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After weeks of stability, in the past week alone, Bitcoin (BTC) has collapsed under $4,500 in a surprising bout of selling pressure. So, many have claimed that the crypto market has been struggling, and that’s even putting it lightly.
The hash war between BCHABC and BCHSV has been detrimental to both projects, as they are both mining at substantial losses. The electricity costs to mine these coins far outweigh what they’re worth. It’s been reported that both networks have lost approximately $400,000 each.
According to Bart Smith, the head of digital asset at trading giant Susquehanna, a lack of liquidity in Bitcoin markets allowed the dominant cryptocurrency to be vulnerable to a large sell-off caused by the Bitcoin Cash hash power war and hard fork.
Smith believes that the entrance of Fidelity, ICE, and Bakkt into the cryptocurrency market could increase the liquidity of BTC and lead to a rise in capital in the space to soak up big sell-offs. In October, Fidelity Investment announced the launch of Fidelity Digital Assets that will provide institutional-grade custody solutions. So far Fidelity Investments and NYSE are among the few large companies that have openly signaled their interest in cryptocurrencies.
“Number one, the on-ramps for new capital is very difficult. If you’re a global institution, it is still very difficult to buy Bitcoin in a way you might want to. A wealthy individual from the G.I. Generation is not going to take a high-resolution picture of their driver’s license and send it to a website and send money there. They want to invest with Fidelity. They want to invest with Bank of America.
That has led to the second problem which is without the new capital on-ramp, liquidity has been very low. And so we’ve kind of seen a stable price all through summer, it was at $6,000 give or take. Volatility got really light at the end of July. So what happens is in that environment, if you have a contentious fork, it does not necessarily create a tremendous amount of confidence and when those sellers come in, there’s just no liquidity to absorb it. Hopefully, with Bakkt, Fidelity, and further regulations, there are going to be enough capital to soak it up.”
Currently, it is fairly difficult for an average trader to invest in the cryptocurrency exchange market through trading platforms like Coinbase and Bitstamp. Investors are required to hand in photocopies of government-issued documents, undergo rigorous Know Your Customer (KYC) processes, and comply with policies enforced by exchanges.
As of now, both Fidelity and Bakkt are leaning towards institutional investors as their target client base. But, if financial institutions like Fidelity, Goldman Sachs, and Morgan Stanley begin to provide cryptocurrency investment services to retail traders as proposed in October, it could substantially increase the liquidity coming from individual investors in the crypto space.
Sticking To $15,000 BTC Target
This week, Wall Street crypto bull Tom Lee has similarly emphasized the role of institutional participation in the industry, highlighting the forthcoming launch of the digital assets platform Bakkt by New York Stock Exchange (NYSE) operator Intercontinental Exchange (ICE) as a watershed moment. Despite the present market crash, he reiterated his recently reduced year-end price prediction for Bitcoin (BTC) at $15,000 in an interview with CNBC’s Squawk Box on Tuesday, Nov. 20.
While reiterating his crypto-rebound prediction, Lee admitted that the markets have “certainly” seen a “negative development,” which signals a “downside of the momentum.”
However, Lee stressed that institutional cryptocurrency investors are “not necessarily getting hurt” by the recent market downturn, even as Bitcoin’s price dropped sharply to as low as $4,237 today. In this regard, the investor emphasized the crucial role of institutional participation in the industry, claiming that specifically, this part of the market will pull the “next wave of the adoption.”