possibly indicating big selling pressure ahead. A backlash resulted on Twitter, with some posters arguing the data was mislabeled or misinterpreted.
Ju subsequently promised to change the company’s procedures to avoid confusion, CoinDesk reported. But the episode underscored the hazards associated with reading too much into isolated blockchain data points.
While Ju is not sure about the nature of the latest outflow, the crypto community is cheering the data on Twitter. “Bullish signal, Big BTC outflow from Coinbase Pro,” one user tweeted.
The exuberant reaction can be explained by the chart below, which shows bitcoin’s previous price pullbacks have ended with a pickup in outflows from Coinbase Pro.
It remains to be seen if history repeats itself. Bitcoin is currently trading near $55,000, having dropped to a low of $53,031 during the Asian hours.
Institutional Inflows Into Crypto Hit Lowest Levels Since October
Managers bought $21 million worth of digital asset investment products last week, according to Coinshares. On a market-cap adjusted basis, Ethereum remains the most popular investment.
Capital flows into cryptocurrency investment products rose again last week, though the pace of growth has slowed since the start of the year, possibly marking a local top in institutional demand.
Net inflows totaled $21 million for the week ending March 27, 2021, according to Coinshares, a European digital-asset manager. That was the lowest level since October 2020 when Bitcoin (BTC) was trading sub-$14,000.
Coupled with low investment volumes, investor appetite for crypto assets appears to have waned. The decline coincided with the lackluster price performance of major assets like Bitcoin and Ethereum (ETH), which have been unable to test new highs in recent weeks. Daily trade volumes for digital asset products fell to $788 million last week compared with $900 million for the whole of 2021.
Coinshares noted that profit-taking was also in play as investors sitting on large unrealized gains decided to take some off the table.
“We have recently witnessed a significant reduction in inflows and in some cases outflows, for the larger and longer established pre-2016 investment products,” the asset manager said, adding:
“… we believe this is due to investors sitting on multi-year gains taking profits.”
Although Bitcoin investment products generated nearly half of the total weekly inflows, on a market capitalization-adjusted basis, Ethereum products were the most popular. Inflows into ETH investment funds rose by $5.4 million last week.
Total inflows increased for 21Shares and the Purpose exchange-traded fund but declined for CoinShares and virtually flat-lined for Grayscale.
Despite the modest pullback in inflows, institutional investors remain a driving force behind the cryptocurrency bull market. As Coinshares reported last week, crypto assets held by institutional investment managers have topped $57 billion.
And while Bitcoin and Ethereum continue to trade below all-time highs, the total cryptocurrency market capitalization rose to near-record levels on Monday. The total crypto market cap peaked just north of $1.83 trillion, according to CoinMarketCap.
Institutional Demand For Bitcoin Evaporates As BTC Struggles Below $31K
A lack of institutional demand and several bearish factors are complicating all efforts to pull Bitcoin price back above the $31,000 level.
The rocky road that Bitcoin (BTC) has been on for the past two months continued on July 19 as a widely predicted move downwards materialized in the early hours on Monday and dropped the price of BTC below $31,000.
Data from Cointelegraph Markets Pro and TradingView shows that a wave of mid-day selling pushed the price of BTC to a low of $30,400 before bulls arrived to provide support and lift the price back to $30,850.
The market as a whole continues to face an uphill battle as the miner exodus following China’s crackdown on the mining industry has led to the fourth consecutive negative adjustment in the Bitcoin mining difficulty, a figure which has fallen by almost half since mid-May.
Heavy Volume Near $31,700
Insights into the current state of the Bitcoin network were provided in the newest report from Glassnode which set the stage by looking at the UTXO Realized Price Distribution, a metric that identifies on-chain volume profiles across different price groupings.
Current data shows that 10.5% of the circulating supply of BTC has transacted in the range between $31,000 and $34,300, the highest level seen since a price of $11,000.
While this indicates a healthy level of volume at the current level, it’s important to note that should BTC price break lower, the next significant support levels are at $26,500, $23,300 and $18,800.
Institutional Appetite For BTC Dissolves
The market-wide pullback in May has led to a significant decline in interest from institutional investors, who now appear to be in risk management mode as BTC price struggles to climb higher.
Evidence of the decline in interest can be found by looking at the market price of GBTC, which continues to trade at an -11.0% to -15.3% discount, or by observing the net inflows to the Purpose ETF which has slowed down significantly. Data from Glassnode shows that the ETF saw a net outflow of -90.76 BTC, which is its largest outflow since mid-May.
The overall cryptocurrency market cap now stands at $1.245 trillion and Bitcoin’s dominance rate is 46.3%.
Rothschild Investment Corp Has Increased Its Bitcoin Exposure By 300% Since April
Rothschild Investment Corp has bought more Bitcoin and Ether exposure via Grayscale despite the ongoing crypto market retreat.
