Over the second half of November, the cryptocurrency market has experienced the most terrible sell-off in all 2018 as the bitcoin price plummets to $3,700 territory.
Jake Chervinsky, a litigation attorney at Kobre & Kim, commented that while individual investors are panic selling in the cryptocurrency market, institutional investors are accumulating bitcoin over OTC markets without drawing too much attention.
“Investors, with bitcoin trading under $4,000: Retail: ‘should I sell and buy back lower? should I open a short? should I just give up? is it going to zero? was this whole crypto thing a scam after all?’ Institutions: ‘please keep selling us cheap bitcoin. thank you.’”
Are really Institutions buying Bitcoin?
Chervinsky comments caused a lot of debate in the crypto community especially from the skeptics who doubt any involvement from the institutional investors buying crypto, based on the absence of momentum in the price action of cryptocurrencies.
In case institutional investors have been buying cryptocurrency in the present time the price should have gone up instead of going down to $3,700.
Chervinsky clarified that professional traders are careful when accumulation an asset and do this in a way that has minimal impact in the short term price.
He added that institutions do not take long naked positions especially on a volatile asset like Bitcoin:
“None of the investors & traders I’ve worked with take naked long positions on speculative assets. When they buy spot, they simultaneously hedge in other markets to reduce risk. ‘Hope’ has nothing to do with it.”
“The problem, however, is concluding that ‘because institutional investors are buying, price will immediately go up.’ Professional traders are experts at accumulating assets without affecting the market,”
Institutional financial rely on over-the-counter (OTC) market to invest in cryptocurrency. This happens because of the lack of liquidity, so they have to rely on trusted custodians like Fidelity Digital Assets and Coinbase Custody to buy or sell large amounts of bitcoin.
While OTC market operators are not obliged to disclose their trading volume, their data are rarely released to the general public. In absence of this information, it is hard to confirm whether institutional investors are really accumulating bitcoin on a large scale in the OTC markets.
In any case, as Chervinsky stated, there are hints that investors can consider to confirm that institutional investors are accumulating bitcoin. speculators are putting resources into the benefit class. An example of that is Yale investing in Bitcoin which mean a growing interest from the traditional financial sector in cryptocurrency.
Doubts around the “institutional investors” theory
It stays unknown whether institutions are just keen on cryptocurrency or are effectively amassing Bitcoin as a long-term investment.
As of now, the interest for Bakkt, Fidelity DIgital Assets and Coinbase Custody is one of the hints which leads to thinking about the institutions demand in crypto. In a recent post on twitter, Bakkt confirmed that the interest is growing quickly.
Aside from that, it is hard to quantitatively demonstrate that institutional interest for crypto is in actuality solid and that institutional investors are really accumulating Bitcoin.