Institutional Investors and Bitcoin Mining

Institutional Investors and Bitcoin Mining

General Overview

Institutional investors have always been skeptical about the crypto market. Despite the high profitability of the mining sector, two factors scare away highly professional players. The first is legal uncertainty. There is no common scheme for investing in digital assets in the United States and other developed countries where the main institutional capital is concentrated. In particular, no one can guarantee that your investment would not be suddenly declared illegal after another turning point in political life. The second factor is volatility paired with manipulation. The crypto space has already witnessed at least two major bubbles, the recovery from which went on for years (the record of 2017 has not been repeated to date). A large proportion of the money supply is concentrated in the hands of a small number of whales. As a result, they can set the rules, and others follow them.

So, a lot of things have changed. Institutional players are entering the BTC mining industry now. To some extent, this can be explained by a drive to create corporate-level technologies that offer new solutions to existing problems. Large communities whose users are interested in the crypto economy believe that Bitcoin has reached a point where it has become attractive to numerous investors. Is it really so? Let’s figure out.

So, why this sudden interest in BTC mining exploits?

The BTC Party Continues

To the investors’ eyes, the crypto land looks like Bitcoin and a dizzying buffet of alternatives. Despite the swift development of altcoins and decentralized applications, the market is primarily associated with Bitcoin. It should come as no surprise to you because it is still the most popular and capitalized coin. Moreover, some BTC holders know nothing about the existence of credible alternatives. Even if they hear something about them, they do not want to go into more detail.

The number of whales who invested only in Bitcoin exceeds the number of those who invested in “everything else” or in a diversified portfolio with a predominance of digital gold. This is due to the fact that the coin with a stellar reputation is perceived by many as a benchmark, a kind of cryptocurrency analog of the S&P 500.

Bitcoin’s market share and degree of institutionalization (futures, options, custodial services, and clearer legal status) have made it more attractive to those who are seeking to enter the crypto space. A decentralized superorganism may still be positioned as a beta factor for the entire market.

Investors Believe in the Bright Future of Cryptocurrencies

The fact that major market participants believe in the prospects of the Bitcoin and blockchain industry is also confirmed by the numbers. The volume of venture capital investments in the sector exceeded $2 billion last year. Although this indicator is not the same as a year earlier, it is higher than in 2017.

A strong interest can also be explained by the fact that BTC is regarded as digital gold, a risk-hedging tool against a depreciation of the currency and protection against inflation risk.

High Profits

High Profits

The Bitcoin hashrate chart for the last year might have lots to say. The network capacity has grown by 55% within 12 months. The BTC mining complexity is currently the highest ever recorded, between 120 and 130 EH/s. This suggests that a lot of new mining capacity has been added to the network.

Miners were lucky that despite the recession and uncertainty caused by the pandemic, cryptocurrency quickly recovered from the price collapse in March. BTC has already hit the mark of $17,161 and keeps everyone’s uptrend hopes alive.

Taking a walk down memory lane, the hashcash price was about $3,800 at the beginning of 2019. However, it reached $10,000 by July. This surge is explained by the fact that interest in magic internet money is still high. For example, Facebook, the largest social network in the world, announced the launch of its own coin called Libra in the middle of June 2019. Mark Zuckerberg’s initiative is now undergoing the necessary bureaucratic procedures, but such a step itself is very eloquent. In addition, the Chicago Board Options Exchange launched Bitcoin futures trading in December 2017. Financial conglomerates, including JPMorgan Chase and Goldman Sachs, regularly show interest in virtual assets. All this signals that the industry has potential. Therefore, investment in mining is still relevant. In a favorable scenario, miners will be able to profit from the BTC exchange rate movements.

New Avenues for Institutional Investors in 2020

Over the past two years, improvements have occurred. This is a clear and unmistakable signal to the mood swings on the market. Most importantly, progress had been made in changing the mindset of cautious traditional investors. The growing popularity of Bitcoin CME Futures, the development of custodial services and OTC platforms, multiple applications to launch ETFs, the emergence of Bakkt, crypto options, and the flourishing of Grayscale Bitcoin Trust are obvious signs of the market maturing and demand from institutional investors.

Big Players Have Already Made Huge Financial Contributions

Foundry, a Digital Currency Group Company, announced that they intend to promote the development of the mining industry in North America in August this year. The recently established company offers miners institutional experience, finance capital, and market information. What is more, they provide them with the resources to build, maintain, and protect decentralized networks. Mike Colyer, a former head of Core Scientific, is appointed to the position of CEO of Foundry.

Since its establishment, the firm has been able to stand up and be counted among one of the largest BTC miners in North America. They also provided tens of millions of dollars in the form of equipment financing to other organizations and helped to purchase about half of the BTC mining hardware in the country.

The company’s plans are more than ambitious. They had promised to invest at least $100 million in the development of the mining industry by the end of 2020. Apparently, they will keep their word since Foundry is a 100% subsidiary of the Digital Currency Group. DCG included such companies as Genesis, Grayscale, and CoinDesk until the end of this summer. The group increased up to 4 members, including Foundry from August 27. Another example is Charles Schwab. The financial company purchased shares in mining companies, thus joining large firms such as Fidelitу and Vanguard.
Today, the main problem of the industry is the timely delivery of ordered equipment. Customers of Bitmain, a major mining equipment manufacturer, often face delays due to internal management problems in the company. However, institutional organizations are ready to offer the best solution for you!

Final Words

Vision Hill analysts predict that 2020 will be one of the brightest years in the history of mining. However, they emphasize that the forecast does not concern the market value of digital assets. Experts expect the industry to continue maturing up in the future. The prices will depend upon the development of the market.

The next step to scale the crypto sphere and build up trust among users is institutionalization, according to KPMG analysts. In their opinion, the influx of investors is now hindered by legal and tax uncertainty, as well as the absence of reporting from crypto companies to regulatory authorities.

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