As bit­coin trad­ing evolves, big money stays away

The Globe and Mail (Prairie Edition) - - GLOBE INVESTOR - TOM WIL­SON

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.

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