As the Bitcoin (BTC) price hovers around US$4,000, are institutional investors silently entering the market?

In the world of cryptocurrency, Bitcoin has always been number one, both in terms of market share and name recognition.

It was the currency that first implemented the system of the blockchain, and is now the most valuable coin on the market. This is the reason it’s now attracting interest from multiple institutional investors.

The smart money has long been waiting in the wings to buy Bitcoin low and it’s likely many of them are now making a very quiet entry into the market.

Institutional investors enter

The parent company of the New York Stock Exchange, the Intercontinental Exchange, became the darling of the cryptocurrency market as it announced a physically deliverable Bitcoin futures contract. This product came to be known as Bakkt, and is described as the most convenient institutional money vehicle.

However, due to a lack of clarity on the state of cryptocurrency regulation in the United States, there has not been any concrete movement. This can also be due to the slow movement of both the Securities and Exchanges Commission and the Commodity Futures Trading Commission. This has created a regulatory grey zone for the product, a trend that can be seen across the market.

One of the biggest names on Wall Street, Morgan Stanley, has also expressed a positive attitude towards the state of the Bitcoin markets, as indicated by its report late last year. It was extremely bullish on the future of Bitcoin, an attitude that came at the time of money flowing into the market through OTC desks.

Morgan Stanley also has skin in the game, having offered derivatives trading for Bitcoin. Through special futures contracts, Morgan Stanley is giving institutional investors the opportunity to invest in the market for the top cryptocurrency. They also predicted that market focus in general would move towards cryptocurrency in the future, as everything would be conducted on distributed ledgers and not the banking system.

Even Goldman Sachs was gearing up to launch a trading desk for cryptocurrencies, in order to service demand from customers.

Messari, an intelligence company functioning in the cryptocurrency space, is beginning to lay the foundation for the arrival of institutional investors. It aims to do this by curating a transparent view of the cryptocurrency market for institutional presences.

The move to OTC

Institutional investors have now moved towards over-the-counter platforms for trading Bitcoin, as it is a more sustainable way of operation in a market that is currently in the middle of a liquidity crisis.

Physical Bitcoin is being traded by multiple platforms, mostly to high net-worth individuals to ensure that money begins flowing into the market before whales begin accumulation.

Just last year, prominent exchanges Etoro, Coinbase and Hodl Hodl announced that they will be offering the functionality of an OTC trading desk to their consumers. Exchange platforms have ceased to hold the bulk of institutional money, as seen by the 20% increase in trading volume during OTC market hours.

This can be seen as being indicative of a waning in consumer sentiment regarding exchange platforms, as there have been multiple hacks and breaches over the past year. Crypto-asset solutions have also begun to emerge into the wild, with names such as Coinbase and Coincheck beginning to offer solutions to allow for the safe storage of a large number of digital assets.

The outlook for the future

The inflow of money into the market through the OTC market will begin manifesting itself in terms of buying pressure in exchange markets some time soon. This is due to the large amounts of Bitcoin being bought directly by the aforementioned institutional clients.

Even as OTC buying has begun, a lack of liquidity in the Bitcoin market has been one of the biggest problems for investors. Along with this, the lack of clarity by the SEC also creates an unfriendly environment for innovation in the world’s newest asset class. This does not seem to deter institutional investors from entering what could be the next financial frontier.