As bitcoin trading switches shape, big money stays away

Bitcoin’s value has plunged by three-quarters this year, sending the original and biggest cryptocurrency back to levels not seen before its bubble. And price isn’t the only aspect of trading that has changed.

The retail investors behind bitcoin’s dizzying ascent to a record of nearly $20,000 last December have fled, leaving the early adopters and crypto-related firms that traditionally dominated digital coin trading driving exchange volumes.

And while bigger investors from proprietary traders to hedge funds are growing more active, mainstream financial firms have stayed away from cryptocurrencies, even as market infrastructure seen as key to their entry begins to be built.

The shifting shape of digital coin trading, depicted by industry data and interviews with exchanges and companies, suggests bitcoin is struggling to evolve from a speculative asset favored by relatively niche investors to an investment choice in the same league as stocks or bonds.

Such an institutional breakthrough is seen as key to the sector’s future, promising to help fund the development of cryptocurrencies and spread their real-world use for purposes like payments and money transfers.

Monthly cryptocurrency trading volumes at major exchanges reached $235.8 billion in November, a threefold rise from the early stages of the bitcoin bubble in September 2017 but still down nearly half from their peak a year ago, data from industry website CryptoCompare shows.

In the same period, volumes at major retail-focused exchanges such as U.S.-based Coinbase and Poloniex, owned by Goldman Sachs-backed Circle, shrank 22 percent and 74 percent respectively. Japan’s has also suffered, with volumes down 47 percent last month.

As retail punters fade away, volumes have soared at exchanges such as Bitfinex that are favored by bigger investors. That’s down to growing activity by a mixture of cryptocurrency miners and startups with big holdings, plus prop traders, hedge funds and wealthy individuals and families, say industry insiders.

Bitfinex trading volumes climbed 38 percent in November, which the firm attributes to traditional investors with roots in high-frequency trading opening accounts since March.

“You’ve got the larger exchanges picking up the slack and making gains of market share, with retail exchanges stepping back,” said CryptoCompare‘s Charlie Hayter.

“That’s the real shift — the (cryptocurrency) mining companies looking to pay their electricity bills using the exchanges that operate with larger players, and newer entrants trying to gain some form of exposure.”

Asked about the figures, Coinbase said trading in the crypto sector was growing. Poloniex said the data reflected moves in the wider market. BitFlyer declined to comment.

CryptoCompare’s data covers most of the biggest exchanges, with the company adding new exchanges to its database when their volumes hit significant levels.

Bitcoin (BTC=BTSP) was trading on Friday at 15-month lows around $3,400./investing.com

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