For more than a month now, the crypto market has experienced what is described as the worst sell off in the year. As a result, bitcoin price has dipped by 35 percent.
Bitcoin (BTC) Price Today – BTC / USD
A securities litigation and government enforcement defence attorney at Kobre and Kim, Jake Chervinsky, suggest that while individual investors or retail traders are selling in the crypto exchange market, the institutional investors are accumulating.
“Investors, with bitcoin trading under $4,000: Retail: ‘should I sell and buy back lower? Should I open a short? Should I just give up? Is it going to zero? was this whole crypto thing a scam after all?’ Institutions: ‘please keep selling us cheap bitcoin. thank you.’”
Are the institutions really purchasing bitcoin?
Chervinsky’s statement led to so many debates within the crypto community. It is mostly triggered by skeptics who questioned the involvement of the institutional investors in the market considering the lack of momentum of major cryptocurrencies.
If the institutional investors have been amassing bitcoin for a month, then BTC price should have surged rather than dip by more than 35 percent.
He explained that the institutional investors and professional traders are very cautious in accumulating new assets. They invest in a subtle way to prevent serious impact on the short-term price of the currency or asset.
“The problem, however, is concluding that ‘because institutional investors are buying, the price will immediately go up.’ Professional traders are experts at accumulating assets without affecting the market,”
He adds that institutions don’t take naked long positions on bitcoin or other speculative assets.
“None of the investors & traders I’ve worked with take naked long positions on speculative assets. When they buy spot, they simultaneously hedge in other markets to reduce risk. ‘Hope’ has nothing to do with it.”
The institutional investors tend to invest in such speculative assets through the OTC or over the counter market. In bitcoin’s case, due to its apparent lack of liquidity, the institutional investors have to use trusted custodians such as Coinbase Custody or Fidelity Digital Assets to buy or sell large sums of BTC.
Custodial solution providers and OTC market operators aren’t obliged to share trading volumes. As a result, such data held by the OTC exchanges are never released for public consumption. Due to a lack of information from OTC exchanges, it is almost impossible to back up the claims that such institutions are accumulating bitcoin.
However, as Chervinsky said, some clues can be considered by investors to assume that the institutional investors are investing in an asset class. Presently, university endowments and grayscale investments reporting inflows could signify a growing interest in bitcoin from the traditional financial sector.
What are the uncertainties?
It is not clear whether the institutions are interested in cryptocurrencies generally of only aiming at bitcoin for a long-term investment.
Presently, the demand for Bakkt, Coinbase Custody, Fidelity Digital Assets is one of the ways to justify institutional demand for cryptocurrency. Recently, Bakkt has confirmed that the demand has risen rapidly.
Also, it is difficult to authoritatively prove that the demand for crypto from institutional investors is strong and that they are accumulating BTC.