Institutional investors are behind Bitcoin growth - Binance research

The research department of one of the world's largest cryptocurrency exchanges published the report that demonstrated a strong cryptocurrency demand from the growing army of institutional investors. This trend is one of the factors behind the cryptocurrency market recovery, the experts say.

"During the past three months, we saw new vigor in the cryptocurrency industry. The total market capitalization of cryptocurrencies rose from $130 billion on March 1, 2019, to almost $260 billion as of May 31, 2019, representing 100% growth in just three months. Throughout this period, Binance Research covered a wide array of topics, from stablecoins, cryptocurrency correlations, crypto forks and halvings, crypto prediction markets, cryptoasset cycles, and more," the report says.

Namely, the analysts noted the growing trading volumes in Bitcoin on the regulated Chicago Merchant Exchange (CME). Thus, on May 13 the trading volume hit the all-time high of 33,677 contracts (worth of $1.3 billion in BTC). Also, the number of accounts engaged in derivative trading increased to 2500.

"Institutional investors, currently representing (in our conservative assumptions) less than 10% of all long-term investors, are growing their exposure to digital assets and 7 cryptocurrencies, as illustrated by a premium of nearly 40% for Grayscale Bitcoin Trust (GBTC) over BTC spot price at the end of May," the researches stated. 

Speaking about privacy and decentralization-focused tokens, Binance experts noted that the market players are concerned about poor fungibility of some cryptocurrencies and the concentration of mining pools. 

Among other things, the researchers focused on the correlation between the USD price of different crypto assets, where Bitcoin continue to be the leader of the market that set the tone for altcoins. However, most of the time, market irrationality or so-called herd effect plays the dominant role in defining the price fluctuations.

"Within this period, the composite altcoin correlation with Bitcoin also hit an all-time high (March 13, 2018). That coincided with Bitcoin's fall from the $6,000 range to the $3,000 range. This high correlation suggests that market sentiment has already found a local maximum during that period, and a trend reversal may ensue. Such a price movement pattern, to some extent, may reflect both the irrational behavior of market participants and some inherent traits of a young market," they explained.

 If the trend of the two subsequent weeks after the peak period is different than that of the peak period. 59 However, given the short history of the crypto market, it may be premature to say that there is a causal relationship between peaks in correlation and market reversals, or if it's actually a herding effect during the market reversals themselves. We will continue to observe the development of this phenomenon, but believe that it could be a valuable sentiment indicator.

However, they also stressed that it is hard to tell whether there is a relationship between peaks in correlation and market reversals or the market reversals were distorted by a herding effect.