One analyst believes that Bitcoin fans should thank Wall Street for making the cryptocurrency more stable.
The creation of Bitcoin by Satoshi Nakamoto has had a profound impact. While dismissed by the financial world initially, institutional investors are now lining up to grab a piece of the lucrative cryptocurrency pie. Virtual currencies have allowed the individual to take greater control over their economic choices, but the ongoing issue of volatility has been a nuisance. Now an analyst is saying that the influx of Wall Street cash is helping soothe the world’s number one cryptocurrency’s volatile nature by making it more stable.
Taming the Bitcoin Beast
The cryptocurrency trading firm, SFOX, has noticed that the price variations for Bitcoin have dropped off on exchanges. The reason for this stabilizing trend? According to SFOX, Wall Street money pouring into crypto.
Danny Kim, the head of growth for SFOX, says:
Before institutional firms were actively trading crypto or heavily involved (before 2018) bitcoin price differences between exchanges varied as high as 4.5%. [Now, variations in price are only one-tenth of one percent.]
To be honest, a lot of institutional money has been entering the cryptocurrency ecosystem. This is clearly evident by Coinbase creating a set of tools designed exclusively for these heavy hitters. Plus, a report by Grayscale Investments shows that the first half of 2018 has exhibited a steady growth of capital infusion into its cryptocurrency funds, and a majority of that capital comes from institutional investors.
Stability a Good Thing
Having Bitcoin becoming stable is a tremendous development when it comes to full-scale adoption by merchants. While hodlers want to see BTC continue to shoot up in value, such lack of stability gives merchants cold feet. The thought of having your payments suddenly drop 10 percent in value overnight is enough to give merchants nightmares as a small profit can instantly turn into a net loss.
Kim notes that new advances in trading technology are also helping push this new Wall Street stability for Bitcoin. He says that high-frequency trading firms (HFTs) can now take advantage of these new developments, allowing them to push further with their investments. He states:
Some HFT firms have been trading since crypto 2014, but have limited themselves because the infrastructure wasn’t there. Most if not all HFT firms require a FIX connection (an advanced type of connection to an exchange) at an exchange in order to trade efficiently. Crypto exchanges haven’t offered FIX connectivity until recently.
Kim believes that continuing technological advances will only heighten the stability of Bitcoin. He cites the increasing frequency of colocation, in which traders can house their trading computers in the same facility as their matching engines. Kim says:
As this trend continues, the stabilizing effects of institutional investment will extend beyond price spreads, and on to price fluctuations .Eventually, it could even come to the point where Bitcoin could come to resemble the stable coins people are looking to for payments and is used for Satoshi Nakamoto’s original vision: a ‘Peer-to-Peer Electronic Cash System.’
It is an interesting thought that money from the financial bigwigs is having a stabilizing influence upon Bitcoin. And it does have merit as institutional investors are not known for being fans of risky financial ventures. Of course, one does wonder how the finite supply of bitcoins will impact future stability.
Do you agree with Danny Kim’s assertion of Wall Street helping increase BTC’s stability? Let us know in the comments below.
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