Stephen Innes, the head of Trading Asia at Oanda Group, a New York-based financial services firm, recently told CNBC that “the depth of the [cryptocurrency] market is a little bit thinner [now].” Innes’ analysis of the current trends in digital currency trading reflected on the lack of institutional presence due to concerns regarding high volatility and regulatory uncertainty.
“the retail community that’s investing primarily in cryptocurrencies is looking for that underbelly support from Wall Street’s big banks and also big global trading banks.”
He added that:
“without that element, the [crypto] market [will] remain thinly traded...even when the Chicago Board of [Mercantile] Exchange (CME) [began offering bitcoin futures] … that was supposed to be a highlight, but the volumes haven’t really picked up [as much as expected].”
"Intense, Intense Scrutiny" Over Fraudulent Activity
According to Innes, there are two main factors why cryptocurrency trading volumes remain relatively low. They include lack of proper “regulatory oversight” and the “intense, intense scrutiny over [crypto-related] fraudulent activity”. Both these high-risk issues are keeping [many investors] “on the sidelines”, the veteran financial market analyst noted.
When questioned about whether bitcoin and other cryptocurrencies are going to continue to have a “very difficult time” until the market begins to attract institutional support, such as the rumored (or inaccurately reported) Goldman Sachs crypto trading desk or US Securities and Exchange (SEC) approved crypto ETF, Innes said:
“I think an approval of a [crypto] ETF would be dynamic for the market...that would reassure investors that there is sufficient regulatory oversight. And, investors would obviously feel a lot more comfortable.”
The Econometrics and Quantitative Economics graduate then explained how many of the fraudulent activities are being carried out in the crypto industry. He noted:
“If you look at a lot of these crypto houses that go under the moniker of an exchange...they’re not exchanges at all. This is just [false advertising] to lure people in. It gets a little bit worrisome when [people] hear about the billion-dollar frauds that are going through these companies and people’s cash is in danger. So, I think this is also another issue that investors are dealing with.”
"Not Expecting Great Deal Of Participation"
Earlier in December of 2017, Innes told Bloomberg, after the launch of bitcoin futures contracts, that the market was “not expecting a great deal of participation” in crypto-based futures, as significantly fewer of them had been issued compared to copper futures contracts or traditional NASDAQ contracts.
At that time, Innes had also said there were many clearing banks that were not offering support for bitcoin futures to their clients. However, he had anticipated that they would do so by 2018, and this would lead to “greater participation” in the crypto market.
Now that we’re approaching the end of 2018, the risk management concerns (such as high volatility) Innes had attributed to low crypto trading and futures volumes still remain.