Cryptocurrency trading has seen huge gains for Bitcoin traders and simultaneous huge losses for short sellers.

We check out cryptocurrency trading trends in the markets.

Cryptocurrency trading: Short sellers take a hit

Short sellers betting against MicroStrategy (MSTR.O) have lost out by $1.92 billion since March, according to S3 Partners data, as the stock plowed into stratospheric gains with the rest of the market.

The SEC’s approval of multiple bitcoin spot exchange-traded funds (ETFs) in January helped edge one of Wall Street’s newest asset classes into the fold of decades-old financial circles.

Short sellers of the cryptocurrency exchange Coinbase (COIN.O) and the bitcoin miner CleanSpark (CLSK.O) have lost $593.50 million and $106.40 million, respectively.

It’s incredibly difficult, if not impossible, to short positions of this size in the crypto space.

Cryptocurrency trading: 190,000 BTC balance

MicroStrategy has nearly 190,000 BTC on its balance sheet as of the end of 2023, and recent filings show the company intends to acquire even more.

Last month, it sold convertible debt twice in a seven-day period in order to fund bitcoin buys.

The company’s aggressive pursuit of share-buybacks to acquire bitcoins has been greeted with enthusiasm by investors.

And yet, the broader cryptocurrency sector is a hotbed for short-sellers. Short interest in nine crypto-related firms stands at 16.73% of their free float, three times the US average.

Cryptocurrency trading: SEC Cautious on Crypto

This more cautious stance from the SEC towards the crypto world is reflected in its not yet extending its approval of bitcoin spot ETFs to other cryptocurrency products, such as Ethereum spot ETFs either.

While investors would make money if the stock went lower with short selling, it is still a bet dependent on speculative market activity, such as in the cryptocurrency markets.

Cryptocurrency trading: 90% of Crypto trades on small number of exchanges

The approach towards securitization is cautious as the European Union securities regulator expressed concerns about the high level of concentration of cryptocurrency trading.

It flagged the fact that it found ‘almost 90% of volumes coming from a limited number of crypto-asset service providers and exchanges’.

Binance is especially dominant, accounting for about half of the market.

That represents a risk of cascading failure in the sector if the exchange turns out to be a house of cards.

Cryptocurrency trading: Bitcoin, Ether in Focus

Responding to these worries, the EU is seeking to establish the first comprehensive regulatory regime for cryptoassets trading, including bitcoin, Ether, and Tether, by forcing exchanges to obtain a licence.

The European Securities and Markets Authority (ESMA), which studied the issue in 2022, for the benefit of regulators.

The authorities said, in a pointed understatement: ‘The analysis at a detailed level gave a good understanding of the nature of the trading on crypto-assets and the entities involved.’

Cryptocurrency trading: The euro is a favourite for crypto

The euro was involved in 71% of crypto trading, and an astonishing 10 exchanges accounted for almost 90% of the market overall.

Binance alone handled about half. ‘The high concentration on these platforms, facilitated by scale economies, are likely to be efficient,’ ESMA conceded, before noting that the obvious implication is that ‘widespread problems affecting one exchange … may also lead to significant concerns about the stability of the wider crypto ecosystem’.

Cryptocurrency trading: Binance takes more than 50% of the market

Meanwhile, the authority found that concentration ‘is increasing’ – Binance nowadays takes more than 50% of the market for itself.

Binance issued a statement that it was ‘acutely aware of our responsibility to the crypto industry to facilitate its growth in a way that is measured and responsible so that everyone can benefit in the longer term’.

The exchange stressed it was committed to augmenting its systems and controls ‘to ensure compliance with the regulatory developments’.

Cryptocurrency trading: Bitcoin hits record highs

Although the price of bitcoin reached a new high of $73,803.25 in March, the total value of all cryptocurrencies, estimated at $2.7 trillion by CoinGecko, remains a small part of the worldwide financial system.

ESMA pointed out that it was difficult to trace the origin of orders to trade and the location of the exchanges.

With about 55% of all the global trading volume is credit to exchanges holding an EU licence, but most of the transactions are carried out beyond the EU, many of them on exchanges in jurisdictions known for having favourable tax regimes.

