[Insight] Institutional Investors Are Coming for Bitcoin
The price of Bitcoin continues to skyrocket. According to Bithumb, a digital asset (cryptocurrency) exchange, the market price of Bitcoin exceeded KRW 20 million on November 18, 2020. This is the peak price of the year and the highest record in the recent 3-years, since December 2017.
Bitcoin Price Showing 100 Percent of Rising in this Year Alone, Despite the Concern about Lowering Volatility
The stock market worldwide was on a rollercoaster ride since the COVID-19 pandemic. But on the other hand, Bitcoin was criticized that its volatility has been weakened recently. While the price of Tesla is keep pumping on daily routine, Bitcoin was stuck in a box, remained stationary. Since the price of Bitcoin has been fixed for a while, some are even sarcastically saying that “Bitcoin has truly become a safe asset.”
But the truth is quite far from that. In this year, the price of Bitcoin has grown almost 2 times. It almost recovered 70% of its highest historical record. Following the end of 2017, Bitcoin is opening a new page for its own history. But there are some difference between the past and the present. Except for Bitcoin, all the other Altcoins are still remaining in a lower stance, about 70 to 90% of the highest peak in their history. In the past, if the price of Bitcoin rise, it was common for other altcoins to follow the rise of Bitcoin. Moreover, there were many altcoins that recorded an even higher growth rate than Bitcoin’s. But now? It is the complete sole stage for Bitcoin. While the other altcoins are falling far behind, Bitcoin, which is at the foremost, is riding on in full gallop. How could this happen?
Institutional Investors Are the Key
The experts of the field have analyzed that the current situation is due to the institutional investors. According to them, the steep rise of Bitcoin’s price is all thanks to the bulk purchase of the institutions. As for the institutions, they do not prefer altcoins for their stakes are high. They only prefer Bitcoin, which has been recognized as ‘Digital Gold’ to some degree. Since the digital asset (cryptocurrency) markets are stepping into the formal sector recently, the institutions that have been prying from afar are slowly showing themselves to the ground.
The most notable instance was the launching of digital asset trade & payment service by Paypal, a global payment provider. On November 13, Paypal has started its service for clients in the U.S. Users can purchase or hold their digital assets by themselves through Paypal services. According to the related news, Paypal is processing around USD 20 million worth of Bitcoins daily. The news is truly inspiring for the field of digital assets. The launching of the trade & payment service for Bitcoin by Paypal, a company that is holding over 300 million accounts all over the world, means that Bitcoin has taken one step closer to its commercialization. Though it is still in the planning phase, it is said that Paypal is intended to release a convenient money transfer service through the money transfer application, Venmo. The future of having daily transactions through Bitcoin is not far from us. Many of the experts are saying that “To the traditional financial sector, the adoption of Bitcoin is not just an option, but indispensable.” Currently, Paypal is supporting other digital assets such as Ethereum, Bitcoin Cash, and Litecoin, etc., but the most popular asset is definitely Bitcoin.
There is another institution we should keep our eyes on. And that is Grayscale, a digital asset investment fund in the U.S. Grayscale has been already purchasing Bitcoins from some years ago and dispelled worries of the institutions who were unwilling to invest in Bitcoin due to its regulation opacity by presenting Grayscale Bitcoin Trust (GBTC). And this year, they have started to rake in Bitcoin aggressively. In the last 3rd quarter alone, Grayscale has invested USD 2.5 billion in Bitcoin, and that is twice as larger as the investment in the last 7-years. Even the scale of GBTC has been doubled for the last 4-months and worth almost USD 8 billion. JPMorgan said, “The institutional demand for GBTC has surpassed the Gold Exchange Traded Fund (ETF).”
Bitcoin As Treasury Assets
Even there is an institution that has adopted Bitcoin as their treasury asset. It is an IT company, Microstrategy. For the last two months of August and September, the company has bought around USD 300 million worth of Bitcoin and incorporated it as their preliminary asset. It is said that they have tried thousands of off-board transactions for this purpose alone, and that is an effort we can say admirable. Bitcoins obtained through this way is said to be held in the company’s cold wallet. Michael Saylor, the CEO of Microstrategy, is one of the enthusiastic advocates of Bitcoin who is under the spotlight. Currently he is actively advertising the excellence of the Bitcoin through his postings on Twitter. Rumor has it that the amount of Bitcoin he personally purchased is around 17,000 BTC. We can see his full faith in Bitcoin. Though it is quite understandable, for he said that the investment returns from Bitcoin for the last 3-months was even greater than his business performance in the past 3-years. Microstrategy has emphasized that they will keep their Bitcoin deposits for the next 100-years without reselling it. Besides, Stone Ridge Holdings, an asset management company, bought 10,000 BTC in October, and Square, a mobile payment service provider, also bought 4,700 BTC and deposited it as their treasury asset.
Institutional Investors Holding 3% of Overall Bitcoins… Small But Cannot be Ignored
The amount of Bitcoin the institutional investors are holding is around late 3%, so it is still an insignificant level. However ignoring it would be unwise. As we said before, the risk of regulation that most of the institutional investors were concerned about are being substantially slackening. Unlike other digital assets (cryptocurrencies), Bitcoin is acknowledged by not only the public but also by the regulation authorities themselves. Even in China, where the regulation level is high, there are a series of judicial precedents that recognizing Bitcoin as private property are occurring. Now there is no need for the institutional investors to hide. It is expected that the number of institutions that will hold a considerable amount of Bitcoins is going to be increasing. Especially the entry of the institutions from traditional financial sectors or institutions that are authorized by the regulation authorities will be accelerated further. Some day, we may see the day when institutional investors become the price makers of Bitcoin.
*This research and analysis document has been prepared for the purpose of providing information that can be used as a reference based on our reliable data and information, but we cannot guarantee its accuracy or completeness.
*The document has reflected the individual’s opinion and it may not be consistent with the company’s official point of view.
