Analysis: New institutions are waiting for the Bitcoin price roller coaster to end before entering the market

Due to the ongoing upward trend, many well-known institutions from the traditional financial sector have tried to jump on the cryptocurrency bandwagon to avoid missing out on the ongoing rally. First, Bitcoin futures have seen a significant increase in open interest and trading volume over the past few months. While this may be expected, it is surprising that global derivatives exchange Chicago Mercantile Exchange recently became the world's largest Bitcoin futures trading platform.

In this regard, data released by the crypto analysis platform Bybt showed that CME accounted for $2.4 billion of the $13 billion in open Bitcoin futures positions, followed by the crypto exchange OKEx with $2.17 billion.

It should be no secret that Bitcoin's meteoric rise has increasingly attracted the attention of investors around the world since December 2020. To put it in another perspective, although Bitcoin recently fell to just below the $32,000 mark, its price has risen again to over $38,000, so Bitcoin's 30-day net return is about 95%.

Is institutional interest increasing, or is it stagnating?

Recent volatility has raised concerns about the sustainability of the current bull run and prompted questions about whether “institutional investor interest in Bitcoin is starting to stabilize.” Konstantin Anissimov, executive director of UK-based cryptocurrency exchange CEX.IO, told Cointelegraph that it is important for new entrants to realize that the game is not simply about institutions entering the market, but rather that they see a decline in risk.

“Unless something really extreme happens that turns the entire market upside down — and I have a hard time imagining something that bad happening — I believe more major companies will continue to invest in Bitcoin and other cryptocurrencies in the future.”

Quinten Francois, host of the YouTube channel "Young and Investing," believes that most of the institutions that want a piece of the action are likely already in. He added that in a parabolic uptrend like this, it is hard to imagine more big money players entering the field, at least until things stabilize at the end of the year.

That said, he added that most institutions entering the crypto market now are likely buying on dips, and when they stop, retail money will slowly pour back into the market, further driving up the value of Bitcoin: “They are experts, they know what they are doing, they don’t buy in the parabolic phase.”

Jonathan Leong, CEO of cryptocurrency exchange BTSE, told Cointelegraph that “institutional inflows into the cryptocurrency market have only just begun.” He further added: “The rapid rise in the price of Bitcoin and other cryptocurrencies in the fourth quarter is directly related to the inflow of institutional funds or the expectation of such inflows.”

Do institutions reduce market volatility?

It is undeniable that Bitcoin is a more mature asset compared to the bear market phase in 2018, especially since regulation in some jurisdictions has made significant progress. In addition, the crypto market now has a large number of professional trading institutions and non-crypto businesses involved.

These factors have greatly helped to curb Bitcoin's volatility and improve its liquidity as an investment asset. Anissimov believes that "institutional investors are not the key to driving the Bitcoin bull market, but through them, the overall market is regulated, making the crypto market more stable and efficient."

That is, if established institutions enter the crypto industry, they will have an impact on the price action of most cryptocurrencies. In the end, this could help the industry as a whole, especially considering that most traditional financial players will be committed to long-term trading, which could help protect Bitcoin from a crash similar to the one in 2018.

Recent moves worth noting

Earlier this month, CoinShares, a European company engaged in crypto finance and exchange-traded products, announced that it had successfully facilitated more than $202 million in XBT Provider product transactions on the first day of 2021. It is worth mentioning that this Bitcoin exchange-traded note provider has been approved by the Swedish Financial Supervisory Authority, and the company's products are currently available through Nasdaq.

In addition, according to the Digital Asset Fund Weekly Report released by CoinShares on January 11, as of January 8, $34.5 billion was invested in crypto investment products, of which $27.5 billion (80%) was invested in Bitcoin funds. $4.7 billion (about 13%) was invested in Ethereum products.

Comparing the performance of Bitcoin funds in this bull run to that of 2017, the report states: “We see much higher investor participation this time around, with net new assets reaching $8.2 billion compared to just $534 million in December 2017.”

Additionally, last year, the Office of the Comptroller of the Currency (OCC) said in a landmark decision that U.S. national banks can custody crypto assets. This statement was followed by another major development from the OCC, which stated that U.S. banks can even provide services to stablecoin issuers, such as holding reserves.

Although some traditional institutions had indulged in this practice before the above decision, there was uncertainty in this area due to lack of legal clarity. Now, the authorities have given clear regulations that stablecoins backed one-to-one with fiat currency held in bank reserves are not considered a risk in the United States.

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