In the crypto community, the prevalent element of the supposed next phase of cryptocurrency expansion is the famous institutional investment process. Ever since the first cryptocurrency in the world – bitcoin – spurred on digital exchanges as the first sign of big corporate entrance into the same domain, many have been hoping that the wider and more massive investment from other institutional entities would solidify crypto. That solidification should include now just the ability of companies and other organizations to invest in bitcoin and other digital currency, but also a signal to the wider public that these entities see this as a smart move.
From those signals, other institutions, both bigger and smaller, would also comprehend that this is the time to at least secure some of their liquidity for the possibility of the price going up drastically. The same signals would reverberate throughout the communities and ordinary citizens alike, who would also seek out the possibilities of investing in bitcoin, even if that only includes 1,200 USD from their latest stimulus check. However, despite this dream scenario being plotted out years ago, it failed to materialize during both bull runs of 2013 and 2016/17. Now, it appears that the landscape is changing and that the institutional players are diving into crypto with more force and determination than ever before.
Flows & Liquidity
JP Morgan is creating a regular Flows & Liquidity report. In their latest such analysis, the firm is saying that institutions are right now piling into bitcoin at an unprecedented pace. The current fourth quarter of the year is seeing numbers that are much stronger than numbers for Q3. It also may have a much bigger role in the movement of the price than CTA or commodity trading advisors.
The authors of the report are saying that the investors from these institutions are making a long-term play or an investment that should be in place for a protracted period of time. This is not a result of some idle mental exercises related to the question of what could the institutions that buy bitcoin possibly look like. Instead, the report is showing some hard data that is backing up their claims.
Proof of Growth
The authors of the report, Nikolaos Panigirtzoglou, Mika Inkenen, and Ekansh Agarwal, provided some proof for their conclusions. They showed the case of Grayscale Bitcoin Trust, an entity whose customers are mainly institutional inventors. In the third quarter of the year, retail customers took on some 1.6 billion worth of bitcoin through the Cash App, a fintech application from Square. That was some three times the sum of money that was invested in Grayscale. However, in the fourth quarter, which is still ongoing, the trust had three times the numbers of Q3. Retail customers also likely rose in their buying efforts, but nowhere near the jump in the institutional investment.
The lineage of the same trust also showcases what is likely a steady growth of institutional acceptance. That in turn helped with its ability to convince institutional investors to take on the possibility of putting their money into cryptocurrencies. Grayscale Investment represents a digital asset management company. It is owned by Digital Currency Group (DCG). The same group also owns CoinDesk, the number one news outlet that specializes in the domain of digital currency news. The serious backing and very corporate ownership structure will likely continue to support any institutional effort with investing money into digital currencies.
Shrinking CTA Role
The report from JP Morgan also suggests that the steady upwards course of the bitcoin price is also a sign of growing institutional presence. The same presence is not only impacting the movement of the market capitalization, but it also fast becoming a strong force in determining the course of the price. For analysts of this investment firm, the fact that bitcoin did not revert back to its mean price in the previous weeks shows that there is a momentum in long-term support, instead of traders who need to see the price oscillating up and down.
In contrast, the institution wants to see a prolonged period of growth that will be accompanied by massive single-event sales. As this takes root, the influence of CTA is apparently shrinking as a factor of market momentum in comparison to the institutional presence. That, on the other hand, is clearly growing based on all market parameters.
Influences and Repercussions
The flood of institutional investors is an ongoing process that will likely have little to no immediate effect, beyond the very straightforward rise in price. Everyone in the field of crypto will likely appreciate that very much and hope it can continue for a protracted period of time. After all, that is the element that many in the community have been hoping for, at least ever since the bitcoin network demonstrated that it came to survive market fluctuations even on a massive scale. But, in the world of esports, social media, and digital currencies, having a mindset that shows institutions to be nothing but a huge and unwavering benefit is slightly naive. Instead, institutions can and will bring a whole range of effects on the crypto market, many of which might not be that desirable.
Firstly, there is the potential increase in regulatory oversight, as many will fear that companies will use the digital currency field to avoid things like taxes. The same oversight will then likely flow outwards and possibly hurt ordinary users as well. Secondly, the price momentum can end up being influenced solely by massive deals among international corporations. That would push out many smaller players, but also individual users. Here, having the knowledge that the price of a BTC token is fully in the hands of a small number of gigantic companies would not be a big plus for anyone looking to use bitcoin as a regular currency. That would especially influence users in poor nations, as well as anyone else looking not for a profit but a workable currency. Because of all of this, the hope is that institutional investors can come into the network, but that the network itself can protect its core values as well.