Counterintuitively, ESMA found cryptos are correlated with equity markets and have an unstable relationship with traditional safe-haven assets such as gold.

‘ESMA final report on cooperation within China-EU AIFMD agreements – Crypto Assets Trading: Implications’.

After investor outflows from the Grayscale Bitcoin Trust (GBTC) stabilised this week, its CEO Michael Sonnenshein said cryptocurrencies might finally be experiencing something close to an equilibrium in trading movements.

Grayscale has faced competition from nine bitcoin ETF issuers, all having successfully rolled out products after the US Securities and Exchange Commission (SEC) approved them in January.

Grayscale has been able to keep its assets under management at $23.13 billion, even after seeing a $15 billion outflow over the past three months, according to data from BitMEX Research.

Sonnenshein attributed part of the outflows to liquidations stemming from bankrupt companies such as FTX and strategic shifts by investors away from GBTC and towards other ETFs.

April’s outflows, which totaled just over $100 million.

Daily outflows have declined since March, when they reached $600 million, and now stand at $303 million, but Grayscale is still betting that it can capture some of those funds back.

It’s working on improving its offerings too.

Grayscale is also looking to participate in the competition launched by less expensive offerings from the likes of BlackRock and Fidelity: the firm has requested a registration statement for a Bitcoin Mini Trust with yet-to-be-determined fees below its flagship bitcoin offering.

This move comes as new rivals pressure Grayscale with even lower fees: BlackRock’s bitcoin trust, the iShares Bitcoin Trust, has US$17.8 billion in assets held.

Sonnenshein is optimistic about the long-term future of the space, including the prospect of GBTC fees shrinking as the market matures.

He also anticipates that the SEC will eventually approve a spot ether ETF.

That prediction is bolstered by the fact that Bitcoin’s price has soared more than 60% so far this year.

The SEC itself has been ordered by a judge to revisit its decision on Grayscale’s spot bitcoin ETF application, a ruling that could have precedent for approving similar cryptocurrency trading products down the road.

Hong Kong is set to be the first city in Asia to launch spot bitcoin exchange-traded funds (ETFs) – with the first approvals expected as soon as next week – three sources with direct knowledge of the situation told the Financial Times.

The launches are far quicker than the industry price guide of coming this year, in what would be a major acceleration of the regulatory greenlighting process.

The launch of these ETFs comes just as Hong Kong seeks to reestablish its presence as a global financial hub shaken by the pandemic, an ongoing recession, and broader tensions between China and the U.S.

The need is clear for these ETFs to reinvigorate the international investment opportunities there, according to Adrian Wang, CEO of Metalpha, a Hong Kong-based crypto wealth management firm.

When the US saw its first spot bitcoin ETFs launch in January, it saw a total of around $12 billion in net inflows, according to research by the London-based analyst BitMEX.

Bitcoin’s price has jumped more than 60% year-to-date and set an all-time high in March of more than $73,803. The crypto markets remain red-hot.

Applications to introduce such ETFs have apparently been filed by four mainland China and Hong Kong-based asset managers, including the Hong Kong arms of China Asset Management, Harvest Fund Management, and Bosera Asset Management.

The sources, who did not authorise the publication of their names, as well as the firms involved, and an agency representative of Hong Kong’s Securities and Futures Commission (SFC), declined comment.

However, according to the SFC’s own website, its regulatory arm in Hong Kong recently awarded approval for the Hong Kong arms of China Asset Management and of Harvest Fund Management to manage portfolios invested in cryptocurrencies to a very significant degree.

The parent companies are some of the largest mutual fund operators in China: China Asset Management manages assets worth more than 1 trillion yuan ($138 billion); Harvest Fund Management has nearly 1.7 trillion yuan under management.

Though cryptocurrency trading is banned in mainland China, local banks and securities firms have taken a keen interest in crypto asset investment prospects in Hong Kong.

After first approving cryptocurrency futures ETFs in late 2022, the number of such products – such as the CSOP Bitcoin Futures ETF – has ballooned, with assets under management increasing by approximately 600%.