Bitcoin's Peak Dance: Institutional Entry is Slightly Cautious, while Retail Investors' Long-Short Showdown Trend is Brave - 21 Finance

In their latest report, JPMorgan strategists including Nikolaos Panigirtzoglou pointed out that based on data from Square and Paypal, retail investors have purchased more than 187,000 bitcoins so far this quarter.

As of 18:55 Beijing time on March 16, the trading price of each Bitcoin was US$55,952.52.

The Bitcoin market, which has repeatedly hit new highs and experienced large fluctuations, can probably be described as "peak dance". The market has not yet digested the record of $50,000 per Bitcoin, but the latter climbed to a new level of $60,000 for the first time last weekend, reaching $60,415.34. When the market tried to understand the psychological price of $60,000, it repeated similar fluctuations, and Bitcoin once again fell from its high point, once touching the $46,000 mark.

Beneath the surface, what subtle increases and decreases are revealed in investors’ capital inflows and outflows?

As of 18:55 Beijing time on March 16, the transaction price of each Bitcoin was US$55,952.52. Visual China

Changes in the pace of institutional players’ entry and exit

Bitcoin has risen by more than 100% this year, nearly 20 times compared with the same period last year. Looking back on this journey, Bitcoin has been like a roller coaster.

On March 14, when most financial trading institutions were resting, shortly after breaking through the $59,000 mark, Bitcoin crossed the psychological price of $60,000, reaching $60,415.34 during the day, with a total market value of over $1.1 trillion, exceeding 60% of the total market value of global cryptocurrencies.

But this new high seems to be short-lived.

On March 15, the price of Bitcoin fell from its high point, dropping by $5,000 and returning to the $55,000 mark. Then on March 16, it fell again to below $54,000. According to public information, Bitcoin lost $4.674 billion in market value within 24 hours, and more than 130,000 people were liquidated within 24 hours.

In this regard, a senior Bitcoin expert told the reporter that a large retracement in a bull market is normal. "Take stocks as an example. If it falls 20% from its peak, it can be called a technical correction. Bitcoin has fallen from $58,000 per coin in early February to around $40,000, which is a large retracement. This decline can also be understood as a technical retracement or fluctuation."

"The decline of Bitcoin has always been determined by a variety of factors. According to the purely rational market logic, Bitcoin will rise a little every day due to its characteristics, but in reality, Bitcoin cannot continue to rise," he added. "There will always be a game between long and short in the market, but overall, larger fluctuations are generally caused by the entry and exit of large institutions and large funds."

So, what subtle long and short logic is hidden behind this wave of market trends?

In the view of the aforementioned senior Bitcoin investor, although the previous push of Bitcoin to around $60,000 was due to the combined effect of multiple factors, it had little to do with retail or individual investors. “Institutional investor Grayscale alone has bought tens of billions of dollars of Bitcoin, and this is not a trend that individual investors can influence.

21st Century Business Herald reporters have been paying close attention to the Bitcoin market and have found that Tesla, Mastercard, Square, and Paypal are thriving in the Bitcoin space. Meitu, JPMorgan, Goldman Sachs, and Morgan Stanley are also working on Bitcoin investments.

Maintaining a bullish view, Microstrategy, a veteran Bitcoin player, continues to buy Bitcoin. Since March, MicroStrategy has announced twice that it will spend $15 million and $10 million to buy Bitcoin. According to Bitcoin Treasuries data, as of March 15, 2021, the company has purchased approximately 91,326 Bitcoins at a total purchase price of $2.21 billion, and the value of its Bitcoin holdings has exceeded $5.1 billion.

In addition, technology company Digihost Technology and Seetee AS3, a subsidiary of Norwegian holding company Aker ASA, increased their holdings of bitcoins to 184 and 1,170 in February and March, respectively.

Documents disclosed by the U.S. Securities and Exchange Commission (SEC) this week show that digital asset investment firm LedgerPrime has sold $49.5 million worth of securities to invest in Bitcoin and Ethereum.

In addition to directly increasing holdings of Bitcoin, the Grayscale Bitcoin Trust Fund (GBTC) seems to have become the new standard for investment institutions.

Grayscale's parent company Digital Currency Group (DCG) officially announced on March 10 that it plans to purchase $250 million worth of GBTC, and information on stock purchases will be regularly reported to the SEC; on March 11, Israeli investment giant Altshuler Shaham was revealed to have invested $100 million in GBTC at the end of last year, thereby gaining exposure to Bitcoin. As of 2020, its assets under management (AUM) exceeded $50 billion.

After the first Bitcoin ETF in Canada, asset management company WisdomTree Investments has submitted an application to the SEC to launch a Bitcoin exchange-traded fund (ETF), awaiting approval. Anthony Scaramucci, former White House economic adviser and founder of hedge fund Skybridge Capital, predicted on March 12 that the Bitcoin ETF is expected to be approved in the United States before the end of this year. Skybridge Capital had previously launched a Bitcoin fund in early January and invested $182 million in Bitcoin.

