Throughout the past eleven months, the Bitcoin price has dropped from $19,500 to $3,000, by nearly 85 percent.
The dominant cryptocurrency fell by 85 percent on average in its four past major corrections, so a similar drop from its all-time high was expected by many investors.
But, according to Bitcoin and technology researcher Boris Hristov, this bear market could potentially last significantly longer than previous corrections.
The vast majority of investors in the cryptocurrency market are likely to have heard of the narrative that institutional investors will come in to bring more value to major digital assets like Bitcoin because the narrative has been inaccurately pushed since early 2017.
Retail investors or individual traders who lost out massively in the cryptocurrency market crash earlier this year are not expected to come back in the foreseeable future. Not only have they lost out financially, but psychologically, it came across as a big shock, especially for newcomers.
If institutional investors are the group of investors that could potentially lead the next mid-term rally of Bitcoin, Hristov stated that only a limited range of institutional investors have the means to invest in a market like crypto.
The researcher explained:
“Potential candidates are macro funds, CTAs, alternative strategies and multi strategy funds which have a combined $600bn AuM. Separately, commodity assets held by all HFs in 2017 were $300bn — ca. 10% of AuM. BTC could initially fall in this bucket.”
Institutional investors, under normal circumstances, would invest in a high-risk asset class through a strictly regulated custodian or an over-the-counter (OTC) market. Coinbase Custody, BitGo Custody, and Fidelity Digital Assets are among the few that are strengthening the infrastructure around Bitcoin.
The involvement of major financial institutions in the likes of Fidelity and Goldman Sachs have led to some improvements in the institutional sector of Bitcoin. However, considering that over $50 billion could be needed to fuel a rally for BTC from a low price range to the $20,000 region and the fact that BTC recovers at a slower rate every time a major correction occurs, a longer recovery period than many investors expect may take place.
“True, BTC has endured multiple 80%+ corrections and recovered massively after that, which is impressive. There is a good chance it will do the same this time as well. But. It gets harder and harder with every new correction,” Hristov said, adding that institutional investors could fuel a large rally, but it is not sufficient.
“Could these investors put $50bn in the market. Maybe. But it may not be enough though to go to a new high.”
The problem is that despite the involvement of Fidelity, these custodians and OTC markets are relatively new and they do not have a long track record. One variable is that institutions may see a long-term opportunity given the plunge in value that Bitcoin recorded over the past year.
Institutions, as retail investors did in 2017, could suddenly initiate a FOMO (fear of missing out)-like trend in the months to come. But, the asset class has already matured to a certain extent, and as time passes, the probability of an unforeseen massive surge in price could gradually decline.
Featured Image from Shutterstock. Charts from TradingView.
Last modified: March 4, 2021 3:13 PM