The price plunge in mid-May was one of the craziest pullbacks of cryptocurrencies in recent years. The plunge reduced the market value of cryptocurrencies by nearly $1 trillion.
A month ago, Bitcoin (Bitcoin) achieve Almost $64,000, mainly driven by institutional investors. Now that the market has calmed down, the bears are asking: How did the institution perform during the recent collapse? Do they jump ship or stick to their own investment? with What impact will this callback have on future institutions’ participation in the cryptocurrency and blockchain industries?
Edward Moya, senior market analyst at Oanda, told Cointelegraph: “Institutional investors mostly hold shares, and after the dust settles, [investors] Their long-term bets still seem confident. In addition, Chainalysis chief economist Philip Gradwell (Philip Gradwell) write In the market analysis on May 19, “Although institutions may be more cautious towards buyers at present, it does not seem to be an important seller either.”
On the other hand, analysts at JPMorgan Chase told their clients that institutional investors Give up Bitcoin for gold when you are drowsy.Then there was Elon Musk, who said in a tweet on May 12 Tesla will no longer accept Bitcoin in exchange for cars -Due to concerns about the energy consumption of BTC, many people attribute it to the acceleration of Bitcoin’s market decline. It was already falling, but fell by another 40% after his tweet, and it has been difficult to recover $40,000 ever since.
The economist Gradwell tried to put things in a certain historical context and pointed out that the inflow of bitcoin to exchanges is relatively low compared to past sell-offs. This shows that “most of the selling comes from people whose assets are already traded on exchanges, who are often retail investors.”
Many cryptocurrency veterans seem to agree that this volatility is driven by retail investors rather than institutions. Freddy Zwanzger, co-founder and chief data officer of Anyblock Analytics GmbH, told Cointelegraph, “Institutions usually have long-term goals, so if they do, they will tactically take advantage of recent price fluctuations-most likely to buy at a lower price. Enter the market.”
Social media seems to reinforce this view. Zwanzger continued: “On Crypto Twitter, I have also seen many retail novices trying to panic. All OGs commented on their bargaining during another volatile fluctuation that will happen before.” He added:
“Actually, everyone I know in the industry has bought or tried to buy this dip, and I am very happy to expand their cryptocurrency positions.”
Bobby Ong, the co-founder and COO of crypto data platform CoinGecko, told Cointelegraph: “The data on the chain does show that BTC has been transferred from a newer wallet to an older wallet, which shows that the newcomer I gave in.” It is also important to note that during the down period, BTC transactions on Coinbase were trading at a premium, while also seeing a large amount of capital outflow. This indicates that some institutions are buying on dips, but it is likely to include some institutions that surrender. “
Matt Hougan, Chief Investment Officer of Bitwise, told Cointelegraph: “In general, our clients see this as an opportunity to rebalance and increase their positions at a lower price.” Bitwise, which mainly serves financial advisors and other professional investors, has been in the entire callback process. Both have net capital inflows.
Jeff Dorman, chief investment officer of digital asset management company Arca, tried to clarify some ambiguities, noting that the term “institutional investor” is often abused, and told Cointelegraph:
“If you include macro and quantitative hedge funds as institutional investors, they are largely selling momentum, but traditional institutional investors (pension funds, endowment funds, family offices, etc.) are trying to make distributions without being volatile Shaken.”
Did Musk see the text on the wall?
Many media condemned Musk’s May 12 tweet for triggering a plunge in cryptocurrencies, but not everyone is willing to blame Tesla’s CEO written“We are concerned about the rapid use of fossil fuels in Bitcoin mining and trading, especially coal, whose emissions are the worst of all fuels.”
According to Moya, “The cryptocurrency crash this month stems from the increase in leveraged trading across Asia, and the panic selling of most new retail traders and active money managers. They are just taking advantage of the trend.” Hogan said to a large extent. Shang agrees that the main driving force of this callback is “the liquidation of over-leveraged retail investors”, but he also cited rising regulatory risks and “China’s perception of cryptocurrencies” seems to be deteriorating.
Especially when it comes to musk, Moya has some different opinions. “At first, I thought this was a terrible trigger for Musk, but it was bad news for Tesla and Bitcoin in the end. After much deliberation, I believe that the text Musk saw on the wall is that the media is getting closer and closer to calling for Bitcoin. And its impact on the environment.” He further added:
“Musk’s decision to suspend accepting Bitcoin as a payment for environmental, social and corporate governance (ESG) concerns has allowed him and other cryptocurrency supporters to control the story and timeline of converting miners to use renewable resources.”
