The Cardano Foundation, one of the organizations behind the Cardano project and its ADA cryptocurrency, recently announced a partnership with for the provision of liquidity services, in a nod towards institutional investors.
Algoz, a Fingenom Group company, is an industry-leading liquidity provider that helps to increase the depth of order books and decrease trading spreads, thus making it easier for large investors to enter the market while also preventing market manipulations.
Bitcoin Dominance Is Soaring
Cardano’s partnership with Algoz comes amid a resurgence in both Bitcoin price and market dominance. The price of BTC has skyrocketed from a low of roughly $3,600 in February 2019 to more than $10,000 in these days, a gain of more than 250% in just five short months.
At the same time, Bitcoin market dominance is approaching its highest levels seen since December 2017. Bitcoin dominance, defined as the percentage of all crypto funds held in BTC versus all other crypto assets combined, typically has an inverse relationship with the price of smaller market cap coins. When BTC dominance goes up, alts go down, and vice versa.
The recent surge in BTC dominance has left many altcoins battered. For instance, ADA has fallen by roughly 40% over the last 30 days as many investors sell smaller market cap coins to move funds into BTC.
Market Volatility Continues To Keep Big Investors Away
While crypto day traders may love market volatility, as it allows them to quickly buy and sell assets for profit, institutional investors don’t have the same tolerance for rapid price movements. In fact, excessive market volatility is what keeps many big investors from entering crypto markets. Volatility in crypto markets is often the result of thin orderbooks and limited liquidity.
For many smaller market capitalization coins, a buy or sell of a few hundred thousand dollars— a tiny sum of money on an institutional investment level— could move a market by ten, twenty, or perhaps even thirty percent. There simply aren’t that many people buying and selling smaller assets in large quantities, as most big investors keep coins in offline wallets for maximum security.
This fact has two consequences. First, it means that it’s hard for big investors to take a large position without incidentally pumping the price of the asset they want to acquire. Of course, investors want the price of the asset to increase— but they don’t want it to happen artificially and they don’t want it to happen immediately, as that forces them to pay much higher prices for the asset as they acquire a large sum.
The second consequence of thin orderbooks and limited liquidity is that large investors can manipulate the market at will. Whales can cause massive price movements by buying up the entire orderbook, leading to a frenzy of buying that drives the coin’s price up, or dumping coins onto the market, causing panic and huge sell offs. This manipulation may be profitable for the ones moving the market but it often leaves ordinary investors worse off.
Liquidity & Orderbook Depth To The Rescue
Professional liquidity providers add an enormous amount of depth to existing orderbooks, thus allowing institutional investors to take or exit a position without moving the market, while also preventing malicious whales from pushing price action for personal profit.
The Cardano Foundation’s move to partner with Algoz for professional liquidity services will help create stability in the ADA market, encouraging big investors to get involved. Cardano is always recognized as one of the most innovative and research-intensive projects in the industry, receiving excellent reviews in terms of fundamental analysis, and now Algoz will help the project become more attractive investment from a technical and financial analysis viewpoint.
“Algoz is proud to be engaged by [the Cardano Foundation] for the provision of liquidity and trading solutions on the ADA token,” said Algoz on the company’s official Twitter account. “The collaboration of Algoz with one of the most inspiring projects in the crypto scene is expected to increase the liquidity of the token and its accessibility.”
The blockchain industry continues to develop and see increased adoption. From global tech companies like Facebook announcing Libra to international corporations like Samsung integrated crypto wallets to their phones, blockchain is going mainstream.
Cryptocurrency markets must also mature and stabilize to grow with the technology. Cardano is looking to kickstart that trend with Algoz.