'Bigfoot' Companies Squeezing Individual Investors Out of Crypto Market

The continued stampede of Bigfoot investors into Bitcoin may turn the cryptocurrency market into what the founders and hordes of geeks planned to avoid: a playpen for the moneyed few.

The influx of millions of dollars from major companies is likely to drive up the price and smooth out manic price swings, but it also raises questions about the future importance of individual investors in the market.

That would create a paradox: Cryptocurrencies, created as an alternative to government-issued fiat money and markets dominated by major institutional investors, may become more like the established markets they seek to replace.

Bitcoin ATM NYC
NEW YORK, NEW YORK - FEBRUARY 08: A bitcoin ATM is seen inside the Big Apple Tobacco Shop on February 08, 2021 in New York City. (Photo by Michael M. Santiago/Getty Images) Michael M. Santiago/Getty Images

Recent trading volume underscores the growing dominance of major investors.

Cryptocurrency trading volumes increased to $2.7 trillion in February, CryptoCompare reported. Volume at major exchanges grew by 35% to $2.4 trillion while volume at smaller exchanges fell by 36% to $381 billion.

This suggests growing consolidation of trading at the larger exchanges dominated by major companies and a decline at smaller exchanges typically used by individual investors.

Well-capitalized companies continue to add cryptocurrencies to their balance sheet as a long-term investment and hedge against inflation.

Meitu recently bought 15,000 units of Ethereum for $22.1 million and 379.1 Bitcoins for $17.9 million, making it the latest publicly traded company to announce a major investment in cryptocurrencies.

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This file photo shows an illustration of the Ethereum cryptocurrency on April 25, 2018 in London, U.K. Jack Taylor/Getty Images

"The Board takes the view that blockchain technology has the potential to disrupt both existing financial and technology industries, similar to the manner in which mobile internet has disrupted the PC internet and many other offline industries," Meitu, a Hong Kong-listed image and video processing software company, said in a statement.

Meitu is betting big on crypto's future appreciation, and looking to it as a hedge against inflation.

"The Board believes that the blockchain industry is still in its early stage, analogous to the mobile internet industry in circa 2005," the statement said. "Against this backdrop, the Board believes cryptocurrencies have ample room for appreciation in value and by allocating part of its treasury in cryptocurrencies can also serve as a diversification to holding cash (which is subject to depreciation pressure due to aggressive increases in money supply by central banks globally) in treasury management."

Earlier, electric carmaker Tesla and software developer Microstrategy, both publicly traded U.S. companies, made large investments in Bitcoin—both are betting on future price appreciation. One analyst estimates that Elon Musk made about $1 billion in his Bitcoin investment, or more than his electric car company generated in sales.

Institutional investors snapped up Bitcoin during February's price dip, further consolidating the market. Bank of New York Mellon, the nation's oldest bank, now offers custodial services for major institutions seeking a secure place to their cryptocurrency holdings.

Fractional ownership—the Satoshi—makes it possible for individual investors to participate in the Bitcoin market, but their importance is likely to decline if major investors continue to bet millions of dollars on cryptocurrencies in a single transaction.

Jason Deane
Jason Deane, Bitcoin Analyst, Quantum Economics, London (Photo Provided) Photo Provided

However, Jason Deane, Bitcoin analyst at Quantum Economics in London, believes the cryptocurrency's future is as a currency rather than as a long-term buy-and-hold investment.

"Bitcoin was designed to be a currency first and foremost," he told Newsweek.

"While it's true that the 'store of value' element of Bitcoin is probably the dominant narrative right now," Deane said, "the latest 'second layer' project by payment networks and development such as Lightning will ensure that the payment of Bitcoin will be properly enabled in due course, effectively creating an instantly spendable gold."

Mastercard and PayPal have added Bitcoin to their payment systems. On March 1, there were about 18.64 million Bitcoins in circulation, leaving about 2.37 million to be mined, CoinTelegraph estimated.

Ten years from now, about 20.6 million coins of the world's 21 million supply, or about 98.1%, will be in private hands. That may smooth out volatility and, if demand for Bitcoin continues, could lead to future price appreciation.

A JP Morgan Chase analyst believes Bitcoin's value could climb to $146,000. An estimated 1.9 million Bitcoins haven't been touched for about 10 years, and this may increase demand for the remaining coins, driving up the price because many are presumed to be lost.

A man in the United Kingdom said he mistakenly tossed out an old laptop computer that held about 7,500 Bitcoins now worth millions of dollars. He had mined the Bitcoin in 2009 when it was nearly worthless and forgot about it until the recent boom. He offered to pay the city of Newport in South Wales to dig up the dump to search for the hard drive, but the city council declined.

In early trading Tuesday, Bitcoin changed hands at $50,615.10, up 6.35%. Ethereum fetched $1,842.05, up 5.85%, CoinDesk reported.

Market Pulse

Bond yields continue to rise as inflation fears grow. Yield on the 10-year U.S. Treasury bond is at its highest level since February 2020, making risky stocks less attractive to many investors.

Inflation jitters could be good news for the Bitcoin faithful, if two "if's" come true—if it continues to appreciate and if it's a safe store of value.

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In this photo iIllustration, the Netflix logo is seen on the screen of an iPhone in front of a computer screen showing a Netflix logo on February 13, 2019 in Paris, France. Getty Images/Chesnot

A strong economic recovery appears to be underway following the COVID-19 shutdown, but investors are betting that the $1.9 trillion stimulus package about to be sent to President Joe Biden's desk to be signed into law plus rising oil prices will lead to inflation.

Investors are moving out of technology stocks and into cyclicals, or stocks that rise and fall with the strength or weakness of the economy.

Tech stocks that benefited from the shutdown as millions worked from home took a hit, including Apple, Facebook and Netflix. However, many tech stocks rebounded in early trading Tuesday.

Elon Musk speaking
Elon Musk speaking at a satellite conference in March 2020. The Tesla CEO explained his stance on bitcoin in a Twitter exchange. Brendan Smialowski/AFP/Getty

Investors aren't scorning the technology sector, but are betting that future growth will be slower as the lockdown eases because consumers won't be homebound and therefore will have more choices as the economy reopens.

Investors are also betting that hotels, leisure and travel will pick up as herd immunity is achieved and the lockdown eases, sending those stocks higher.

Shares of electric carmaker Tesla have fallen about 20% this year.