Saturday, July 13, 2024
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The Primary Actors in the Bitcoin Market

While Bitcoin is currently the world’s most prominent cryptocurrency, its entry into the global financial ecosystem was not all glitter and glam. Many people, including governments, institutions, and investors, shrugged it off as a bubble that would soon burst and usher the global economy into financial chaos.

However, a handful of entities and individuals saw Bitcoin’s future potential early and quickly jumped into it. Most of the primary Bitcoin actors are now millionaires or billionaires, mainly due to the meteoric rise in Bitcoin prices witnessed over the recent years. Although some players did not clearly understand how Bitcoin worked, they banked on its potential.

Satoshi Nakamoto introduced Bitcoin as an alternative transaction currency without connections to any central authority. While many entities and individuals currently use Bitcoin as payment, investors have also discovered it can serve as a store of value, with a better inflation hedge than traditional assets. Bitcoin has other robust applications as a technology, driving innovations in multiple economic sectors worldwide. The following are the primary actors in the Bitcoin market.

Bitcoin Miners

Bitcoin miners were the first actors in the crypto ecosystem because they are essential to minting new coins, processing transactions, and updating the public ledger. Bitcoin miners use specialized computers to solve cryptographic puzzles. The first miner to successfully solve the mystery or mine a block receives incentives in Bitcoin. However, the rewards reduce by half every four years, a process called halving.

Crypto mining is capital intensive due to the powerful computer hardware and vast electricity required to run them. Early miners used desktops and PCs to mine Bitcoin, but the equipment became inefficient as many participants joined the network. However, miners currently use ASICS, which is quite expensive. The costs have prompted several miners to enter mining pools, combining resources to increase their chances of solving the puzzles faster and receiving the incentives.

Retail Investors and Traders

Retail investors and traders also started dominating the Bitcoin market immediately after its inception. Any of them started putting their money into Bitcoin, assuming it could provide a better hedge against global economic turmoil. Retail investors mainly refer to individuals who buy or invest in Bitcoin, hoping to profit from its long-term growth potential.

Retail investors are not typically involved in active Bitcoin trading. Instead, they purchase supply and hold the funds over a more extended period, awaiting its prices to grow. However, traders actively buy and sell Bitcoin for short-term profits, daily, weekly, or monthly.

Institutional Investors

Many institutions were initially hesitant to join the Bitcoin market, mainly due to its high volatility, high barriers to entry, and relatively low market cap. However, a few institutional investors, including hedge fund managers and quant traders, saw the light in time and quickly jumped into the market.

Crypto hedge funds make money by charging a management fee for handling and growing their customers’ virtual assets. The standard industry rate is 20%. Several hedge funds claim to provide higher returns, backed by management strategies and proprietary trading.

Although hedge funds engage in short-term and long-term investment and trading strategies, quant traders mainly focus on short-term or high-frequency market trades. Meanwhile, Bitcoin’s institutional adoption has significantly increased in recent years, with many banks, family offices, and asset managers recommending a 5% allocation of their clients’ wealth to Bitcoin.

The Bitcoin market has increasingly attracted tens of thousands of investors over the recent years. However, miners, retail investors, traders, and hedge funds were its primary actors that now boast significant Bitcoin holdings.

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