BITCOIN | INVESTING | MONEY | ASSETS | WARREN BUFFETT
Why are institutional investors putting money into Bitcoin?
After being labeled as “rat poison”, Bitcoin is now attracting institutional investors’ interest and money. So, what is driving its mainstream adoption?
Note: This is the first in a series of articles in which I cover the topic of institutional Bitcoin investing.
Former bitcoin detractors are now embracing it
Indeed. Regarding institutional investment in Bitcoin, the cryptocurrency has evolved from undesirable trash to an unquestionable investment choice and is on the verge of becoming a crucial component of any asset manager’s portfolio.
A few years ago, some of the biggest names in finance were calling Bitcoin a sham. Warren Buffett went so far as to call it “rat poison squared” and J.P. Morgan also pronounced its verdict calling it a scam.
You can see a common thread connecting their asset managers’ reasoning: to preserve or increase the value of their companies’ assets. There does not appear to be speculative intent, but rather a desire to replace a portion of their assets making a small allocation into something more solid and of real value to them.
What about Jordan Belfort, whose memoir The Wolf of Wall Street became the inspiration for Martin Scorsese’s film of the same name? After previously calling bitcoin a “massive hoax” he became a convert to the digital currency and was the first to predict that it would rise to $100,000 in value.
Today, Buffett’s company, Berkshire Hathaway, one of the world’s largest multinational conglomerate holdings, has invested a billion dollars in digital bank Nubank. NuInvest, the digital bank’s investment unit, allows users to invest in a Bitcoin exchange-traded fund (ETF), tapping into a financial domain that Buffett criticized.
And J.P. Morgan? The largest bank in the West, has changed its mind and expects the price of bitcoin to rise to USD 130,000, calling it “digital gold”. While that is happening, it has created a “cryptocurrency exposure basket” of representative bitcoin stocks.
So, does bitcoin have institutional investors?
Yes, by the first week of August 2022, institutions already owned 6.88 percent of the maximum 21 million bitcoins that can be mined. This group includes public companies like Marathon Digital Holdings Inc, private companies such as Seetee AS, ETFs like Grayscale Bitcoin Trust, as well as El Salvador, and other nations and governments.¹
The 12 Public companies with the most bitcoin on their balance sheets
According to Buy Bitcoin Worldwide, 11 of the top 12 institutional investors in Bitcoin are public companies based in North America. The following table shows how remarkable is the institutional presence of this region of the world in the category.
Which institutions hold the most bitcoin?
Grayscale Bitcoin Trust, Mt. Gox, Block One, MicroStrategy, CoinShares / XBT Provider, and the Government of Ukraine are the top 6 global bitcoin holders, respectively, with 643 572 BTC, 141 686 BTC, 140,000 BTC, 129,699 BTC, 48,466 BTC, and 46,351 BTC each on their balance sheets.
First reason: bitcoin has gained credibility as a store of value
But, returning to the initial questions that prompted this article, perhaps the best way to get them answered is to allow the companies that are investing in Bitcoin to explain their motivations behind that decision.
Ruffer
British fund firm Ruffer has 550 million pounds bitcoin bet — spokesman 2020–11
Country: Great Britain
Investment Rationale: “[The allocation] acts as a hedge to some of the risks that we see in a fragile monetary system and distorted financial markets” and “We see this as a small but potent insurance policy against the continuing devaluation of the world’s major currencies.”
Tesla
Tesla buys $1.5 billion in bitcoin, plans to accept it as payment 2021–02–08
Country: USA
Investment Rationale: The American EV manufacturer Tesla explained that the move was “for more flexibility to further diversify and maximize the returns on our cash².”
Seetee
With plans to invest “significantly more” in its own mining operations and businesses engaged in Bitcoin-related initiatives, Seetee has set aside NOK 500 million to purchase bitcoin as a treasury asset. This will give the company direct exposure to the cryptocurrency asset and its protocol. 2021–03–08
Country: Norway
Investment Rationale: “Aker’s decision to enter bitcoin through Seetee is the result of a long and fundamental discussion about value.”
Nexon
The video game developer announced the purchase of 1,717 bitcoins worth approximately USD 100 million, which at the time represented just under 2% of the firm’s total cash and cash equivalents. 2021–04–27
Country: South Korea
Investment Rationale: “Our purchase of bitcoin reflects a disciplined strategy for protecting shareholder value and for maintaining the purchasing power of our cash assets” and “In the current economic environment, we believe bitcoin offers long-term stability and liquidity while maintaining the value of our cash for future investments.”
MicroStrategy
Microstrategy Spends $200 Million More on Bitcoin, Raising Total Holdings to 129,218 BTC, a value of USD 3.97 billion. The amount represents 2.7% of its investment portfolio. 2022–04–05
Country: USA
Investment Rationale: The company’s CEO, Michael Saylor, gave three justifications for the purchase when he announced the acquisition of 21,454 BTC in 2020.
