Bitcoin (BTC) price has plunged over 30 percent in the last week alone, with the current price of $4,600 nearly 75 percent down on its high of $17,300 reached on January 6.
With this week’s sell-off seeing bitcoin plummet to a 14-month low, most of the analysts and crypto bulls have narrowed the latest price crash to events surrounding last week’s Bitcoin Cash hard fork.
Sentiment within the wider crypto community is that the contentious BCH split triggered the market wide collapse.
Fidelity and Bakkt to boost BTC liquidity
Bitcoin’s vulnerability to this week’s massive crypto sell-off was mainly due to problems of liquidity in BTC markets.
Bitcoin markets lack the liquidity necessary to see it soak up the impact of a big sell-off- such as the one triggered by the Bitcoin Cash hash war. That, however, is likely to change with the entry of particular market players into the crypto space.
According to Bart Smith, a digital asset exec at trading and tech firm Susquehanna, the entry of firms like Fidelity, Intercontinental Exchange (ICE), and Bakkt will boost Bitcoin’s liquidity in the crypto markets. In the end, BTC will have the capacity to withstand massive sell-offs.
At the moment, average traders have a hard time whenever they decide on investing in crypto markets.
Arduous processes at some top crypto exchange and trading platforms that include sending photos of ID to comply with Know Your Customer (KYC) and other regulatory requirements, among other things, has often limited the market to only a few investors.
Such rigorous demands and government policies imposed in countries like Japan, South Korea, and China have also impacted on exchanges; a factor that has kept a majority of would-be investors off the emerging crypto market.
Solving the on-ramp capital issue
According to Smith, the number one problem affecting the market is “on-ramps for new capital,” which remains a big challenge. Difficulties in the sector have directly impacted on wealthy individuals and global institutions who may have wanted to invest in the asset class. He explained:
“If you’re a global institution, it is still very difficult to buy Bitcoin in a way you might want to. A wealthy individual from the G.I. Generation is not going to take a high-resolution picture of their driver’s license and send it to a website and send money there.”
Such investors, Smith emphasized, would prefer if they invested with say Fidelity or Bank of America.
He also noted that having very few fiat on-ramps means that BTC markets cannot soak up mounting sell-off pressure coming from the investor community.
For instance, the debacle enveloping Bitcoin Cash following the hard fork has punctured the fragile confidence some investors have in BTC’s short-term performance. But without “new capital on-ramp,” the crypto market’s liquidity is just too low.
With such an environment in place, a contentious fork like that seen with BCH does not inspire confidence.
“…when those sellers come in, there’s just no liquidity to absorb it. Hopefully, with Bakkt, Fidelity, and further regulations, there are going to be enough capital to soak it up.”
Fidelity and Bakkt have both tailored their products to suit institutional investors. However, market liquidity could get a considerable boost from retail investors if Fidelity and other investment giants like Goldman Sachs and Morgan Stanley begin to offer crypto-related products to retail traders.
NYSE owner Intercontinental Exchange (ICE) announced on November 20 that it would delay the opening of its Bakkt Bitcoin Futures until January 24, 2019.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.