The past week was disastrous for the crypto market as Bitcoin dropped initially below $6K after months of stability at $6,200 to $6,500 level. Many thought that the crypto market was already maturing and Bitcoin is being used to store value. But things changed after the Bitcoin Cash hard fork. From falling below $6K, Bitcoin dropped all the way below $3,500 level. Now, Bitcoin is below 80% of its all-time high.
In 2017, Bitcoin started at around $1,000 and went all the way to near $20,000 level. But for the rest of 2018, regulators took notice of the highly speculative nature of cryptocurrencies. Regulators from different parts of the world had different reactions to the industry. Japan and Malta had a more open approach to the industry while China was strict in banning crypto-related activities.
Regulatory clarity is something that a lot of members of the crypto industry are waiting for. Many believe that this could attract institutional investors that are going to bring fresh capital to the crypto industry.
Jake Chervinsky who is a government enforcement defense and securities litigation attorney at Kobre & Kim suggested that institutional investors are accumulating their Bitcoin while retail traders are currently panicking. He said that “Investors, with bitcoin trading under $4,000: Retail: ‘should I sell and buy back lower? Should I open a short? Should I just give up? Is it going to zero? was this whole crypto thing a scam after all?’ Institutions: ‘please keep selling us cheap bitcoin. Thank you’”.
But then, there are those who are questioning this assessment. For instance, if institutional investors are really buying Bitcoin, instead of dropping by 35%, Bitcoin would’ve spiked in value. However, Chervinsky said that “The problem, however, is concluding that ‘because institutional investors are buying, price will immediately go up.’ Professional traders are expert at accumulating assets without affecting the market”.
He also added that “None of the investors & traders I’ve worked with take naked long positions on speculative assets. When they buy spot, they simultaneously hedge in other markets to reduce risk. ‘Hope’ has nothing to do with it”.
There was an evidence that whales accumulated some Bitcoin when it dropped below $6K. It has been monitored that bitcoins were bought from Binance.
Institutional investors are known for investing in Bitcoin via over-the-counter (OTC) market. However, there are also some institutional investors that are using Coinbase custody and Fidelity Digital Assets in order to purchase large sums of Bitcoin.
Why is Bitcoin’s price down these days? There are a number of reasons aside from the Bitcoin Cash hard fork. It is believed that the decreasing hash rate has been affecting investors. Hash rate has been predictive of the price of Bitcoin. And since miners are no longer breaking even with the current price of Bitcoin, miners are throwing their old miners. In addition to this, you also have the US Securities and Exchange Commission looking to impose stricter rules on the industry. There were two companies that were made to pay a fine by the agency. Now, will institutional investors enter the market soon and be able to rescue the struggling industry?
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