The mid-May price drop was one of the biggest shortcomings of crypto in recent years, a decline that eliminated nearly $ 1 trillion from the market value of crypto.
A month ago, the industry reached new heights with Bitcoin.B T c) Reached up to About $ 64,000, driven in good part by institutional investors. Now that the market has returned some peace, the bears are asking: How did the institutions behave during the recent collapse? Did they jump or persevere with their investment? And What might be the impact of the pullback in future institutional involvement in the cryptocurrency and blockchain industry?
Onda’s senior market analyst Edward Moya told Cointechlag, “Institutional investors mostly held firm,” and after the dust settled, [investors] Still looked confident with his long-term bets. “In addition, Philip Gradwell, chief economist at Chainalysis wrote In a May 19 market analysis, “It also does not appear that institutions are important sellers, although they may be more cautious as buyers right now.”
On the other hand, JPMorgan analysts told their clients that institutional investors Abandoned bitcoin for gold. And then there was Elon Musk, whose tweet on May 12 said that Tesla will no longer accept bitcoins in exchange for its automobiles – was blamed by many for accelerating bitcoin’s market decline – citing concerns about BTC’s energy consumption. It was already declining, but fell 40% after his tweet and has been having trouble recovering $ 40,000 since then.
Economist Gradwell sought to put things in some historical context, noting that the flow of bitcoins in the exchanges was relatively low compared to the previous sell-off. It suggested that “most of the sales come from people who already own property on the exchanges, who are retail investors.”
Many cryptocurrency giants agree that volatility is driven by retail investors – not institutions. Freddy Zwanzger, co-founder and chief data officer of AnyBlock Analytics GmbH, told Coinclag that “entities typically have long-term goals, so if anything, they will use recent price swings cleverly – and the lowest There is a possibility of buying in the market at a price. “
Social media seemed to corroborate the idea. Zwangzger continued, “On crypto Twitter, I saw many retail newbies scrambling to try to sell as well, and all Ozzy commented on the deals he’s got in another volatile swing that’s happened before and again Will happen.” she added:
“Practically everyone I know in the industry buys – or tries to buy – a dip, happy to expand their crypto holdings.”
Bobby Ong, co-founder and chief operating officer of the crypto data platform CoinGecko, said, “On-chain data shows that BTC has moved from the new wallet to the old wallet, which suggests that newcomers have surrendered.” It is also important to note that during the decline, BTC was trading at a premium on Coinbase, while heavy outflows were also seen. This suggests that some institutions were buying dips, but there is a possibility of including some institutions. “
“On balance, our customers saw this as an opportunity to rebalance and add positions at lower prices,” Bitwise Chief Investment Officer Matt Hogan told Cointegraph. Bitwise, which primarily serves financial advisors and other professional investors, had net flows throughout the pullback.
Jeff Dorman, chief investment officer at Arca, a digital asset management firm, sought to clarify some ambiguity, noting that the term “institutional investors” is often misused, telling Cointegraph:
“If you included macro and quant hedge funds as institutional investors, they were largely selling momentum, but traditional institutional investors – pensions, endowments, family offices, etc. – were trying to allocate more volatility. Were not moved. “
Did Musk see it written on the wall?
Musk’s May 12 tweet was blamed by several media accounts for the decline in cryptocurrency, but not everyone was ready to blame Tesla’s CEO, who written, “We are concerned about the rapidly increasing use of fossil fuels for bitcoin mining and transactions, particularly coal, which has the worst emissions of any fuel.”
According to Moya, “This month’s cryptocurrency collapse stems from increased leverage trading across Asia, mostly panicked by new retail traders and active wealth managers who are just picking up momentum.” While Hogan largely agreed that the pullback’s primary driver was “liquidation of overleveraged retail investors,” he also cited rising regulatory risks and “China’s attitude towards crypto”, which seems to be deteriorating.
Moya’s approach was somewhat different, especially regarding Musk. “Initially, I thought it was a terrible flip flop by Musk and was ultimately very bad news for Tesla and Bitcoin. After thinking about it, I believe Musk saw something written on the wall. That the media was getting closer to calling bitcoin and its environmental impact. He further added:
“Musk’s decision to suspend accepting bitcoin as payment over environmental, social and corporate governance (ESG) concerns led him and other crypto supporters to let miners use renewable sources to control the story and timeline Gave permission.”
