Despite the dips in traditional financial markets, institutional interest in crypto hasn’t changed.
Covid-19 and the resulting lockdown has stressed almost every social and economic system to the max, moving many well past the breaking point. Both traditional and crypto markets saw a soul crushing crash in March. But crypto managed an impressive rally where traditional markets took a long while (and several stimulus packages) to claw their way out. From just under $4k in march to an impressively steady near $10 by May. The coin has been holding on strong since.
A large part of what keeps keen interest in cryptocurrency markets is institutional, or long term and large, investments. Despite some data saying that newcomers are starting to take back control of the markets. Particularly with retail investments as global adoption continues to blossom. A number of small purchase and newbie friendly exchanges like Bitvavo have opened and maintained healthy numbers because of this surge in common interest. However institutional investors are undoubtedly what keeps the crypto going strong.
Institutional Interest Holds Strong
The difference between institutional investors and retail investors is largely to do with trade volume. Institutional investors are usually made up of investment firms or the exceptionally wealthy, managing millions of US Dollars’ worth of assets. Institutional investors also have a tendency to hold on to their assets for the long haul, as opposed to engaging in day-trade behaviors.
Which is a system that creates a positive outcome for both the investor and the market itself. Return on Investment (ROI) for bitcoin has long surpassed that of traditional markets. This allows for positive incentives to hold on to investments. Which prioritizes long-term capital gains over small profits seen by day trading. This also serves to lock up market liquidity, improving overall valuation. Which could serve as a reasonable reason for why the markets rallied and stabilized as quickly as they did.
Bitcoin has long been divergent from traditional market values. However, there are some correlations we should draw from this difference. Perhaps the biggest being the obvious underlying optimism that many institutional investors have in cryptocurrencies. Something not seen in resource assets like oil.
Artificial Pumps Send More to Crypto Assets
While institutional interests have held strong, retail investments have also seen a surge in interest recently. This could be because of the financial practices that many governments are currently employing in order to achieve short term stability of traditional markets.
Stimulus packages and subsequent quantitative easing practices often serve to artificially increase the value of multiple assets. They allow greater market liquidity throughout a given economy. However, these moves often comes not without consequence.
As money is artificially pumped into a system and created without any type of asset backed foundation, hyperinflation and stark deflation are always likely to occur. Granted these types of financial atrocities are rarely seen in the short term.
However, in knowing this, many seasoned investors have been moving cash resources to crypto, using the tech markets as a hedge to standard assets and incomes. Governments worldwide have released numerous stimulus packages only to see a subsequent ‘pump and dump’ in the mega markets, which still struggle to maintain only recently acquired rallies.
Why Traditional Financial Markets Are Still Tanking
While most traditional financial markets have found some stable footing, they’re still struggling to maintain an upward trajectory. Which means the possibility of another round of stimulus money from congress. Particularly if a second-wave of the novel coronavirus prompts further lockdown measures. Which could take a serious toll in the coming years. Diluting values past the breaking point.
Despite the recent downturn in crypto markets, specifically bitcoin and popular altcoin Ether (Ethereum’s Token), the markets are still holding strong to the rally points they saw in early march. Apparently seeking an equilibrium between institutional and retail sentiments. Which may be a signal that digital currencies are becoming more relevant as a choice of genuine currency, as opposed to merely an appreciative asset.
What’s to become of global financial policy is anyone’s guess currently. But there’s more than good reason to believe that cryptocurrencies will hold a leading role in the future of finance.
Faith Obafemim tech lawyer, digital content consultant, blockchain & crypto researcher, emerging tech tech writer. She is currently doing research on the implementation of the African Continental Free Trade Agreement (AfCFTA) on the blockchain and recommending Kleros as a dispute resolution layer.
