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Crypto rally continues globally on institutional buying, India still sees mostly retail trading

Crypto saw a massive rally over the last two days, following a blip last week, when many investors were booking their profits. Now as bitcoins have crossed their 2017 highs, industry insiders believe the best is yet to come

December 01, 2020 / 08:32 PM IST

The tumble in the crypto currency world last week has been eclipsed by a massive rally in the space since Monday as institutional players continue to pump in their dollars into crypto currency. As of Tuesday, bitcoins were priced at more than $19,500.

Indian crypto enthusiasts and traders believe that unlike 2017, this time around the rally in the bitcoin prices will sustain and there is a high chance of prices appreciating further. The main reason being large institutional players committing their assets in the crypto space. Further retail traders are also feeling more comfortable putting in their money, with players like PayPal, Square JP Morgan and others talking positively about it.

These players tend to bring in long term capital and will help protect bitcoins from selling shocks.

“Last week’s blip was mainly because of profit booking, since bitcoins crossed its previous high of 2017, the way in which the market has come back it is evident that there are bullish buyers in the ecosystem,” said Nischal Shetty, founder of crypto trading platform WazirX.

Media reports have also speculated that players like PayPal are buying all the freshly minted bitcoins in order to support its 300 million users who can now buy crypto on the PayPal application.

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“When these large institutions invest they bring in millions of dollars and they usually take a long term view, this is a big positive for the industry, hence there was a quick recovery this week,” said Sumit Gupta, cofounder of Mumbai based crypto trading platform CoinDCX.

Crypto platforms make hay

Crypto trading platforms in India have massively benefited from the global rally with many local investors showing interest in this space. Further industry insiders have pointed out that many Indian traders who had suffered losses back in 2017 and 2018, were looking to get back to active trading.

While institutions are staying away, many retail traders who understand blockchain, crypto, engineers, techies are interested to foray into the sector hoping to be the early bird.

Platforms like WazirX, CoinDCX, Unocoin and many others are seeing new investors joining the platforms and placing their bets on crypto.

“We have 2.5 lakh users and all of these traders have joined our platform post 2018,” said Gupta of CoinDCX.

Both WazirX and Unocoin have reported that over the last few weeks, new user sign ups have shot up.

“Unlike 2017, I think this time it is more about genuine interest and less about the fear of missing out, many youngsters who are joining now have already seen the 2017 cycle so they are more conscious about price shocks,” said Shetty of WazirX.

But every rally has a stopping point and the big question among crypto traders is where is that stop and when will it come. An active trader in the crypto space who spoke on the condition of anonymity pointed out that analysts are saying that investors should keep buying as prices are on the rise. Now the question is when should they exit? The key is to time the market, he said.

The PayPal Effect

There is difference when a pebble falls into a lake and a boulder tumbles into a stream. PayPal was that boulder which created massive ripples in the crypto trading ecosystem.

As per a Pantera Capital report with PayPal gobbling up almost all the newly minted bitcoins, there is a scarcity created in the market and that is causing the prices to jump. Pantera is a leading investment firm focussed on blockchain and cryptocurrency.

The total number of bitcoins that can be mine is constant at 21 million. Now above that in May the world saw the halving event when the bitcoins mined everyday is reduced in number by half. Therefore there is reduced supply and increased demand, bottom line price rise.

The report highlighted that the crypto market even after growing so much boasts of around 100 million users globally. PayPal alone has some 300 million customers, no wonder there is hectic buying activity in the market.

“…this rally is much more sustainable than 2017. One of the main differences is the ease of investing in bitcoin now — via PayPal, Cash App, Robinhood,” said the report.

Not only PayPal globally hedge funds are also buying cryptocurrency to hedge their bets. Infact it is understood that many family offices are taking money out of gold to invest in bitcoins, thereby treating it almost like a ‘virtual gold’.

“There is so much of positive news in the crypto world that many people are flocking to this space now and given these large institutions coming in, retail traders have some bit of extra comfort too,” said Varun Goel, founder of TodayQ, an education portal on cryptocurrency in India.

Regulations still a challenge in India

While crypto regulations are still not clear in many geographies, in India the fear of a ban is still palpable. After all there is a bill pending in the Parliament which speaks on a total ban on private crypto currencies.

“Indian institutions are not investing their money in this sector mainly because of this fear,” said Gupta of CoinDCX.

While it is not illegal to invest in crypto, if there is a ban brought in tomorrow, there could be massive losses incurred by the large players, a risk too big for them to take.

But macro conditions are favourable. Shetty feels that the stock markets have been more or less unaffected by the Covid19 pandemic. But come 2021, many investors fear that a price correction could happen. It is largely because of this reason, many investors are looking for alternate asset classes which do not correlate with equities.

“That way bitcoins are behaving very much like digital gold, where people are placing their bets hoping to hedge themselves in case of a stock market crash,” said the trader who spoke on the condition of anonymity.
Pratik Bhakta
first published: Dec 1, 2020 08:32 pm

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