Where is the Wall Street Money?
Prior to the launch of the CME and CBOE Bitcoin futures markets, there was a lot of talk of “Wall Street money” pouring into the cryptocurrency market. The futures market for Bitcoin was expected to further legitimize it as an asset in the traditional financial system and hence, attract many investors who were waiting on the sidelines. The price of Bitcoin rose to about $20,000 on some exchanges around the time of the launch of the CBOE and CME futures on 10th and 17th December 2017 respectively. Since then the price of Bitcoin and other cryptocurrencies have been on a downward trend. A look at the six-month price chart of Bitcoin would make anyone wonder if any part the large pool of funds available to traditional investors actually made its way into the much smaller crypto market. The price of Bitcoin currently sits at $ 6,513.
At the time of writing, the entire cryptocurrency market had a market cap of $279.6 billion The Bitcoin market cap stood at $111.2 billion. Yes, these are huge markets but they are tiny when compared to what the traditional investors are used to. For instance, the combined market capitalizations of only Goldman Sachs and Morgan Stanley was roughly $200 billion as at January 2018. This figure almost equals the entire market cap of the cryptocurrency market at the moment. With such firms controlling huge amounts of money worldwide, any considerable investments made by majority of players in the traditional investment sector would cause very obvious upward movement in the prices of cryptocurrencies. Based on the price movements we have seen in 2018, we can conclude that the money from traditional investors is not pouring in as much as expected.
It can be argued that most traditional investment firms are not actually buying up cryptocurrencies. A few funds got in before 2018 but it is unlikely that it is on the scale that was expected before the launch of the futures markets.
With the SEC and other regulatory bodies still clarifying certain issues like those regarding which cryptocurrencies are securities or not, some big players might still be waiting to make their move. Notably, however, the SEC did recently announce that Ethereum’s ETH token will not be considered a security. But there are thousands of other cryptos and what the federal regulator’s long-term stance on digital currencies will be still remains unclear and unpredictable.
In fact, it was highly unlikely that huge financial firms with seasoned analysts and traders would buy in at the top around the time of the launch of the futures markets. With even more bearish expectations in recent times, it is likely that some interested institutional investors would still be playing the waiting game or buying in much smaller volumes.
Another theory is that the waves of funds from traditional investors came in prior to the launch of the futures markets. It is also likely that the few institutional investors that might have got in took their profits before the return to bearish trends. As the popular mantra goes; buy the rumor and sell the news.
What Traditional Investors are Actually Doing in the Cryptosphere
One thing that is obvious in spite of the bearish market trends is that businesses dealing with cryptocurrencies in one way or the other keep springing up. There is no shortage of startups offering services and/or products related to the cryptocurrency space. The acquisition of Poloniex by Goldman Sachs-owned Circle is an example of traditional investors investing in the cryptocurrency market. In almost every industry, we can find a company that is attempting to come out with some application of the blockchain technology. The AI, entertainment, health, logistics and mobile phone industries for instance have not been left out. This is evident even in the developing world. Smaller cryptocurrency exchanges focused on individual countries have been growing over the years. Golix in Zimbabwe and E-Bitpoint in Ghana are quintessential examples.
What we can draw from this is that investors are investing in businesses that are providing services and products in the cryptocurrency ecosystem. From this angle, we can still say the money is pouring in any way. The only difference is that much of it is obviously not being used to buy up the cryptocurrencies yet.