Billion-dollar investment firm Rothschild Investment Corp quadrupled its exposure to Bitcoin (BTC) since April, new records show.
In a filing with the United States Securities and Exchange Commission (SEC) on Saturday, Rothschild confirmed that it now owns 141,405 shares of the Grayscale Bitcoin Trust (GBTC).
Rothschild GBTC Shares Near 150,000
A quiet but nonetheless substantial player among institutions, Rothchild Investment Corp has also invested in Grayscale’s Ether (ETH) equivalent, the Grayscale Ethereum Trust.
Its exposure to Bitcoin has increased considerably this year, the filing shows — in April, its GBTC shares totaled 38,346.
In BTC terms, with each GBTC share equal to 0.000939767 BTC, Rothschild thus has an equivalent Bitcoin exposure of 132.8 BTC ($3.94 million).
The data implies that declining prices have not fazed executives, while Bitcoin has been maintaining a drawdown for three months after hitting its all-time highs of $64,500 in mid May.
As Grayscale CEO Michael Sonnenshein noted this week, institutional players are likely taking little notice of short-term price moves, instead concentrating on a much lower-time-preference strategy when it comes to cryptocurrency.
“Investors in this asset class are really not focused on… short-term movements in price,” he told CNBC.
“These are really investors looking at their allocations in the medium to long term, and so any volatility or dampening of volatility is not something anyone is fazed by.”
On Monday, Ark Invest purchased a reported 310,000 GBTC shares of its own, bringing its combined holdings to 8.81 million or 0.5% of its portfolio. At its peak, GBTC represented 0.9% of the ARK portfolio in late March.
Good Timing For Grayscale FUD?
As Cointelegraph reported, Grayscale is at the center of discussions this week, as it unlocked over 16,000 BTC worth of GBTC shares on Sunday.
Concerns, while arguably unfounded, long abounded that the event would create downward Bitcoin price pressure, with the sharpening of the drawdown on Monday and Tuesday fuelling the fire.
Regardless, since GBTC investors cannot redeem shares for BTC and then sell for fiat currency, Bitcoin markets are in fact left out of the equation when it comes to unlockings.
Grayscale itself only sells a tiny amount of the Trust’s BTC holdings for fund management purposes.
Bitcoin Investment Products Still Suffering Outflows Despite Price Recovery
While institutions are still withdrawing capital from Bitcoin investment products, money is flowing into Ether and altcoin products.
Institutional crypto products have seen their fifth consecutive week of outflows despite the bullish momentum in the markets.
In its Monday “Digital Asset Fund Flows Weekly” report, institutional asset manager CoinShares estimated that outflows totaled $26 million for the week. However, the report notes that outflows have shrunk compared to May and June when outflows surged to a record $141 million per week.
Despite Bitcoin (BTC) gaining 17.5% over the past week, Bitcoin funds shed $33 million during the same period.
CoinShares’ own BTC product was the biggest loser for the period with an outflow of $63.3 million, while the world’s largest crypto asset manager, Grayscale, remained flat. According to Grayscale’s latest update on Tuesday, the combined value of assets managed by its funds has climbed back above $40 billion for the first time since mid-May.
08/09/21 UPDATE: Net Assets Under Management, Holdings per Share, and Market Price per Share for our Investment Products.— Grayscale (@Grayscale) August 9, 2021
Total AUM: $40.4 billion$BTC $BAT $BCH $LINK $MANA $ETH $ETC $FIL $ZEN $LTC $LPT $XLM $ZEC $UNI $AAVE $COMP $CRV $MKR $SUSHI $SNX $YFI $UMA $BNT $ADA pic.twitter.com/ju95J9n68H
However, Ether-based investment products saw inflows of $2.8 million for the week as Ether (ETH) rallied after last week’s successful London upgrades. Ether products now represent 26% of capital invested into institutional crypto products.
There were minor inflows for some altcoin funds, including XRP, Bitcoin Cash (BCH), Cardano (ADA) and multi-asset funds, each of which saw inflows of between $1.1 million and $800,000.
CoinShares also noted that 2021 has already seen a record 37 new crypto funds launched so far, beating out the 30 cryptocurrency funds that were launched during 2018:
“We have seen the number of funds/investment products listed accelerate recently with a record 37 launched this year compared to the previous high of 30 seen in 2018.”
Following therecent market momentum, the combined assets under management (AUM) of all institutional crypto products have surpassed $50 billion — its highest level since mid-May.
CoinShares has also published its financials for the first half of 2021, revealing a total income of $81.2 million. As such, CoinShares has already tripled what it earned for the entirety of 2020 during the first half of this year.
As of June 30, 2021, CoinShares’ total AUM was $3 billion, up 27.6% compared to the end of December 2020.
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