Distributed Ledger: Crypto winter offers entry points for Wall Street firms? Here are key factors shaping institutional adoption

Crypto in a snap

Bitcoin
BTCUSD,
-7.09%
recorded a 2.2% loss over the past seven days, recently trading at around $41,160. Ether
ETHUSD,
-7.32%
is trading around about $2,895, down 2.3% over the past seven trading sessions. Meme token Dogecoin
DOGEUSD,
-5.83%
lost 4.7% over the seven-day stretch, while another dog-themed token Shiba Inu
SHIBUSD,
-6.16
is trading 2.3% lower from seven days ago.

Crypto Metrics

Institutional interests

After hitting an all-time high in November, bitcoin went through a three-month downward trend, hitting a low of $32,983 on Jan. 24, down more than 50% from its record high, according to CoinDesk data.

The crypto is recently trading at around $41,160, down about 40% from the all-time high.

However, the volatility and January selloffs have not deterred institutional interests in the space, according to Justin Chapman, global head of market advocacy and innovation research at financial service firm Northern Trust.

“We’re not getting any dampening of attitude or sentiment from clients towards cryptocurrency,” Chapman told MarketWatch in an interview. “When we speak to clients, their expectation is this is going to pick up.”

Carlos Betancourt, founding principal of BKCoin Capital echoed the point. “I think this has allowed them to feel a little bit more comfortable in finding a good entry point.” 

Still, bitcoin’s spot trading volume stays relatively low compared to historical levels.

The regulatory landscape could have a major impact on institutional attitudes, according to Chapman. “The chances of the regulation changing in the next 24 months in every jurisdiction is quite high,” Chapman said.

“For large institutional providers, they’re looking to launch things like spot bitcoin ETFs and the capabilities to deliver wrapped vehicles for classical investing,” Chapman said. The U.S. regulators have not approved any spot bitcoin exchange traded funds, while such products are offered in countries such as Canada, Germany and Switzerland. 

Financial institutions have also demonstrated demands for technologies that could secure them the best price for cryptocurrencies across different exchanges. 

“I think some of the challenges around crypto trading has been the proliferation of marketplaces and exchanges,” said Chapman.

“In traditional exchanges you know where to go for a certain asset class and certain environment.” However, in crypto, “you have to be able to go out to lots of different providers to get the best price for the right things,” according to Chapman.

SEC’s Binance probe

The Securities and Exchange Commission is reportedly investigating the relationship between the U.S. arm of Binance, the world’s largest crypto exchange, and two trading firms with ties to Binance’s founder Changpeng Zhao, the Wall Street Journal reported Tuesday citing people familiar with the matter. 

The two trading firms Sigma Chain AG and Merit Peak Ltd. act as market makers that trade crypto on Binance.US. The regulator is in part focusing on how Binance.US disclosed to customers its connections with the trading firms, according to the Wall Street Journal. 

A Binance spokesperson wrote in an email to MarketWatch that “market-making activities are standard in both traditional finance and crypto.”

“They ensure liquidity and directly support a healthy, vibrant, and efficient marketplace to the benefit of end-users,” the spokesperson wrote.

The case has attracted attention across the crypto world, as the SEC will need to establish jurisdiction over some cryptocurrencies that Binance.US offered in order to bring any enforcement measures against the exchange. 

It leads to the long-existing debate – the SEC said most crypto are securities, while crypto companies said the regulator hasn’t proven which tokens are securities. 

“My interest is where the jurisdiction lies, or what jurisdiction they [the SEC] would assert for that. And which of the cryptocurrencies would they be asserting qualify as securities?,” Christopher W. Gerold, partner at law firm Lowenstein Sandler and former chief of the New Jersey Bureau of Securities, told MarketWatch in a phone interview. Gerold is not involved in the case. 

“Certainly, if there were securities being traded and they’re being manipulated through undisclosed affiliates. That is actionable as a fraud,” Gerold said. 

The reported investigation adds to Binance’s pressure as the exchange faces regulatory headwinds across the world. Regulatory bodies in different countries and regions, such as Japan, the United Kingdom, the Canadian province of Ontario and Hong Kong, published warnings against the crypto exchange last year. 

Bitcoin outperforming ether?

Bitcoin is likely to outperform Ether by 33% over the next three months, according to the analysis by artificial-intelligence-driven screening platform Toggle. 

The platform examined the ratio of bitcoin’s price to that of ether, which in November reached the lowest level since 2018, while Toggle expected to see an upward trend in the near term. 

“This is simply saying, if you are looking to get into cryptocurrencies and you don’t know which one to buy, maybe actually your bet here should be on Bitcoin outperforming relative to ether,” Jan Szilagyi, Toggle’s co-founder and chief executive, told MarketWatch in an interview.

“You may as well consider buying both but if you only are going to buy a one or if you are even trading cross, the system has highlighted that the odds seem to be skewed in favor of Bitcoin outperforming ether,” Szilagyi said. 

However, Szilagyi noted that the analysis is primarily based on past price data. As digital asset is a rather nascent industry, “we’re still coming to terms with what are the actual drivers of a lot of price action of cryptocurrencies,” Szilagyi said.

Crypto companies, funds

Shares of Coinbase Global Inc.
COIN,
-7.71%
traded down 8.3% to $190.57 Thursday afternoon. It was down 6.7% for the past five trading sessions. Michael Saylor’s MicroStrategy Inc.
MSTR,
-6.98%
 traded 6.3% lower on Thursday to $408.19, and has lost 5.6% over the past five days.

Mining company Riot Blockchain Inc.
RIOT,
-9.34%
shares fell 8.7% to $17.9, with a 7.2% loss over the past five days. Shares of Marathon Digital Holdings Inc.
MARA,
-9.44%
plunged 8.8% to $25.9, and are down 10% over the past five days. Another miner, Ebang International Holdings Inc.
EBON,
-9.09%,
traded 9.4% lower at $1.4, with a 11.2% loss over the past five days.

Overstock.com Inc.
OSTK,
-7.02%
plummeted 9.4% to $41.19. The shares went down 17.4% over the five-session period.

Block Inc.
SQ,
-4.16%
’ s  shares are down 3% to $105.73, with a 2.9% loss for the week. Tesla Inc.
TSLA,
-5.09%’s
shares traded down 4.6% to $881.4, while its shares logged a 2.6% loss for the past five sessions.

PayPal Holdings Inc.
PYPL,
-4.83%
lost 3.7% to $106.4, while it recorded a 10.6% loss over the five-session stretch. NVIDIA Corp.
NVDA,
-7.56%
lost 7.5% to $245.4, and was looking at a 5% loss over the past five days.

Advanced Micro Devices Inc.
AMD,
-4.52%
went down 2.2% to $115.13 and lost 8.5% over the past five trading days, as of Thursday afternoon.

In the fund space, ProShares Bitcoin Strategy ETF
BITO,
-7.38%
was 6.5% lower at $25.93 Thursday, while Valkyrie Bitcoin Strategy ETF
BTF,
-7.44%
was down 6.7% at $16.05. VanEck Bitcoin Strategy ETF
XBTF,
-6.98%
fell 7% to $40.29.

Grayscale Bitcoin Trust
GBTC,
-8.44%
was trading at $28.59, off 8% Thursday afternoon.

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