Mainstream Financial Firms Stay Away From Cryptocurrencies During Bitcoin’s Price Drop
Since December 2017, Bitcoin is in a bear market that has affected the whole virtual currency market. Since that moment, Bitcoin lost more than 80% of its price and it might reach lower prices in the near future.
There are several analysts that believe that Bitcoin is going to start a new bull run in the next year due to institutions entering the market. However, it seems that these larger investors remained outside the market during the last months.
According to Reuters, there are big investors from proprietary traders to hedge funds that are becoming more active in the market. However, mainstream financial firms have stayed away from cryptos. During the last months, there were several companies that started to build infrastructure to start receiving investment from institutions, but this remains to have an effect on the market.
According to Reuters, this suggests that Bitcoin is struggling to evolve from a speculative asset that is favoured by relatively niche investors to an investment choice such as stocks or bonds. If there are more institutions investing in digital assets, they can help the space to expand in different areas such as payments or money transfers.
Back in November, trading volume in virtual currencies reached $235 billion which is considerably more than at the beginning of the crypto bull run experienced at the end of 2017. However, compared to its peak, it is down 50%.
Bitfinex, however, has registered growing trading volumes on its platform due to a growing activity of cryptocurrency miners and startups that have big holdings. These investors include hedge funds, miners and industry insiders. The exchange experienced an increase of 38 percent during November.
CryptoCompare’s Charlie Hayter commented about this:
“You’ve got the larger exchanges picking up the slack and making gains of market share, with retail exchanges stepping back. That’s the real shift – the (cryptocurrency) mining companies looking to pay their electricity bills using the exchanges that operate with larger players, and newer entrants trying to gain some form of exposure.”
Reuters mentioned that institutional investors such as asset managers, pension funds and investment banks are not investing in the market. This is a reluctance that remains in the space even when companies are working in solutions specifically developed for institutions and larger investors.
According to Eric Wilgenhof Plante, chief compliance officer at the exchange BeQuant, individuals at banks and financial firms want to enter the market but they do not know how to explain it to senior management. BeQuant offers services to non-retail clients.
At the same time, there are no clear blockchain examples in the real world to show how the technology behind virtual currencies works.
The next year, if a Bitcoin ETF is approved by the U.S. Securities and Exchange Commission (SEC) and the Bakkt platform developed by the Intercontinental Exchange (ICE) already running, the number of traditional investors could start growing.