So far this year, the global pandemic has put tremendous strain on the economy. The Federal Reserve has stabilized the markets by injecting trillions into the financial system. Many investors have doubts about the long-term implications of such behavior, and the crypto markets have therefore seen growing interest from institutional investors. Aside from this, Huobi Exchange talks about other reasons that the big players are stepping in.
Global Pandemic & Markets
Crypto markets have seen growing attention from institutional investors due to the economical environment in 2020. With COVID19 resulting in global shutdowns, this put tremendous stress on banks, ultimately leading to the Federal Reserve taking control. In order to support the economy during unprecedented times, the Fed’s balance sheet has grown more than $3 trillion since mid-March. In addition, the Fed has created money out of thin air, purchasing more than $120 billion a month in treasuries and mortgage backed securities. Despite this behavior stabilizing markets in the short-term, many investors fear the long-term implications on a macro scale. Fears around inflation, and the devaluing of the dollar have shifted institutional focus to digital assets.
Back in May of this year, Wall Street veteran, Paul Tudor Jones announced his growing interest in Bitcoin. The hedge fund manager stated that Bitcoin currently reminds him of gold in the 1970’s, and that Bitcoin could potentially be the best hedge against future inflation. Jones is known for his track record, especially when he predicted and made money off the crash of 1987.
Aside from Paul Tudor Jones, other institutional news this year stems from Grayscale. Grayscale is the largest digital asset manager, and has seen rapid growth among institutional investors. In Q1 of this year, Grayscale saw institutional involvement skyrocket, being fueled by hedge funds. During a time of global uncertainty, investors were taking a “tactical approach” and diversifying in Bitcoin and Ethereum.
Huobi Crypto Exchange Saids Global Uncertainty Isn’t The Only Reason
Despite global uncertainty being a catalyst, Huobi exchange stated that other reasons are attracting institutional investors. In a recent announcement, Huobi explained that price volatility and high liquidity is a reason institutions are flocking to cryptocurrency.
According to Ciara Sun, VP of Huobi Global Markets :
“The price volatility and high liquidity of digital assets are especially attractive to investors. The crypto market is unique in that it can fulfill both demands in liquidity and volatility. For example, traditional investments like real estate have price volatilities but lack of liquidity. Foreign exchange markets have high liquidity but lack price volatility. Investors see arbitrage opportunities in crypto as an emerging market. An above average range annual return can be seen as good performance in the traditional market, but is actually a quite mediocre return in the crypto derivative market.”
Huobi Futures Market
In April of this year, Huobi had launched perpetual swap trading which has seen great traction among institutional traders. The platform was introduced as a way for investors to hedge risk and facilitate leveraged arbitrage opportunities. According to the announcement by Huobi, futures and swap volume hit $5.2 billion as of May, in a product that was only launched a couple months ago. Even though retail investors leverage this platform, Huobi projects that institutional trading accounts for 30-40% of the activity. Since early last year, the crypto exchange has also seen 3-4X growth in institutional trading in derivative markets.
With digital assets being completely decoupled from government intervention, it has created all sorts of opportunities for institutional investors in 2020. The global pandemic has created an environment where governments are printing excessive capital that many believe will create inflationary concerns. Even with large digital assets like Bitcoin experiencing reduced volatility this year, institutions are still finding additional opportunity pertaining to hedging, and growing liquidity.
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