Crypto markets have historically been run by retail investors, and professional investors follow. Is that changing? After all, high-tech innovation over the past 15 years has done the opposite, turning the enterprise-driven model into a consumer-driven model.
The advantage of retail was evident in the fourth quarter of 2017, when media noise increased, along with price. There is no doubt that retail advertising is quieter this time. CNBC had nearly 100 bitcoin titles in the first half of Q4 2017. In the last six weeks, when bitcoin reached a new market record, it came out with less than 40. Where the hell are Davy Day Trader and investors with ”
It is premature to diagnose a secular trend in crypto investing, mostly because the retail / institution dichotomy is problematically simplified. Below I will look at four market dimensions that show how participants in this cycle behave differently from investors in 2017:
- Bitcoin whales and trading against detention
- Bitcoin against ether and everything else
- Regulated to offshore futures markets
- Investors from North America vs. E. Asia
1. Bitcoin whales and trading against detention
The number of addresses containing at least 1 bitcoin is increasing at a relentless pace from the end of 2013 until the collapse in 2018. It increased again in 2019, then equalized again this spring. This is different from the end of 2017, when the price of bitcoin peaked.
Compare that to the number of what we might call bitcoin “billionaires,” addresses containing at least 1,000 BTC. These whales were pre-sold in 2017. This time, Forbes’ list of Bitcoin blockchains is growing, not shrinking.
Address balances should be taken with some salt; addresses ≠ objects. Behavior is a better signal. If there are whales, where do they swim? Wherever they winter, they carry their bitcoin bags together. The orange coin accumulates more in wallets that have historically been bought and held, and less in wallets that show a tendency to trade.
Twice after 2017, the slowdown in the accumulation of holders is a leading indicator of the top of the market. In 2020, there are still no signs of a slowdown.
2. Bitcoin against ether and everything else
The bull market for 2017 is remembered as a phenomenon driven by Ethereum’s initial coin proposal (ICO) enthusiasm. However, by the time the madness reaches its high temperature, the ether (ETH) has largely completed its work. In mid-Q4 of 2017, the return on bitcoin was 23.9%; the yield of ether is 6.9%. It was the catching up of bitcoin Q4 that fed the bulls.
Contrast with that by 2020 and the similarities and differences are indicative. Again, ether led to the preparation, but this time it is in step with bitcoins, returning 23.2% so far in the fourth quarter to 28.4% of bitcoins, even before it crossed $ 500, early Friday. If the 2017 pattern repeats itself, bitcoin bulls may have a longer range.
So, are crypto markets consolidating? The answer is yes and no. The dominance of bitcoin, the share of the orange coin in the cumulative market capitalization, was in the 1950s. This usually means a shorter list of assets that make up the majority of the market. Not this year.
The five assets in CoinDesk 20 are growing with bitcoin, but the long queue is now more fragmented than it was after the next bubble in 2017. (This amount includes stable coins and other fixed assets.)
3. Regulated to offshore futures markets
The Institutions Are Here choir can sing about the growth of the CME Bitcoin Futures market, signaling the growing demand for regulated exposure to bitcoin through established operational channels. Open interest in CME reached $ 1 billion this week, an all-time record.
However, much of this growth is due to bitcoin prices. Collectively, slightly regulated derivative contracts traded by individuals, impregnation offices and liquidity providers affect CME. It would be unreasonable to base the institutional flips thesis solely on growth in CME. It is better to say that institutional participation increases with the rest of the market.
4. Investors from North America against E. Asia
Along with the growth of CME futures is the flow of bitcoin to exchanges in North America and outside East Asian exchanges.
As far as exchange flows represent the activity of the participants, investors from East Asia sell bitcoins on this bullish market at levels never seen before. Meanwhile, North American interest in bitcoins is greater than in 2017.
One important caveat: flows here may represent traders ‘preferences more than investors’ long-term performance. The stable coin is on the verge of increasing its market capitalization by more than $ 10 billion this quarter. Some of the flows in East Asia probably represent a Tether (USDT) march to dominate the quote, as traders increasingly prefer it to bitcoins in crypto-to-crypto markets.
Taking: This bull is really different from 2017, but that doesn’t mean we won’t see a new cycle at the top and bottom. Signals that hint at the types of investors involved show that we may be earlier in the cycle than we were when bitcoin reached its record high three years ago. The history of bitcoin is full of stories of impending changes or regulatory changes that would change the market fundamentally. These stories were exaggerated in the past and are probably exaggerated now. The same goes for stories that predict the death of the dollar.
