At the beginning of this year, the dominant narrative in the cryptocurrency market was that institutions would add large amounts of Bitcoin to their assets. Large, established investors from hedge funds to Wall Street mainstream stocks and blue-chip companies would soon jump on the bandwagon. Now, with the price of Bitcoin nearly halved, the picture is starting to look a little different: While Bitcoin looks like a clearance sale, data shows that institutions don’t seem interested in picking up bargains, apparently sharing the same concerns that are causing the current market crash. According to blockchain analytics firm Coin Metrics, the number of bitcoin whale addresses — those holding 1,000 or more bitcoins — fell from nearly 2,500 in February to about 2,150 in May. The number has hovered at lower levels since then. Another blockchain analytics firm, Glassnode, noted in a report on Monday that the stagnation of Bitcoin balances held on cryptocurrency exchange Coinbase provides another view on the same market dynamics. CoinDesk reported last week that open interest in bitcoin futures is down 59% from its April 13 peak, a sign that institutional investors are turning cautious. “Institutional demand still appears somewhat subdued,” Glassnode wrote in a report on Monday. Figure | Coinbase Bitcoin balance trend is flat (Source: Glassnode) Bitcoin prices have risen over the past year in part on expectations of a wave of new buyers, and the latest data may explain why Bitcoin has been stuck between $30,000 and $40,000 for the past month. There are growing signs that institutions are preparing to pounce. Traditional financial institutions such as BlackRock, Goldman Sachs, Morgan Stanley and JPMorgan Chase have set up Bitcoin funds and services in the past few months or acknowledged that they are considering entering the cryptocurrency market. On Tuesday, financial services company TP ICAP announced that it is launching a cryptocurrency trading platform with financial heavyweights Fidelity Investments and Standard Chartered Bank. But concerns about bitcoin’s potential environmental harms, a crackdown by Chinese regulators on bitcoin trading and mining, and a decline in computing power on the underlying blockchain network appear to have given big investors pause. Another concern is that the U.S. Federal Reserve could tighten monetary policy to fight inflation. The potential for a rapid rise in consumer prices following trillions of dollars in central bank stimulus has been a key source of demand for bitcoin, as the cryptocurrency has strict limits on new issuance and is seen as a bulwark of stability against a weakening dollar. Cryptocurrency industry executives said they saw no signs of a mass investor exodus or liquidation: “While there have been signs of investors being scared off during the recent bear market, we have not seen a large outflow from institutional users,” said the head of financial markets at cryptocurrency exchange OKEx. “We’re talking to institutional investors every day and they’re still deploying capital at record levels,” said the chief investment officer of cryptocurrency investment firm Arca Funds. “We are onboarding a large number of institutional firms, various hedge funds and asset managers,” said the chief commercial officer of crypto derivatives trading platform Deribit. “We are seeing interest from the traditional financial sector only growing.”
Enterprises are not keeping up with MicroStrategy Earlier this year, MicroStrategy was the first U.S. company to invest its treasury reserves in Bitcoin, and the company's CEO Michael Saylor has since been seen as an influential figure in the U.S. corporate world within the Bitcoin community. MicroStrategy's investment sparked speculation that other big companies might follow suit. Speculation at the time pointed to Twitter, Tesla, Apple, Buffett's Berkshire Hathaway and even burger chain Wendy's. MicroStrategy has been buying bitcoin on an ongoing basis, saying earlier this month that it was borrowing $500 million to buy more. Some smaller companies are still “aggressively” turning to bitcoin, said John Todaro, vice president of crypto assets and blockchain research at Needham & Co. But few other big corporate buyers emerged. Todaro said adoption of bitcoin by large companies appears to have slowed. |
