Bart Smith, the head of digital asset at trading giant Susquehanna, has told the media that a lack of liquidity in Bitcoin markets made the №1 cryptocurrency vulnerable to a large sell-off caused by the Bitcoin Cash hash power war and hard fork.
However, he has spotted a possible solution. He believes that the arrival of Fidelity, ICE and Bakkt in the cryptocurrency market could increase Bitooin’s liquidity and bring with it a rise in the market’s capital that would mitigate against damage from large sell-offs.
Why Fidelity and Bakkt are important
There’s a view that it is difficult for the average trader to use exchanges like Coinbase and Bitstamp because of their KYC procedures. The systems are seen as “impractical,” but have to be followed because of the demands of government regulatory agencies in the USA, Japan and South Korea, amongst others, that limit the market to a small number of investors that “possess a certain know-how to invest in the emerging asset class.”
Smith said: “Number one, the on-ramps for new capital is very difficult. If you’re a global institution, it is still very difficult to buy Bitcoin in a way you might want to. A wealthy individual from the G.I. Generation is not going to take a high-resolution picture of their driver’s license and send it to a website and send money there. They want to invest with Fidelity. They want to invest with Bank of America.”
Problems caused by Bitcoin Cash hard fork
Smith, who is a well-known crypto bull, also pointed to “the limited number of fiat on-ramps in the cryptocurrency market made it difficult for Bitcoin markets to absorb growing sell-pressure placed upon by investors,” and the Bitcoin Cash hard fork, which Smith dubs a “fiasco”, has exacerbated this. He told CCN: ““That has led to the second problem which is without the new capital on-ramp, liquidity has been very low. And so we’ve kind of seen a stable price all through summer, it was at $6,000 give or take. Volatility got really light at the end of July. So what happens is in that environment, if you have a contentious fork, it does not necessarily create a tremendous amount of confidence and when those sellers come in, there’s just no liquidity to absorb it. Hopefully, with Bakkt, Fidelity, and further regulations, there are going to be enough capital to soak it up.”
The upshot is this: if financial institutions like Fidelity, Goldman Sachs, and Morgan Stanley start providing cryptocurrency investment services to retail traders, a proposal Goldman Sachs made in October, it could substantially increase the liquidity coming from individual investors in the crypto space and provide a way up for Bitcoin and other crypto assets.