Do traditional financial markets burn their own brother? Maybe, but that doesn’t suddenly turn bitcoins into a safe haven or hedge. Current patterns of increasing participation of new, larger and longer-term investors are likely to continue, but bitcoin and cryptocurrencies in the foreseeable future will be risky investments in the foreseeable future and investors must continue to treat them as such.
Anyone know what else is going on?
One of the things that makes bitcoin such a successful investment is the lack of infrastructure. Like most retail investors, I tend to take profits too early. Like many bitcoin investors, I keep my coins in cold storage, which means it takes time and effort to prepare them for trading. We, bitcoin investors, are akin to Fidelity’s apocryphal clients, who died and stopped talking about their wallets, thus becoming more successful than other Fidelity clients.
However, the return on bitcoins this month put the orange coin at a stratospheric percentage of my family’s portfolio. Anyone else getting white knuckles yet?
(Note: Nothing in this newsletter is investment advice. The author owns some bitcoin and ether.)
Rick Reeder, fixed income IT director at Black stone, think about crypto assets. In case you yourself have lived under a rock, Reeder made comments to CNBC on Friday morning that show that the world’s largest asset manager takes crypto seriously: “I think it’s a lasting mechanism that. .. can it replace gold to a great extent? Yes, I have, because it is much more functional than transferring a gold bar, ”said Reeder. TAKE-OUT: If BlackRock goes for the walk that Rieder is talking about, it’s better to put on our sneakers to keep up.
IBM has secured a patent covering blockchain-based transactions in massively multiplayer online video games such as Fortnite and Call of Duty: Warzone. TAKE-OUT: Blockchain startups in the gaming industry advertise such technology as a way to ensure players’ ownership of virtual goods and their portability between games, but it is unclear whether existing incentives in game development and publishing would support the move to such a structure. It is doubly unclear how permitted blockchains such as the one IBM advocated would improve on a simple database in these cases.
One potentially overlooked factor in the current bitcoin cycle: Beijing’s crackdown on cryptocurrency counters, where miners convert newly minted bitcoins into money. We broke it into a new partnership with CoinDesk Axios, this week (check) after you announce the news on Monday. TAKE-OUT: The reduction of bitcoins in 2020 reduces the impact of new supplies on the market. With more investors holding, demand factors may be a major driver in this period. This is rather a medium-term supply problem that can be observed as it can shape the structure of bitcoin mining.
Brian Brooks, ex Coinbase adviser general, prompted the White House to signal a five-year term to head the currency controller’s office, the bank’s main regulator. Brooks, who acted as acting controller, now controls a public letter allowing nationally regulated banks to offer crypto-custody and process accounts for issuers of stable coins. TAKE-OUT: Most of the air in crypto is directed to securities and commodity markets regulators. For the unregulated currencies that top the CoinDesk 20 crypto asset list, banking regulation may be more important as a means of infrastructure that professional investors need to participate.
Offshore cryptocurrency operators Binance has judged Forbes and two of his journalists, alleging defamation over a history of so-called Tai Chi documents allegedly leaked by Binance, detailing a strategy to misregulate U.S. regulators TAKE-OUT: Changpeng CEO Zhao is modest about his company’s corporate structure, declining to say where Binance’s headquarters are located. This is a sign of the immaturity of the crypto infrastructure, when one of the largest operators on the exchange will not tell you what law they work by.
Goldman Sachs expects the digital yuan, China’s planned national virtual currency, to reach 1.6 trillion rubles ($ 229 billion) when issued and 19 trillion rubles ($ 2.7 trillion) as a total annual value of payments over 10 years. TAKE-OUT: If you think PayPal moving to embrace bitcoin is as exciting as intercepting a crypto, you must be crazy about the opportunity provided by digital currencies to the central bank (CBDC). Their ability as a penetration drug depends largely on structure and regulation, but the potential is there.
In Japan, 30 companies have announced joint efforts to issue a private digital yen and Mitsubishi UFJ Financial Group (MUFG), one of the largest banks in Japan, has announced plans to launch a blockchain payment network in 2021. TAKE-OUT: This looks quite different from the Chinese digital yuan (see above), but both are examples of ways in which digital currencies can reach core banking and its customers. East Asian economies are ahead of the United States and Europe. If you think that the adoption of this type of technology by the US and the EU seems exaggerated, please consider that you probably said the same thing about text messages in 2005.
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