Crypto Market Is Euphoric Again as Institutional FOMO Sets In Amidst “Much Greater Value In The Space”
Given that the crypto market has gone from extreme euphoria to March 2020 level fear to back to very bullish yet again in a matter of a few weeks, caution is urged.
The crypto market is enjoying a green week after taking a brutal beating for much of May. The total cryptocurrency market cap is also nearing $2 trillion after losing a trillion dollars during the latest sell-off; the peak at $2.55 trillion was hit on May 12.
According to trader Don Alt, the current scenario of Bitcoin down and altcoins going up is not healthy, and the market may end up being rekt yet again.
Trader Degen is of a similar opinion because such a huge price dump means a ton of underwater buyers have an average cost basis below the current price.
“Up only really has spoiled most and ramped up expectations to unrealistic levels, even for crypto. People are hoping for a quick recovery in the next few weeks, I think this is by far the least likely scenario. That was a 3-month distribution range, any bounces will be faded hard.”
In a matter of a couple of weeks, the market has basically gone from extreme euphoria with calls for Ethereum flippening Bitcoin becoming very loud to very bearish with the Fear and Greed Index going down to March 2020 level with a reading of 10, to yet again very bullish.
The market basically lacks direction right now, it needs to be seen if we will end up going down yet again or continue what came to an untimely stop due to all the FUD, or boring sideways action for months is what’s ahead for the market.
Crypto experienced two consecutive black swans: Musk & China. Then bitcoin suffered it's second largest daily drop since 2013. And crypto crashed almost as much as in January-March 2018, but in only one week. Yet most of crypto worked as intended. Winning. https://t.co/qBlpp6ODxO
— Alex Krüger (@krugermacro) May 25, 2021
What can't be missed out in the ongoing market is the positive sentiments, and if any FUD here fails to negatively impact them, it could really take us higher.
As we reported, OTC desks are seeing institutional inflows, from crypto funds, macro funds, and opportunistic VCs; in the market. However, these biddings are slow, which given those institutions and the traditional market work pretty slow, makes sense.
Even Ray Dalio, the founder, and CEO of the world’s largest hedge fund Bridgewater Associates has finally gotten into crypto and now owns Bitcoin.
Another big thing is Goldman Sachs’s comprehensive report on cryptocurrencies which makes a strong bull thesis for the market, especially Ethereum.
In the report, the banking giant’s own head of digital assets, Mathew McDermott, argued that Goldman’s interest in the sector is being led by client demand, notably from the institutional side.
But it’s not just institutions making inquiries but also corporate treasurers, especially those facing negative interest rates or fear asset devaluation, he further noted.
Despite Bitcoin’s 54% drawdown, BTC is still up over 700% from March 2020 low and 35.5% YTD. Last year, even crypto hedge funds of various trading strategies underperformed BTC.
Negative interest rates are a major use case for Bitcoin. McDermott also noted a general sense of FOMO amidst the institutions as he wrote,
“There’s no doubt that ‘fear of missing out' (FOMO) is playing a role given how much bitcoin and other crypto assets have appreciated and how many interested parties of all flavors have jumped into this space. If you’re an asset manager or running a macro fund and your closest rivals are all investing and seeing material returns, your investors will naturally wonder why you are not investing. But I see investor interest in crypto enduring; we’ve crossed the Rubicon in terms of institutional buy-in, and there is much greater value in the space than there was three or four years ago.”
There is a lot of demand coming from Goldman’s client base, and the 900% YoY increase in CME bitcoin futures daily active in April also represents that. This means big opportunities for the bank’s prime brokerage business.
The bank said in its report that it plans to offer clients the ability to go long and short on bitcoin-linked securities and exchange-traded notes (ETNs) in Europe and is looking into offering lending structures.