Analysis | Does institutional investor entry really increase the price of Bitcoin?

After experiencing madness at the end of 2017, the topicality of the cryptocurrency market broke out completely in 2018.Although a round of Bitcoin's bear market decline caused the total market value of the cryptocurrency market to shrink significantly, the popularity of the ICO in 2018 undoubtedly proved Market participants' "interest" in this emerging asset and the potential of this market. It is also from that time that the discussion about whether Bitcoin is digital gold has never stopped, and indeed more and more traditional financial market participants have paid attention to and even participated in the investment of the cryptocurrency market.

Of course, as a new financial asset, the cryptocurrency represented by bitcoin naturally exists objectively in this market. Especially with the rapid rebound of Bitcoin in the first month of this year, more and more market analysts said that we are no longer far from another round of Bitcoin bull market.

When corroborating this bullish view, in addition to the halving of the upcoming rewards in the first half of the year, almost everyone also mentioned that institutional investors' investment layout in the cryptocurrency market is accelerating. In the past year or more, traditional financial giants including Goldman Sachs and Morgan Stanley have clearly expressed their interest in the cryptocurrency market, and well-known investors who have clearly stated their optimism or supported Bitcoin have also become more More and more.

However, there is a question now: Although the institutions' concerns and participation in the cryptocurrency market have indeed deepened, but what is the progress, and even if the institutions are ushered in by large-scale admissions, will this definitely contribute to the rise in Bitcoin prices? And if it is not a simple "two-dimensional influence", what kind of potential impact will this phenomenon have on Bitcoin in the market?

What is the status of institutional investor entry?

Although the institutional investment scale of the cryptocurrency market has indeed experienced a very large increase in the past year, the problems that have long existed in the cryptocurrency market that have traditionally jeopardized financial institutions have not been completely resolved. The unstable performance of this market is still difficult to "meet" those traditional financial institutions that have high requirements for risk control. In addition, the lack of "infrastructure" in the market for basic services and asset custody is still difficult to satisfy institutional investors. Volume demand.

However, the rapid maturity of the cryptocurrency derivatives market in 2019, which has just ended, has indeed provided institutional investors with a lot of help. These derivatives designs that directly draw on mature products in traditional financial markets have basically eliminated institutional investors. Concerns about the security of fund custody provide the convenience of participating in this emerging market. Therefore, the process of institutional investors' deployment of the cryptocurrency market has indeed entered an acceleration phase.

In addition, cryptocurrency exchanges provide considerable convenience for institutional investors. Exchanges such as Coinbase and Gemini provide institutions with more secure fund custody endorsements and lower custody fees. Among them, the Gemini Exchange has launched an institution-oriented service called Gemini Custody. This service allows customers to directly trade 18 cryptocurrencies on the exchange without having to make on-chain transfers. Coinbase also launched last year Coinbase Custody's hosting service. The convenience provided by the exchange further reduces the threshold for institutions to participate in the cryptocurrency market, and also greatly simplifies the investment process for institutional investors. These convenient conditions further promote the admission process of institutional investors.

Does institutional investment admission necessarily mean price increases?

In the period after the big bear market in 2018, the cryptocurrency market did make a considerable “recovery”. Since this time is more compatible with the time period for institutional investors to enter the market, it has created a kind of “ "Institutional investors enter the market to promote the recovery of the cryptocurrency market."

Like any other financial market, the inflow of large amounts of capital will lead to a substantial increase in the corresponding asset price. For assets that are inherently deflationary, the increase in demand will inevitably lead to an increase in the price of assets per unit.

However, it is difficult for us to find an objective reason enough to support "institutional investors' entry to drive the price of Bitcoin". After all, the cryptocurrency market represented by Bitcoin is still in an early stage. There are many factors that will affect the market and it does not have a particularly strong regularity. And this market's rotation cycle is also significantly shorter than those of mature financial assets. Therefore, the recovery of bitcoin price cannot be fully attributed to institutional admission.

A relatively more reasonable inference should be that when this market is more mature and stable, it will inevitably attract savvy investors and investment institutions to participate in this market, and use some mature methods to obtain maximum returns from it. In short, there is some deviation between the causal relationship between "market growth" and "institutional admission" and broad market perception.

Of course, with the rapid maturity of the cryptocurrency market, it is reasonable to believe that this emerging asset will achieve large-scale adoption at some point in the future. Therefore, the long-term investment value of this market is more worthy of expectation than short-term returns. Therefore, even if the institutional investors' participation is of limited direct benefit to the market, the development prospects of the cryptocurrency market are still worthy of expectation.