Barry Silbert, the founder and CEO of Digital Currency Group (DCG), one of the most influential venture capital firms in the crypto space, has said that the current rally of bitcoin is different from 2017.
The prominent investor emphasized the noticeable improvement in the infrastructure supporting bitcoin and the emergence of trusted custodial service providers that allow accredited and institutional investors to commit to the market.
IS THE BITCOIN RECOVERY ONLY BEGINNING?
Against the U.S. dollar, the bitcoin price has increased 96 percent year-to-date (YTD), easily outperforming major traditional assets and indices like the S&P 500.
However, from its all-time high, the bitcoin price remains down by more than 64 percent and at $7,200 and it is still far from rebounding to its previous high.
According to Silbert, the recent recovery of bitcoin from around $5,000 to $8,000 at the month’s peak is fundamentally different from the bull run of 2017 due to the presence of strong infrastructure.
Sentiment, the technicals look great. An 80 percent drawdown happened three or four times and every time that’s happened [it hit] record highs. So as soon as you get the price going back up, and animal instincts come back [market recovers].
But the difference between this increase in price versus the bubble in 2017 is the infrastructure is much different. You have custodians now. you have trading software, you have compliance software, people are educated about the asset class, so this time is different.
In 2017, the crypto exchange market was largely plagued by fake volume. A research paper from Bitwise Asset Management revealed that nearly 95 percent of reported volumes of the crypto exchange market is either fake or inflated.
4/ Total daily spot volume is about $270M—95% less than reported. pic.twitter.com/kILQcqOlQR
— Bitwise (@BitwiseInvest) March 22, 2019
Retail investors demonstrated a strong fear of missing out (FOMO) that led to substantial premiums in major markets like South Korea wherein the bitcoin price surpassed $22,000.
Unreliable market data put together with FOMO from retail investors intensified the bubble-like price movement of crypto assets in late 2017.
This year, with the involvement of major financial institutions such as CME Group, Fidelity, TD Ameritrade, and ICE, the infrastructure supporting crypto assets have achieved a point in which institutions have begun to feel more comfortable investing in the market.
At New York’s Consensus conference, Steven Quirk, TD Ameritrade executive vice president, said that tens of thousands of the firm’s clients invested in the market in some capacity.
“We get calls, emails, 60,000 clients have traded something in this complex. As soon as you open the door, you’re going to get a lot of people” looking to participate in the market,” Quirk said.
Similarly, Fidelity Digital Assets, the subsidiary of Fidelity, disclosed in a report that 22 percent of institutional investors have already invested in cryptocurrencies like bitcoin.
“According to the survey, about 22% of institutional investors already have some exposure to digital assets, with most investments having been made within the past three years. Four in ten respondents say they are open to future investments in digital assets over the next five years,” the Fidelity Digital Asset team said.
WILL RALLY CONTINUE?
Considering that the factors driving the recent recovery of crypto assets are clear, investors generally expect to see a positive short to medium term trend for the asset class.
Although a flash crash on May 17 led the bitcoin price to plummet to $6,400, on major exchanges, the bitcoin price has already rebounded to $7,200.
The flash crash is believed to have been caused by an unexpected 5000 BTC sell order on Bitstamp, which then triggered liquidations on BitMEX.