A friend of mine asked me about the crypto market last night. I got her into it and she has a small bag of coins that she's holding. She asked me about the market and as many of my friends have been confused by my positivity over a falling market value, I thought I'd explain my madness.
As far as describing the current state of the crypto market, there is no short answer. Nor is there a clear one. There is so much noise out there in the crypto space, that it is hard to see what's going on. And why the massive downturn after ( only ) 10 months of bear market.
Let's strip away everything and look at the market and the way it operates. Basically, the crypto market is made up of two parts and there are two markets operating side-by-side.
The Retail Market
The first market is the one you can see on sites like CoinMarketCap.
- These are the retail coin exchanges like Binance that report their figures and are the place where retail investors buy & sell their coins.
- Exchanges like Binance sell Bitcoin and altcoins through an order book and your average person can buy them using paper money or crypto.
That's the basic description of the retail market but there is one more thing to take into account to understand the current market. The financial strength of retail investors.
The retail market is made up of average people, who have a small amount of money to invest. While some investors have $100k or even $1m crypto portfolios, these make up a tiny percentage of the entire retail market.
It's safe to guess that the majority of the retail investors trading crypto have some kind of debt, whether it be a mortgage on their home, credit card debt or college fees that need repaying.
The reason that I mention this is because it plays a major part of the current state of the crypto market. Namely because most retail investors has liquidity issues and are betting on crypto to pay off their massive debts.
As a result, the retail market is populated by crypto gamblers who are not in a strong position to weather a bear market. And so are spooked by a downtrend.
The 2nd, OTC Market
The OTC or "over the counter" market is an invisible market in the sense that it exists, but the financial figures are not public or reported. So you just don't know the trading volume but estimates are they are equal to the total market cap of retail investors, if not more.
The OTC market is where the big players buy crypto. The banks, institutional investors and the big money from Wall St. Companies that have the capital to buy up big.
While the OTC space is largely in the shadows, according to a recent report a company called Grayscale owns $826M in Bitcoin. In 2018 alone, Grayscale has gone from 30,600 BTC to 203,000 total, which now accounts for more than 1% of the asset’s total circulating supply.
That's a major play as there won't be enough Bitcoin for every company who wants to enter the space, thereby giving companies like Grayscale a monopoly on Bitcoin-backed financial products.
All of that Bitcoin would have been bought over the counter, which does not affect the price of the retail markets. So, as we currently have, the retail market can be falling in price while the OTC market is rising in volume.
The Math
If the OTC figures were merged with the retail coin exchanges, you would have a very different price of the crypto markets. You'd have a bull run. But that's the point of the OTC market, to prevent "slippage" or big investors moving the market price because of their massive buy and sell orders.
Had companies like Grayscale bought Bitcoin on Binance, through the retail order book, the price of Bitcoin would probably have spiked to $100k or more before the order was even filled. Or if they sold that volume, Bitcoin would be 10c as was the case with Ethereum when it fell from $300 to that price due to the sale of a reported 300k ETH a few years ago.
Slippage / price stability is the main reason why the "secret" over the counter market exists. To prevent the market wildly bouncing up and down on a daily basis.
The Fake Bear Market
Let's put it all together. I've written about the current "bear market on the surface, bull market underneath" a couple of times recently on the blog.
To sum up, the downtrend in the retail market is largely due to retail investors who are up to their eyeballs in debt, freaking out and forced to sell off their Bitcoin to cut further losses. As much as Bitcoin Cash wants to claim responsibility for crashing the market with their public and juvenile "hash war", the current drop in the market is simply because "there are more sellers than buyers of Bitcoin".
The only reason why people would be selling now is for one main reason. They are in debt.
The moaning coming from the retail market is deafening. The comments on twitter and YouTube of a "hard bear market" is also a little sickening. To be frank, the negative emotion surrounding the crypto market is not coming from the market itself. It's the result of bad investment strategies such as "HODLing in a declining market", etc.
Meanwhile, the sun is shining for Wall St. The falling retail prices plays into the hands of the big Wall St investment houses who are setting up shop. Companies who are scooping up Bitcoin to secure their position in the market as well as to block the competition from entering the Bitcoin-backed futures market. So effectively, there is a 'bull market on buying' in the private markets.
While the retail gamblers cry out. The big players are laughing.
My prediction is that the retail investors who have parked their Bitcoin in a stablecoin to weather the fall in price, may wake up to find that there is not enough Bitcoin to buy back once the market returns. Binance, for example, offers OTC sales of Bitcoin so there is a possibility that a healthy chunk of the Bitcoin parked by retail investors will be sold OTC to companies seeking quantity of the digital asset.
Anyway, that's my take on the crypto markets. On one side, you have shaky retail investors who don't have the strategy or the finances to weather a prolonged downtrend. On the other side, you have big money players buying up cheap Bitcoin to sell in the next bull run.
Those are the two sides to the market as I see it. I don't think I am too far wrong.
Thanks for watching,
Brendan Rohan - Indie developer of 'next gen' natural medicine from Melbourne, Australia
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