Along with the meteoric rise of the cryptocurrency in the second half of 2020 and the beginning of 2021, a curious phenomenon happened; increased profit realization and conversion to fiat currencies. The data collected by Simplex, a fiat-crypto gateway, highlights this apparently paradoxical development.
A curious race to convert crypto into Fiat has followed Bitcoin’s latest advance
Sharing exclusive data with Bitcoin.com, Simplex co-founder and director of analysis Netanel Kabala says:
While international press coverage of the Bitcoin rally has caused a flood of new users to the industry and membership, the outflows were just as significant. Of the total amount of cryptocurrencies sold in the last six months, 43% was reduced only in December.
A quick look at Google Trends for the term ‘Bitcoin’ echoes these developments, especially now that new equity instruments, like Grayscale Bitcoin Trust and funds from big names like Blackrock are increasing exposure and raising awareness about cryptography.
Still, given the greater ability to convert cryptography quickly and withdraw it into fiat currencies, the increase in funds leaving the ecosystem is surprising. Part of this can be attributed to the growing fungibility of cryptocurrency, mainly helped by the support of players like Simplex, which enables users to buy, sell and spend cryptography through Visa partnerships.
While some of the observers at the latest high have criticized the rapid rise in cryptographic valuations as evidence that a bubble is forming in this nascent asset class, others within the industry see development as a harbinger of the times to come. One of the areas where this is most apparent is altcoins.
Data compiled by Simplex illustrates that as Bitcoin prices have stabilized above $ 30,000, daily purchases of altcoins have increased by approximately 65%. More interestingly, the data highlights that younger users account for almost 20% of that volume, marking a sharp increase in the number of novice retail investors, expanding and diversifying their exposure within the ecosystem.
Poloniex, one of the top 20 global cryptocurrency exchanges, which adopted the Simplex platform, experienced these results first hand. Karen McHenry, Product Director at Poloniex, attributes this development to greater access within the ecosystem, especially with the option to purchase Simplex, which promotes instant account financing along with the increased ability to cash out quickly.
Nor does she see the ability to convert from encrypted to decree more quickly as harmful, despite the surprising amounts withdrawn from the exchanges.
It may seem surprising, but adding the ‘sell’ option also has a positive impact on the number of cryptographic transactions.
While this easy reduction and the increasing volume of sales orders may seem negative for prices, it can also be seen as a healthy reflection of ecosystem growth use cases. In addition to making it easier to get in and out, growing areas like decentralized finance (defi) and greater fungibility contribute to a cryptocurrency’s value proposition.
As institutions start lining up to increase exposure as retail accumulation increases, Bitcoin momentum can actually accelerate and, by extension, raise the altcoins sought by newcomers seeking opportunities outside of seminal cryptocurrency.
McHenry adds:
If the bull market can maintain its momentum, some of these BTC profits will go to altcoins, which are particularly popular with retail investors. This creates a positive feedback loop, with traders who tend to profit by telling their friends about cryptography, which brings more investment to the market.
Do you think fragmentation will continue throughout 2021? Let us know in the comment sections below.
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