[Insight] Institutional Investors leading FOMO Market Trend
Though Bitcoin’s price is slightly staggering after reaching its peak in its history, the upward trend is still ongoing. Bitcoin in particular, now nearing the price of USD 20,000, totally surpassing the highest record of 2017 to early 2018.
The most interesting part is that the figures leading the current rally are completely different from the leading figures 3 years ago. It is the same that the investors are joining the buying trend due to the price of digital assets is soaring sky-high and out of Fear of Missing Out (FOMO). However, only 3 years ago, the leading figures of the buying were individual investors. But now, it is institutional investors that are at the center of it.
In the meantime, there was a happening showing how hot is the institutional investor’s enthusiasm in buying Bitcoin. According to a news, MicroStrategy, an industrial software developer company enlisted on NASDAQ, financed the fund required for Bitcoin by issuing bonds. It is not a rare occasion for a company or firm to issue bonds for purposes of capital investment, running a new business, or M&A, etc. But, issuing bonds for purchasing Bitcoin is indeed a rare one.
MicroStrategy is a well-known company for its investment in Bitcoin since last August. The firm that had around USD 500 million, bought USD 250 million worth of Bitcoin, and again bought USD 175 million worth of Bitcoin only a few days later. That is to say, they have invested almost 80% of the firm’s cash into Bitcoin.
MicroStrategy’s declaration that they will issue bonds for purchasing Bitcoin seems peculiar enough. But what’s more interesting is that many institutional investors were willing to buy this bond to fund MicroStrategy’s investment. At first, MicroStrategy was about to issue USD 400 million worth of convertible bonds (CB). But since there were lots of investors, they decided to increase the issuing volume to 650 million.
This CB is a bond that will expire in upcoming 2025 with a coupon rate around 0.75% and will payout interests to the investors two times a year: In June and December. The popularity of this CB that had been sold not to the individuals but to the institutional investors is showing that the investors are already expecting the increase of the company’s income by purchasing Bitcoin.
Michael Saylor, CEO of MicroStrategy, said, “The cash we are sitting on is melting,” justifying his cause for investing in Bitcoin. His words are originating from the worries that the actual value of the cash assets will crumble to the ground due to the worth of the value of USD is dropping because of the reckless issue in order to prevent the economic recessions caused by COVID 19 pandemic.
MicroStrategy has actually bought Bitcoin worth BTC 40,824 last August. But now, less than 4 months later, they are recording around USD 260 million worth of appraisal profit. If they can make an additional purchase of 36,300 BTC with the fund acquired by issuing CB, MicroStrategy will be able to expect a further increase in their income.
Due to this, Wall Street is showing their concern that MicroStrategy is overinvesting in Bitcoin. Since the price liquidity is still the same, the fall of the Bitcoin’s price might lead to the fall of the value of the company’s asset. For that, Citibank has altered its investment opinion, downgrading it from ‘Neutral’ to ‘Sell.’
But such concern seems too premature. Though Bitcoin indeed experienced some rough rise and fall before, because of the aggressive partaking by institutional investors, the price is currently stabilizing. Also, since the Bitcoin futures market has been invigorated, it has become possible to hedge the dangers of having Bitcoins at a relatively low cost. That is to say, if you possess Bitcoin, it is possible to hedge by selling Bitcoin futures. In this case, it is possible to minimize the losses coming from the fall of Bitcoin’s price.
Due to the situation, companies like Galaxy Digital or Square, which enlisted on NYSE except for the MicroStrategy, are currently possessing USD 36 million to 134 million worth of Bitcoin. Furthermore, institutional investors of Wall Street, like Fidelity, BlackRock, Citibank, and MassMutual, are also taking part in Bitcoin investment. Thus, completely playing market trends led by institutional investors. Just as what the U.S. stocks or Gold have proven, the increasing partaking by the institutional investors means that it is highly possible for the asset’s value to keep rising.
It is said that the amount of assets currently under the management of institutional investors is estimated at around USD 52 trillion. By comparison, the total market value of non-Bitcoin digital assets is only around USD 580 billion. The rally that the partaking of institutional investors will bring is only just a beginning.
*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
