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.
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