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LONDON (Reuters) – With bitcoin climbing to its all-time high in 2017, proponents are hoping fewer frenzied retail investors mean less chance of a crash this time around.
But with little traditional use as a form of payment and global uncertainty clouding financial markets, bitcoin is still far from a safe bet, analysts said.
“There are a lot of differences to what was happening before,” said Larry Cermak, director of research at cryptocurrency media firm The Block.
“The price has been steadily rising, we are seeing very little retail participation and the markets are much more liquid and much more accessible to institutional participants. For now, however, it is definitely not a safe investment, it is still very risky “.
Bitcoin BTC = BTSP It broke the $ 18,000 mark on Wednesday and reached its highest since December 2017, after climbing roughly 160% this year.
The steep trajectory of its 2020 rally echoes that of 2017, when a retail-driven buying spree pushed it to nearly $ 20,000, only to plummet more than 50% a month later.
Unlike 2017, however, the business now boasts a functioning derivatives market and custody services from established financial institutions.
The value of open interest bitcoin futures at CME Group Inc CME.O It crossed $ 1 billion this week for the first time since their launch in December 2017, while positions in major options markets have grown to over $ 4 billion from virtually zero in early 2019, according to crypto data provider Skew. .
Meanwhile, large companies including Japan’s Fidelity Investments and Nomura Holdings Inc 8604.T start safeguarding bitcoin and other cryptocurrencies for institutional investors.
“There is absolutely no comparison in terms of market maturity between this year and 2017,” said Ryan Selkis, CEO of crypto data company Messari. “At the time, the derivatives and credit markets barely existed (and) there was no institutional custody.”
The emergence of this type of infrastructure has made it easier for professional investors, from hedge funds to family offices, to seek exposure to cryptocurrencies.
“Accessibility has changed from three years ago, so the types of players who are willing to join have expanded,” said Tim Swanson, head of market intelligence at blockchain software firm Clearmatics.
Their involvement, it is argued, could lead to greater liquidity and lower price volatility.
Regulation has also been developed. While the cryptocurrency industry is still mostly lightly supervised or unregulated, global standards have emerged on areas such as anti-money laundering (AML), paving the way for larger investors.
Traditional businesses and governments are among those embracing digital currency technology.
Last month, PayPal Holdings Inc PYPL.O said it would open its platform to cryptocurrencies while rivaling Square Inc SQ.N claimed to have invested 1% of its total assets in bitcoin.
Unlike in 2017, bitcoin’s price was buoyed by an appetite for riskier assets as a result of government and central bank stimulus measures to combat the impact of COVID-19.
Bitcoin’s supply is limited to 21 million, protecting it from policies that fuel inflation, supporters say.
The narrative has allowed “a broader group of investors, including those with a more fundamental mindset, to participate in pricing,” said Richard Galvin of crypto fund Digital Asset Capital Management.
However, despite all the improvements in the market structure and mainstream recognition, bitcoin remains highly volatile. The cryptocurrency industry is even more opaque and less regulated than the major financial markets. Trading data remains patchy and concerns about market manipulation are widespread.
“Long story short, it’s still a risky market and a risky asset,” said Colin Platt, a cryptocurrency advisor.
And despite all the hype, bitcoin remains rarely used for its intended purpose.
“There is no guarantee that it will be widely used as ‘money’ given the cost of mining and using bitcoin and the ease of using contactless payment cards or smartphones to facilitate electronic payment,” said Russ Mold, director of AJ Bell’s investments.
Reporting by Tom Wilson and Anna Irrera; Editing by Elaine Hardcastle
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