Over the Christmas holiday Bitcoin was hitting new highs while the market for Bitwise Asset Management, the U.S. crypto index provider that trades over the counter, was closed to trading. Because it's one of the very few vehicles for retail crypto investment in the United States the very young provider of index funds has traded at a very high premium, one that has even been characterized as absurd by crypto optimists.
Anyway, after Christmas, BITW did not reach a new all time high as some might have expected to correlate on the wave of institutional demand and ensuing euphoria. I was a little surprised which prompted some reflection. I came up with the following hypothesis (no math, just intuition).
Institutional demand only has a small impact on the premium because large hedge funds and investment firms are well heeled. They can hire experts in the tech and have been researching these moves well ahead of time. As legal entities they also may not be as constrained by geography and jurisdiction as, say, newly minted individual traders in quarantine.
Consequently institutions have many more options for holding their cryptocurrency than the little guy. In other words the retail premium for those who have to rely on a vehicle like BITW is already priced in. The boom in institutional demand is great for the underlying assets, but the euphoria doesn't add to the over to the OTC realm so much.
Anyway, that's my story — which is certainly a work in progress.
One of the cool aspects about this timing is that further BTC all time highs over the New Year's holiday have presented a very similar situation to see if the reaction is similar. Or maybe I am completely wrong and the new heights of BTC enthusiam were just a slower simmer to reach the U.S. stock market.
So fare this morning the story has been very similar to after Christmas. A little upswing, but nothing approaching its earlier highs.
So what do you think? Am I way off the mark?
Image courtesy of Bermix Studio