As Bitcoin continues to soar to new highs, after several world-renowned financial institutions took the lead in the Bitcoin field at the end of last year, the proportion of funds from individual investors and institutions has been tending to balance, and the two may be expected to face off. The latest data from JPMorgan Chase shows that the amount of retail funds inflow into Bitcoin in the first quarter of this year is expected to exceed that of institutions.

Nikolaos Panigirtzoglou and other JPMorgan strategists pointed out in their latest report that based on Square and Paypal data, retail investors have purchased more than 187,000 bitcoins so far this quarter. In comparison, it was about 205,000 in the last quarter (the fourth quarter of 2020). During the same period, institutions purchased about 173,000 bitcoins, and the number of purchases in the last quarter was nearly 307,000.

Retail investors are aggressive in both inflow and outflow

So far, large and small institutions are still paying more and more attention to and recognizing Bitcoin. They are constantly entering the market and increasing their holdings from time to time. Funds continue to flow into the Bitcoin market, but they have become cautious, while retail funds are showing a brave momentum.

In an interview with 21st Century Business Herald, OKLink Research Institute said that in the context of rising global inflation expectations, institutional investors and small and medium-sized investors are buying Bitcoin. Looking into the future, at least until this autumn, the tone of global economic recovery and loose monetary policy will not change significantly, especially the fiscal policy of Europe and the United States to directly issue cash subsidies to the public, which will only make more small and medium-sized investors flock to the Bitcoin market.

"For individual investors trading cryptocurrencies, Bitcoin is the main channel for investment during the COVID-19 pandemic. Amid the obvious volatility in stock trading, Bitcoin has maintained an amazing bullish trend, making most investors winners," said Ed Moya, senior market analyst at Oanda Corp. "Combined with the rescue checks from the stimulus plan, individual investors have regained vitality in the emerging cryptocurrency trading boom."

Chris Weston, head of research at foreign exchange broker Pepperstone Group Ltd., also stated in the report that funds from the epidemic stimulus plan have already flowed into cryptocurrency markets such as Bitcoin, and in order to support confidence in its new bull market, Bitcoin needs to remain above a high of slightly above $58,000.

But even if more retail investors enter Bitcoin, there is still a long way to go compared to the continuous large-scale holdings by institutions.

“It’s mainly because institutions are increasing their holdings of Bitcoin, but in fact the amount of Bitcoin that institutions are buying has shrunk.” The aforementioned senior Bitcoin person explained, “Except for Grayscale, most institutions now buy Bitcoin with real money for no more than 1% of their assets under management. Institutions don’t have a significant position in Bitcoin, but as long as they continue to increase their positions slightly, the price of Bitcoin will continue to rise.”

But he also pointed out that compared with individual investors, large and small institutions tend to pay more attention to and be more sensitive to the trend. Since countries have not yet issued strict and clear regulations, Bitcoin is generally on the rise. "But if the United States or other countries really introduce regulatory policies for cryptocurrencies including Bitcoin, this wave of market is likely to be cut in half or evaporate."

Yu Jianing, rotating chairman of the Blockchain Committee of the China Communications Industry Association and president of Huobi University, said in an interview with 21st Century Business Herald that as the bull market continues, the financial strength of retail investors and institutions is still increasing. "Due to the large increase in the previous period, many institutions will be more cautious in choosing the time to enter the market. Therefore, judging from the current situation of new funds and users, the incremental proportion of retail investors is relatively high, but this cannot change the basic pattern that the future market will be dominated by institutions."

In terms of the comparison between retail investors and institutions, OKLink Research Institute believes that institutional investors have more rational investment behavior. Institutional investors enter the digital currency market mainly to use digital currencies such as Bitcoin as allocation assets, and will not chase ups and downs, and frequently buy and sell. The investment behavior of small and medium-sized investors is generally called "noise trading", which is reflected in the market as "chasing ups and downs", and frequently buying and selling.

"Therefore, general institutional investors will determine the medium- and long-term trends of the market, while 'noise traders' mainly affect the prices of assets in the short term. When the market players are dominated by 'noise traders', the market is prone to 'irrational' prosperity, followed by the bursting of asset bubbles." said OKLink Research Institute.

In addition, OKLink Research Institute believes that institutional investors can easily form a demonstration effect on small and medium-sized investors. When star investment institutions buy Bitcoin, small and medium-sized investors will follow suit. "The most notable example is the successive calls from Musk, the father of Tesla. On January 29, 2021, after Musk changed his personal Twitter signature to '#bitcoin', a large number of Musk's 'fans' began to pour into the Bitcoin market, and Bitcoin instantly rose 18% to $38,000. When Tesla announced on February 8 that it had purchased $1.5 billion worth of Bitcoin, Bitcoin rose by more than $7,000 in one day, breaking through $47,000."

In Yu Jianing's view, the investment characteristics of institutional investors and individual investors determine that they will have different impacts on the price trend of Bitcoin.

(Author: Hu Tianjiao Editor: Li Yilin)