JP Morgan: “Participation by financial institutions in Bitcoin trading appears to be fading”. But is that really a correct claim?
The prolonged cryptocurrency plummet is off putting for institutional players, according to JPMorgan Chase & Co., suggesting a change of feelings for cryptocurrency markets is happening.
“Participation by financial institutions in Bitcoin trading appears to be fading,” analysts including Nikolaos Panigirtzoglou wrote in a research note dated Dec. 14. “Key flow metrics have downshifted dramatically,” including in futures markets and in average volumes, they said.
According to data from the Commodity Futures Trading Commission, open interest on Cboe Global Markets has dwindled, and in the past month reached the lowest levels since trading began a year ago. An equivalent gauge for the more widely used contract on CME is near the bottom of 2018’s range.
The daily median transaction size, which reached highs of around $5,000 a year ago during the speculative frenzy, has since fallen to less than $160, the report said, citing data from BitInfoCharts.com.
“Other cryptocurrencies continue to suffer disproportionately during this correction phase,” JPM’s note added.
The declines in BTC prices have forced some unprofitable Bitcoin miners to exit the market. The Bitcoin hashrate, one of the major indicators of the network’s health and security, has dropped since October this year, according to Blockchain.com.
“This suggests that prices have declined to a point where mining is becoming uneconomical for some miners, who have responded by turning their mining rigs off,” JPMorgan said.
The criterion JP Morgan used correctly led to their conclusion. However, the issue is: it is the wrong parameter to measure interest in bitcoin by big institutions. These big players have ostensibly moved to a much more opaque off-the-counter market.
Diar report suggests OTC trading of bitcoin is surging among institutions.
The Diar research indicates that leading crypto exchange Coinbase has more bitcoin trading volume than Grayscale’s bitcoin investment trust on the OTC markets. One important note to take into account is the OTC markets have limited tradeable hours – they are only open for trading 31% of the yearly tradeable hours.
The trend appears unveils apparent institutional investors’ direction – they appear to have moved to larger over-the-counter physical bitcoin markets. OTC services have grown in popularity with most US exchanges offering the service. Max Keidun, CEO of peer-to-peer exchange HodlHodl admits that OTC order requests have grown in 2018, doubling month-on-month. The biggest issue he mentioned, was that finding a large seller at the current prices, was not easy.
