The latest rally has all cryptocurrencies wondering if it’s too early to the party yet.
Did we come early?
This is a question that cryptocurrency market participants ponder during each cycle, as each cycle brings its own indicators of the end. The biggest sign for me personally was when I was in a barbershop in Los Angeles. A barber was explaining why he was moving all his coins from Coinbase to an exchange I had never heard of.
In fact, in the general world, cryptocurrency buzz always seems like a good sign of a market bubble. Cryptocurrency seems great right now. As my friend Jim Greco said in a recent piece, this rally has made very little noise so far.
“If you weren’t in the cryptocurrency industry, you wouldn’t have known that Bitcoin had reached $41,000.”
Retail still doesn’t seem to get as much attention as it did during its last peak. And the data points to this. Coinbase’s ranking on the App Store, The Block’s Steven Zheng’s favorite top metric, has been essentially flat since September.
Rallies fueled by institutional players
Of course, you could argue that volume has increased, but only slightly. The 7-day moving average of daily trading volume on December 4 was $27 billion, below this year’s high of $47 billion. Meanwhile, Bitcoin rose 153%.
Much of this rally appears to have been driven by institutional investors, as evidenced by the recent highs in open interest held by major stakeholders in CME Bitcoin futures during the week of November 11th. Additionally, both October and November reached record highs. This year’s trading volume in the CME Bitcoin options market.
Even within the institutional realm, I think it is still too early.
Cryptocurrency market structures have become fragmented, primarily due to the credit crisis of 2021, which resulted in the downfall of numerous lending and trading market participants. Even the largest hedge funds, which manage tens of billions of dollars of capital, lack the counterparties they can comfortably trade with. Once stronger market structures are in place, it is likely that real institutional intervention will actually begin to take off.
This piece first appeared in Frank Chaparro’s biweekly The Scoop Newsletter. Register now.
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