The doorman agreed that Musk raised a kind of ecological flag. “Elon Musk’s indefatigable tweets have brought ESG to the center stage, and it will likely break corporates / institutional capital,” he said wrote In a blog post.
Will institutional investors, who are more vulnerable to ESG issues nowadays, shy away from BTC due to environmental reasons? On May 21, the news came that Greenpeace will no longer accept bitcoin donations For example, due to environmental reasons.
In addition, BTC does mining Use a lot of electricity, after all – in a year, a lot more than the whole country of Argentina, accordingly For a recent study at Cambridge University. Moya continued, “There is pressure on Bitcoin and other cryptos to adopt renewable energy.”
“Bitcoin will eventually please ESG investors, but for now, they only need to keep large financial institutions happy [by saying] That they are working on it. Ethereum is already ahead of the game, so alternative investments will be available to ESG investors. Bitcoin can still be successful without receiving ESG support in the short term. ”
What about the reports that institutional investors were dumping bitcoins in favor of gold? Moya agreed that gold became more attractive and could outperform BTC in the short term: “Bitcoin dominates Wall Street as the best-performing asset in 2020 and the first four months of this year. Which Institutions were considering bitcoin, but failed to pull the trigger, they are fully riding the upside in gold prices. “
Was the reform overdue?
It is important not to let May’s downfall obscure the crypto’s overall performance. Generally speaking, it has been an extraordinary year. Ong said, “If we look at the big picture, bitcoin has been climbing for the last seven months and was due to improve.”
“When you combine it with overleveraged traders, a 50% dip was necessary to eliminate leverage and continue the momentum of the bull market.” At the same time, Haughan said: “Even after the pullback, bitcoin has grown more than 300% in the past year. The S&P 500 is lucky if it does so in a decade.”
What impact, if any, would the “reset” have on the institutional adoption of cryptocurrency and the adoption of blockchain – eg, in 2021?
“Zero,” Dorman replied, adding: “Institutional money doesn’t come fast or slow, based on price moves. Those trying to deploy will still be deployed, and they are. The recent declines in GBTC and COIN are key indicators. It may be that this new money was already slowing down, but not due to the recent price drop.
A blue ribbon for Daffy?
Overall, the pullback may have sparked interest in decentralized financial assets, Hogan told Cointegraph. “It was a severe stress test for Daffy, and the industry passed with flying colors. This should instill confidence in space.” The doorman agreed that Daffy had passed “a major stress test” Writing In his blog that “it works exactly as designed, handling all-time high volumes and record liquidation without hesitation.”
Meanwhile, Gradwell told Cointegraph: “There is clearly an opportunity for Ethereum to gain ground on bitcoin if it can deliver while being greener and more useful than bitcoin – for example, proof-of- Going on Steak and innovating further in Defy and NXT. [nonfungible tokens]. “For his part, Moya stated that” Bitcoin and Ethereum will remain the two preferred holdings for many institutions, although the latter seems more likely. “
So will altcoin get a boost compared to BTC? “It ultimately boils down to various institutional interests,” Ong said. “Although BTC continues to develop its narrative as a hedge against inflation and appreciates value, ETH and DFI will, by extension, attract investors such as stocks.”
“Creating a Generational Condition”
Can anyone tell us about any lessons learned recently from the market shiver?
“For investors who have not experienced the crypto bear market in the past, it was a great test,” Haughan said. “If the pullback was too stressful, then you have invested too much of your portfolio in crypto. You should lower your position.”
“The latest cryptocurrency decline suggests retail and institutional investors may bear the volatility of cryptocurrency,” Moya said. Traders looked as if they were ready to buy more bitcoins, even if “if the decline continued toward the $ 20,000 to $ 25,000 area.”
Ong predicted, “People will be more careful, especially those with higher profit positions.” “For newcomers, it was an eye-opener as to the extreme level of volatility that you can only find in crypto markets.”
Overall, the recent volatility should not impede institutional adoption of cryptocurrency. “The institutional investors I speak with are looking at crypto as a 10-year position,” Hogan told Cointegraph. “They know this is a volatile asset. They are making a generational bet and don’t get distracted by the volatility of a few weeks.”