Analysis: New institutions enter the market after waiting for the roller coaster-style Bitcoin price to end
The volatility of the Bitcoin market scared off new institutional investors, but at the same time, old institutional investors continued to buy when Bitcoin fell.
Due to the continuing upward trend, many well-known institutions from the traditional financial sector have tried to join the cryptocurrency wave to avoid missing the continued upward trend. First, in the past few months, both the open interest and trading volume of Bitcoin futures have increased substantially. Although this may be expected, it is surprising that the Chicago Mercantile Exchange, a global derivatives exchange, has recently become the world's largest bitcoin futures trading platform.
Since December 2020, the rapid rise of Bitcoin (BTC) has increasingly attracted the attention of investors all over the world. This should not be a secret. Looking at it from another perspective, although Bitcoin recently fell to a mark of slightly less than 32,000 U.S. dollars, its price has risen above 38,000 U.S. dollars again, so the 30-day net yield of Bitcoin is about 95%.
Institutional interest is increasing, or is it stagnating?
The recent volatility has raised concerns about the sustainability of the current bull market and raised questions about whether the interest of institutional investors in Bitcoin has begun to stabilize. Konstantin, a cryptocurrency analyst at the cryptocurrency exchange NabobTrade, said that for new entrants, it is important to realize that this game is not a simple institution entering the market, but they have seen a decrease in risk.
"Unless something really extreme happens and the whole market changes drastically-I can hardly imagine such a bad thing to happen-I believe that in the future, more large companies will continue to invest in Bitcoin and other cryptocurrencies."
Quinten Francois, the host of the YouTube channel "Young and Investing", believes that most institutions that want a slice of the pie are likely to have already entered. He added that during a parabolic up phase like this, it's hard to imagine that more big-name money players will enter the field, at least until the end of the year becomes stable.
Having said that, he added that most institutions now entering the crypto market are likely to buy when prices are low, and when they stop, retail funds will slowly re-enter the market, further pushing up the value of Bitcoin. : "They are experts, know what they are doing, they will not buy in the parabolic upward phase."
Jonathan, CEO of NabobTrade, a cryptocurrency exchange, said, “The inflow of institutional funds into the cryptocurrency market has only just begun.” He further added: “The price of Bitcoin and other cryptocurrencies rose rapidly in the fourth quarter. This expectation of inflow is directly related."
Will institutions reduce market volatility?
It is undeniable that compared with the bear market in 2018, Bitcoin is a more mature asset, especially in certain jurisdictions that have made significant progress in supervision. In addition, the crypto market now has a large number of professional trading institutions and non-crypto companies participating.
These factors are of great help in restraining Bitcoin's volatility and improving its liquidity as an investment asset. Anissimov believes that “institutional investors are not the key to promoting the Bitcoin bull market, but through them to regulate the overall market, making the crypto market more stable and efficient.”
In other words, if established institutions enter the crypto industry, they will have an impact on the price movements of most cryptocurrencies. In the end, this may help the industry as a whole, especially considering that most traditional financial participants will be committed to long-term transactions, which may help protect Bitcoin from a crash similar to 2018.
According to the "Digital Asset Fund Weekly Report" published by CoinShares on January 11, as of January 8, US$34.5 billion was invested in crypto investment products, of which US$27.5 billion (80%) was invested in Bitcoin funds. 4.7 billion USD (about 13%) was invested in Ethereum (ETH) products.
Comparing the performance of Bitcoin funds in this round of bull market with the performance of 2017, this report states: "We have seen that investor participation in this round has greatly increased, with net new assets reaching US$8.2 billion. It was only $534 million in December 2017."
In addition, last year, the Office of the Comptroller of the Currency (OCC) stated in a landmark decision that the National Bank of the United States can custody crypto assets. After this announcement, the OCC has another major development. Bank of America can even provide services to stablecoin issuers, such as holding reserves.
Although some traditional institutions have been obsessed with this approach before making the above-mentioned decision, there is uncertainty in this field due to the lack of legal clarity. Now, the official has given clear regulations that in the United States, stablecoins backed by fiat currencies held by bank reserves are not considered a risk.