Institutional investors remain enthusiastic despite crypto winter

Tens of billions of dollars in value have been wiped out from cryptocurrency markets over the past few weeks due to a sell-off in equities and the collapse of algorithmic stablecoin UST and its associated token LUNA.

Bertrand Perez, CEO of the Web3 Foundation, told CNBC, “We are in a bear market. I think this is good because it will weed out the bad actors, so legitimate companies will be able to just focus on building and forget about the valuation of the token. During a bull market, everyone wants to get rich, which is the wrong mindset.”

Mihailo Bjelic, co-founder of blockchain company Polygon , echoed the sentiment, calling the sell-off in cryptocurrencies "necessary." He said, "In my personal opinion, (the market) may have become a little irrational, or a little reckless to some extent. When moments like this come, a pullback is usually necessary, which is healthy."

The sell-off in major digital currencies such as Bitcoin and Ethereum was sparked by a broader rout in the stock market, particularly the technology sector.

Brett Harrison, president of cryptocurrency exchange FTX US, said that large institutional investors have been participating in the cryptocurrency market and are also a key driver of the recent sell-off. Whenever the global market plummets, institutions are always the first to abandon risky assets, and cryptocurrencies are currently at the top of such investments.

However, not all institutional investors are driving the bearish trend in cryptocurrencies. For example, MicroStrategy has continued to buy Bitcoin despite the market conditions.

MicroStrategy (MSTR) CFO Andrew Kang told The Wall Street Journal that the company’s long-term strategy of buying and holding Bitcoin (BTC) will not change despite the plunge in cryptocurrencies and the broader stock market, and the company has no current intention to sell and is not facing pressure from shareholders.

Ripple CEO Brad Garlinghouse urged investors to look at the longer-term trends, "About two years ago, the price of Bitcoin was about $8,000. Now it's $30,000. So, yes, there was a crash and a trillion dollars was lost. But when you zoom out further and look at the long-term trends, I think you'll see that cryptocurrencies are here to stay."

Buyers see market downturns as the best time to buy. Institutions are buying the dips in a larger proportion, which is a major sign of Bitcoin’s recovery.

Data from Glassnode shows that Bitcoin has an Accumulation Trend Score of 1. The score reflects the size and volume of institutions’ latest purchases or additions of BTC to existing wallets.

A score close to 1 indicates that institutions are accumulating Bitcoin, while a score close to 0 indicates that the Bitcoin held is allocated to other wallets for diversification or liquidation. For example, in November 2021, the cumulative trend score was 0.82 and has been steadily declining since then.

The downward movement in the chart is an indicator of a rising accumulation trend. As can be seen in the above chart, institutions began to buy Bitcoin heavily during the crash between April 20 and May 5 when Bitcoin fell to $27,000. However, since then, the accumulation has continued.

Fidelity made headlines in April when it said investors could add Bitcoin to their retirement accounts by the end of the year. Now, as crypto winter sets in, Fidelity’s digital assets division is doubling its headcount as it bets that institutional investor interest in crypto will continue.

Institutional interest in crypto has reached record levels. According to the Financial Times, Morgan Stanley said in a report that institutional investors now account for more than retail investors in crypto trading.

Morgan Stanley said, " Retail investors are no longer the dominant cryptocurrency traders. The largest proportion of daily crypto trading volume comes from crypto institutions, most of which comes from transactions between them, such as exchanges, custodians and crypto funds. About four years ago, retail traders dominated when Bitcoin was trading below $10,000. We believe that the increasing participation of institutions, which are very sensitive to funding supply and interest rates, has, to some extent, led to the high correlation between Bitcoin and stocks ."