Bitcoin’s (BTC) value has fallen by about 75% YTD, driving the original and biggest cryptocurrency back to marks not seen before meteoric rise.
Plus, the price is not the only component of trading that has changed.
The retail investors behind Bitcoin’s ascent to a record near $20,000 last December have left the game, leaving the early adopters and crypto-related firms that traditionally dominated digital coin trading driving exchange volumes.
And while bigger investors from proprietary traders to hedge funds are growing more active, mainstream financial firms have stayed away from cryptocurrencies, even as market infrastructure seen as Key to their entry begins to be built.
The shifting shape of cryptocurrency trading, seen in the industry data and interviews with exchanges and companies, suggests Bitcoin is struggling to evolve from a speculative asset favored by niche investors to an investment choice in the same league as stocks or bonds.
Such an institutional breakthrough is seen as Key to the sector’s future, promising to help fund the development of cryptocurrencies and spread their real-world use for purposes like payments and money transfers.
Monthly cryptocurrency trading volumes at major exchanges reached $235.8-B in November, + 3X from the early stages of Bitcoin assent in September 2017, but still down about 50% from their highs a year ago, the data shows.
In the same frame, volumes at major retail-focused exchanges such as US-based Coinbase and Poloniex, owned by Goldman Sachs-backed Circle, shrank 22% and 74% respectively.
Japan’s bitFlyer has also suffered, with volumes down 47% last month.
As retail player fade, volumes have soared at exchanges such as Bitfinex that are favored by bigger investors. That is seen down to growing activity by a mixture of cryptocurrency miners and startups with big holdings, plus prop traders, hedge funds and wealthy individuals and families, say industry insiders.
Bitfinex trading volumes climbed 38% in November, which the firm attributes to traditional investors with roots in high-frequency trading opening accounts since March.
“You have the larger exchanges picking up the slack and making gains of market share, with retail exchanges stepping back,” said CryptoCompare’s Charlie Hayter.
“That’s the real shift — the cryptocurrency mining companies looking to pay their electricity bills using the exchanges that operate with larger players, and newer entrants trying to gain some form of exposure.”
Asked about the numbers, Coinbase said trading in the crypto sector was growing. Poloniex said the data reflected moves in the wider market. BitFlyer declined to comment.
CryptoCompare’s data covers most of the biggest exchanges, with the company adding new exchanges to its database when their volumes hit significant levels.
Bitcoin is currently trading at: 3,542.85 -5.34 (-0.1505%) as of 1:34a GMT, the market is open.
Cryptocurrency markets are hard to accurately gauge, given the lack of centralized data and opacity of major venues such as OTC (over-the-counter) trading, said to account for up to 50% of the overall market.
And, there are few ways to accurately break down the profile of investors in the digital coin market.
But exchanges and industry figures interviewed by Reuters said institutional investors such as asset managers, pension funds and investment banks remain largely absent from bitcoin trading, even as the shape of the market changes.
Most worry about the lack of clarity over regulation, as well as frequent security breaches at exchanges and the perceived absence of fundamental value of the assets.
That reluctance has remained even as strides are made in how to securely trade and store cryptocurrencies, notably by Fidelity Investments, and as a number of small jurisdictions like Gibraltar and Malta look to license crypto companies.
Clearer regulation will lend a stamp of legitimacy to cryptocurrency companies and weed out sub-standard players, say analysts, and may ease institutional investors’ worries about compliance.
A Key hurdle is the lack of examples of blockchain, which underpins Bitcoin and other cryptocurrencies, living up to its billing as a technology that could revolutionize sectors from finance to real estate.
But despite the work by startups and major firms, developers and exchanges, Top-tier mainstream investors have stayed away.
“You have seen some landmark decisions by Fidelity to actively engage in the cryptocurrency space,” said the Chairman of digital asset manager CoinShares.
“But nothing is actually active.”
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