Coinbase, the largest US-based cryptocurrency exchange, recently reported $200-400MM a week in new crypto deposits from institutional customers.
Brian Armstrong, CEO of Coinbase added “Whether institutions were going to adopt crypto or not was an open question 12 months ago. I think it’s safe to say we now know the answer.”
When compared to the 2017 cryptocurrency boom which was retail-driven in nature, this latest runup throughout 2019 has been from players with deeper pockets. Most retail investors are still sidelined waiting to enter the market after getting punished in 2018 and losing their money by being late to the party. Active Bitcoin addresses remain near mid-2017 levels during the 300% price increase we’ve seen in 2019, showing that there still aren’t many new players getting exposure. Active addresses peaked at 1MM in December ’17 and have added about 200,000 addresses since the bottom of the recent bear market fluctuating now around the 500-600k level.
The Intercontinental Exchange (ICE) is launching its latest product, Bakkt, on September 23, 2019. As the parent company of the New York Stock Exchange, ICE is expanding to allow investors to bet directly on Bitcoin. This is a huge step for the market as it provides a trusted, regulated institutional infrastructure for Bitcoin. Bakkt will provide clients with the ability to trade physically-delivered daily and monthly bitcoin futures contracts through a platform as reputable as the NYSE. This has long been a dream for the crypto universe, and via Bakkt, it is finally coming to fruition:
"Our contracts have already received the green light from the CFTC through the self-certification process and user acceptance testing has begun. With approval by the New York State Department of Financial Services to create Bakkt Trust Company, a qualified custodian, the Bakkt Warehouse will custody bitcoin for physically delivered futures. This offers customers unprecedented regulatory clarity and security alongside a regulated, globally accessible exchange in a market underserved by institutional-grade infrastructure. Bakkt bitcoin futures contracts will not rely upon unregulated spot markets for settlement prices, thus serving as a transparent price discovery mechanism for the benchmark price for bitcoin. We’ve designed the Bakkt Warehouse to provide regulated, secure custody of bitcoin that is protected by $125 million in insurance."
2017 was a retail-driven speculative mania – the opposite of how most asset bubbles form. Everyone was talking about bitcoin and were putting skin in the game all throughout 2017. On the other side were guys like Mike Novogratz, on and off billionaire and founder of Galaxy Digital, who was a rare breed and got in at the end of the euphoric cycle. Most bubbles start with an asset that Wall Street investors and institutions get into and then they fan out to the rest of the world.
Like the famous scene from The Big Short where Steve Eisman heard about a stripper buying and selling houses and realized they were in a housing bubble. In 2017, it was reversed. Countless Mainstreet investors around the world had bought cryptocurrency running with it to new all-time highs, and big players like Galaxy Digital got in after the bubble popped and lost $136MM in the first nine months of 2018. Some would say Novogratz was the equivalent of the stripper in The Big Short.
With Institutions following up on the initial boom from the $3,000 lows on Bitcoin, and innovative products like Bakkt ready to launch - is this time actually different?
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