“Bitcoin is digital gold: harder, stronger, faster, and smarter than any money that has preceded it,” he said, stating that his team believes its value will rise as technology advances, more people begin to use it, and the Bitcoin network expands.
Saylor added that “our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long-term risks for our corporate treasury program ― risks that should be addressed proactively.”
He cited the unparalleled use of global quantitative easing and other government financial stimulus programs, as well as political and economic unrest around the world. The long-term real value of national currencies and many other traditional asset types typically held as part of corporate treasury operations, he said, may very well deteriorate drastically as a result of these and other factors.
He finally said that “the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility, and community ethos of Bitcoin” were seen by his team as a convincing indication of its superiority as an asset class for those seeking a long-term store of value.
These statements by Saylor are especially significant given that he was an early critic of Bitcoin, predicting that its “days were numbered.”
The five companies whose investment rationale I have presented comprise an international mix that, while arbitrary, appears to be representative to me.
You can see a common thread connecting their asset managers’ reasoning: to preserve or increase the value of their companies’ assets. There does not appear to be speculative intent, but rather a desire to replace a portion of their assets making a small allocation into something more solid and of real value to them.
I’d like to conclude this discussion of the motivations driving institutions’ current interest in investing in Bitcoin. To that end, I’d like you to read the letter to Aker ASA shareholders from Kjell Inge Røkke, the company’s Chairman of the Board. It makes one of the strongest cases for the opportunity, if not the urgency, of investing in Bitcoin. It’s a joy to read, and I encourage you to do so. You can get it from this page or directly from Seetee’s.
Here’s to your future!
— Víctor Tapia —
Frequently Asked Questions
Which virtual currency is the most profitable?
Bitcoin is a digital currency that has produced very good long-term returns. Bitcoin was worth $20,033 on August 31, 2022.
- Those who purchased on the same date 9 years ago, ($138) would have received a 14,517% return on their investment.
- Those who purchased on the same date 8 years ago, ($475) would have received 4,217% of their investment.
- Those who purchased 7 years ago, on the same date ($228) would have received 8,786% of their investment.
- Those who purchased on the same date 6 years ago, ($572) would have received 3,502% of their investment.
- Those who purchased on the same date 5 years ago, ($4,892) would have received 410% of their investment.
- Those who purchased on the same date four years ago, ($7,193) would have received 279% of their investment.
- Those who purchased on the same date three years ago, ($9,758) would have received 205% of their investment.
- Those who purchased on the same date two years ago, ($11,970) would have received 167% of their investment.
- Those who purchased one year ago, on the same date ($48,847) would have received 41% of their investment. This is the only scenario in which the investment is reduced (to slightly less than half).
Who determines the value of cryptocurrencies?
In this and subsequent articles, I will discuss what gives value to a specific cryptocurrency: bitcoin. Its “production” has a cost (mining), it has achieved credibility as a long-term haven of value, it is easily tradable, it is transportable across borders, it has a high growth potential, its global adoption is only increasing, it is not controlled by any government or company, and there are a limited number of BTC (21 million), to name a few.
What does Kiyosaki think of Bitcoin?
The author of Rich Dad, Poor Dad has a love-hate relationship with bitcoin. He has advised people to buy it, has stated that tuna cans are a better investment than bitcoin, has said that its price could fall to $1,100, and has labeled those who sell it as losers. Actually, the famous author’s statements have not been consistent.
Thank you for reading this article. If you have any questions or concerns, leave a comment below, I promise to respond.
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Víctor Tapia is a writer specialized in wellness, internationalization and bitcoin. His work includes writing and editing articles, guides and courses for his website, both in English and Spanish. Likewise, he writes stories for two Medium publications on different topics that he masters and works on creating content for third parties.
Víctor worked for many years in the field of food and beverages, both for the hospitality and food industries. Before founding My CBS in 2002, he was the General Manager at Parmalat S.p.A., the multinational food corporation, at its subsidiary in Curaçao. One of his activities is service coaching in any area of commerce and industry, including food and beverages.
You can get in touch with him on LinkedIn, Twitter, Facebook, Instagram, or by visiting his website, My CBS. You can also follow his publications in Medium, Mixturas (Spanish) and Completeness (English).
¹ There is a debate over whether Bulgaria, which is not represented in the graph’s statistics, has a sizable bitcoin holding.
² Subsequently, in the third quarter of 2002, the company announced the sale of a good portion of its bitcoin. In this regard, Musk said, “It’s just that we were concerned about overall liquidity for the company, given Covid shutdowns in China.”
Originally published at https://www.mycbs.biz on August 13, 2022.
