Financial institutions are joining the crypto sector rapidly. Thus, they are gradually but constantly setting the pace for the rest of 2019 and 2020. Studies show that the speed of professionalisation has increased in the crypto markets.
The CEO of a financial services group with digital asset specialism (BCB), Oliver von Landsberg-Sadie, compares the current bitcoin Bull Run with others that occurred in the past. However, there is an exception given to this year’s fundamental growth.
He said that the 2013 bubble was fueled by technocrats and many dark web trawlers. In 2017, the rally was inspired by the whims of speculative retail traders. In the case of 2019’s growth, financial institutions aiming to diversify their stale portfolios are pushing the crypto market. The volatility and potential for huge growth are what is attracting the institutional whales to the nascent market.
In June 2019, the UK alone saw 9 financial institutions for banking and also over-the-counter (OTC) trading join the crypto markets. The total is now 32 with most of the institutions joining the digital assets market this year. Hence, it represents a fundamental shift in client profile compared to 2018. Last year was dominated by multiple crypto projects aiming to get liquidity.
It is now imminent
Cryptocurrency is now experiencing huge institutional growth levels as evident from the bitcoin futures open interest. Furthermore, the trading volumes and the number of established banks issuing their local cryptocurrencies on their private blockchain networks is on the rise. Additionally, several financial institutions now support various blockchain projects that focus on commodity trade finance and shipping.
According to a partner at Perkins Coie’s Blockchain Technology & Digital Currency group, Kari S. Larsen, exchanges are slowly changing their focus from retail to institutional traders. The new customers are offered a better ability to customize the front end of their trading platforms. Exchanges are also providing APIs that suit what institutions are used to.
In most cases, institutional investors rely majorly on regulated products and procedures. Organizations are proven to rely on constant progress on the regulatory front and infrastructure improvements that directly affect the speed of institutional involvement. Nevertheless, the speed from financial regulators in the US and EU regions has been quite slow.
For instance, the Financial Industry Regulatory Authority (FINRA), seems to be moving considerably slow with the broker-dealer applications from companies that want to offer services that support security tokens or related crypto assets. However, all that seems to have started changing especially with Facebook announcing its intention to enter the crypto world with Libra.
Subsequent pushback from regulators on a global scale is also causing changes in how the laws are made to manage and govern the growing crypto sector. This is evident from bitcoin’s violent price swings that have occurred in recent weeks. Increasing volatility has triggered discussions amongst regulators about how to go about the ‘crypto issue.’
Preparing the Arena
Facebook’s increasing battles with regulators are expected to set the stage for digital assets moving forward. Currently, the nuts and bolts of the regulatory framework are metered out. There is a potential of introducing billions of users to the cryptos via Facebook’s Libra/BTC pairing. Banks, governments, and analysts agree that crypto poses a major threat to traditional finance in several ways.
Thus, it is time to advance carefully since any over-regulation may jeopardize the bullish advances shown in bitcoin’s recent price swings. On June 26, Bitcoin peaked at $13,880 in a major uptrend that was followed by a sharp drop to $9,950 before shooting back up to the current levels of around $11,000.
But, progress continues as the Commodity Futures Trading Commission (CFTC) grants ErisX Clearing a derivative clearing organization (DCO) license. Rules and regulations take time to take effect. Nonetheless, the aim is to get at a happy medium that offers a sustainably stable platform for investors to trade digital assets while reducing risk and encouraging fair trade.
Regulators remain vigilant as they try to make sense of the nascent crypto market. They are also striving to determine how virtual currencies fit into the current global financial model. The trick here is to let the cryptos to run free without implementing too many regulations but also assuming positions where participants will reap the benefits.
Month-to-month Market Capitalization
Monthly charts show insights into the cumulative market capitalization experienced by the crypto industry lately. It proves the general recovery that nears 50% retracement from the 2018 bear market. There is a major headway amidst another strong weekly data of huge buy orders in June 2019. That suggests these moves involve more than just the retail trader.
A resurgence started on February 1, 2019, when the total market value closed above $130 billion for the first time in more than two months. That marked a major shift in sentiment and trend with a sign of institutional interest. Since that time, the upside trajectory has experienced steady increases in expanding volumes evident from the large bars posted on monthly charts.
Currently, above $300 billion, growth seems very convincing as shown by crypto’s recent bullish fundamentals. However, further growth will heavily depend on how the nascent market will maneuver through the upcoming regulatory framework.