The big money investors who raised the price of Bitcoin may collapse now

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The main narrative in the crypto world in 2021 was the arrival of institutional investors into the space. Tesla (TSLA) bought $1.5 billion worth of bitcoin (BTC) and Wall Street banks such as JPMorgan Chase (JPM) and Morgan Stanley (MS), as well as hedge funds, began allocating customer assets to bitcoin that year.

Not only were these institutional investors a sign of growing mainstream acceptance, but they also seemed to have raised prices. The cryptocurrency boomed with the sector’s market cap growing by 185% that year.

Now, as the recent swoon in the cryptocurrency market wiped out $1.25 trillion from the high market capitalization of the industry that arrived late last year, the question arose: What role did institutional money play in the crash? Or, to put it more bluntly, are institutional investors making things worse?

One thing we do know: the cryptocurrency market is increasingly connected to the stock market, and institutional investors seem to have increased this connection. And when the stock market goes down, it takes the cryptocurrency with it.

“The influx of institutional interest in BTC, which began to pick up in early 2020 with public announcements of interest from traditional investment leaders such as Paul Tudor Jones and Renaissance Technologies, coincides with a sustained jump in the 60-day relationship between BTC and the S&P 500,” according to For a report by Genesis Trading in April 2022. (Genesis is a subsidiary of the Digital Currency Group, which also owns CoinDesk.)

Three-month correlation between bitcoin, ether (ETH) and major US stock indices hit a record high last week, according to market data from Dow Jones.

The three-month correlation chart between Bitcoin and the S&P 500 shows how prices have never moved in tandem to such an extent. (currency metrics)

For the bitcoin bulls, the worrying thing is that the recent cryptocurrency crash is inseparable from the downturn in traditional markets.

Stocks are now in a bear market after the Federal Reserve’s latest rate hike by 50 basis points, or 0.5 percentage point, at its last meeting of the Federal Open Market Committee (FOMC) in May.

Both cryptocurrency and traditional markets rose briefly after Federal Reserve Chairman Jerome Powell ruled out a larger increase than that at upcoming meetings, but they quickly reversed course after what Paul Hickey, co-founder of Bespoke Market Intelligence, called a “reality check.” .

The S&P 500 and Nasdaq were down about 5% the day after the May 4th meeting. Bitcoin is down over 10%, and now it’s down over 35% over the year so far. For market watchers, the result was how close they were to travel side by side.

A recent report from Morgan Stanley found that institutional investors dominated cryptocurrency trading in 2021, with retail investors accounting for only a third of all trades on crypto exchange Coinbase, the Financial Times reports.

Customer interest [is] Analysts at data provider VandaTrack have focused more on the two major crypto assets, BTC and ETH, according to the paper. ETH stands for Ether, the original cryptocurrency of the Ethereum blockchain. “This is important because, as more institutions await the first results of the White House executive order on crypto regulation and the integration of ETH with ETH 2.0, the current price behavior will continue to be driven by TradFi assets.” (ETH 2.0 is an acronym for the planned upgrade of the Ethereum network, and “TradFi” is a term used in the crypto industry for “traditional finance.” Old world, as it were.)

“We believe that the increased participation of institutions sensitive to the availability of capital and, therefore, interest rates, has partially contributed to the significant correlation between bitcoin and equities,” the report stated.

So does that mean that the institutional investors who helped cryptocurrency thrive a year ago are now a factor in the downfall?

“Absolutely,” said Bob Iacchino, chief strategist at Path Trading Partners and associate portfolio manager at Stock Think Tank.

“We can make such an assumption, given that the market has matured and a larger portion of the participants are institutions, exposed to both crypto and traditional assets,” said Joe Dipascual, CEO of BitBull Capital. “Over time, it is plausible that we will see faster peaks and troughs in the crypto space than in the longer periods of the past.”

“This is the nature of tradable assets,” he said. “When assets are sold, all assets are sold. Bitcoin has been associated with the Nasdaq for a long time now. This is no exception.”

It is not easy to separate institutional flows from retail flows. But sometimes you hear from the investors themselves. Miller Value Partners president Bill Miller, known to beat the S&P 500 for 15 straight years, has been selling some of his bitcoin to meet margin calls, noting that when things get tough, you want to sell highly liquid assets — in this case Coin Bitcoin.

“ Coinbase Premium

Take a look at the “Coinbase Premium”, which is the difference between the price of buying bitcoin in dollars on Coinbase and the cost of buying bitcoin on Binance using the fixed currency USDT.

Cryptocurrency market analysts look at this number to assess who is the biggest force in the market at any given moment – institutional investors or individual investors. The thinking is that Coinbase’s user base is more institutionally skewed than Binance’s. So if there is a premium, it usually means that institutional investors are driving the market higher.

But recently, the negative premium has flipped and dropped to its lowest level in 12 months, according to data from CryptoQuant.

“Normally, there is a Coinbase premium. This means that the price of Bitcoin on Coinbase is higher than on Binance. This was/very important, because US institutions and HNWs (high net worth individuals) were mostly trading on Coinbase. However… in the few days… This indicates a massive sell-off on Coinbase Pro!” CryptoQuant said in a blog post.

“The retail to institutional cryptocurrency investor tends to also be the technology stock investor,” said Howard Greenberg, a crypto tutor at the Prosper Academy of Trading. “They tend to be optimistic about technology as a source of disruption to existing industries, and that intersection and correlation is currently happening.”

He said the connection appears to be establishing quickly when the market is heading in the opposite direction.

“For institutions, it is also easier to liquidate their positions in crypto especially with 24/7 access to their capital than some of the other positions, so they tend to be the first positions to close,” he said.

“In the past year and a half, we have had new entrants into the digital asset market from the world of macro hedge funds,” Jeff Dorman, chief investment officer at Arca, wrote in a report. “Players, not assets, are interconnected.”

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