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Institutional Capital Growth Outpacing Retail in Crypto

Today, we look at some of the underlying reasons behind the sudden run up in the prices of bitcoin last week.

Crypto Hedge Funds Jumping In…

One of the predominant drivers of bitcoin’s recent run up was increased buying activity from institutional investors. A leading crypto exchange focused on institutions registered a record trading volume of $5 billion in the month of May as institutional trades, primarily from Asia, surged in volume. A significant chunk of these trades involved flipping altcoins into bitcoin, in addition to the inflow of capital that went into bitcoin. Moreover, the daily trading volume for bitcoin futures on CME, a reasonable proxy for institutional activity in crypto trading, has more than doubled from its daily average on the 26th and the 27th of June. BTC has risen by more than 30% to reach approx. $14k over the same period.

Daily Exchange Volume Chart
CME Bitcoin Futures Daily Trading Volume (In BTC). Source: cmegroup

Subdued Retail Participation…

In our Friday edition last week we briefly touched upon subdued retail participation in the recent rally, as compared to the 2017 run up. This was evidenced by the relatively flattish trading volumes on localbitcoins.com over the period when bitcoin has risen sharply from $8k to $14k in a matter of days. Recent Google trends data provides further support to our assertion as the search interest for Bitcoin has not really spiked up in recent weeks in conjunction with the corresponding price increase. 

Interest Over Time
Google Search Trends for “Bitcoin”

Tether Manipulation…

Similar to the last run-up, one reason that was attributed to the flash rally was Bitfinex’s printing of USDT (Tether) to pump up prices of bitcoin on its exchange. There seems to be some merit to that claim as the number of USDT tokens printed has increased substantially to 500 million USDT tokens per month, resulting in the total outstanding supply rising from 2.5 billion tokens in the first week of April to over 3.6 billion tokens last week. 

USDT Outstanding Supply Data
USDT Outstanding Supply Data. Source: stablecoinindex.com

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