Bitcoin advocates have touted “institutional demand” as a major factor behind the cryptocurrency’s recent price increases, but a deeper look reveals that this narrative may not be entirely accurate. According to a recent report by crypto analytics firm CoinMetrics, the vast majority of Bitcoin’s trading volume comes from retail investors rather than institutional players like hedge funds and asset managers. This suggests that the mainstream adoption of Bitcoin by institutional investors may not be as significant as many in the industry claim.
The report found that institutional investment in Bitcoin futures contracts on the Chicago Mercantile Exchange (CME) has actually declined in recent months, suggesting that these investors are not driving the market’s growth. The report also noted that the number of Bitcoin whales – i.e. individuals or entities with large holdings of the cryptocurrency – has increased significantly in 2020, indicating that retail investors are playing a larger role in the market than before.
CoinMetrics’ findings contradict the narrative that has been driving much of the hype around Bitcoin this year. Many observers have claimed that increasing interest from institutional investors is driving up the coin’s value, while others have argued that Bitcoin is becoming a “safe haven” asset during the current economic crisis. However, CoinMetrics argues that these claims are not supported by the data.
The report acknowledges that there is some evidence of institutional interest in Bitcoin, particularly from publicly-traded companies like Square and MicroStrategy that have recently purchased large amounts of the cryptocurrency. However, these cases are relatively rare and do not necessarily represent a shift in the broader institutional landscape. As CoinMetrics puts it, “while institutional demand is often cited as a key driver of bitcoin’s rise, it may not be as significant as many believe.”
Ultimately, the report suggests that the true drivers of Bitcoin’s value are more complicated than the simplistic narratives that have been put forward by many in the industry. While institutional demand may play a role, it is far from the only factor at play, and retail investors are likely to remain a major force in the market for the foreseeable future.
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