As bitcoin trading evolves, big money stays away
Bitcoin’s value has plunged by three-quarters this year, sending the original and biggest cryptocurrency back to levels not seen before its bubble. And price isn’t the only aspect of trading that has changed.
The retail investors behind bitcoin’s dizzying ascent to a record of nearly US$20,000 last December have fled, leaving the early adopters and crypto-related firms that traditionally dominated digital coin trading driving exchange volumes.
And while bigger investors from proprietary traders to hedge funds are growing more active, mainstream financial firms have stayed away from cryptocurrencies, even as market infrastructure seen as key to their entry begins to be built.
The shifting shape of digital coin trading, depicted by industry data and interviews with exchanges and companies, suggests bitcoin is struggling to evolve from a speculative asset favoured by relatively niche investors to an investment choice in the same league as stocks or bonds.
Such an institutional breakthrough is seen as key to the sector’s future, promising to help fund the development of cryptocurrencies and spread their realworld use for purposes such as payments and money transfers.
Monthly cryptocurrency trading volumes at major exchanges reached US$235.8-billion in November, a threefold rise from the early stages of the bitcoin bubble in September, 2017, but still down nearly half from their peak a year ago, data from industry website CryptoCompare shows.
In the same period, volumes at major retail-focused exchanges such as U.S.-based Coinbase and Poloniex, owned by Goldman Sachs-backed Circle, shrank 22 per cent and 74 per cent respectively. Japan’s bitFlyer has also suffered, with volumes down 47 per cent last month.
As retail punters fade away, volumes have soared at exchanges such as Bitfinex that are favoured by bigger investors.
Cryptocurrency markets are hard to accurately gauge, given the lack of centralized data and opacity of major venues such as over-the-counter trading, said to account for up to 50 per cent of the overall market.
Likewise, there are few ways to accurately break down the profile of investors in the cryptomarket.
Most worry about the lack of clarity over regulation, as well as frequent security breaches at exchanges and the perceived absence of fundamental value of the assets.