(This version of the December 7 story corrects the spelling of the first name Erik (not Eric) in paragraph 21)
FILE PHOTO: A collection of Bitcoin (virtual currency) tokens appear in this image figure 8 December 2017. REUTERS/Benoit Tessier/Photo File
By Tom Wilson
LONDON (Reuters) – the value of Bitcoin has plunged by three quarters of this year, sending the original and the largest cryptocurrency back to the level seen before the bubble. And the price is not the only aspect of trading that has changed.
The private investors behind bitcoin’s dizzying climb to a record of nearly $ 20,000 last December, have fled, making the early adopters and crypto-related companies that traditionally dominated digital currency trading exchange volumes.
And while the larger investors and proprietary traders to hedge funds are becoming more active, regular finance companies have stayed away from cryptocurrencies, even as the infrastructure for the market seen as the key to their appearance begins to be built.
Due to the shift of the form of digital currency market, shown by the industry data and interviews with exchanges and companies, proposes bitcoin is the effort to evolve from a speculative asset favored by relatively niche investors as an investment choice in the same league as shares or bonds.
Such an institutional breakthrough is seen as the key to the future of the sector, promising to help in the financing of the development of cryptocurrencies and the spread of their real-world use for purposes such as payments and money transfers.
Monthly cryptocurrency trading volumes on the major stock exchanges amounted to $235.8 billion in November, a threefold increase from the early stages of the bitcoin bubble in September 2017, but still down nearly half from their peak a year ago, data from the website of the sector CryptoCompare shows.
(For a graphic on ‘Crypto trading volumes on tmsnrt.rs/2RHuVAI)
In the same period, volumes in the large retail-oriented stock markets such as the US-based Coinbase and Poloniex, owned by Goldman Sachs-backed Circle, down 22 percent and 74 percent, respectively. Japan’s bitFlyer has also to suffer, with volumes down 47 percent last month.
As retail players disappear, the volume is increased on exchanges like Bitfinex that are approved by the larger investors. That is down to the growing activity by a mixture of cryptocurrency miners and startups with large holdings, plus prop traders, hedge funds and high net worth individuals and families, say insiders.
Bitfinex’s trading volumes climbed 38 percent in November, the company features traditional investors with roots in the high-frequency trading opening accounts since March.
“You have the bigger exchanges are picking up the slack and make a profit and the market share, the retail exchange, a step back,” said CryptoCompare is Charlie Hayter.
“That is the real shift — it (cryptocurrency) mining companies are looking to their electricity bills with the help of the exchanges that work with larger players and new entrants trying to get any kind of exposure.”
Asked about the figures, Coinbase said the trade in the crypto-sector grew. Poloniex said the data is visible moves in the broader market. BitFlyer declined to comment.
CryptoCompare the data covers most of the biggest trade fairs, with the addition of new power plants are database when the volumes hit significantly.
Bitcoin BTC=BTSP was trading on Friday, 15-month lows around $3,400.
Cryptocurrency markets are difficult to accurately measure, given the lack of centralised data and the opacity of the main locations, such as over-the-counter trade, said to account for up to 50 percent of the total market.
Also, there are a few ways to accurately break down the profile of investors in the crypto market.
But exchanges and industry figures interviewed by Reuters said institutional investors, such as asset managers, pension funds and investment banks remain largely absent from bitcoin trading, even if the shape of the changes in the market.
Most worried about is the lack of clarity about the rules, as well as the frequent breaches of security in the exchanges, and the perceived absence of a fundamental value of the assets.
That reluctance has remained the same, even if progress can be made in how to safely trade and store cryptocurrencies, in particular by Fidelity Investments, and a number of small jurisdictions such as Gibraltar and Malta look to in-license crypto companies.
Clearer regulation, with a stamp of legitimacy to cryptocurrency businesses and weed out sub-standard players, say analysts, and may alleviate some institutional investors are concerned about the compliance.
“Some people in banks and financial companies want to step in, but can’t decide how to explain it to the management,” said Erik Wilgenhof Plante, chief compliance officer at BeQuant, an exchange which serves around 600 mostly non-retail customers.
A major obstacle is the lack of examples of blockchain, which lies at the foundation of bitcoin and other cryptocurrencies, it lives up to the billing as a technology that can revolutionize sectors from finance to real estate.
Circle’s Chief Marketing Officer Marieke Flament said the focus on bitcoin often conceals the progress made in other areas of cryptocurrencies. She pulled the boot of a private “stablecoin” digital currency, which is pegged one-to-one with the dollar and could appeal to institutional investors.
“There is still a lot of attention to bitcoin,” said Flament. “That is really missing the depth of the things that happen.”
But despite the work of startups and large companies, developers and trade fairs, top-tier mainstream investors stayed away.
“You have seen a number of groundbreaking decisions by the Faithful to be active in the cryptocurrency space,” said Danny Masters, chairman of the digital asset manager CoinShares.
“But nothing is actually running.”
Reporting by Tom Wilson; Editing by Catherine Evans