Institutional players may be dragging crypto down – at least, that’s an idea that’s being flooded by certain pundits and analysts around the cryptocurrency space, as Bitcoin rests at roughly half of all-time highs, and the stablecoin market continues to reel from the UST crash.
Helene Braun at Coindesk reports that the crypto market has lost a total of $1.5 trillion in recent market cycles, and that its correlation to the stock market is increasing.
Braun also lays out the theory that some of the institutional players may be responding to market pressure in ways that have the capacity to tank Bitcoin further.
“Not only were these institutional investors a sign of growing mainstream acceptance (last year,) they also appeared to drive up prices,” Braun writes. “Crypto boomed with the sector’s market capitalization growing 185% that year. Now, as the crypto market’s latest swoon wipes off $1.25 trillion from the industry’s all-time high market capitalization reached late last year, the question has risen: What role is institutional money playing in the crash? Or to put it more bluntly, are institutional investors making things worse?”
As Braun mentions, in 2021 companies like Tesla and Microstrategy acquired massive amounts of Bitcoin, and financial firms like J.P. Morgan and Morgan Stanley came along for the ride, with the former banking giant issuing its own JPM stablecoin.
Now, by Braun’s logic, with these big institutional investors having so much Bitcoin in capital reserves, a selloff could be exacerbated by their efforts at risk avoidance.
“One thing we know: The crypto market is increasingly correlated to the stock market, and institutional investors appear to have heightened that correlation,” Braun writes. “And when the stock market goes down, it takes crypto with it.”
However, Bitcoin’s outlook could easily change as suddenly as it changed before, bringing the bulls out of the doldrums and challenging bearish sentiment. Some still believe it’s time to buy on the dip, although the reality may be a lot more complex than that. Keep watching BTC.