Trader warns institutions won’t ever invest in Bitcoin large-scale due to the overnight plunge ๐จ This article is 5 years old...
Trader warns institutions won’t ever invest in Bitcoin large-scale due to the overnight plunge
2 min read
Updated: Mar. 16, 2020 at 10:37 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
The Bitcoin price plummeted by 50 percent on March 12 in a steep sell-off, and one cryptocurrency trader said that it could eliminate the appetite of institutional investors to invest in the space at a large-scale.
“Bitmex is the main reason institutions wonโt ever invest in BTC in large scale. Too much manipulation. Seriously if you ran a fund managing client monies and saw what Bitmex did to Bitcoin recently would you put your client money and reputation and trust in BTC?,” trader John Wick said.
The statement follows the controversy around the insurance fund of BitMEX, and how the liquidation engine of the exchange had about $200 million left to sell with virtually no buying demand on the order book.
Will institutions not commit to Bitcoin again? or is it a short-term trend?
When the Bitcoin price fell to sub-$6,000 right before the sudden drop to $3,600, it started to cause a significant amount of long contracts to be liquidated.
That led the insurance fund of major cryptocurrency exchanges to reach near-zero levels. Deribit, for instance, had to put an additional 500 BTC worth of company funds into its insurance fund.
“Due to extreme volatility, we’ve seen a significant impact on our BTC insurance fund. In order to prevent socialized losses we have decided to support the insurance fund and strengthen it by injecting 500 BTC of company funds,” said Deribit.
BitMEX, however, was criticized for not using more of its insurance fund as the Bitcoin price plummeted to $3,000s with an unbalanced orderbook.
One trader said:
“What is the point of the insurance fund if, after the worst & most violent day ever in crypto, none of it was used? 3/11/2020 – 35,508 XBT 3/14/2020 – 35,210 XBT (though I will say there was some ‘USD value’ of the fund used, that is pretty minimal)”
Following arguably the crypto market’s worst sell-off in history and the controversy around BitMEX, well-known entrepreneur Kim Dotcom said that institutions were dropping out of Bitcoin.
Due to the extreme uncertainty in the global stock market and the worsening coronavirus pandemic, institutional investors started to move out of high-risk assets.
Dotcom noted:
“Institutional investors are dropping out of Bitcoin. Thatโs good. Crypto needs more users, not more speculators. Mass utilization is accelerated by the economic crash. But crypto needs more easy-to-use & secure apps allowing users to pay for real things in real-time at low fees.”
Whether institutions would not commit to Bitcoin at a large-scale due to a single-day 50 percent drop in the long-term is still premature to call, because BTC is still considered as an emerging asset with large growth potential.
Tyler Winklevoss, the billionaire CEO of cryptocurrency exchange Gemini, said that that unexpected reaction to the recent global economic downturn shows just how early Bitcoin is in its growth phase.
What’s needed for BTC to stabilize?
Before the drop, the market capitalization of Bitcoin was hovering at nearly $200 billion, around 2 percent the market cap of gold.
For Bitcoin to stabilize and fare well to extreme market conditions in the long run, it would have to establish itself as a major asset through large fiat inflows and strong accumulation.
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Bitcoin, a decentralized currency that defies the sway of central banks or administrators, transacts electronically, circumventing intermediaries via a peer-to-peer network.
