From the DeFi boom in the summer of 2020 to the growing demand for Non-Fungible tokens, the year 2020 has seen it all. Despite the Coronavirus pandemic and the lockdowns that triggered a sell-off in the financial markets around the world, Bitcoin has surged above $23,000 (YTD – 221.45% this year) with more than 28% increase in the past week making it one of the best-performing assets in this year – thanks to the institutional acceptance of cryptocurrencies. As Bitcoin breached the much-coveted $20,000 mark, its market capitalization rose to $654 billion, up by more than $110 billion in the past week. Two major reasons that have led institutional investors to jump on the crypto bandwagon are its future potential and the current returns that the asset class is offering.
Let us take a look at how institutional investors changed the way we see Bitcoin today!
Institutional Investors and Their Impact on Bitcoin’s Price
Crypto fund manager Grayscale Investments made headlines after it was revealed that its BTC Holdings went past 500k on November 14, 2020.
Grayscale Bitcoin Trust now holds more than 500,000 $BTC. Yes, you read that right. Learn more about the world’s largest #Bitcoin investment product. #GoGrayscale https://t.co/2sEpUdw8iN pic.twitter.com/9h8nGZ8i4t
— Grayscale (@Grayscale) November 16, 2020
At the time of writing, Grayscale Investments holds more than 570k Bitcoins, which is approximately 3% of the total circulating supply of the cryptocurrency. Grayscale Bitcoin Trust has accumulated Bitcoins all year. It added more than 102k Bitcoins between September and November alone. As mentioned in this blog, Grayscale alone accumulated 1,250 Bitcoins each day. This value far exceeds bitcoin’s daily block rewards of 900 Bitcoins (plus transaction fees), post its 3rd halving since May 11, 2020, creating an obvious supply shortage. The rationale behind holding more than half a billion Bitcoins was a hedge against COVID-induced monetary stimulus.
What is even more exciting is the fact that investors are willing to pay a premium to buy and hold shares in the Grayscale Investment fund which, at the time of writing, has a marker price of $29.48 but are worth $21.71, thus equating to a premium of more than 35%. To top that, Grayscale also charges an annual fee of 2%.
Business Intelligence firm MicroStrategy (MSTR) owns nearly 41k Bitcoins which is nearly 0.2% of the total circulating supply of the cryptocurrency. Michael Saylor, the CEO of MicroStrategy and a supporter of Bitcoin has been very vocal about his interest and Bitcoin’s potential in the near future.
MicroStrategy is not an ETF/ETP. ETFs & ETPs exist to invest in stocks, bonds or commodities – they’re investment companies per ’40 Act. Like Apple & Microsoft, MicroStrategy is an operating company traded on a stock exchange. We just happen to hold BTC in our treasury reserves.
— Michael Saylor (@michael_saylor) December 12, 2020
The decision of holding Bitcoins in its treasury led to a rise in the share price of MSTR which was otherwise a stagnating business.
Also, as mentioned by Kevin Rooke, Microstrategy earned nearly $78 million in the last 3.5 years from their business operations and $100 million in the last 2 months from their Bitcoin purchases.
Payments company Square, founded by billionaires Jack Dorsey and Jim McKelvey, invested nearly $50 million in Bitcoin to diversify their USD-denominated balance sheet in early October this year. Though it holds less than 5k Bitcoins (0.02% of total circulating supply), many believe it was MicroStrategy and Square that made BTC acceptable for other companies to get involved.
Insurance giant MassMutual recently announced a $100 million investment in Bitcoins as a general investment in their portfolio. Known as a conservative investor, this investment decision is expected to open doors for other insurance companies and pension funds to diversify their portfolios and enter into this digital world.
On-chain market intelligence provider Glassnode also mentioned that the number of Bitcoin Addresses holding more than 1k+ coins reached an ATH of 2,305 on December 18, 2020.
Bitcoin News Archives
Raoul Pal, CEO of macro research and advisory service Global Macro Investor, asserted last week that Bitcoin, Ethereum, and other cryptocurrencies have the potential to absorb “trillions and trillions of value” from traditional markets.
JPMorgan’s Global Markets Strategy team released a report in November that suggested that Bitcoin demand was not only driven by retail investors but also by institutional investors such as family offices and asset managers. It even mentioned that the Grayscale Bitcoin Trust saw a steepening cumulative flow trajectory in recent weeks with investors taking out money from gold ETFs and investing in Bitcoin instead.
China Construction Bank, the world’s second-biggest bank by assets, announced in November 2020 that it will partly accept Bitcoins for its $3 billion bonds sale.
The game-changing news for crypto adoption came in October 2020 when the payment firm Paypal announced that it would soon support Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), and Litecoin (LTC). The company said the Paypal customers would be able to buy, sell, and hold the virtual assets.
— Altcoin Daily (@AltcoinDailyio) November 12, 2020
Visa, a company bigger than PayPal in terms of market capitalization, announced in July 2020:
“Visa has been working closely with licensed and regulated digital currency platforms like Coinbase and Fold to provide a bridge between digital currencies and our existing global network of 61 million merchants. Around the world, more than 25 digital currency wallets have linked their services to Visa, giving users an easy way to spend from their digital currency balance using a Visa debit or prepaid credential — anywhere Visa is accepted.”
Mastercard made a similar announcement this year.
Bitcoin’s price has tripled in value against gold since the March crash indicating that Digital Gold is probably a safer bet as a hedge against inflation than gold or any other currency or commodity. While YTD growth of Bitcoin is to the north of 221%, gold prices only rose by 23%.
Institutional investors have taken the crypto market by storm. As more people seek to diversify their portfolios, they will replace the current assets in their holdings with Bitcoin and other major cryptocurrencies such as ETH, LTC, XRP and more.
Which cryptocurrency should I invest in? What is the right time to invest in Bitcoins? Is there a way to correctly predict what is going to happen in the coming days or months? Will Bitcoin show a similar trend in 2021 and the coming years?