Whales in a Bear Market: Institutional Investments are Increasing in Sluggish Crypto Markets
Institutional investments have been seen as the ultimate signal of acceptance of cryptocurrencies in the financial circles.
Big players are not prone to making investments in instruments and tools that are too risky or show no future in the long run. The wild west like scenario of cryptocurrency value, fluctuating wildly, has always been a major reason for big players not willing to enter the crypto market.
A recently report by Morgan Stanley suggests that financial heavy weights are increasingly becoming interested in cryptocurrencies. The report, titled “Update: Bitcoin, Cryptocurrencies and Blockchain” says that institutional players are now buying digital tokens by the bucket load. The recent price stability is attributed to this, despite the fact that the current year has seen a mostly bearish market.
An internationally recognized financial market specialist, Alex Kruger did a critical analysis of the 50-page report and commented on the report’s finding that there has “been considerable institutional inflows” since the start of the year.
1/ Institutional money is coming they said. The virus is spreading they said … Data indicates there have been considerable institutional inflows since January, yet penetration is at pre-bubble levels. pic.twitter.com/YWT4ROmsxj
— Alex Krüger (@krugermacro) November 4, 2018
He, however, crunched the numbers and pointed out some facts that might dampen the spirits of crypto enthusiasts’ celebrations of mainstream investors finally taking blockchain coins and tokens seriously.
A Drop Of Water In An Ocean
Kruger went on twitter and expressed his findings in simple graphs. According to him, the Stanley report does tell the truth that institutional investments have increased in cryptos, but when looking at the larger scale of things, the opposite is true.
Big players account for USD 7 billion in July’s market capitalization, which is a mere 2.8%. Furthermore, the percentage is EVEN lower than the pre frenzy days of January 2017 (3.8%).
Short term investments show that the great boiling of crypto values had institutional investments standing at a low of 1% in January this year. He also pointed out that USD 5.9 billion was injected into the crypto market by the big players during the same first half of this year, with an estimated USD 10 billion over the years.
The first half of this year saw an influx of USD 1.25 billion, but the lowering prices of cryptos effectively have negated this effect in books. This possibly paints a very alarming situation. The market very well be leaning towards a huge bear scenario with a heavy crash.
It may be the heavy investments by institutions that is keeping the market afloat. Just enough, since it seems to be locked in an endless bear and bull battle.
Over The Counter Trading Effect
There is another factor that works towards the benefit of the crypto fans. Bobby Cho, cryptocurrency division of the Cumberland DRW’s global head reflects that hedge funds use over the counter (OTC) trade, rather than a crypto exchange.
This means the big trades are made privately, without little players ever knowing such big sums changing hands. If an institutional investor were ever to make a trade on a proper exchange, the huge outflow would create a panic and the prices would not only drop on that particular exchange, but a domino effect would wipe out major value of cryptos across the world.
Similarly, a huge buy would artificially inflate the prices, with the subsequent adjustment being as severe as the rise.
“What that’s showing you is the professionalization what’s happening across the board in this space.” Mr. Cho stated, “The Wild West days of crypto are really turning the corner.”
Mr. Cho is not the only one who thinks such is happening. CEO of Boston located Circle also believes the same, with player enrolment in their OTC service experiencing a “triple-digit growth”.