How the Bitcoin Market Changed Since 2017’s Bull Run


Although the bitcoin market’s recent volatility may feel familiar to industry veterans, the circumstances are very different in 2020 than they were when bitcoin (BTC) surged to nearly $20,000 in late 2017.

Namely, there’s now Wall Street infrastructure for sophisticated bitcoin trading and holding, from Fidelity Investments to Bakkt. For another example, the brokerage startup Tagomi, co-founded in 2018 by Union Square Ventures alum Jennifer Campbell and backed by Peter Thiel’s Founders Fund, also offers institutional investors the options for trading between platforms without moving the price. Until recently, limited price spreads restricted market activity.

“During the last bull run there were a lot of trading desks with a pretty website, but behind the scenes there was a lot of sausage making,” Campbell said, describing how some funds literally just operated with one person’s personal exchange account.

These days, over in San Francisco, deliberately conservative exchanges like the bitcoin-focused startup River Financial have attracted talent such as Union Bank of Switzerland alum Zev Mintz. Mintz said the combination of a robust lending market with margin trading will be a “huge driver” of liquidity in 2020, as well as the growing “payments system” use case.

Indeed, merchant adoption remains modest yet consistent, according to Coinbase. Meanwhile, OKEx Financial Markets Director Lennix Lai said derivatives now make up nearly 66 percent of the platform’s daily global volume, more than $2 billion in options alone.

Yet, it’s not the sheer number of trading platforms that differentiates this prospective bull run. Incumbents like BitMEX and Binance continue to churn volumes that dwarf those of OKEx.

“We were getting questions all the time about what can we do, can we buy bitcoin?” Mintz said of his former clients at UBS. “A lot of what I’m going to be doing in the next year [at River Financial] is building on some of these [dollar-cost-averaging] tools, giving users more insights and analytics into how their holdings are working and being as transparent as possible.”

These days, Campbell says, it’s easier to give more accurate price information from a variety of exchange platforms, in addition to “better ways for people to margin for shorts and lends.”

“The over-the-counter market has changed a lot. … It was really a couple of guys pressing ‘buy’ behind the scenes,” she said, comparing 2017 to 2020. “It’s moved from a dealer-driven market to one where people know how to execute trades through a prime broker, using algorithms or other strategies.”

It’s the presence of both Wild West options and regulator-friendly alternatives that differentiates 2020.

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It’s cheaper now than it’s ever been to move large bitcoin trades in and out of a market.

By spreading trades across exchanges, institutional buyers avoid tipping the scales against their trades on platforms with limited spreads.

“A lot of the trading strategies that were too expensive before are now possible,” said Tagomi’s Campbell. “A lot of the strategies before were just arbitraging between exchanges, but that very quickly got subpoenaed away.”

She declined to comment on the startup’s work with more than 40 hedge funds, family offices and other institutional clients. Yet, Tagomi’s warm relations with companies like Facebook and Bakkt suggest the long-prophesied arrival of institutional investors, which bitcoin advocates claimed in previous years would boost bitcoin prices “to the moon,” may have already started as a whisper, not a bang.

For example, Lai estimated that 1 percent of OKEx’s clients in 2020 are the institutional traders that drive nearly 70 percent of the platform’s volumes. 

The 2017 bitcoin market was retail driven. The cryptocurrency market, in general, may still be predominantly retail but bitcoin is much less so than before. OKEx’s Lai explained the appeal of bitcoin derivatives, trusting a company for traditional guarantees, attracts buyers who aren’t yet comfortable with independent custody of bitcoin itself. This can be especially true in emerging markets like India, where the Supreme Court recently ruled banks can work with crypto businesses and the demand for derivatives is surging.

“Because the volatility of bitcoin is particularly higher than a regular asset class,” Lai said. “Traders feel more safe that way, they deposit a lot more money.”

If bitcoin doesn’t become a mass-market product, then investor interest may eventually simmer down. (For his part, River Financial’s Mintz envisions bitcoin for “everyday payments” thanks to the Lightning Network.)

Still, it looks as though institutions around the world now routinely trade millions of dollars worth of bitcoin every day. That’s no longer a rare “whale call,” it’s the status quo. 

“Those are the two components that are really important,” Mintz said, regarding how institutional interest and retail usage must coincide to drive demand beyond speculative trading. Institutions can now choose whether to trade bitcoin itself or representative options, both at scale.

“When you’re shorting on our platform, you’re actually borrowing bitcoin from someone else,” Tagomi’s Campbell added. “There’s physical bitcoin being exchanged. The same thing with margins … it’s all backed by physical assets, which is very different than trading futures [in 2017].”

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