Institutional investors who bought into bitcoin this year may sitting on substantial losses, albeit unrealised unless they sell.
Bitcoin’s correction continues apace with weekend losses meaning it has nearly 50% of its value compared since the April all-time high of $63,500.
But market participants – including institutions – can’t say they weren’t warned, with many commentators and prominent investors declaring that bitcoin was in a bubble, and it was just a matter of time before the the boom would turn to bust.
Nevertheless, due to the boom of cryptocurrencies during the first quarter of the year, many new retail and institutional investors joined the market. Many newer retail investors have been frantically offloading their holdings before the prices fall further. The mounting losses being suffered as a result of the outsized volatility, even by normal crypto standards, has also lead to the re-emergence of the Bitcoin critics, whose bearish opinions never really went away but may have been a little quieter during the astronomic run-up in prices.
Rise in Institutional crypto investors
The crypto boom attracted many institutional investors to the market as they sought to tap into the gigantic returns in the market.
Tesla became one of the main institutional investors in Bitcoin. The company accepted Bitcoin as a means of payment in March when Bitcoin was performing very well. The company also built up its Bitcoin treasury holdings to around $2.5 billion. However, the company halted Bitcoin payments acceptance in early May, which proved to be one of the crash triggers.
Another institution with large crypto holdings is MicroStrategy. The company recently bought an additional 90,000 BTC following a funding round. The institution has been a major holder of Bitcoin investments.
Other Wall Street firms have also started to open up to crypto by offering execution and custody services. The rise of crypto institutional investors was not necessarily a free choice but something foisted on them by the rising demands of clients looking to get into the market.
Buying the Dip?
However, unlike the retail investors rushing to sell off their investments, institutional investors are doing the exact opposite and buying the dips.
Data from crypto analytics firm Glassnode shows that exchange outflows for Bitcoin have increased significantly, indicating increased accumulation of the token. The exchange inflow for USDC also reached an all-time high last week, showing investors are ready to invest in more crypto.
$USDC Exchange Inflow Volume (7d MA) just reached an ATH of $20,426,691.64
Previous ATH of $20,392,370.55 was observed on 22 May 2021
— glassnode alerts (@glassnodealerts) May 23, 2021
The main question lingering in the minds of many is who is buying the dip. A recent story on Bloomberg stated that institutional investors were buying crypto, disregarding the current market movement.
The report points out that a number of crypto hedge funds, including ByteTree Asset Management, Three Arrows Capital, and MVPQ Capital, have increased their BTC holdings. Other firms such as Blocklabs Capital Management have also added to their holdings of ETH, Solana, and other crypto assets. Chainalysis also provided metrics showing that large investors had bought 34,000 BTC on May 18 and May 19.
These metrics show that whereas retail investors are rushing to liquidate their crypto holdings, institutions are on the other side of the trade and accumulating Bitcoin for the long-term.
It is worth noting that market analysts had expected Bitcoin to hit $100,000 by the end of the year. That looks a long way off today, but the buying by institutions could mean that another ‘crypto winter’ is not around the corner, with institutional buyers instead helping to support the price above $30,000.
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