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Tue, 11 December 2018 – 5:50
London
The value of Bitcoin has plummeted by three quarters this year, sending the original and largest cryptocurrency to levels never before seen in its bubble. And the price is not the only aspect of trading that has changed.
Retail investors behind the dizzying rise of bitcoins to a record of nearly $ 20,000 last December fled, leaving the first users and the encrypted companies that traditionally dominated digital currency trading by carrying trade volumes.
And while larger investors from proprietary traders to hedge funds are becoming more active, the major financial corporations have remained far from cryptocurrencies, although the market infrastructure seen as the key to their entry begins to be built.
The changing form of digital coin trading, represented by industry data and interviews with exchanges and companies, suggests that bitcoin is struggling to evolve from a speculative asset favored by relatively niche investors to a choice of investing in the same league of shares or bonds.
This institutional shift is seen as the key to the future of the sector, promising to help finance the development of cryptocurrencies and spread their use in the real world for purposes such as payments and money transfers.
Monthly cryptocurrency trade volumes to the major stock exchanges reached $ 235.8 billion in November, a triple increase from the early bitcoin bubble in September 2017, but still about half the peak a year ago, show the data from the CryptoCompare website.
In the same period, the volumes of the most focused retail trade, such as Coinbase and Poloniex, based in the United States and owned by Goldman Sachs, decreased by 22% and 74% respectively. The Japanese bitFlyer also suffered, with a decline in volumes of 47% last month.
As retail bettors vanish, volumes rose to divestments like Bitfinex, favored by larger investors. This is due to the growing activity of a mixture of cryptocurrency miners and start-ups with large holdings, as well as top-tier traders, hedge funds and wealthy individuals and families, industry experts say.
Bitfinex trading volumes grew 38% in November, which the company attributes to traditional investors with roots in high-frequency trading opening accounts since March.
"Bigger exchanges are picking up the game and gaining market share, with retiring retailers," said Charlie Hayter of CryptoCompare. "This is the real change – the mining companies (cryptocurrencies) who try to pay electricity bills using the exchanges that work with the bigger players, and the newcomers who try to get some form of exposure" .
When asked about the figures, Coinbase said that trading in the encrypted sector is growing. Poloniex said the data reflects the moves in the broader market. BitFlyer declined to comment.
CryptoCompare data covers most of the larger exchanges, with the company adding new exchanges to its database when their volumes have reached significant levels.
Bitcoin was traded on Friday at a minimum of 15 months around $ 3400.
The cryptocurrency markets are difficult to evaluate accurately, given the lack of centralized data and the opacity of major locations such as over-the-counter trading, which is believed to account for up to 50 percent of the overall market.
Likewise, there are some ways to accurately break down the investor profile in the encrypted market.
But trade and industry figures surveyed by Reuters said that institutional investors such as wealth managers, pension funds and investment banks remain largely absent from the bitcoin trade, even if the shape of the market changes.
Most are concerned about the lack of clarity about regulation, as well as the frequent violations of security in trade and the perception of the lack of fundamental value of the activities.
That reluctance remained even if progress was made on how to negotiate and securely archive cryptocurrencies, particularly from Fidelity Investments, and how a number of small jurisdictions such as Gibraltar and Malta try to cite the encryption companies.
Clearer regulation will confer a legitimacy mark on cryptocurrency companies and will eliminate players below the standards, analysts say, and could ease the concerns of institutional investors on compliance.
"Some individuals in banks and finance companies want to intervene, but they can not decide how to explain it to senior management," said Eric Wilgenhof Plante, chief compliance officer at BeQuant, an exchange that serves around 600 mostly non-retail customers.
A major obstacle is the lack of examples of blockchain, which are the basis of bitcoin and other cryptocurrencies, which live up to its billing as a technology that could revolutionize sectors from finance to real estate.
Circle's chief marketing officer, Marieke Flament, said that the focus on bitcoin often obscures progress made in other areas of cryptocurrencies. He cited the "stablecoin" digital currency of the startup, which is listed one-to-one with the US dollar and could appeal to institutional investors.
"There's still a lot of attention to the bitcoin," Mrs. Flament said. "This really lacks the depth of the things that are happening."
But despite the work of start-ups and big companies, developers and exchanges, high-level mainstream investors have stayed away. "You have seen some important Fidelity decisions to actively engage the cryptocurrency space," said Danny Masters, president of the digital asset manager CoinShares. "But nothing is actually active." REUTERS
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