Bitcoin Price AnalysisPrice Analysis

JP Morgan: Current Bitcoin Price Run Caused by Institutional Players

While some beg to differ, the megalithic cryptocurrency rally of 2017 was widely driven by retail investors. At the time, there were few crypto-centric onramps available to institutional investors, with there being few-to-none custody solutions, over-the-counter desks, and alternative investment vehicles that pertained to this nascent class.

The only real institutional vehicles were Grayscale’s Bitcoin Trust and the BTC futures products from American exchange giants CME and CBOE. Now, however, the composure of the crypto market is purportedly entirely different, boding well for price growth potential.


Institutions Are (Finally) Wading in Bitcoin Waters

For the longest time, Bitcoin was a people’s currency. Bitcoin was launched by one man (Satoshi referred to themselves as “he”), built up by a community of zany coders & idealists, and brought to new heights each and every market cycle by retail speculators.

But, in 2018, something changed. Maybe it was the historical rally of the year prior, the collective realization that cryptocurrency was here to stay, or pure FOMO — institutions started to enter, albeit slowly.

Late into 2018, Wall Street firms and their counterparts in Asia and abroad began to announce forays into the market, despite the fact that BTC was down over 60% (or more) from its $20,000 peak. The Intercontinental Exchange announced Bakkt; Fidelity Investments launched a Bitcoin-friendly division, and so on and so forth.

This interest from so-called “smart money” has purportedly led to a massive uptick in institutional involvement in this market. A recent report from JP Morgan analyst Nikolaos Panigirtzoglou seemingly confirms this. As reported by Bloomberg, the analyst stated that the paper futures contracts from the CME and CBOE (now defunct), and thus institutions, have played a larger role in recent Bitcoin price action that what many consumers are fed and believe.

Reported crypto volumes according to CMC, JP Morgan

Citing Bitwise Asset Management’s seminal exposé which revealed that 95% of all Bitcoin trading volume is faked and manipulated by bad actor exchanges, Panigirtzoglou writes that exchanges only processed $36 billion worth of BTC-to-USD (including stablecoins) transactions in May.

This is a far cry from the $725 billion reported by exchanges in the same time frame. During May, CME and CBOE traded $12 billion through their Bitcoin contracts, up from April’s $5.5 billion and the January to March monthly average of $1.8 billion. The JP Morgan researcher explains:

“The importance of the listed futures market has been significantly understated. The report by Bitwise credits the traded futures as an important development in allowing short exposures that enabled arbitrageurs in properly engaging in arbitrage, and that the futures share of spot Bitcoin volumes increased sharply in April/May. [The data suggests] that market structure has likely changed considerably since the previous spike in Bitcoin prices in end-2017 with a greater influence from institutional investors,”

This comes after JP Morgan claimed that Bitcoin was deviating far above its “intrinsic value”, a seemingly arbitrary figure crafted by an unknown set of variables.

Data Confirms Institutional Involvement

Futures volumes aren’t the only figures confirming the involvement of Wall Street and other big firms in the industry. Diar recently wrote that “firm size” addresses (1,000 to 10,000 BTC under management) now own 26% of the circulating supply of the cryptocurrency, up from under 20% in August 2018.

This signifies accumulation of almost, if not more than 1,000,000 coins — implying inflows of hundreds of millions and billions of dollars. It is unclear who is behind these transactions, but as explained by Diar, the size of the wallets suggest big investors.

But even more convincingly, the value of Bitcoin has rallied while Google search interest for “Bitcoin” has gone down, which is somewhat of a natural divergence. This implies that those that already know about Bitcoin and/or access information about the cryptocurrency through other mediums (institutions) are pushing the value of BTC and its ilk higher.

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