Dorman agreed with Musk to hold up some kind of ecological symbol. He said: “Elon Musk’s unstable tweets have brought ESG into focus, which is likely to bring company/institutional capital to a halt.” write In the blog post.
Generally speaking, will institutional investors who are more sensitive to ESG issues avoid BTC for environmental reasons? According to reports, on May 21, Greenpeace will no longer accept Bitcoin donations For example, for environmental reasons.
In addition, BTC mining does After all, it consumes a lot of electricity-more than the entire country of Argentina in a year, according to A recent study from the University of Cambridge. Moya continued: “Bitcoin and other cryptocurrencies are under increasing pressure to adopt renewable energy.”
“Bitcoin will ultimately give ESG investors peace of mind, but for now, all they need to do is to make the big financial institutions happy. [by saying] They are working hard. Ethereum is already in a leading position, so ESG investors can choose other investment methods. In the short term, Bitcoin can still succeed if it does not get ESG support. ”
What should we do about reports of institutional investors dumping Bitcoin in exchange for gold? Moya agrees that gold has become more attractive and may surpass BTC in the short term: “Bitcoin has dominated Wall Street throughout 2020 and the first four months of this year, becoming the best performer. Assets. Those institutions that were considering Bitcoin but failed to trigger the trigger are taking full advantage of the rise in gold prices.”
Is the correction overdue?
It is important not to let May’s decline overshadow the overall performance of the cryptocurrency. Generally speaking, this is an extraordinary year. Ong said: “If we look at it from a larger perspective, Bitcoin has been climbing for the past seven months and should be corrected.”
“When you use it in conjunction with an overly leveraged trader, you must fall by 50% to offset leverage and ensure that the bull market continues.” At the same time, Hou Gan pointed out: “Even after the correction, Bitcoin has been in the past year. It has also risen by more than 300%. If the S&P 500 can do this within ten years, it will be lucky.”
What impact will this “reset” have on the institutional adoption and blockchain adoption of cryptocurrencies, for example, moving forward in 2021?
Dorman replied: “Zero.” According to price movements, institutional funding has not become faster or slower. Those who tried to deploy can still deploy, and they are now. The recent declines in GBTC and COIN may have become leading indicators, indicating that this new funding has been slowing down, but this is not due to the recent price drop. “
The icing on the cake for DeFi?
Overall, this retracement may increase interest in decentralized financial assets, Hogan told Cointelegraph. “For DeFi, this is a severe stress test. The entire industry passed with amazing results. That should boost confidence in the field.” Dorman agreed that DeFi passed the “major stress test.” writing In his blog, he said: “It works completely in line with the design, has processed the highest transaction volume ever, and even recorded the liquidation without hitting h.”
At the same time, Gradwell told Cointelegraph: “If Ethereum can be greener and more useful than Bitcoin, then Ethereum clearly has a chance to win a place on Bitcoin-for example, through proof-of-stake and further innovation in DeFi and NFT. [nonfungible tokens]. “Moya said: “Although the upside potential of many institutions seems to be greater, Bitcoin and Ethereum will still be the two favorite assets of many institutions. “
So compared to BTC, is the driving force of altcoins increasing? Ong said: “It ultimately boils down to the interests of different institutions.” “Although BTC continues to develop its hedging technology to hedge against inflation and appreciation of value reserves, ETH and DeFi will attract investors in similar stocks.”
“Make a bet from generation to generation”
Can you say any lessons learned from the recent market turmoil?
Hou Gen said: “For investors who have never experienced a crypto bear market in the past, this is a huge test.” “If the retracement pressure is too great, there is too much investment in cryptocurrency in your portfolio. You The position should be reduced.”
“The latest cryptocurrency plunge shows that both retail and institutional investors can tolerate cryptocurrency volatility,” Moya added. Traders seem to be willing to buy more bitcoin, even if “if the plunge continues to the $20,000 to $25,000 zone, it will be the same.”
Ong predicts: “People will be more cautious, especially those who are in high positions.” “For newcomers, this is eye-opening, and only in the crypto market can you find its extremely high volatility. “
All in all, the recent volatility should not prevent institutions from adopting cryptocurrencies. Hougan told Cointelegraph: “The institutional investors I talked to see cryptocurrency as a 10-year position with huge upside potential.” Frightened by the week’s volatility.”