Jon Matonis, a co-founder of Bitcoin Foundation and executive at VISA, stated that the entrance of major banks and financial institutions like Goldman Sachs will lead to an increase in the liquidity of bitcoin, and ultimately, the bitcoin price.
“I think it’s fabulous that they’re getting into it because it brings in new liquidity. They’re going to develop futures markets, options markets, I even think you’re going to start to see interest rate markets around bitcoin. We’re used to hearing things about Libor, the index for bitcoin interest rates is Bibor,” said Matonis.
When Will Banks Enter?
The cryptocurrency market is extremely volatile, both on the upside and downside. One of the primary reasons behind the extreme volatility of the market is its lack of liquidity. The daily trading volume of bitcoin and other major cryptocurrencies has substantially declined since a major correction occurred in January, along with the bitcoin price.
A significant drop in the daily volume of bitcoin has allowed whales and institutional investors in the futures market to manipulate the market, which is one of the reasons as to why the market has demonstrated correlated price movements over the past few months.
Recently, the Chicago Board Options Exchange (Cboe) has proposed to the US Securities Exchange Commission (SEC) to allow bitcoin exchange-traded funds (ETFs) on US stock markets like Nasdaq and the New York Stock Exchange (NYSE). The entrance of large financial institutions like Goldman Sachs will lead to more institutional and retail traders entering the cryptocurrency space.
As of current, the demand from institutional investors in the US is relatively high, but actual capital coming in to the cryptocurrency market from the public finance industry is almost non-existent. In Japan however, institutional investors are investing large sums of money in cryptocurrencies through trading platforms that specifically address retail traders.
Matonis further emphasized that to the skeptics that have described bitcoin as a bubble, bitcoin is not a bubble, but a pin that would pop the global financial bubble. He stated that equity markets and bond markets are the multi-trillion dollar bubbles that would inevitably burst in the mid-term.
“To the people who say bitcoin’s a bubble, I would say bitcoin is the pin that’s going to pop the bubble. The bubble is the insane bond markets and the fake equity markets that are propped up by the central banks. Those are the bubbles,” Matonis added.
It is uncertain though when major financial institutions will be ready to enter the market. Critically, the cryptocurrency market’s image over the past few months has been portrayed as a gambling ecosystem, especially by the mainstream media in regions like South Korea. If the market recovers in the short-term and cryptocurrencies such as bitcoin rebound to their all-time highs, banks will prepare to address the growing demand towards the market.
Bear Cycle
In a bear cycle or a slump, financial institutions will not be hurrying to enter the market, unless they want to establish themselves at the forefront of concurrency development prior to their competitors. It would take at least a few months to see major banks enter the space. But, when they do, the concurrency market will be equipped with significant liquidity and public investment vehicles.