Larger Traders Are Driving Bitcoin Prices Higher

Following the collapse of the crypto exchange FTX, smaller investors pulled out of the market as a result.

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There is evidence to suggest that large investors are driving a recovery in bitcoin prices, as smaller traders are losing control over the cryptocurrency markets as the sway of the larger investors diminishes.

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Since the collapse of the crypto exchange FTX in November, bitcoin has rallied about 51% based on end-of-day trading prices. Late Thursday, the price of the stock was very close to $23,600, but in early Friday's trading, it drifted slightly lower.  In addition to ether and dogecoin, other tokens, such as litecoin and ripple, have also rebounded. There was also a rebound in other risky assets, such as some high-growth technology stocks, at the same time as the recovery in the housing market.

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In the past few years, there has been a noticeable shift in trading patterns, pointing to a pullback from retail investors in a market that had been dominated by nonprofessional, individual traders up until a few years ago. There is a rise in the influence of institutions, including hedge funds, rather than individuals.

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Due to the fact that Bitcoin is the oldest digital token and has the largest market capitalization among all digital tokens, it is a popular choice if you are interested in betting on the prospects of cryptocurrencies.

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Markus Thielen, the head of research at Matrixport, a crypto lender and trading platform, said the recent buying appeared to be driven largely by U.S. investors.

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According to Thielen, most of the recent crypto rally has occurred during U.S. trading hours, and recent gains have come largely since U.S. inflation data was released on Jan. 12, an event that typically attracts institutional investors.

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A similar view was expressed by Edmond Goh, head of trading at the crypto exchange B2C2 Ltd., who said: “Funds seem to be more active than retail participants.”

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Investors who trade on a small scale are generally referred to as retail investors. In his remarks, Mr. Goh said that more than 45% of the trading flows he saw from clients last year were classified by his firm as coming from retail clients, compared to 34% so far this year.

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In spite of last year's turmoil in the market, supporters of digital currencies say they are still attractive investment opportunities and many draw parallels between digital currencies and safe-haven assets such as gold. There is a growing interest in building a financial system that is less dependent on traditional banks, regulators, and governments for its security and stability.

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The Chief Executive Officer of JPMorgan Chase, Jamie Dimon, and senior officials at the European Central Bank argues that bitcoin is purely a speculative instrument that does not have the practical applications of a commodity or the income-generating potential of conventional financial assets such as stocks and property. However, despite all the problems that bitcoin has faced in the past, it seems that it is not going anywhere.

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Since the beginning of last year, the cryptocurrency industry has been undergoing a rolling crisis. It encompasses the collapse of the Terra stablecoin, the collapse of a number of institutions including hedge fund manager Three Arrows Capital, lenders Celsius Network LLC and Genesis Global Holdco LLC, as well as Sam Bankman-Fried's FTX empire's bankruptcy filing in November.

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It is also important to note that Bitcoin is still a long way from its previous all-time high of over $67,000, reached in late 2021. This means that any investor who invested near that peak is still underwater on their investment even if they bought close to that peak.

“FTX is not going to freak out a single person who understands the fundamental investment case for bitcoin in the slightest,” Christopher Bendiksen, head of bitcoin research for asset manager CoinShares, said in a statement.

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The number of flows into CoinShares' bitcoin exchange-traded product, BITC, totaled $26.6 million in January, which is the third-highest number in the company's history. Although the product is listed on exchanges in some countries in Europe, including Germany and France, it is not listed on exchanges in the United States.

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There appears to have been some kind of momentum generated by the rebound itself. It has been reported by Ilan Solot, co-head of digital assets at the London-based financial firm Marex Solutions, that some bigger investors, such as hedge funds, who had bet against bitcoin were now buying in order to cover their bets against bitcoin falling in value. Among Mr. Solot's clients are hedge funds, family offices, as well as individuals with high net worth. The demand for structured products incorporating digital assets was particularly high, according to Mr. Solot, on a broader scale. In fact, these are complex investments that are meant to protect investors from short-term volatility, such as so-called auto callables.

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“ Since the start of the year, there has been a noticeable uptick in the interest in digital assets that we have received on our desks,” commented Mr. Solot.