Blockchain Bites: Bitcoin Volatility Hasn't Shaken Out Institutions

Bitcoin set a new high above $50,000 after erratic trading earlier this week, though options markets are not anticipating a drawdown anytime soon.

Feb 16, 2021 at 5:24 p.m. UTC
Updated Sep 14, 2021 at 12:12 p.m. UTC

Sound bites

Purpose Investments CEO Som Seif, speaking on CoinDesk TV, said there have been measurable improvements made to the infrastructure supporting the crypto economy. In fact, he thinks it would have been a mistake three years ago if regulators had approved a bitcoin exchange-traded fund when his firm first floated an application. 

“So much work has been done in the backend of this, the plumbing, to effectively allow something like this. I think the regulators are comfortable," Seif said. Purpose is the first North American firm to release a regulated crypto ETF. 

Three stories

1. Volatility hasn’t shaken institutional interest in bitcoin. Bitcoin whipsawed early this week, dropping $3,000 in early Monday trading and setting a new high above $50,000 on Tuesday.

  • In the options markets, bearish bets are consolidating around the $40,000 mark – meaning traders are not predicting an extended/sustained price drop below that figure.
  • That said, “long tech” has retaken its spot as the “most-crowded trade” in the financial markets, according to a Bank of America survey, though bitcoin is close behind.

2. Two of bitcoin’s most prominent backers, NYDIG and MicroStrategy, are doubling down on their crypto plays.

  • NYDIG, Stone Ridge Asset Management’s bitcoin spin-off firm, has filed with the U.S. Securities and Exchange Commission for a bitcoin exchange-traded fund (ETF) that would trade on the stock market, like AAPL or TSLA. (The SEC has been hesitant to approve these investible products.)
  • MicroStrategy is planning to buy as much as $690 million more bitcoin, announcing an additional wave of convertible notes. MicroStrategy’s BTC horde is worth more than $3.5 billion.

3. Ripple is unlikely to settle with the SEC according to the latest filing in the case. Previous settlement discussions that took place under the Trump administration have been disrupted, as the division directors involved have since left the SEC.

  • In December, the SEC sued Ripple over alleged violations of federal securities laws. It said the company, CEO Brad Garlinghouse and Chairman Chris Larsen sold over $1 billion in XRP to retail investors without registering the cryptocurrency as a security or seeking an exemption.

At stake

Regulatory wheel
The slow wheel of regulatory progress could be driving cryptocurrency investors underground. And it’s a global phenomenon.

In one such example, Hong Kong’s security regulator has proposed rules to limit cryptocurrency trading to professional investors and only on approved exchanges. This could drive the retail crowd towards unregulated peer-to-peer platforms, according to industry advocacy group Global Digital Finance (GDF). OKCoin, BitMEX and Coinbase are all GDF members.

“Restricting cryptocurrency trading to professional investors only is different to what we have seen in other jurisdictions such as Singapore, the U.K. and the U.S., where retail investors can buy and sell virtual assets,” said Malcolm Wright, chairman of GDF’s advisory council

A similar argument was put forward by Som Seif, founder and CEO of Purpose Investments, the firm responsible for the first approved bitcoin ETF product in North America.

Speaking on CoinDesk TV, Seif noted that investors are hungry for ways to gain crypto exposure. Reluctance by the SEC to approve a bitcoin ETF could drive interest in alternatives such as investing in MicroStrategy, a company so loaded with bitcoin it almost functions like an exposure to the asset.

“If you don’t regulate something [investors] will find a way to access it in any other way … which opens up much greater investor risk,” Seif said.

That said, the past several years has been a boon for the crypto asset substructure. Seif noted the number and quality of custodians, intermediaries and data providers that have come online, all of which serves to foster confidence among regulators.

The plumbing is in place, the investors are there. Someone just needs to turn the spigot.

Quick bites

  • Pseudo-privacy coin Verge suffered a massive 560,000-block reorganization Monday. (CoinDesk)
  • Diem, formerly Libra, could have a working product this quarter. (CoinDesk)
  • Nexus Mutual raised $2.7 million in a token sale. (CoinDesk)
  • Cloudflare has an Unstoppable Domains integration. (CoinDesk)
  • A look at how (and why) Yearn printed $300 million worth new tokens. (Cointelegraph)

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