Bitcoin Debate: Are Institutional or Retail capital inflows driving this rally?


The latest five-month Bitcoin rally has been as amazing as it has been confusing. Yes, BTC has posted positive gains for five months in a row, only the second time it has achieved this milestone since mid-2017. In just this past week, it has blown past $11,000 in a heartbeat, then it threatened to overtake $14,000, until gravity made its presence known. The market leading crypto fell from the sky, as if it had joined Icarus on a flight for the Sun, but it fell within technical norms for such a move, now appearing to be content with ranging a bit between $10,000 and $14,000 boundaries.

The query that keeps being made is where is the capital, which must be new for some reason, originating from – is it institutional money that has been waiting, perhaps a bit too long, to jump into this market, or is it the mainstream retail trade that has finally investigated cryptos, reviewed how to participate in the market, and then jumped on board, using their exchange of choice? It was not that long ago, that a cast of characters was positing that, after $11,400, “FOMO” was going to kick in big time, forcing a parabolic run up to all-time-highs in the next six to twelve months.

Is it institutional money? Trading volumes are up, when you only look at the “Real Ten” volume set by the model determined by Bitwise Asset Management that eliminates “fake” volume. Back in March, the so-called “real” Bitcoin volume was only a mere $500 million per day, but that figure is now exceeding $5 billion, a ten-fold increase ina matter of months. Volume on futures exchanges account for a majority of the growth, which has always been attributed to institutional interest.

Bitmex, an exchange outside of this group, has been boasting that it hit $11 billion in volume. Bitmex was formed in 2014 by UK interests and is registered in the Seychelles. Citizens from the United States and Canada, along with several other countries, are forbidden from trading on this exchange, known for offering “100X” leverage and having the next generation of Bitcoin trading products. Its CEO, Arthur Hayes, has claimed that activity has intensified and volumes are on their way to surpassing $12 billion per day.

OTC trader Yingfeng Shao is not convinced that new capital inflows have spurred the recent rally:

The question is where is the money coming from and I think my take on it is that until you can prove to me that new retail money or new institutional money, this sort of large pool of funds, that is just sloshing around inside the space [then people who already put some money into the space are behind the rally].

If there is no new money, where is the “push” coming from? Insiders keep returning to accounts with large balances, the so-called “Whales”, as having an undue influence on trading patterns of late. There are easily over 100 of these accounts that control over $100 million a piece. The storyline goes that, over weekends, when most traders have departed the scene, these folks play with the market, when liquidity is thin. As a result, you then see major moves when the pressure is on and liquidity is at a low ebb, a nice way of saying that price manipulation is prevalent in the crypto market.

On CNBC’s Futures Now, Kristina Hooper, the Chief Global Market Strategist at Invesco, surmises that a subset of investors have pegged Bitcoin for its “safe haven” possibilities:

I think that bitcoin might be a sign of fears about recession but certainly, it makes sense in this environment that we see investors looking for safe havens but I think it is a mistake with the Federal Reserve signaling its willingness to be a lot more dovish.

Whatever the reasons may be, there will come a point in time when both retail and institutional investors accept the compelling case of Bitcoin as both a speculative asset, as well as a “safe haven” type security under special conditions. At that point in time, demand will be more widespread, investors more diverse, and available supplies of Bitcoin on the market will be restricted enough to drive prices higher. Hodlers in the system are banking on this narrative, which sounds more plausible with each passing day. Combine this thinking with a “halvening event” next May, and you have a “Perfect Storm” in the making. Hold on tight – We are in for a bumpy ride!

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