Crypto Institutions Outperformed Retail And It’s Not Even Close

    • Coinbase’s institutional investors contributed over 3/4s of its Q1 revenue.
    • Retail and institutions were neck and neck in terms of assets on the platform, but the latter saw a 6x greater decline.

    There’s no easy way to say this, but crypto is down in the dumps. If we take the lowest low of the past week, Bitcoin was down 63% since November 2021, 46% from where it started 2022, and 37% from a month ago. Ouch.

    In this market dump, you’d expect the ones who took to Bitcoin and crypto after everyone else to have exited. But they aren’t. In fact, institutions are more bullish, or less bearish on crypto than their retail counterpart. And no this is not just wishful thinking this is what the data suggests from one of the largest exchanges in the world – Coinbase.

    Coinbase Sees Institutional Interest

    This week, Coinbase, the publicly listed crypto exchange, shared its results from the first quarter of 2022. Beyond the topline numbers headlining the 27% revenue growth year on year, the market, however, did not react well to the news amid the crypto market dump. COIN is down 70% since March 2022.

    Coinbase, despite being the retail darling in Western countries, is more institutional. In Q1, Coinbase’s trading volume was $309 billion and 76% of this came from its institutional clients. What’s even more surprising was the lack of heavy draw down in institutional volume.

    Institutional trading volume fell by 36% to $235 billion, while retail volume declined by 58% to $77 billion.

    Source: Coinbase’s Letter To Shareholders

    If you were to dismiss this because of the power law, hold onto that thought. Institutions do not have more than 3x the volume of retail because of a higher number of assets on the platform. Coinbase’s asset profit suggests retail and institutions are almost neck and neck. But the decrease is not.

    In Q1, Coinbase’s assets on the platform (crypto of course) was $256 billion, and 52% came from institutional investors and the rest from retail. The difference was in the performance on a quarterly basis. Institutional assets declined by less than 2%, while retail was down 12.7%. This was before Bitcoin’s massive crash to $35,000 and lower.

    Source: Coinbase’s Letter To Shareholders

    Will institutions carry on?

    One theory for institutions continuing to support the crypto market was its correlation to tech stocks. Given Coinbase’s position in the American crypto market and regulatory landscape, the exchange is a go-to for institutions to move in and out of crypto. This proved to be a bane in the past quarter and is looking like a bane in Q2 as well.

    Institutions are left questioning their strategy. With the Federal Reserve raising rates once again in Q2, crypto has been hit hard. Then the Luna Foundation’s Bitcoin dump to protect the UST peg added to this downfall. This double whammy would not be seen in the traditional markets, and hence the Bitcoin and tech stock similarity doesn’t hold true, at least not right now.

    Coinbase’s main institutional revenue generator is market-making, which saw a fee revision this quarter. Despite this revision, the institutional market remained its highest revenue generator and saw a lesser drawdown in a quarter; then Bitcoin dropped to $35,000 and ended in the red. In this quarter, when cryptos are already down nearly 30%, will institutions stick with crypto?

    Aakash Athawasya
    Aakash is a market analyst at Vauld. He looks at on-chain data of Bitcoin, ETH, and the macroeconomic effect of crypto on the equity and commodity markets.

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